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August 15, 2008

The Scream

Prasco got so paranoid about infringing patents from competitors Medicis Pharmaceutical and Imaginative Research Associates that it filed a declaratory judgment motion. The problem for Pasco was that Prasco wasn't even on the defendants' radar screens. The district court pitched the case, and the appeals court concurred.

Prasco v. Medicis Pharmaceutical and Imaginative Research Associates (CAFC 2007-1524)

Defendants moved to dismiss the initial complaint on the grounds that a lack of case or controversy precluded subject matter jurisdiction. After the suit and the motion to dismiss were filed, Prasco sent a sample of OSCION™ and an ingredient list to Medicis and Imaginative Research Associates and requested a covenant not to sue under the four patents. The defendants did not sign the covenant not to sue and responded with a single sentence letter advising that they "do not plan to withdraw [their] motion to dismiss the complaint." Prasco subsequently filed a second complaint, styled an "Amended Complaint" that included this post-filing conduct and the fact that it had begun to market OSCION™. Defendants renewed their motion to dismiss.

Following this court's decision in Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., 482 F.3d 1330 (Fed. Cir. 2007), which concluded that MedImmune had effectively overruled the reasonable apprehension of suit test, id. at 1339, the district court reconsidered its ruling pursuant to a Rule 59(e) motion, but declined to amend its decision. Prasco II, slip op. at 8. The court concluded that under all the circumstances there was not an Article III case or controversy. Id.

The only issue on appeal is whether the facts alleged in this case establish that there is a justiciable case or controversy within the meaning of the Declaratory Judgment Act and Article III of the Constitution.

The Declaratory Judgment Act provides:

In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.

28 U.S.C. § 2201. The Declaratory Judgment Act is not an independent basis for subject matter jurisdiction. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671-72 (1950). Rather, it provides a remedy available only if the court has jurisdiction from some other source. Cat Tech LLC v. TubeMaster, Inc., 528 F.3d 871, 879 (Fed. Cir. 2008) (citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937)). Such jurisdiction is limited by Article III of the Constitution, which restricts federal judicial power to the adjudication of "Cases" or "Controversies." U.S. Const. art. III, § 2; Cat Tech LLC, 528 F.3d at 879. The Declaratory Judgment Act's requirement of "a case of actual controversy" simply affirms this Constitutional requirement, having long been interpreted as referring to any case and controversy that is justiciable under Article III. See Aetna Life Ins., 300 U.S. at 239-40 (explaining that the phrase "cases of actual controversy" refers "to controversies which are such in the constitutional sense"); see also MedImmune, 127 S. Ct. at 771. Thus, as long as the suit meets the case or controversy requirement of Article III, a district court may have jurisdiction over a declaratory judgment action. Novartis, 482 F.3d at 1340.3

Controversy must be "real and substantial," but "there is no bright-line rule for determining whether an action satisfies the case or controversy requirement."

For there to be a case or controversy under Article III, the dispute must be "definite and concrete, touching the legal relations of parties having adverse legal interests," "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." MedImmune, 127 S. Ct. at 771 (quoting Aetna Life, 300 U.S. at 240-41). As the Supreme Court has recently reiterated, however, there is no bright-line rule for determining whether an action satisfies the case or controversy requirement. Id. To the contrary, "[t]he difference between an abstract question and a 'controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy." Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941). Instead of a bright-line rule, "the analysis must be calibrated to the particular facts of each case," Cat Tech LLC, 528 F.3d at 879, with the basic standard being 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," MedImmune, 127 S. Ct. at 771 (quoting Md. Cas. Co., 312 U.S. at 273); see also Caraco Pharms. Labs. Ltd. v. Forest Labs., 527 F.3d 1278, 1290 (Fed. Cir. 2008). While this standard can be analyzed directly, the Supreme Court has also developed various more specific but overlapping doctrines rooted in the same Article III inquiry, which must be met for a controversy to be justiciable, including standing, ripeness, and a lack of mootness. See Caraco, 527 F.3d at 1291 (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) (standing); Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967) (ripeness); and U.S. Parole Comm'n v. Geraghty, 445 U.S. 388, 397 (1980) (mootness)). As satisfying these doctrines represents the absolute constitutional minimum for a justiciable controversy, they can be a helpful guide in applying the all-the-circumstances test. Id.

Prior to MedImmune, this circuit had generally required that a declaratory judgment plaintiff in a patent dispute demonstrate (1) conduct by the patentee that created a "reasonable apprehension" of suit on the part of the declaratory judgment plaintiff and (2) present activity by the declaratory judgment plaintiff that could constitute infringement or "meaningful preparation" to conduct potentially infringing activity. See, e.g., Glaxo Inc. v. Novopharm Ltd., 110 F.3d 1562, 1571 (Fed. Cir. 1997). However, in MedImmune, the Supreme Court found that requiring a reasonable apprehension of suit conflicted with the Court's precedent. MedImmune, 127 S. Ct. at 774 n.11. While the Supreme Court rejected the reasonable apprehension of suit test as the sole test for jurisdiction, it did not completely do away with the relevance of a reasonable apprehension of suit. Rather, following MedImmune, proving a reasonable apprehension of suit is one of multiple ways that a declaratory judgment plaintiff can satisfy the more general all-the-circumstances test to establish that an action presents a justiciable Article III controversy. Caraco, 527 F.3d. at 1291.

Rather than a purely subjective fear or the mere existence of a potentially adverse patent alone, the alleged injury at the root of most justiciable declaratory judgment controversies in the patent context is a "restraint on the free exploitation of non-infringing goods," or an imminent threat of such restraint. Caraco, 527 F.3d at 1291 (quoting Red Wing Shoe Co., Inc. v. Hockerson-Halberstadt, Inc., 148 F.3d 1355, 1360 (Fed. Cir. 1998)).

A patentee can cause such an injury in a variety of ways, for example, by creating a reasonable apprehension of an infringement suit, e.g., Arrowhead Indus. Water, 846 F.2d at 737, demanding the right to royalty payments, e.g., MedImmune, 127 S. Ct. at 777, or creating a barrier to the regulatory approval of a product that is necessary for marketing, e.g., Caraco, 527 F.3d at 1292-94. See also Arrowhead Indus. Water, 846 F.2d at 735 (describing the type of "sad and saddening scenario" that led to enactment of the Declaratory Judgment Act in which the "patent owner attempts extra-judicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business community with uncertainty and insecurity").

As there had been no accusation of infringement whatsoever, Prasco had simply let its fear outrun the situation.

Prasco argues that a case and controversy has nevertheless been created because Medicis has caused Prasco to suffer an actual harm--namely, "paralyzing uncertainty" from fear that Medicis will bring an infringement suit against it. Appellant's Br. 23. As Prasco admitted at oral argument, however, any uncertainty has not been paralyzing. To the contrary, notwithstanding this lawsuit, Prasco has launched its OSCION™ product. More importantly, the Supreme Court has emphasized that a fear of future harm that is only subjective is not an injury or threat of injury caused by the defendant that can be the basis of an Article III case or controversy. City of L.A. v. Lyons, 461 U.S. 95 (1983); see also Indium Corp. of Am. v. Semi-Alloys, Inc., 781 F.2d 879, 883 (Fed. Cir. 1985) ("A purely subjective apprehension of an infringement suit is insufficient to satisfy the actual controversy requirement."). Rather, "it is the reality of the threat of . . . injury that is relevant to the standing inquiry, not the plaintiff's subjective apprehensions." Lyons, 461 U.S. at 107 n.8 (emphasis in original); see also Laird v. Tatum, 408 U.S. 1, 13-14 (1972) ("Allegations of a subjective 'chill' are not an adequate substitute for a claim of specific present objective harm or a threat of specific future harm; 'the federal courts established pursuant to Article III of the Constitution do not render advisory opinions.'"). Although MedImmune clarified that an injury-in-fact sufficient to create an actual controversy can exist even when there is no apprehension of suit, it did not change the bedrock rule that a case or controversy must be based on a real and immediate injury or threat of future injury that is caused by the defendants--an objective standard that cannot be met by a purely subjective or speculative fear of future harm. Thus, as we explained post-MedImmune, "jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee." SanDisk, 480 F.3d at 1380-81.

Prasco does not allege that defendants had actually restrained its right to freely market OSCION™ at the time the supplemental complaint was filed. Rather, it is the threat of future injury that forms the basis for Prasco's complaint. Thus, there can be no controversy without a showing that this threat was real, imminent, and traceable to defendants.

Prasco places significant weight on Medicis' and Imaginative Research Associates' failure to sign covenants not to sue after Prasco sent them samples of OSCION™ in the wake of their initial motion to dismiss. We have explained that "although a patentee's refusal to give assurances that it will not enforce its patent is relevant to the determination, it is not dispositive." BP Chems. v. Union Carbide Corp., 4 F.3d 975, 980 (Fed. Cir. 1993). A patentee has no obligation to spend the time and money to test a competitors' product nor to make a definitive determination, at the time and place of the competitors' choosing, that it will never bring an infringement suit. And the patentee's silence does not alone make an infringement action or other interference with the plaintiff's business imminent. Thus, though a defendant's failure to sign a covenant not to sue is one circumstance to consider in evaluating the totality of the circumstances, it is not sufficient to create an actual controversy--some affirmative actions by the defendant will also generally be necessary.


Posted by Patent Hawk at August 15, 2008 3:07 PM | Declaratory Judgment