CASRIP Newsletter - Autumn 2007, Volume 14, Issue 4
The Expanded Jurisdiction for Declaratory Judgments: Sony Electronics Inc. v. Guardian Media Technologies, Ltd.
By Brad RielI. OVERVIEW
A recent decision by the Federal Circuit in Sony Electronics, Inc. v. Guardian Media Technologies, Ltd. has confirmed that at least one element of the two-part test traditionally used by federal circuit and district courts is no longer applicable in view of the Supreme Court’s MedImmune, Inc. v. Genentech, Inc. decision in 2007. In particular, to determine whether an actual controversy exists between parties, the Federal Circuit no longer tests for an explicit threat or other action by a patentee which creates a reasonable apprehension on the part of a declaratory judgment plaintiff that it will face an infringement. Rather, the Federal Circuit, in determining whether an actual controversy exists, merely requires the dispute be "'definite and concrete, touching the legal relations of parties having adverse legal interests;' and that it be 'real and substantial' and 'admit 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.'"II. BACKGROUND
Guardian Media Technologies, Ltd. (“Guardian”) holds U.S. Patent Nos. 4,930,158 (“the ‘158 patent”) and 4,930,160 (“the ‘160 patent”) generally directed to selectively blocking the display of television programs. Prior to Guardian’s ownership, these patents were held by the inventor, Peter Vogel. Between September 1999 and May 2000, Vogel had sent letters to Sony Electronics, Inc. (“Sony”), Mitsubishi Digital Electronics America, Inc. (“Mitsubishi”), Victor Company of Japan, Ltd. (“JVC”), and Matsushita Electric Industrial Co., Ltd. (“Matsushita”) stating that each of them sold consumer products that infringed on various claims of the ‘158 and ‘160 patents. Sony, Mitsubishi, and Matushita replied to Mr. Vogel with a letter stating that their identified products did not infringe the ‘158 and ‘160 patents and that the ‘158 and ‘160 patents were invalid due to prior art.
The ‘158 and ‘160 patents were assigned to Guardian in November 2003. Between September 2004 and September 2005 Guardian entered into licensing negotiations with Sony, Mitsubishi, JVC, and Matsushita in addition to Thomson, Inc. (“Thomson”). During the negotiations Guardian presented analysis illustrating why select products infringed on various claims of the ‘158 and ‘160 patents, offered licenses to each of these companies, asserted that each of these companies had “royalty obligations” comprising millions of dollars, and attested to the validity of the ‘158 and ‘160 patents. On the other hand, Sony, Mitsubishi, JVC, Matsushita, and Thomson each asserted that their respective products did not infringe the claims of the ‘158 and ‘160 patents, and that the ‘158 and ‘160 patents were invalid due to prior art. Sony, Mitsubishi, JVC, Matsushita, and Thomson filed declaratory judgment actions with the United States District Court for the Southern District of California in September 2005. III. DISTRICT COURT DECISIONA. Substantive Considerations
On January 10, 2006 the district court, on its own motion, consolidated the suits filed by Sony, Mitsubishi, Matsushita, JVC, and Thomson (hereinafter referred to as “plaintiffs”). Shortly thereafter, Guardian (hereinafter referred to as “defendant”) filed, and the district court granted, a motion to dismiss the complaints for lack of subject matter jurisdiction.
The Declaratory Judgment Act provides that “[i]n 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).” Consequently, for a court to have subject matter jurisdiction it is necessary to illustrate that there is an actual controversy between the parties. At the time of the district court’s decision, the circuit courts applied a two-part test to determine whether there was an actual controversy. According to the two-part test, for an actual controversy to exist required both:
- an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement, and
- present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity.
The parties did not disagree about the second part of the test, but rather, they disagreed about the first part of the test wherein plaintiffs must show their reasonable apprehension by a preponderance of the evidence.
The district court determined that plaintiffs did not show their reasonable apprehension by a preponderance of the evidence since:
B. Discretionary Considerations
- defendant did not expressly threaten to sue plaintiffs’ for patent infringement,
- defendant continued to be available to discuss a commercial, rather than judicial, solution,
- defendant’s strong words were a negotiation tactic,
- defendant repeatedly communicated that its business philosophy is not to litigate, but to negotiate, and
- plaintiffs’ abrupt rejection letters and nearly simultaneous filing of complaints created a reasonable inference that plaintiffs' apprehension was not legitimate.
Further to the two-part test for determining whether or not an actual controversy exists, the district court has the discretion to decline jurisdiction since the Declaratory Judgment Act states that “any court of the United States … may
declare the rights.”
In the present case, the district court chose to exercise its discretion and decline jurisdiction since:
IV. FEDERAL CIRCUIT DECISIONA. Substantive Considerations
- this was a close case, and
- the facts as a whole created an appearance that plaintiffs filed these lawsuits as an intimidation tactic to gain leverage in the licensing negotiations.
The Federal Circuit rejected the use of the first part of the two-part test. In particular, subsequent to the district court decision, the Supreme Court in abolished the requirement for a “reasonable apprehension” on the part of a declaratory judgment plaintiff that it will face an infringement. Subsequent decisions by the circuit courts, while defining the outer boundaries of declaratory judgment jurisdiction, have made clear that a declaratory judgment plaintiff does not need to establish a “reasonable apprehension” of a lawsuit to establish that there is an actual controversy between the parties.
The Supreme Court, while not divulging a precise test for determining whether an actual controversy exists, required only that the dispute be "'definite and concrete, touching the legal relations of parties having adverse legal interests'; and that it be '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.'"
Applying this standard, the Federal Circuit decided that it was clear that, at the time Sony, Matsushita, JVC, and Mitsubishi (hereinafter appellants) filed their complaint, an actual controversy existed within the meaning of the Declaratory Judgment Act. In reaching this conclusion, the Federal Circuit emphasized that the dispute between Guardian (hereinafter appellee or Guardian) and each of appellants was indeed “definite and concrete” since:
- appellee communicated to appellants that certain identified products of each appellant infringed the ‘158 and ‘160 patents,
- appellee communicated that it was entitled to royalties from each of the appellants,
- appellee communicated its position that the prior art identified by appellants did not disclose every element of the asserted claims, and
- appellants maintained that the asserted claims of the ‘158 and ‘160 patents were invalid in view of certain identified prior art references.
The Federal Circuit further rejected Guardian’s suggestion that there can be no jurisdiction in the district courts because Guardian was at all times willing to negotiate a “business resolution” to the dispute and in SanDisk Corp. v. STMicroelectronics, Inc. the Federal Circuit recognized that a patentee’s apparent continued willingness to engage in licensing negotiations does not prevent a plaintiff from maintaining a declaratory judgment suit.B. Discretionary Considerations
The Federal Circuit evaluated the district court’s discretionary decision to decline jursidction regardless of whether an actual controversy existed. With respect to the district court’s first reason for making this decision, i.e. “this was a close case,” the Federal Circuit pointed out that such a decision was based on an erroneous conclusion of law. In particular, this decision was based on the “reasonable apprehension” test, which, after MedImmune,, is the wrong test.
With respect to the distrct court’s second reason for making this decision, i.e. “the facts as a whole create an appearance that plaintiffs’ filed these lawsuits as an intimidation tactic to gain leverage in the licensing negotiations,” the Federal Circuit disagreed that such a motive of the appellants could be so easily inferred from the facts. While the district court relied on EMC Corp. v. Norland Corp. in reaching its conclusion that appellants filed these lawsuits to gain leverage in future licensing negotiations with defendant, the Federal Circuit emphasized that the circumstances in EMC were very different than the present circumstances.
Although expressly disagreeing with the district court’s reasons for exercising its discretionary right to decline jurisdiction, the Federal Circuit pointed out that such a discretion is indeed the right of the district court and as such vacated the district court’s dismissals and remanded for the district court to determine in its discretion whether to entertain appellants’ declaratory judgment suits. VI. CONCLUSIONS
While this case is not the first to consider the scope of subject matter jursdiction for declaratory judgments since MedImmune, consistent with SanDisk and Teva Pharmaceuticals USA, Inc. v. Novartis Pharmaceuticals Corp., it emphasizes that the “reasonable apprehension” test is no longer applicable for determining whether there is an actual controversy; a declaratory judgment plaintiff does not need to establish a reasonable apprehension of a lawsuit to establish that there is an actual controversy between parties. Further, this case illustrates that proving a disagreement over patent validity and infringment is sufficient to satisfy the actual controversy requirement set out by the Supreme Court in MedImmune. Consequently, it may be relatively easy for an alleged infringer to successfully file motions for declaratory judgments in the future.
With respect to the district court’s decision to exercise its discretionary right to decline jurisdiction, the Federal Circuit’s criticism of the reasoning behind such an exercise illustrates that multiple parties simultaneously filing suit alone is not sufficient to evidence a nefarious motive of the multiple parties. Consequently, the action of multiple parties simultaneously filing suit alone is not likely to influence whether a court will apply its discretionary right to decline jursidction for a declaratory judgment.
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