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The Federal Circuit Puts Another Nail in the Coffin of Declaratory Judgment Actions

Stan Gibson's Notes from the Inventor Underground

The Federal Circuit Puts Another Nail in the Coffin of Declaratory Judgment Actions

Patent and Technology trial lawyer Stan Gibson discusses why companies will forestall initiating defensive litigation unless they are fairly certain that an infringement action will be filed.

Matthews International Corporation (“Matthews”) filed an action for declaratory judgment and injunctive relief based on an accusation that its product infringed certain patents of a third-party.  Matthews provides products in the so-called “death care” industry, including manufacturing cremation equipment, caskets and memorials, which it sells to funeral homes.  One of the products, marketed as “Bio Cremation,” uses an alkaline hydrolysis process rather than incineration to cremate human remains.  Matthews advertises Bio Cremation as an environmentally friendly alternative to traditional incineration based cremation.  Resomation manufactures and licenses equipment that employs an alkaline hydrolysis process to dispose of human remains.  Resomation granted Matthews an exclusive license to market and sell its alkaline hydrolysis equipment in the United States.

A third company, Biosafe Engineering , LLC (“Biosafe”) acquired several patents pertaining to the application of alkaline hydrolysis to the disposal of various types of wastes, such as medical waste, infectious agents and hazardous materials.  After Biosafe accused Matthews of violating its patents and for false advertising, Matthews filed suit against Biosafe seeking a declaration of non-infringement, invalidity and unenforceability as well as claims of trade libel, defamation and tortious interference with contractual relations.

As explained by the Federal Circuit, Matthews’ amended complaint made the following allegations “[i]n its amended complaint, Matthews alleged that Biosafe had ‘wrongly accused Matthews of patent infringement, and ha[d] made false accusations about Matthews to [Matthews’] customers, potential customers, and employees.’  Matthews asserted that during a December 2008 telephone conversation, Biosafe’s president, Bradley Crain, told Steven Schaal, an official at Matthews’ cremation division, ‘that [Matthews’] sale of Resomation/Bio Cremation™ equipment would infringe [Biosafe’s ] alleged intellectual property rights.’  Matthews’ attorney thereafter sent Biosafe a letter, dated December 31, 2008, requesting that Biosafe ‘detail [its] concerns in writing’ regarding possible patent infringement by Matthews’ cremation products.”  The complaint also included these additional allegations: “Matthews’ amended complaint further alleged that Biosafe had ‘launched a bad faith whispering campaign in the funeral home marketplace, by making accusations and veiled threats to potential customers that [Matthews’] Bio Cremation™ equipment’ infringed Biosafe’s patents.  Matthews asserted, moreover, that one of its customers, Stewart Enterprises, Inc., told Matthews that it was reluctant to buy the Bio Cremation™ equipment because of the accusations made by Biosafe.”

Biosafe moved to dismiss the declaratory judgment action, asserting that Matthews’ allegations failed to demonstrate the immediacy required for the support of declaratory judgment jurisdiction.  The district court agreed and dismissed the complaint.

In analyzing whether the district court was correct in dismissing the declaratory judgment complaint, the Federal Circuit first noted that “[t]here is…no facile, all-purpose standard to police the line between declaratory judgment actions which satisfy the case or controversy requirement and those that do not.  Cat Tech,  528 F.3d at 879.  Accordingly, in determining whether a justifiable controversy is present, the analysis must be calibrated to the particular facts of each case, with the fundamental inquiry being ‘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.’  MedImmune, 549 U.S. at 127 (footnote omitted) (citations and internal quotation marks omitted); see Cat Tech, 528 F.3d at 879.  Here, as the trial court correctly concluded, Matthews’ dispute with Biosafe lacks the requisite immediacy and reality to support the exercise of declaratory judgment jurisdiction.”

The Federal Circuit then found that there was no immediacy because there was no evidence as to when, if ever, the Bio Cremation equipment would be used in an infringing manner.  “Matthews’ dispute with Biosafe lacks immediacy because there is no evidence as to when, if ever, the Bio Cremation™ equipment will be used in a manner that could potentially infringe the Method Patents.  Matthews has taken no steps toward direct infringement of those patents.  Although it sells the Bio Cremation™ equipment, it does not practice any of the methods disclosed in the Method patents, and cannot, therefore, be held liable for direct infringement.”

The Federal Circuit also found that there was no future potential infringement by Matthews’ customers that was sufficiently immediate to support jurisdiction.  “Matthews had sold three Bio Cremation™ units to customers.  None of these units, however, had been installed in customers’ facilities.  Significantly, the Bio Cremation™ equipment can be operated using parameters– related to such items as temperature and pressure settings as well as to pH levels–that do not infringe the Method Patents.  Given that Matthews has alleged no facts regarding whether its customers plan to operate the Bio Cremation™ equipment in a manner that could even arguably infringe the Method Patents, its dispute with Biosafe is too remote and speculative to support the exercise of declaratory judgment jurisdiction.”

As explained in more detail, based on the alleged facts, the Federal Circuit also found that Matthews failed to satisfy the reality requirement because the equipment could be operated in a variety of ways, some of which would not infringe the method patents.  “As both Biosafe and Matthews acknowledge, the Bio Cremation™ equipment can be operated using a variety of process parameters, some of which would not infringe the Method Patents.  See Br. of Defendants-Appellees at 8-9 (‘Each of the independent claims of the Method Patents has clearly stated operating parameters that can be avoided to perform alkaline hydrolysis of a deceased human.’); Br. of Plaintiff-Appellant at 26-27 (‘[I]t is the essence of Matthews’s case that Bio Cremation™ does operate outside of [Biosafe’s] patents.’).  Since Matthews has never provided information regarding the specific parameters under which its units will likely be operated, it would be impossible to determine whether such operation could meet the claim limitations contained in the Method Patents.  As we explained in Benitec, a party has no right to obtain declaratory relief when it provides ‘insufficient information for a court to assess whether [its future activities] would be infringing or not.’  495 F.3d at 1349.”

The Federal Circuit also concluded that the system patents could not support jurisdiction because they did not issue until after the complaint was filed.  Because the district court had no jurisdiction over the method patents in the original complaint, it also had no jurisdiction to consider patents that issued after the complaint was filed.  “It has long been the case that the jurisdiction of the court depends upon the state of things at the time of the action brought.  Grupo Dataflux v. Atlas Global Grp., L.P., 541 U.S. 567, 570-71 (2004) (citations and internal quotation marks omitted); see also GAF Bldg. Materials Corp. v. Elk Corp., 90 F.3d 479, 483 (Fed. Cir. 1996) (‘[L]ater events may not create jurisdiction where none existed at the time of filing.’ (citations and internal quotation marks omitted)).  Thus, as the trial court correctly concluded, absent ‘predicate jurisdiction’ based upon the Method Patents, it had no authority to exercise jurisdiction over the System Patent.”

Finally, the Federal Circuit addressed the remaining state law claims for trade libel, defamation, and tortious interference with contractual relations.  Again, the Federal Circuit concluded that these claims were not ripe.  “As noted previously, in order to ascertain whether Biosafe’s infringement allegations were made in ‘bad faith,’ the trial court would be required to determine whether those allegations were objectively baseless.  The court would have no basis for determining whether Biosafe’s infringement allegations were objectively baseless, however, until it had some particularized knowledge as to how Matthew’s customers planned to operate the Bio Cremation™ equipment.  Thus, until some specific evidence regarding the operating parameters for the Bio Cremation™ units is available, any determination as to whether Biosafe acted unreasonably in asserting infringement would be premature.  See Texas v. United States, 523 U.S. 296, 300 (1998) (‘A claim is not ripe for adjudication if it rests upon contingent future events that may not occur as anticipated, or indeed may not occur at all.’) (citations and internal quotation marks omitted).

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As the Federal Circuit continues to restrict declaratory judgment actions by requiring strict adherence to the immediacy and reality requirements, it is likely that declaratory judgment actions will further decline.   Indeed, without specific evidence to satisfy the twin requirements of immediacy and reality, it is likely that an action seeking a declaratory judgment will be dismissed.  This will make it increasingly likely that companies will forestall initiating defensive litigation unless they are fairly certain that an infringement action will be filed.