Federal Circuit reverses dismissal of DJ action; sufficient case or controversy exists

August 06, 2007
Post by Blog Staff

The Federal Circuit recently vacated the District Court for the Southern District of California's judgment granting a motion to dismiss five plaintiffs' (four joined on the appeal) declaratory judgment complaints for lack of subject matter jurisdiction, and remanded the case back to the district court to determine in its discretion whether to entertain the declaratory judgment actions.More details of Sony Elecs., Inc. v. Guardian Media Techs., Ltd. after the jump.

The District Court for the Southern District of California granted declaratory judgment defendant's motion to dismiss the plaintiffs' complaints for lack of subject matter jurisdiction, holding that there was a lack of "actual controversy" between the defendant and the plaintiffs. The district court noted that the defendant, Guardian Media, had not "expressly threatened to sue any of the plaintiffs for patent infringement" and that none of its actions or correspondence amounted to an "implicit threat of immediate litigation." The district court further noted that even if it did have jurisdiction to hear the cases, it would exercise its discretion to not hear the cases because the jurisdiction question was "close" and "the facts as a whole create[d] an appearance the Plaintiffs filed these lawsuits as an intimidation tactic to gain leverage in the licensing negotiations." The Federal Circuit vacated this decision. First, the court noted that its "post-MedImmune decisions, while not attempting to define the outer boundaries of declaratory judgment jurisdiction, have made clear that a declaratory judgment plaintiff does not need to establish a reasonable apprehension of a lawsuit in order to establish that there is an actual controversy between the parties." The court, noting that it was applying the standard "articulated by the Supreme Court," stated that it thought to be clear that an actual controversy did exist between Guardian and the plaintiffs.The court noted that Guardian and the plaintiffs had adverse positions regarding whether plaintiffs' sale of products infringed claims of two of Guardian's patents. The Guardian made Sony, for example, aware of its position that certain of Sony's products infringed by providing Sony with a "detailed infringement analysis, which compared, on a limitation-by-limitation basis, a number of the claims of the '158 and '160 patents to specific Sony products." Guardian further asserted that its infringement analysis applied to additional Sony products which contained the patented technology and that "it was thus entitled to royalties exceeding $31 million." In contrast, Sony asserted that Guardian's patents were invalid "in view of certain identified prior art references."Based on these facts, the court held that the district court erred in dismissing the complaint for lack of subject matter jurisdiction, stating that "[i]n short, because Guardian asserts that it is owed royalties based on specific past and ongoing activities by Sony, and because Sony contends that it has a right to engage in those activities without a license, there is an actual controversy between the parties within the meaning of the Declaratory Judgment act." The court further noted that:

[E]ven if the parties' interactions in this case could be characterized as "negotiations," Sony was within its rights to terminate them when it determined that further negotiations would be unproductive. Although Guardian may have wanted to negotiate with Sony, Sony was not required to negotiate with Guardian.

For these and similar reasons, the court also concluded that an actual controversy existed between the other plaintiffs and Guardian.

The court also took issue with the district court's reasons for exercising its discretion to not hear the case. The court noted that the district court's first reason, that the jurisdictional question was a "close case," was based on the "reasonable apprehension of suit" test, which, the court emphasized, "is the wrong test" after MedImmune. The court also questioned the district court's inference that the plaintiffs had filed the complaints in order to gain leverage in licensing negotiations, noting that there was a lack of "affirmative evidence" to support this conclusion. The court ultimately remanded the case back to the district court for reconsideration "whether to exercise its discretion to dismiss (or stay) these cases. On remand, the district court is free to consider whether entertaining the cases would be consistent with both the purposes of the Declaratory Judgment Act and principles of wise judicial administration."This case comes out much the same way as the court's SanDisk case decided in March, where the parties' previous license negotiations were sufficient, after MedImmune, to create the necessary "case or controversy" for declaratory judgment jurisdiction. It is clear that it is easier for potential defendants to take the initiative and seek a declaratory judgment now.To read the full decision in Sony Elecs., Inc. v. Guardian Media Techs., Ltd., click here.

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