Monday, 16 January 2012

Federal Circuit Limits Courts’ Ability To Consider Validity Of Claims Not Actually Asserted Against Defendant

In a recent case, the U.S. Court of Appeals for the Federal Circuit sharply restricted a common litigation strategy used by defendants in the U.S.: responding to a patent infringement complaint by filing a declaratory judgment counterclaim alleging that all claims in the asserted patents are invalid. In Streck, Inc. v. Research & Diagnostic Systems, Inc., No. 2011-1044, ____ F.3d ___ (Fed. Cir. Jan. 10, 2012), the appeals court held that a defendant generally cannot maintain such a broad-brush counterclaim after the plaintiff formally restricts its infringement contentions to specific claims.

Facts:  Streck sued R&DS for infringement of three patents covering hematology control technology, including U.S. Patent No. 6,200,500 (the ‘500 patent). Streck’s initial pleading alleged that R&DS infringed the patents without identifying the specific claims alleged, as is common in U.S. pleading practice. R&DS then asserted a broad declaratory judgment counterclaim, seeking a declaration that the asserted claims in the patents were not infringed and invalid. Such counterclaims are compulsory under the Federal Rules of Civil Procedure, and commonly are asserted by defendants to gain leverage in the event that a plaintiff seeks to limit its infringement claim to specific claims in the asserted patents. Later, Streck and R&DS agreed that their litigation, although pending in Nebraska, would be governed by the Local Patent Rules adopted in the U.S. District Court for the Northern District of California. Those local rules require the patentee to make binding disclosures concerning the claims it actually contends are infringed. Under those rules, Streck identified 13 claims it contended were infringed, and later amended its disclosures to identify only nine claims. Nonetheless, R&DS sought a declaration of invalidity and noninfringement on all but one of the over eighty claims in the three patents-in-suit. When the district court declined to submit R&DS’ declaratory judgment claims to the jury, R&DS appealed to the Federal Circuit.

CAFC Decision:  The Federal Circuit noted that in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007), the Supreme Court rejected the former “reasonable apprehension” test in determining whether an actual case or controversy exists for purposes of establishing declaratory judgment jurisdiction. Instead, an actual controversy exists when a dispute is:

[D]efinite 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.

MedImmune, 549 U.S. at 127 (citations and quotations omitted). Applying that standard, the court ruled that R&DS’ contentions concerning non-asserted claims in the Streck patents lacked an actual controversy after Streck formally disclosed, under that applicable rules, that it was dropping the claims from its contentions, and R&DS could not establish an alternative basis for finding a live controversy. Thus, under MedImmune, “a [declaratory judgment] counterclaimant must show a continuing case or controversy with respect to withdrawn or otherwise unasserted claims.” Streck, at 20. In addition, in order to establish declaratory judgment jurisdiction, the defendant-counterclaimant must show that the actual controversy existed at the time the action commenced and continued through until the time of trial.

The court distinguished the situation where litigants stipulate to “representative” claims, which are tried as a proxy for all claims in a patent. The Federal Circuit indicated that a district court has declaratory judgment jurisdiction over all claims in an asserted patent when the parties stipulate that a few claims will be “representative” for purposes of the litigation. See Scanner Technologies Corp. v. ICOS Vision Systems Corp., 528 F.3d 1365, 1382-83 (Fed. Cir. 2008)(stipulation to representative claims does not limit court’s jurisdiction to hold all claims in patent invalid). In the present case, however, Streck formally limited its infringement contentions to specific claims in the patent-in-suit. Furthermore, R&DS failed to show that an actual controversy continued to exist as to the non-asserted claims.

As a result of this decision, defendants hoping to gain leverage by maintaining invalidity counterclaims against a broad group of claims, including non-asserted claims, cannot merely rely on the fact that such counterclaims are compulsory. Instead, they must independently show that all the claims are the subject of an actual controversy, such as be demonstrating that a concrete dispute exists between the parties on the defendant’s ability to lawfully operate without infringing the claims. See, e.g., Sandisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1380 (Fed. Cir. 2007).

No comments: