United States: Telephone Conversation Is Sufficient To Support DJ Jurisdiction

This article previously appeared in Last Month at the Federal Circuit, April 2012

Judges: Chief Judge Rader, Lourie (author), Linn

[Appealed from D. Minn., Chief Judge Davis]

In 3M Company v. Avery Dennison Corp., No. 11-1339 (Fed. Cir. Mar. 26, 2012), the Federal Circuit vacated and remanded the district court's dismissal of a DJ action for lack of a case or controversy. The Federal Circuit held that the district court erred in determining that it would not have subject matter jurisdiction under the facts as alleged by 3M Company ("3M"), and the district court did not resolve the factual disputes necessary to determine if jurisdiction was proper.

Avery Dennison Corp. ("Avery") and 3M are direct competitors in the retroreflective sheeting product market and have engaged in previous litigation. This dispute centered around two of Avery's reissue patents directed to retroreflective sheeting technology, U.S. Patents RE40,455 and RE40,700 (collectively the "Heenan patents"). Avery's Chief IP Counsel informed 3M's Chief IP Counsel over the telephone that 3M's Diamond Grade DG3 sheeting products "may infringe" the Heenan patents and that "licenses are available." Slip op. at 3-4. After 3M's counsel rejected Avery's counsel's offer to license the Heenan patents, also over the telephone, Avery's counsel explained that it had performed an analysis of 3M's Diamond Grade DG3 product with reference to the Heenan patents and that Avery would "send claim charts." Avery, however, never provided 3M with claim charts.

3M later filed a patent infringement suit against Avery, alleging that Avery's OmniCube T-11500 retroreflective sheeting product, in addition to other products, infringed several 3M patents. Included in the complaint were counts for DJ of noninfringement, invalidity, and intervening rights concerning the Heenan patents. 3M informed Avery that it would dismiss its DJ claims if Avery provided 3M with a covenant not to sue. Avery did not respond.

3M later cancelled its DJ claims but filed them as a new complaint in a separate action. Avery moved to dismiss the new DJ claims under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction and included in its motion a factual challenge to 3M's DJ complaint. The district court granted Avery's motion concluding that, "even accepting the facts as set forth by 3M," subject matter jurisdiction did not exist at the time 3M filed its DJ complaint.

On appeal, the Federal Circuit first explained that, although there is no bright line rule to determine whether a DJ action satisfies Article III's case-or-controversy requirements, the dispute must be "definite and concrete, touching the legal relations of parties having adverse legal interests," "real and substantial," and "admi[t] of specific relief through a decree of a conclusive character." Slip op. at 7 (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)). The Court noted that, in this case, the parties framed the jurisdictional issue as a standing question. Employing the doctrine of standing, the Court explained that, in order to establish an injury in fact traceable to the patentee, a DJ plaintiff must allege an affirmative act by the patentee relating to the enforcement of his patent rights. The Court then proceeded to review de novo the district court's dismissal of 3M's DJ action.

"Those communications, if found by the district court, would be sufficient to constitute a case or controversy between 3M and Avery. That Sardesai employed the term 'may infringe' instead of 'does infringe' is immaterial in light of his offer to license the Heenan patents, his repre-sentation that Avery had analyzed the Diamond Grade DG3, and his statement that claim charts would be forthcoming." Slip op. at 12.

First, the Court considered the dispute between the parties regarding which facts should be considered on appeal. Specifically, Avery alleges that the district court failed to resolve two key factual disputes: (1) whether 3M proved that Avery's Chief IP Counsel stated that 3M "may infringe," that "licenses are available," and that Avery would "send claim charts"; and (2) whether those conversations were subject to a confidentiality agreement precluding their use as a basis to support a DJ action. The Court rejected 3M's contention that it would be inappropriate to remand the case for additional fact finding in view of its belief that communications between the parties regarding the Heenan patents were "not truly disputed." In doing so, the Court explained that it would be improper to determine factual issues in the first instance on appeal, given that the disputed facts are central to the jurisdictional analysis. Because finding those facts in the first instance would overstep the Court's bounds as a reviewing court, the Court declined to resolve the parties' factual disputes on appeal and concluded that the case must be remanded. Id. at 9.

Next, the Court analyzed and rejected the district court's holding that it did not have jurisdiction in view of the lack of a justiciable controversy between the parties, even if it took the facts alleged by 3M as true. In particular, the Court made clear that the district court on remand must find the salient facts and, after finding those facts, determine whether those facts support a conclusion that a case or controversy exists between 3M and Avery. The Court then considered the parties' arguments whether the circumstances demonstrate a substantial, real, and immediate controversy between 3M and Avery, and ultimately agreed with 3M that the facts alleged in its complaint—if found by the district court on remand—would demonstrate the existence of a case or controversy under the DJ Act.

Finally, the Court considered the materiality of each of the alleged circumstances directed to establishing the existence of a "definite and concrete" dispute. First, the Court determined that the telephonic communications between the parties regarding the Heenan patents, if found by the district court, would be sufficient to constitute a case or controversy between 3M and Avery. The Court rejected Avery's assertions that the communications were passing remarks made informally over the telephone, not in a formal cease-and-desist letter with prescribed deadlines, and that these facts weigh against concluding that jurisdiction is proper.

The Court then observed that the remaining circumstances would not strongly weigh in either direction toward concluding that 3M has proven the existence of a case or controversy. In particular, the Court found the prior litigious conduct between the parties to be equivocal in determining the existence of a controversy, and also agreed with Avery that its decision to initiate reissue proceedings for the Heenan patents would not weigh strongly in favor of finding a case or controversy. The Court disagreed, however, with Avery's assertion that the district court properly concluded that 3M's delay in filing suit weighed against finding subject matter jurisdiction. In doing so, it noted that the relevant circumstances surrounding Avery's assertion of its patent rights appear to have remained unchanged during the over-one-year period between Avery's assertion of patent rights and 3M's filing of the DJ complaint. Lastly, the Court explained that Avery's failure to provide a covenant not to sue, although relevant to the determination of DJ jurisdiction, is not dispositive.

Accordingly, the Court held that the district court on remand should resolve Avery's factual challenges and determine, in light of those factual findings, if 3M has proven the existence of a case or controversy under the DJ Act.

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