First-Filed DJ Dismissed in Favor of Later-Filed Infringement Action

In Communications Test Design, Inc., v. Contec, LLC, [2019-1672] (March 13, 2020), the Federal Circuit affirmed the dismissal of CTDI’s declaratory judgment action in favor of Contec’s later filed infringement action, agreeing that equitable considerations warranted departure from the first-to-file rule.

Contec argued that CTDI filed the Pennsylvania action “in bad faith during active licensing discussions, only after inducing Contec to refrain from filing its own complaint against CTDI in a different forum.  The district court relying on the timing and content of the parties’ communications, the district court found that “CTDI filed suit in anticipation of Contec’s impending infringement suit.”  The district court found that, although CTDI had every right, in its business and legal judgment, to break off negotiations and resort to litigation, it was not permitted to string Contec along just long enough to get the judicial drop and file this lawsuit in its own backyard.

The Federal Circuit noted that as long as the district court acts in accordance with the purposes of the Declaratory Judgment Act and the principles of sound judicial administration, it has broad discretion to refuse to entertain a declaratory judgment action.

The general rule is that the first-filed action is preferred, even if it is declaratory, unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, require otherwise.  Trial courts have discretion to make exceptions to this general rule in the interest of justice or expediency, and such exceptions are not rare.  When one of two competing suits in a first-to-file analysis is a declaratory judgment action, district courts enjoy a “double dose” of discretion: discretion to decline to exercise jurisdiction over a declaratory judgment action and discretion when considering and applying the first-to-file rule and its equitable exceptions.

The Federal Circuit said that the district court carefully considered the record of the parties’ dispute, up to and including the competing filings, and concluded that several factors warranted departure from the first-to-file rule. Specifically, the court found that: (1) CTDI filed its declaratory judgment complaint in anticipation of Contec’s patent infringement complaint; (2) CTDI’s suit interfered with ongoing negotiations between the parties and did not serve the objectives of the Declaratory Judgment Act; and (3) on balance, the Northern District of New York is a more convenient forum. Overall, the Federal Circuit found no abuse of discretion in the district court’s analysis.  The Federal Circuit affirmed the district court’s dismissal.

Foreign Suits Involving Foreign Patents Do Not Create a Case or Controversy in the U.S.

In Allied Mineral Products, Inc. v. OSMI, Inc., [2016-2641] (September 13, 2017), the Federal Circuit affirmed the dismissal of Allied’s declaratory judgment action seeking a declaration that Stellar’s U.S. Patent No. 7,503,974 is invalid, and that Stellar committed inequitable conduct, for lack of subject matter jurisdiction.

This dispute centered on a Mexican infringement suit between Stellar and two of Allied’s Mexican distributors.  Allied manufactured the accused product in the United States, which are then sold in Mexico by Allied’s Mexican distributors.  The district court held that Stellar’s decision to enforce its Mexican patent under Mexican law against separate entities cannot, without further affirmative action by Stellar, create an
actual controversy with Allied with regard to its U.S. patent.

The Federal Circuit reasoned that the totality of the circumstances in this case does not rise to the level of a case of actual controversy. Declaratory judgment jurisdiction requires some affirmative act by
the patentee, and Stellar has not directed any actions towards Allied, nor has it litigated or threatened litigation in the United States or on its U.S.

Allied argued that it has been forced into an unwinnable business position; it can either continue to sell products in the United States knowing it may be the target of an infringement suit, or it can cease selling products it believes it has a right to sell. The Federal Circuit said that the fear of a future infringement suit is insufficient to confer
jurisdiction.  The Federal Circuit concluded that Allied has failed to establish a case or controversy regarding Stellar’s U.S. patent in the United States under Article III.

Failure to Provide an Unconditional Covenant Not to Sue Kept Case and Controversy Alive

In ArcelorMittal v. AK Steel Corp., [2016-1357] (May 16, 2017), the Federal Circuit affirmed the summary judgment invalidating claims 24 and 25 of U.S. Patent No. RE44153.

On appeal, ArcelorMittal argued it never asserted claim 24 and 25, noting that ArcelorMittal never contested defendant’s statements that the validity of claims 24 and 25 was at issue.  The Federal Circuit found this tacit acceptance of Defendants’ representations about the litigation status of claims 24 and 25 reflected ArcelorMittal’s continued attempt to assert those claims.

ArcelorMittal also argued that the dispute became moot when ArcelorMittal conditionally tendered its covenant not to sue to Defendants.  The Federal Circuit said that although a patentee’s grant of a covenant not to sue a potential infringer can sometimes deprive a court of subject matter jurisdiction,the patentee “bears the formidable burden of showing” “that it ‘could not reasonably be expected’ to resume its enforcement efforts against” the covenanted, accused infringer.  The Federal Circuit said that this that requires ArcelorMittal to show that it
actually granted a covenant not to sue to Defendants, and that the covenant enforceably extinguished any real controversy between the parties related to infringement of the RE’153 patent.  The Federal Circuit found that at no time before the court entered summary judgment did ArcelorMittal unconditionally assure Defendants and their customers that it would never assert RE’153 claims 24 and 25 against them.  The Federal Circuit noted that this result was entirely within ArcelorMittal’s control — it could have, but never did delivered an unconditional, executed covenant not to sue.

Turning to the merits of the case, the Federal Circuit found that the district court correctly implemented its mandate by limiting the analysis to noninfringement and commercial success of RE’153 claims 24 and 25.