If your company wants to initiate a suit for a declaratory judgment that a planned product will not infringe a patent of another, then it is necessary to demonstrate that your business has taken “meaningful preparations” to conduct potentially infringing activity before filing suit.
Until recently, the Federal Circuit applied a two-prong test for determining the existence of declaratory judgment authority: (1) whether conduct by the patentee created a “reasonable apprehension” of a lawsuit filed by the declaratory judgment plaintiff; and (2) whether there had been “meaningful preparation” by the party seeking a declaratory judgment to conduct potentially infringing activity.
In a unanimous decision, the Federal Circuit in Cat Tech LLC v. TubeMaster, Inc., No. 07-1443 (Fed. Cir. 2008) clarified the second prong of the legal standard for the availability of declaratory relief in patent cases. The ramification of this case is discussed in more detail below.
In 2007, the U.S. Supreme Court in MedImmune v. Genetech, 549 U.S. 118 (2007), modified the first prong. The Supreme Court allowed a patent licensee to sue its licensor for a declaratory judgment of patent invalidity or unenforceability, without first requiring the licensee to repudiate the license.
The Supreme Court relaxed the first prong by changing it from “reasonable apprehension” to “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.”

Reshaped first prong

In the wake of MedImmune, several opinions of the Federal Circuit have reshaped the contours of the first prong.
For example, in Micron Technology, Inc. v. MOSAID Technologies, Inc., 518 F.3d 897 (Fed. Cir. 2008), the Federal Circuit reversed the lower court’s use of the “reasonable apprehension” test. Although the lower court noted the patentee’s pattern of serial litigation, it said there were no threats against Micron or its customers for the last four years, and no public comments from the patentee that mentioned Micron by name.
The Federal Circuit reversed, determining that a court has to look at “all the circumstances,” which in this case included the patent holder’s pattern of serial litigation; letters over four years old soliciting manufacturers to accept licenses; public statements; and annual reports that confirmed it would continue an aggressive litigation strategy.
The patentee’s filing of a suit in the U.S. District Court, Eastern District of Texas two days after Micron filed its complaint in California provided additional support that a substantial controversy existed.
In another example, Sony Electronics, Inc. v. Guardian Media Techs., Ltd, 497 F.3d 1271 (Fed. Cir. 2007), the Federal Circuit rejected the patentee’s argument there can be no jurisdiction when the patentee was at all times willing to negotiate a business resolution to a dispute.
The patentee asserted it was owed royalties based on specific past and ongoing activities. The Federal Circuit recognized that even if the parties’ interactions could be characterized as “negotiations,” an accused infringer is still not prevented from maintaining a declaratory judgment suit.

Second prong explained

In Cat Tech, the Federal Circuit weighed in on the viability of the second prong of the jurisdiction test.
The court said that “meaningful preparation to conduct potentially infringing activity remains an important element in the totality of circumstances which must be considered in determining whether a declaratory judgment is appropriate. If a declaratory judgment plaintiff has not taken significant, concrete steps to conduct infringing activity, the dispute is neither ‘immediate’ nor ‘real’ and the requirements for justiciability have not been met.”
In Cat Tech, the Federal Circuit, in affirming the lower court’s judgment of non-infringement, held that an actual controversy existed under the Declaratory Judgment Act.
The parties did not dispute the first prong of the legal standard, but instead focused on whether the meaningful preparations were “immediate” and “real.”
In Cat Tech, the patented technology in dispute concerned a method of using a catalyst-loading device to simultaneously load thousands of tube reactors. The declaratory judgment plaintiff, TubeMaster, designed four configurations for the loading devices by using AutoCAD drawings, successfully manufactured one of the configurations, and was ready to deliver products under any configuration within a normal delivery schedule after receiving an order.
Because TubeMaster’s loading device designs were customized based on the dimensions of each customer’s reactor, it could take no further steps toward manufacturing its loading devices until it received an order from a customer.
The Federal Circuit found that a real and immediate controversy existed between the parties. The court said a party does not have to engage in the sale of a potentially infringing product, create any sales literature, or advertise it to potential customers. Instead, the “immediacy” aspect of meaningful preparation was shown from creating AutoCAD drawings of configurations that were ready to produce as soon as TubeMaster received customer orders.
The “reality” aspect of meaningful preparation was satisfied because the technology was substantially fixed in that it was unlikely that TubeMaster would make any modifications to the potentially infringing features. Generally, jurisdictional reality requirements are not met where the development of the technology in question is at an early stage and its design is “fluid and indeterminate” when the complaint is filed.
In its decision, the Federal Circuit concluded that its interpretation of “meaningful preparation” serves the objectives of the Declaratory Judgment Act. Without such an action, “TubeMaster would have been forced to ‘bet the farm’ by making the ‘in terrorem choice’ between a growing potential liability to [the patent holder] and abandoning its catalyst loading activities,” the court said.

Conclusion

The more relaxed legal standard for filing a declaratory judgment action enhances its availability in patent cases.
The Cat Tech decision suggests the requirements of “meaningful preparation” have not changed. Thus, if a patent threatens your company, and your company takes meaningful preparations to conduct potentially infringing activity, you may be able to file a declaratory judgment action without having to bring your technology into the market place and risk treble damages.
There are numerous benefits to pursuing a declaratory judgment action. In addition to limiting liability and helping conclude unduly prolonged negotiations and remaining doubts in the mind of the accused infringer whether to make future investments, a declaratory judgment action allows a plaintiff to select a convenient forum.
Travel costs to a distant courthouse can be substantial, and a party litigating in a distant forum may have to hire a local attorney, if required by the local rules, in addition to its regular patent litigation counsel.
And distant juries sometimes prefer the “home town” party over the foreigner.

Steven Coyle is a partner at Cantor Colburn LLP (www.cantorcolburn.com), one of the largest full-service intellectual property law firms in America, providing clients around the world with the services that allow them to enjoy the full value of their intellectual property assets. Steven practices litigation in the firm’s Hartford, Conn. office, with a focus on all areas of intellectual property litigation, including patent, copyright, trademark, and trade secrets. He can be reached at [email protected].
James Cummings is an associate at Cantor Colburn LLP. His practice includes intellectual property litigation. He can be reached at [email protected].