Licensing Discussions Give Rise to Declaratory Judgment Action

Addressing the issue of whether a case or controversy exists in a declaratory judgment action in which the patentee alleged possible infringement during patent licensing discussions, the U.S. Court of Appeals for the Federal Circuit vacated and remanded a district court’s determination that jurisdiction did not exist under the facts as alleged in the complaint. 3M Company v. Avery Dennison Corp., Case No.11-1339 (Fed. Cir., Mar. 26, 2012) (Lourie, J.).

This case involves competitors, 3M and Avery, each of which utilize retroflective sheeting technology in a variety of applications including road signs. The parties have a history of engaging in IP litigation dating back to 2001 when Avery sued 3M for patent infringement, including two patents not currently at issue. During settlement of that prior litigation, the parties engaged in confidential discussions at which time 3M became aware that Avery was prosecuting reissue applications for the two patents presently at issue—the Heenan patents. In March of 2009, Avery’s counsel initiated a call to 3M’s counsel stating that 3M’s retroflective sheeting material “may infringe” the Heenan patents and that “licenses are available,” an offer 3M’s counsel rejected. Avery’s counsel responded that an analysis had been conducted and Avery would “send claim charts.” No such charts were sent.

About a year later, 3M filed a declaratory judgment action of non-infringement, invalidity and intervening rights with respect to the Heenan patents. Avery filed a motion to dismiss 3M’s declaratory judgment claims for lack of subject-matter jurisdiction. The district court agreed and concluded that subject-matter jurisdiction did not exist at the time the complaint was filed.

The district court outlined a number of reasons for dismissal, noting that the jurisdictional inquiry is objective and so finding 3M’s subjective beliefs of Avery’s motives for initiating the reissue proceedings immaterial. The district court also discounted the history of prior litigation because those cases involved unrelated patents and products. Finally, the district court concluded that the discussions between counsel were informal because Avery did not provide a detailed infringement analysis or deadline for 3M to respond, and that the passage of time from those discussions to the date 3M filed its declaratory judgment action indicated insufficient immediacy to warrant a declaratory judgment action. 3M appealed.

The Federal Circuit acknowledged there is no bright-line rule in determining whether a case or controversy exists. However, citing to Hewlett-Packard Co. v. Acceleron LLC, (see IP Update, Vol. 12, No. 12) the Court explained that for a dispute to be “definite and concrete,” more is required than “a communication from a patent owner to another party, merely identifying its patent and other party’s product line.” Rather there must be an “affirmative act by the patentee relating to the enforcement of its patent rights.”

On the facts of the present case, the Federal Circuit took issue with the district court’s determination that counsels’ discussions were informal, finding that Avery effectively charged 3M with infringement of the Heenan patents. Notwithstanding the fact that Avery’s counsel employed the term “may infringe” (rather than “does infringe”) the Court concluded there was an “effective” charge of infringement in view of the offer to license the Heenan patents and the representation that claim charts were being sent. Of particular importance to the Court was the fact that Avery’s counsel initiated, without provocation, the communications with 3M. The Court found some of the fact cited by Avery as mitigating against declaratory judgment jurisdiction to be not particularly probative, including whether the contact was by telephone and the passage of time between the contact and declaratory judgment filing. The parties’ past litigation history was characterized by the Court as “equivocal” (in terms of its analysis) as was Avery’s initiation of the reissue proceedings. The case was remanded for the district court to resolve Avery’s factual challenges as to the actual contacts and as to whether the discussions were subject to a confidentiality agreement in order to determine if a case or controversy exists.