[author: Courtenay C. Brinckerhoff]

In 3M Co. v. Avery Dennison Corp., the Federal Circuit vacated and remanded the district court’s decision to dismiss 3M’s declaratory judgment action for lack of jurisdiction. Although the Federal Circuit did not render a decision in this case, its analysis sheds light on a scenario that might support declaratory judgment jurisdiction.

The Basic Facts

• The patents at issue (Avery’s U.S. RE40,455 and U.S. RE40,700—the “Heenan patents”) are directed to retroreflective sheeting technology used in street signs.
• 3M and Avery are direct competitors in this industry and have a history of patent litigation, but not surrounding these patents.
• On March 31, 2009, Avery’s Intellectual Property Counsel telephoned 3M’s Chief Intellectual Property Counsel, and stated that “3M’s Diamond Grade DG3 sheeting products ‘may infringe’ the Heenan patents and that ‘licenses are available.’”
• Two days later, 3M informed Avery that it was rejecting the offer to license the Heenan patents.
• Avery informed 3M that Avery “had performed an analysis of 3M’s Diamond Grade DG3 product” and would “‘send claim charts,’” but never did.

The Declaratory Judgment Action

3M brought suit against Avery in June of 2010, alleging that Avery’s competing retroreflective sheeting product “infringed thirteen 3M patents.” In the same complaint, 3M sought “declaratory judgment of noninfringement, invalidity, and intervening rights concerning the Heenan patents.” On the same day that 3M filed suit, 3M called Avery “and stated that 3M would dismiss its declaratory judgment claims if Avery provided 3M with a covenant not to sue,” but Avery did not respond. In September, 3M canceled its declaratory judgment claims from its complaint, and made them in a separate action which led to the dispute on appeal.

The District Court Proceedings

 Avery moved to dismiss the declaratory judgment action, challenging the factual basis of 3M’s declaratory judgment complaint and also disputing that facts alleged were sufficient to support declaratory judgment jurisdiction. As summarized by the Federal Circuit, “[t]he district court granted Avery’s motion but, instead of resolving the disputed facts, concluded that ‘even accepting the facts as set forth by 3M,’ subject matter jurisdiction did not exist.”

Factors that the district court discounted, but the Federal Circuit thought warranted more consideration, include:

• whether the discussions between 3M and Avery created “a substantial controversy” or were too informal to support declaratory judgment jurisdiction
• whether “the passage of time between 3M’s discussions with Avery and when 3M filed its declaratory judgment action” meant that the dispute was not of sufficient immediacy to support declaratory judgment jurisdiction

 The Federal Circuit Decision

The Federal Circuit recapped the guidelines for declaratory judgment jurisdiction citing the Supreme Court’s 2007 decision in MedImmune, Inc. v. Genentech, Inc.:

[T]he dispute must be “definite and concrete, touching the legal relations of parties having adverse legal interests,” “real and substantial,” and “admi[t] 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.”

Citing even older precedent, the Federal Circuit summarized:

“Basically, 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 explained that declaratory judgment jurisdiction “typically” is evaluated in light of the requirements for standing:, which “contains three elements”:

1. The plaintiff must have suffered an injury in fact.
2. There must be a causal connection between the injury and the defendant’s conduct complained of.
3. It must be “likely” that the injury would be redressed by a favorable decision.

The Federal Circuit referred to MedImmune again, and explained that “a declaratory judgment plaintiff must allege an affirmative act by the patentee relating to the enforcement of his patent rights.”

The Federal Circuit agreed that the facts disputed by Avery were “central to the jurisdictional analysis,” and declined to “find[] those facts in the first instance.” Thus, the court vacated and remanded the district court decision.

The opinion did not end there, however. The Federal Circuit went on to explain that “the facts alleged by 3M, if true, would be sufficient to give rise to a case or controversy under the Declaratory Judgment Act.” In particular, the court noted that the following communications, “if found by the district court, would be sufficient to constitute a case or controversy between 3M and Avery:”

• 3M’s complaint alleges facts indicating that Avery effectively charged 3M with infringement of the Heenan patents
• 3M rejected Avery’s license offer
• Avery indicated that a more detailed infringement analysis was forthcoming

The Federal Circuit also noted that the passage of time was not dispositive because “the relevant circumstances” had not changed, and because the “over one year period” was understandable give the time it takes “to review a set of asserted patents, the record generated before the PTO, and the accused products before a potential infringer can make an informed decision to file a declaratory judgment complaint.”

The Federal Circuit painted this picture with the facts alleged by 3M:

That test [for declaratory judgment jurisdiction] would be satisfied here because 3M filed its declaratory judgment complaint reasonably promptly after Avery, a direct competitor with a history of enforcing its patent rights against 3M, asserted its rights in the Heenan patents against 3M and accused a specific 3M product of infringement.

Why The Advisory Opinion?

It is not clear why the Federal Circuit spent 7 full pages writing what is in effect an advisory opinion on declaratory judgment jurisdiction. The opinion was issued before the Supreme Court remanded the Myriad gene patent case to the Federal Circuit, but makes me wonder if the court will take up the standing issue again on remand. The court’s use of the term “charged with infringement” also is interesting because the new Transitional Program for Covered Business Methods that is part of the America Invents Act includes being “charged with infringement” as a basis for challenging a patent under that program. If a phone call can open up a patent to post grant review, business method patent holders may want to disconnect their phone lines!