Revolution Eyewear v. Aspex Eyewear (CAFC 2008-1050)

In 2003, Revolution sued Aspex over 6,550,913, which "relates to magnetically-attached auxiliary eyeglasses." Looking like it was holding a losing hand, Revolution backed out.

On September 6, 2007 Revolution e-mailed to Aspex a covenant not to sue, stating that it would be filed with a motion to dismiss... Aspex objected, arguing that an actual controversy continued to exist because Revolution's covenant applied only to past infringement.

Aspex planned on continuing selling what could be considered infringing, so wanted the matter settled once and for all. Aspex thought it had the patent by the throat. But the trial judge dismissed the case.

The district court then dismissed the claims and counterclaims. Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., No. 03-5965 (C.D. Cal. Sept. 26, 2007). The court found that Revolution's covenant not to sue and the dismissal of its infringement claims "forever removes the possibility that Aspex may be sued under the '913 patent for Aspex's products made, used, or sold on or before the filing of the motion to dismiss, just as in Super Sack [Manufacturing Corp. v. Chase Packaging Corp., 57 F.3d 1054 (Fed. Cir. 1995)]" (emphasis in original). The district court ruled that: "Counter-Defendants have covenanted not to sue Defendants in the future for products made, used or sold in the past and present, and this is sufficient to remove any actual controversy in the present," and held that the court no longer had subject matter jurisdiction of the counterclaims.

It is not disputed that Revolution, Aspex, and the district court all understood that Revolution's covenant does not protect Aspex from suit should Aspex embark on future marketing of its bottom-mounted eyewear products.

MedImmune lowered the bar for declaratory judgment action.

[T]he Court did change the Federal Circuit's rule that there must be either actual infringement or active preparation to infringe accompanied by a reasonable apprehension of imminent suit, for those circumstances were not present on the facts of MedImmune. Instead, the Court imposed a totality-of-the-circumstances test for deciding whether there is indeed an actual controversy, on the particular facts and relationships involved.

Whether a covenant not to sue will divest the trial court of jurisdiction depends on what is covered by the covenant. This court applied the MedImmune test in SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed. Cir. 2007), and held that

where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where the party contends that it has the right to engage in the accused activity without a license, an Article III case or controversy will arise and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.

Id. at 1381. SanDisk illustrates the changed standard after MedImmune... This court explained that declaratory judgment jurisdiction is met when the patentee "puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do." Id. at 1381. Although a mere interest in marketing a product patented to another, without more, does not not create a "definite and concrete" legal conflict, the entirety of the relationship must be considered. On these facts, where the party's proposed activity resulted in an assertion of legal rights by the patentee, the court held that it was not necessary for the party actually to infringe before seeking a declaration of rights.

The principles of MedImmune were again applied in Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340 (Fed. Cir. 2007), but to contrary result. The patentee Benitec filed a covenant not to sue for infringement based on a pharmaceutical product that Nucleonics was developing but for which it had not yet obtained or applied for federal approval. Nucleonics stated that it wished to continue to challenge the Benitec patents, to "clear the way" in the event that it later obtained federal approval of the potentially infringing product. The district court observed that Nucleonics was exempt from liability for infringement that arose out of its testing and research by virtue of the Hatch-Waxman Act, and further observed that Nucleonics did not expect to file a New Drug Application (see 21 USC §355) before "at least 2010-2012, if ever," thus removing "immediacy and reality" from the declaratory action. Id. at 1432. This court agreed, and held that on the entirety of the circumstances there was not an actual controversy, for "[t]he residual possibility of a future infringement suit based on [ ] future acts is simply too speculative." Id. at 1346 (quoting Super Sack, 57 F.3d at 1060) (alteration in original).

Of course, Revolution liked the Benitec precedent.

However, that characterization of Revolution's covenant is inaccurate... Revolution's covenant did not extend to future sales of the same product as was previously sold.

Although the factual situation faced by Aspex may not be as vivid as was hypothesized by the Court in MedImmune, "[t]he rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III." MedImmune, 549 U.S. at 134. The court must apply the principles and purpose of the declaratory action, to determine whether there is a sufficient actual controversy to warrant judicial resolution.

Aspex was right to object to dismissing the prior case.

The dispute is "definite and concrete," for it pertains to the '913 patent as applied to the specific merchandise that was previously produced and sold by Aspex and that Aspex wishes to reintroduce to the market. The dispute is "real and substantial," as evidenced by the lengthy litigation and the limited covenant. The issue "touch[es] the legal relations of parties having adverse legal interests," for it affects whether Aspex can return to this market without risking treble damages should the challenge eventually fail, and the dispute is amenable to "specific relief through a decree of a conclusive character" because the resolution of the counterclaims for validity and enforceability of the '913 patent will conclusively determine the issue. The case thus satisfies the requirements stated in MedImmune.

On these facts and with the guidance of MedImmune as to applicable principles and policy, we conclude that there is an actual controversy within the meaning of the Declaratory Judgment Act. The district court erred in holding that Revolution's covenant not to sue for past infringement ousted the court of jurisdiction of Aspex's counterclaims, in the circumstances of this case.

Reversed and remanded.