Pre-issuance conduct and declaratory judgment actions in the US

In the recent case of Danisco v Novozymes, the Court of Appeals for the Federal Circuit held that the patentee’s conduct prior to issuance of a patent may be sufficient to satisfy the ‘actual controversy’ requirement to establish declaratory judgment jurisdiction (see 28 USC s. 2201(a)). The court reversed the judgment rendered by the District Court for the Northern District of California, relying on the teaching of the Supreme Court in MedImmune v Genentech and adopting a standard based on the ‘totality of the circumstances’. The panel also rejected the district court’s categorical distinction between pre and post issuance conduct.

Danisco and Novozymes are competitors in the market for industrial enzymes used to convert corn and other plant-based material into ethanol. In the past decade, Novozymes repeatedly sued Danisco for patent infringement. Danisco filed a patent application, later issued as US Patent 8,084,240, claiming a BSG alpha-amilase variant polypeptide with an E188P substitution, the active ingredient of the company’s rapid starch liquefaction products. Shortly after issuance of a Notice of Allowance of Danisco’s application, Novozymes amended one of its pending patent applications to claim the same polypeptide, requesting an interference contesting entitlement to priority of invention. The examiner rejected both the interference request and a subsequent request for continued examination. Novozymes noted that it refused to ‘acquiesce’ to or otherwise be ‘estopped’ by the examiner’s erroneous decision. On the day of issuance of Novozymes’ amended application as US Patent 8,252,573, Danisco filed the declaratory judgment action that gave rise to the present dispute.

At first instance, the district court recognized that many of the circumstances adduced by Danisco, including the parties’ status in the industry, past litigation, and the prosecution history and timing, suggested that Novozymes had pursued the E118P substitution claim in the ’573 patent with the objective of asserting it against Danisco’s products. It noted, however, that the declaratory judgment plaintiff had not provided proof of any affirmative act by Novozymes to enforce its patent rights, and that the temporal coincidence between the issuance of the patent and the filing of the declaratory judgment action suggested that Novozymes had not even had the time to take any enforcement action. The court, dismissing the action for lack of subject matter jurisdiction, concluded that ‘[w]hile matters such as a prior litigation history and statements made during prosecutions sometimes support a conclusion that an actual controversy exists, there is no precedent for finding jurisdiction based on such pre-patent issuance events alone, without any affirmative act of attempted enforcement’.

The Federal Circuit disagreed. Right from the outset, the panel clarified that the lack of specific accusations of infringement against the declaratory judgment plaintiff is not a decisive element to establish whether an actual controversy exists (citing Arkema Inc. v Honeywell International Inc.). Instead, the court recited the teaching of MedImmune, where the Supreme Court held that ‘[b]asically, the question in each case 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’. The Federal Circuit found that the prior litigation history between the companies (see 3M Co. v Avery Dennison Corp.), and the adverse positions taken during prosecution of the ‘240 and the ‘573 patents, satisfied the ‘actual controversy’ requirement as outlined by the Supreme Court. Further, the judges added that Novozymes’ response to the rejection of its interference action suggested that the company believed that Danisco’s alpha-amylase variant infringed its patent.

The court observed that ‘[t]he district court’s categorical distinction between pre- and post-issuance conduct is … irreconcilable with the Supreme Court’s insistence on applying a flexible totality of the circumstances test, its rejection of technical bright line rules in the context of justiciability, and our own precedent’. Novozymes’ conduct, in this perspective, ‘shows a preparedness and a willingness to enforce its patent rights’, which put Danisco in the position of either abandoning the production of its rapid starch liquefaction products, or running the risk of an infringement suit. This situations resembles the same dilemma that, according to MedImmune, the Declaratory Judgment Act aimed to ameliorate.

The evolution of the Federal Circuit’s approach to the ‘actual controversy’ requirement is particularly interesting. After MedImmune, the Federal Circuit definitively abandoned the formalism embedded in its ‘reasonable apprehension of suit’ standard, although it struggled to part with the idea that ‘some affirmative act by the patentee’ is indeed required (SanDisk Co. v STMicroelectronics Inc.). The present case highlights how a multiplicity of factors, including prior litigation history and pre-issuance conduct, can effectively signal the presence of a justiciable controversy between the parties. A couple of articles, here and here, provide a good overview of the matter for all interested readers.