Federal Circuit Rules that Conduct Before Patent-Issuance Can Provide 'Case or Controversy' for Declaratory Relief

by Jeffer Mangels Butler & Mitchell LLP

Accused infringers have long relied on the Declaratory Judgment Act ("the Act") to bring actions against patent owners to clear any cloud over their accused business activities. To that end, the Act has served as a powerful tool. Accused infringers do not even have to wait to be named as a defendant in an infringement lawsuit before bringing their own cause of action, as a plaintiff, for declaratory relief that the patent-at-issue is invalid, unenforceable, or not infringed. The Act, however, requires that the party seeking declaratory relief establish that a "case or controversy" exist from the moment it files its action. Although many courts, including the Supreme Court, have provided guidance as to where to draw the line above which a sufficient case or controversy exits, that line is still a murky one. What actions must a patent owner take--and when must it take those actions--to trigger the requisite case or controversy allowing an accused infringer to file its action first?

Well, the Federal Circuit recently added further guidance on the issue. In Danisco US, Inc., v. Novozymes A/S, a unanimous panel of the Federal Circuit reversed a district court and held that the patent holder's conduct prior to the issuance of the patent can form a sufficient case or controversy for declaratory relief.

The relationship between the parties in the case provides important background. The declaratory judgment plaintiff, Danisco, and defendant, Novozymes, compete to develop and supply Rapid Starch Liquefaction ("RSL") products. Since about 2001, Novozymes had sued Danisco for patent infringement numerous times. In one of those suits, Novozymes amended a pending patent application to claim one of Danisco's new products, then sued Danisco on the same day the patent issued.

In 2011, the PTO issued to Danisco a patent that claimed an enzyme that is the active ingredient in Danisco's RSL products. Shortly after the issuance of Danisco's patent, Novozymes again amended one of its then-pending patent applications to claim what it believed to be the same active ingredient claimed in the Danisco patent and used in Danisco's products. Because Novozymes's patent application allegedly had an earlier priority date, Novozymes requested that the PTO initiate an interference in order to rule that Novozymes was the party entitled to a patent claim covering the subject matter. The PTO examiner, however, rejected Novozymes's request on the grounds that, under his claim interpretation, Danisco's issued claim did not meet some of the limitations of Novozymes's amended claims and, therefore, no interferences was necessary or proper. In response, Novozymes disagreed and filed a request for continued examination, challenging the examiner's conclusions regarding Danisco's "interfering [] patent." For his part, the examiner rejected the request. Later, although under no regulatory obligation to do so, Novozymes submitted public comments to the PTO to, in its words, "clarify [for] the record," its belief that the parties' respective claims covered the same subject matter. Novozymes further commented that it refused to "acquiesce" to or otherwise be "estopped" by what it deemed to be the examiner's erroneous and "overly narrow" view of the amended claim in Novozymes's patent application.

On the same day the Novozymes application issued as a patent, Danisco filed declaratory judgment actions in federal district court that its products, including the active ingredient, did not infringe the Novozymes patent and that the Novozymes patent was invalid. Danisco also asserted that, to the extent the parties' respective patent claims covered the same subject matter, Danisco's patent had priority. Novozymes moved to dismiss Danisco's action for lack of the case or controversy required to bring a declaratory judgment action.

The District Court for the Northern District of California granted the motion to dismiss. Although the district court acknowledged that, based on past behavior, the Novozymes patent presented a substantial risk to Danisco, it nevertheless found that a case or controversy did not exist as of the day Danisco filed its action for declaratory relief. Significantly, the district court stated that "there is no precedent for finding jurisdiction based on such pre-patent issuance events alone . . .." The district court further found that Danisco was missing an "affirmative act of enforcement" or "implied enforcement threat" by Novozymes because "pre-issuance conduct" could not satisfy that requirement.

The Federal Circuit disagreed. It ruled that there is no bright-line requirement as to whether Novozymes had affirmatively or impliedly accused Danisco of infringing its issued patent. To the contrary, the Supreme Court has never held that a declaratory judgment defendant must be preparing to file a suit before a case or controversy exits. Rather, the Court has required only that the "dispute be 'definite and concrete, touching the legal relations of parties having adverse legal interests'; and that it be 'real and substantial' and 'admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.'"

The proper question, instead, is whether, under the totality of the circumstances, Danisco has demonstrated a "substantial risk" that the harm will occur. That question, the Federal Circuit held, must be answered in the affirmative in light of the relevant history between the parties. Specifically, Novozymes had a history of suing Danisco for infringement of its patents. In some of those cases, the Novozymes patents included claims that were amended (in the application stage) to specifically cover Danisco products. Here, Novozymes amended a claim in an application with the intention of specifically covering the active ingredient in Danisco's products and also triggering an interference with issued Danisco patent claims. And when Novozymes's actions were met with rejection by the PTO, Novozymes made clear that it would not "acquiesce" to, or be "estopped" by, the PTO's conclusions.

At bottom, the Federal Circuit held, Novozymes's actions put Danisco in the position of either abandoning its RSL products or running the risk of again being sued for infringement by Novozymes. That is "precisely the type of situation that the Declaratory Judgment Act was intended to remedy." Thus, the district court erred by dismissing the action because "the totality of the circumstances shows that Novozymes's posturing put Danisco in a position of either pursuing arguably illegal behavior, i.e., infringement, or abandoning that which it claims a right to do, i.e., make and sell the RSL products that are the embodiments of [its] patent. . .."

Patent owners and their respective infringement targets should continue to monitor developments in the nuanced caselaw regarding declaratory judgment jurisdiction. For now, the Danisco decision provides helpful insight into the delicate balance of pre-litigation activity with the sole effect of making patent rights known, on the one hand, and activity has the effect of creating the requisite case or controversy for declaratory relief, on the other hand.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Jeffer Mangels Butler & Mitchell LLP | Attorney Advertising

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Jeffer Mangels Butler & Mitchell LLP

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