IP Owners Take Note: Certain Business Actions Can Assist in Obtaining or Avoiding Declaratory Judgments

Businesses or individuals that own intellectual property may want to obtain a court order that their product or service is not infringing a competitor’s copyright, patent, or trademark.  These types of orders are known as a declaratory judgment of non-infringement. However, courts only hear declaratory judgment cases under certain circumstances.  This article focuses on declaratory judgments of non-infringement of patents and the circumstances under which a court will hear such cases.

The Declaratory Judgment Act, 28 U.S.C. § 2201, et seq., allows a prospective defendant to sue to establish its non-liability.  The Declaratory Judgment Act also allows a party threatened with liability an opportunity to obtain a court judgment that its behavior does not violate its adversary’s legal rights before its adversary commences litigation. However, declaratory judgment of non-infringement of patents are only available in certain circumstances.

One of the major obstacles in obtaining a declaratory judgment of non-infringement is establishing that a court has “standing” to hear the case.  Generally speaking, to establish standing for declaratory judgment actions, a plaintiff must show that there is an actual case or controversy. For instance, if a business or individual has been selling a product but has received no threat of litigation by a patent owner, then there probably is no actual case or controversy. In this case, the business entity or individual would not have standing to sue for a declaratory judgment of non-infringement because there is no actual dispute.

However, not all cases are as clear cut as the example above. For example, what type of threats are enough to establish standing? Is only receiving a single cease and desist letter sufficient to establish standing? Courts have developed tests for determining if a plaintiff has standing to sue for a declaratory judgment of non-infringement.   One seminal case on this subject is MedImmune, Inc. v. Genentech, Inc. 549 U.S. 118 (2007), where the Federal Circuit Court adopted a flexible totality of the circumstances approach for determining if a plaintiff has standing to sue for a declaratory judgment of non-infringement. The MedImmune test considers several non-exhaustive factors including: (1) the nature and extent of any communication between the parties; (2) the nature of the patentee’s accusations against the distributor or their customers; (3) evidence of economic injury; (4) evidence of the declaratory plaintiff’s apprehension of being sued; and (5) whether the parties agreed to not sue each other for infringement. See MedImmune, Inc., 549 U.S. at 127-136.

One example of where an actual case or controversy existed sufficient to establish standing is Arris Group, Inc. v. British Telecommunications, PLC, 639 F.3d 1368 (Fed. Cir. May 19, 2011). In this case, the Federal Circuit found that a legal dispute existed between contracting parties even in the absence of an express accusation against the allegedly infringing party. See Arris Group, Inc., 639 F.3d at 1368. In Arris, a manufacturer of cable products filed an action against a telecommunications company (“patent holder”) seeking a declaratory judgment that it had not infringed the company’s patents. Id. at 1368. The Federal Circuit found that the manufacturer had met its burden of demonstrating a case or controversy and had standing. Id. In support of its holding, the Federal Circuit cited business meetings between the parties (and other non-parties to the lawsuit) wherein the patent holder aired out its infringement concerns and followed up by requesting that the manufacturer send it a formal letter explaining why it had not infringed the patent holder’s product. Id. at 1373. The Federal Circuit considered this evidence of a “protracted process” that showed a case or controversy. Id. at 1379.

On the other hand, one example of where an actual case or controversy was not sufficient to establish standing is in the case Allied Mineral Products, Inc. v. OSMI, Inc. 870 F.3d 1337 (Fed. Cir. Sept. 13, 2017). In Allied Mineral Products, the Federal Circuit held that a mere fear of being hauled into court is not enough to support a finding of a case or controversy. See Allied Mineral Products, Inc., 870 F.3d at 1341. In this case, a manufacturing company brought a declaratory judgment action of non-infringement against a patent owner who had sent notice letters of infringement to the distributors of the manufacturing company. Id. at 1338. Applying the totality of the circumstances test, the Federal Circuit held that the facts did not show an actual case or controversy. Id. at 1341. The Court reasoned that the patent holder had not threatened litigation against the company, only against its distributors; the patent holder did not respond to the company’s reply letter to infringement notices sent to the company’s’ distributors; and the patent holder did not take actions directed at the company to enforce its patent. Id. at 1341. Relying on the holding in Arris, the Court ruled that the facts in this case are distinct from those in Arris because the patent holder had not implicitly accused the defendant of infringement, and mere apprehension of litigation cannot establish a controversy for the purposes of filing a declaratory judgment. Id. at 1340-1341.

These cases are a reminder that it is critical that businesses and individuals know the legal remedies available to them in order to protect their intellectual property and competitive edge. Specifically, licensors seeking to license their intellectual property should be cautious of behavior that might subject them to declaratory actions, including repeatedly alerting a prospective licensee that their product infringes (whether through cease and desist letters, emails, or other channels of communication). Similarly, prospective declaratory judgment plaintiffs seeking to sue a patent owner for non-infringement, invalidity, or unenforceability should be wary that signing an agreement that bounds both parties not to sue each other may reduce the likelihood of obtaining a declaratory judgment. Other factors to consider when analyzing if a plaintiff has standing to sue for declaratory judgment of non-infringement includes: evidence of economic injury, and evidence that the declaratory plaintiff has a reasonable belief of being sued, grounded on defendant’s efforts to put plaintiff on notice that it has infringed.

The patent attorneys at The Plus IP Firm have extensive experience litigating patent disputes on behalf of patent holders and competitive enterprises.  Declaratory judgment actions are but one of the many legal tools we prepare for clients who want to protect their brand, business, and reputation. To learn more about the IP Plus Firm and how we protect our client’s intellectual property, click HERE.   This article was written by Rosa Villa and Derek Fahey. To learn more about Derek Fahey, click HERE.

Copyright ©. This article is for informational purposes only and is not intended as legal advice or solicitation.