Reacting to a footnote comment in the Supreme Court’s recent decision in MedImmune, Inc. v. Genentech, Inc., (IP Update Vol. 10, No. 1) the U.S. Court of Appeals for the Federal Circuit recently reversed two district court cases granting dismissals of declaratory judgment actions. SanDisk Corp. v. STMicroelectronics, Case No. 05-1300 (Fed. Cir., Mar. 26, 2007) (Linn, .J.) (Bryson, J. concurring) and Teva Pharmaceuticals USA Inc. v. Novartis Pharmaceuticals Corp., Case No. 06-1181 (Fed. Cir., Mar. 30, 2007) (Gajarsa, J.).
In both decisions the Federal Circuit announced it was jettisoning its traditional two-prong declaratory judgment jurisdiction test that involved a determination of whether conduct by the patentee created a reasonable apprehension on the part of the declaratory plaintiff that it will face an infringement suit, and whether conduct by the declaratory judgment plaintiff amounts to infringing activity or concrete steps taken with the intent to conduct such activity. The Federal Circuit explained that the Supreme Court, in footnote 11 of its MedImmune decision, stated that the "reasonable apprehension" test "conflicts" with and "contradicts" several of the high court’s declaratory jurisdiction decisions. Instead, the Federal Circuit adopted a "totality of the circumstances" test.
MedImmune relied on and reaffirmed the standard articulated over 60 years ago in Maryland Casualty Co. v. Pacific Coal & Oil Co., "[B]asically, the question in each case is whether the facts alleged under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment." Acknowledging that it could no longer analyze declaratory judgment jurisdiction cases under the "reasonable apprehension" standard, the Federal Circuit examined the district court decisions under the "all the circumstances" standard.
In the SanDisk case, SanDisk had sought a declaratory judgment of non-infringement and invalidity of 14 STMicroelectronics (ST) patents that had been discussed during cross-licensing discussions. During the licensing discussions ST sought a royalty under its patents based on specific, identified activity by SanDisk. At that time, ST made a detailed presentation that identified, on an element-by-element basis, the manner in which ST believed each SanDisk product infringed specific claims of each ST patent. In addition, for each of the 14 patents, ST gave SanDisk a packet of materials that included a copy of the patent, reverse engineering reports and diagrams depicting a detailed infringement analysis. However, ST’s representative told SanDisk that "ST has absolutely no plan whatsoever to sue SanDisk."
The district court dismissed SanDisk’s declaratory judgment complaint, reasoning that there was no actual controversy since ST told SanDisk it "did not intend to sue SanDisk for infringement." SanDisk appealed.
The Federal Circuit, in vacating and remanding the dismissal, considered each of the above facts and concluded that "ST has engaged in a course of conduct that shows a preparedness and willingness to enforce its patent rights despite (the) statement," that it had no plans to sue. Under a totality of the circumstances analysis, the Federal Circuit found that the "facts evince that the conditions of creating a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment were fulfilled." The Court was willing to look behind ST’s promise not to sue, noting that "ST has engaged in a course of conduct that shows a preparedness and willingness to enforce its patent rights."
In his concurring opinion, Judge Bryson noted that the change wrought by the MedImmune decision heralded "a sweeping change" in the law of declaratory judgment jurisdiction in connection with patent license negotiations. The decision effectively states that if a patentee enters into licensing negotiations with a detailed infringement analysis, declaratory judgment jurisdiction is likely triggered. However, as noted by the Court (in footnote 1), this result can be mitigated by conducting license negotiations under a "suitable confidentiality agreement."
In the Teva Pharmaceuticals case, Novartis held a New Drug Application (NDA) and listed five patents in the FDA’s Orange Book covering its drug Famvir®. Teva filed an Abbreviated New Drug Application (ANDA) with the FDA for generic famciclovir tablets and certified under Paragraph IV of 21 U.S.C. § 355 (j) (2) (A) that its drug did not infringe the Novartis patents or that the patents were invalid. Novartis brought an infringement suit against Teva for infringement of one of its five patents, directed to the active ingredient famciclovir. Teva filed a declaratory judgment action on the four remaining patents, directed to methods of therapeutic use. The district court dismissed the case for lack of jurisdiction, finding no reasonable apprehension of imminent suit as to the four patents.
The Federal Circuit reversed, based on examining the following facts: Novartis’ listing of its Famvir patents in the Orange Book; Teva’s act of infringement by submitting the ANDA and certifying that it did not infringe Novartis’ Famvir Orange Book patents or that the patents were invalid; and Novartis’ previous filing of a lawsuit on one of its five patents based on Teva’s infringements in submitting the ANDA. The Federal Circuit found that the combination of these circumstances established sufficient controversy to support declaratory judgment jurisdiction action.
Practice Note: Based on the facts analyzed by the Court in the SanDisk case, patentees entering into licensing negotiations should appreciate that if they provide the prospective licensee with a detailed infringement analysis, declaratory judgment jurisdiction is likely triggered. However, as noted by the Court (in footnote 1) this result can be mitigated by conducting license negotiations under a "suitable confidentiality agreement." Likewise, the Teva decision suggests that generic drug companies may now be able to pursue declaratory judgment invalidity actions against patents listed in the Orange Book by submitting an ANDA, certifying the invalidity of an Orange Book listed patent, in cases in which the patent owner declines to file suit.
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