Companies charged with patent infringement often make use of the federal Declaratory Judgment Act to attack the validity and enforceability of patents. In Benitec Australia, Ltd. v. Nucleonics, Inc., 2007 WL 2069646 (Fed. Cir. 2007), the Federal Circuit limited the circumstances under which such claims may be advanced. Specifically, the court has made it plain that an actual, substantial, and immediate controversy must exist before a claim for declaratory relief will be entertained by a federal court. If the initial claim for infringement is rendered moot by dismissal or otherwise, the counterclaim for invalidity will also, in all likelihood, be dismissed unless the party asserting such a claim can establish that a substantial, actual, and real controversy still exists.
Benitec and Nucleonics are both biotechnology companies involved in “gene silencing,” where disease-causing genes are “switched off” by a mechanism other than genetic modification. Benitec sued Nucleonics for infringing a patent related to RNA-based disease therapy. Nucleonics moved to dismiss the complaint, arguing that the court did not have jurisdiction because Benitec’s claim was based on Nucleonic’s development and submission of information to the FDA. Nucleonics asserted that no controversy had actually yet arisen, given that no new drug application had been submitted to the FDA and no competing product had yet been manufactured or marketed. Nucleonics also sought leave of court to amend its answer and add declaratory relief counterclaims alleging invalidity and unenforceability based upon alleged inventorship fraud. Benitec moved to dismiss its own patent-infringement claim on the grounds that the Supreme Court’s decision in Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005), expanded the pharmaceutical research exception to the patent laws, calling into question whether it did have a viable claim. The district court then denied Nucleonics’ request for leave to amend for lack of jurisdiction under the Declaratory Judgment Act.
The Federal Circuit affirmed the dismissal of Nucleonics’ counterclaims for declaratory judgment and in doing so, the court clarified the prerequisites for seeking declaratory relief. In large measure, the court’s analysis was prompted by the Supreme Court’s 2007 decision in MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007), where the Supreme Court disapproved the Federal Circuit’s previous use of the “reasonable
apprehension of imminent suit” test for determining declaratory judgment jurisdiction. The court noted that parties cannot invoke the Declaratory Judgment Act to seek what amounts to an advisory an opinion regarding “what the law would be upon a hypothetical state of facts.” Applying MedImmune, the Federal Circuit concluded that a party seeking declaratory relief under the Declaratory Judgment Act has the burden of demonstrating that when the claim is filed, there is a substantial controversy with sufficient immediacy and reality to warrant a declaratory judgment. The court did indicate that if a defendant had been charged with actual infringement of a patent, the substantial controversy requirement will be met.
While Nucleonics had been sued for patent infringement, Benitec’s subsequent dismissal of its claim proved to be Nucleonics’ undoing. The Federal Circuit made it clear that to seek declaratory relief, a substantial controversy must also continue throughout the litigation. Benitec properly dismissed its patent infringement claim because Nucleonic’s actions in developing and submitting information to the FDA prior to filing a new drug application were not a legitimate basis for asserting patent infringement. Under the Supreme Court’s decision in Merck, no infringement case would arise until after Nucleonics actually filed a new drug application with the FDA. The Federal Circuit ruled that “the fact that Nucleonics may file [a new drug application] in a few years does not provide the immediacy and reality required for a declaratory judgment.”
One judge dissented from the decision, asserting that “a different test for determining whether there is a case or controversy applies when the allegation of infringement is withdrawn during the course of litigation.” Specifically, the dissenting judge contended that under the Supreme Court’s decision in Cardinal Chem. Co. v. Morton Int’l, Inc., 508 U.S. 83, 98 (1993), if an infringement claim is mooted, an invalidity counterclaim should not be dismissed unless the patent holder demonstrates that there is no possibility of a future controversy with respect to invalidity. The Supreme Court may yet weigh in on this complex intersection of patent and declaratory judgment jurisprudence. In the meantime, the decision in Benitec will limit the circumstances under which a party charged with infringement will be able to assert a declaratory judgment counterclaim for invalidity.
Full Opinion Text: http://fedcir.gov/opinions/06-1122.pdf