By Kevin E. Noonan --
The Federal Circuit addressed the contours of federal court declaratory judgment jurisdiction in light of the recent U.S. Supreme Court holding in MedImmune,Inc. v. Genentech, Inc. in a decision last week in Benitec Australia, Ltd. v. Nucleonics, Inc. Although the Federal Circuit's application of the law was uneventful, it was the dissent, by Judge Dyk, that suggested another front may be opening in the Court's decade-long effort to facilitate invalidating patents improvidently granted or to hold unenforceable patents obtained through inequitable conduct.
The case involved a patent infringement suit brought against Nucleonics by Benitec over U.S. Patent No. 6,573,099. The case is noteworthy also because it is one of the first to be brought over a relatively new area of biotechnology, RNA interference (RNAi), or as the Federal Circuit termed it, "gene silencing" technology. Benitec's infringement case became mooted by the Supreme Court's "expansive" reading of the safe harbor exemption to infringement found in 35 U.S.C. § 271(e)(1), in the Court's Merck KGaA v. Integra Life Sciences decision (see "Merck v. Integra: The Supreme Court Misses a Golden Opportunity"), since Nucleonics was practicing the technology well within the confines of the Supreme Court's explication of the boundaries of the safe harbor. Indeed, Benitec moved that its infringement case be dismissed, and the District Court granted the motion. However, during discovery in the case prior to the motion to dismiss, Nucleonics became aware that the patent failed to name all of the rightful inventors and allegedly also uncovered evidence that this failure was not without deceptive intent. Nucleonics initiated two different re-examination proceedings against the '099 patent, and amended its answer to assert counterclaims of invalidity and unenforceability.
The District Court dismissed Nucleonics' counterclaims on the basis that the court did not have jurisdiction under the Declaratory Judgments Act, because the grounds for Benitec's infringement case had evaporated in view of the Merck decision. The District Court also found Nucleonics' unchallenged assertions that it "intended" to perform research on veterinary and animal husbandry applications of RNAi technology, actions that would fall within an exception to the § 271(e)(1) exemption on infringement, to be insufficient to support continued declaratory judgment jurisdiction.
The Federal Circuit first acknowledged that the Supreme Court "disapproved" of its prior "reasonable apprehension of imminent suit" test in the MedImmune decision (see "MedImmune, Inc. v. Genentech, Inc. (2007)"). The Federal Circuit, however, distinguished any application of that decision to imply disapproval of its own extensive jurisprudence of holding as moot counterclaims of invalidity or unenforceability after a finding of non-infringement. While recognizing the strong public policy behind a judicial determination of invalidity or unenforceability in appropriate circumstances, the CAFC held that the requirements of Article III jurisdiction contained in the Declaratory Judgments Act, even when interpreted under the Supreme Court's MedImmune decision, included that there be an underlying dispute between the parties to trigger jurisdiction (In distinguishing the dissent's citation of Cardinal Chemical, the majority found that decision to be directed to Federal Circuit appellate jurisdiction, while this decision concerned the Article III basis for the trial court's jurisdiction). The Federal Circuit further distinguished its own post-MedImmune decisions, such as SanDisk Corp. v. STMicroelectronics, Inc. (see "Is It Time for the Supreme Court to Stop Flogging the Federal Circuit?"), where the patentee averred it did not intend to initiate suit (as opposed to promising or covenanting not to do so), with the situation in this case, where Nucleonics' actions fell within the statutory safe harbor. The Federal Circuit was also unpersuaded by Nucleonics' proposed animal-related (and putatively infringing) activities, since Nucleonics did not establish that it in fact had actually entered into any agreements or performed any acts that were in fact infringing. The CAFC held that MedImmune had not absolved declaratory judgment plaintiffs from the burden of establishing that there was an underlying controversy between the parties that created a cause of action for the declaratory judgment defendant. Because Nucleonics had "not made a showing of 'sufficient immediacy and reality' to support declaratory judgment jurisdiction," the Federal Circuit affirmed dismissal of Nucleonics' declaratory judgment counterclaims.
Judge Dyk dissented, and the basis for his dissent is the interesting portion of the opinion. In Judge Dyk's view, dismissal might have been appropriate had the case been filed under the circumstances (factual and jurisprudential) existing at present. However, in a case where a patentee brings an infringement suit that is countered by declaratory judgment counterclaims of invalidity or unenforceability, voluntary withdrawal of the complaint by the patentee should not preclude jurisdiction on the counterclaims, unless the patentee can show no future possibility of a controversy over patent validity, which in his view Benitec had not done.
The basis for this dissenting opinion is the Supreme Court's Cardinal Chem. Co. v. Morton Int'l, Inc. case, where the Supreme Court overturned the Federal Circuit's practice of finding invalidity counterclaims mooted by a jury verdict of non-infringement. In Cardinal Chemical, the Court was concerned that "declining jurisdiction over invalidity counterclaims 'creates [the] potential for relitigation and imposes ongoing burdens on competitors who are convinced that a patent [is] invalid'." In this case, Judge Dyk noted that, as in SanDisk, the patentee plaintiff did not promise or covenant not to sue; indeed, Benitec's dismissal was limited to acts prior to the filing of its motion to dismiss, and further limited to acts falling under the § 271(e)(1) exemption. Thus, in his view there continued to be a basis for future controversy between the parties (and possibly a current controversy based on animal-related research). Equally important is the likelihood that the plaintiff was motivated by a desire to avoid a finding that its patent was invalid or unenforceable. "[T]here is an important public interest in protecting the legal system against manipulation by parties, especially those prone to involvement in repeat litigation, who might contrive to moot cases that otherwise would be likely to produce unfavorable precedents" citing Hart and Wechsler, The Federal Courts and the Federal System 204 (5th ed. 2003). Judge Dyk also voiced a concern that uncertainty about whether Nucleonics would be subject to reinstatement of Benitec's patent infringement suit in the future would impinge on its ability to attract investment in its technology.
The concerns voiced by Judge Dyk in his dissent echo concerns in other Federal Circuit cases over the negative effect of invalid patents or those obtained by inequitable conduct on innovation and the competency of the patent system. They also mirror the assertions by some that the Patent and Trademark Office has issued invalid patents or that patent practitioners engage in inequitable conduct to obtain patents. Although evidence supporting these allegations is either scanty or subject to interpretation or debate, the fact that Judge Dyk (and perhaps other Circuit Judges) may share these concerns amounts to yet another reason for patentees to worry about the continued viability of the U.S. patent system to protect their interests.
Benitec Australia, Ltd. v. Nucleonics, Inc. (Fed. Cir. 2007)
Panel: Circuit Judges Rader and Dyk and District Judge Whyte
Opinion by District Judge Whyte; dissenting opinion by Circuit Judge Dyk
Additional information regarding this case can be found at Patently-O.