The district court bought Microchip's paranoia.

The district court concluded that there was a case of actual controversy and hence jurisdiction for it to decide the merits of the suit under the Declaratory Judgment Act. According to the court, although Microchip itself was not threatened with suit, Chamberlain had initiated lawsuits against Microchip’s customers for the sale of GDOs that incorporated Microchip’s microprocessors and learning software. Microchip Tech. Inc. v. The Chamberlain Group, Inc., No. 01-1423, slip op. at 3 (D. Ariz. Jan. 11, 2002) (“Jurisdiction Decision”). In reaching its conclusion, the court was not persuaded by the fact that Microchip’s microprocessors were not alleged to infringe the patents-in-suit and that Microchip’s customers could only infringe the patents-in-suit by using Microchip’s microprocessors in combination with other components not supplied by Microchip. Id. Ultimately, the court reasoned that the “practical effect” of Chamberlain’s conduct was that Microchip could not sell its noninfringing product without subjecting its customers to the threat of a patent infringement suit. Id., slip op. at 4. Thus, the court concluded that Microchip perceived a real threat of suit for patent infringement from Chamberlain, even though Microchip itself had no potential liability as a patent infringer. Id.

Chamberlain had argued lack of jurisdiction because no actual controversy existed.

On appeal, Chamberlain argues that there was no actual controversy between it and Microchip because Microchip never possessed a reasonable apprehension of being sued for patent infringement. Thus, according to Chamberlain, the district court should have granted its motion to dismiss for lack of declaratory judgment jurisdiction.

Citing our decision in Metabolite Laboratories, Inc. v. Laboratory Corp. of America Holdings, 370 F.3d 1354, 1369 (Fed. Cir. 2004), Chamberlain asserts that “a covenant not to sue deprives a court of declaratory judgment jurisdiction.” Chamberlain also contends that Microchip had no “adverse legal interest” in this action (presumably because it had not been threatened with any patent infringement suit), and that Microchip’s economic interest alone could not give rise to an “actual controversy.”

The appeals court agreed with Chamberlain (CAFC 05-1339), applying a two-part test for determining legal tiffs.

We have articulated a two-part test to determine whether an “actual controversy” exists in actions involving a claim for a declaration of patent invalidity or noninfringement. Under that test, the declaratory plaintiff must establish both (1) a reasonable apprehension that it will face a patent infringement suit if it commences or continues the activity at issue, and (2) present activity by the declaratory plaintiff that could constitute infringement, or concrete steps taken by the plaintiff with the intent to conduct such activity. Medimmune, 409 F.3d at 1379 (citations omitted). Only the first criterion is at issue here.

Regarding that first criterion, viz., whether Microchip possessed a reasonable apprehension of being sued for patent infringement, it is clear that Microchip did not possess the requisite apprehension. In fact, Microchip does not seriously contest Chamberlain’s assertion that Microchip did not have any apprehension of itself being sued for patent infringement, much less a reasonable one. In neither its original nor its amended complaint did Microchip aver that it had a reasonable apprehension of facing a patent infringement suit from Chamberlain. On the contrary, Microchip’s general counsel admitted in her deposition that Microchip believed it had “patent peace” with respect to the patents-in-suit given the parties’ 1999 settlement agreement, supporting Chamberlain’s argument that the settlement agreement was a covenant not to sue that would divest the court of jurisdiction.

The worry for Microchip was the Chamberlain would sue Microchip's customers, but that doesn't justify Microchip suing for declaratory judgment.

What is essentially at issue in this appeal is whether Microchip’s purported apprehension of its customers being sued satisfies the first criterion for declaratory judgment jurisdiction. We conclude that that apprehension, absent any “adverse legal interest” existing between Microchip and Chamberlain, does not meet that test. Furthermore, we do not agree with the district court’s observation that because the “practical effect” of Chamberlain’s actions was that Microchip could not sell its product without subjecting its customers (but not itself) to the threat of a patent infringement suit, the first criterion was met.

In Medimmune, we recognized that “the question 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.” 409 F.3d at 1379 (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)) (emphasis added); see also C.R. Bard, Inc. v. Schwartz, 716 F.2d 874 (Fed. Cir. 1983) (a justiciable controversy requires a real and substantial dispute affecting the legal rights and obligations of parties having adverse interests). Moreover, in BP Chemicals Ltd. v. Union Carbide Corp. we stated that the purpose of the Declaratory Judgment Act was to enable a person who is at legal risk because of an unresolved dispute to obtain judicial resolution of that dispute without having to await the commencement of a legal action by the patentee; to “clear the air.” 4 F.3d 975, 977 (Fed. Cir. 1993).

Vacated and remanded back to district court to dismiss the case for lack of jurisdiction.