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The implications of ‘Danisco’ for patent owners

1222neih_13_Browning_LechnerCourts have found that a wide variety of actions by a patentee may be sufficient to generate a “case or controversy” establishing jurisdiction for a declaratory judgment action. But what about actions by a patentee prior to the issuance of the patent? Can such actions create a justiciable case or controversy regarding a later-issued patent even though they took place before the issued patent existed?

As explained in the Federal Circuit’s recent decision in Danisco U.S. Inc. v. Novozymes A/S, pre-patent issuance conduct such as past litigation, conduct during prosecution, and the parties’ status as competitors can establish the existence of a case or controversy even though the patent in dispute has not yet issued.

As a result, patent owners must consider their pre-patent issuance actions when assessing the risk that they may later face a declaratory judgment action.

This article looks at the Federal Circuit’s Danisco decision and its implications for patent owners.

Actual vs. potential controversies

In 1934, Congress enacted the Federal Declaratory Judgment Act to provide parties with a procedure to determine their rights and duties before injury occurred. See generally S. REP. NO. 1005 (1934).

Significantly, this preventative relief is limited to actual, not potential, controversies. 28 U.S.C. §2201(a); see also Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 240-41 (1937) (explaining that the phrase “case of actual controversy” in the act refers to the type of “cases” and “controversies” that are justiciable under Article III).

What may constitute an “actual controversy” sufficient to establish declaratory judgment jurisdiction, however, has evolved over the years, and recent judicial decisions have considered an increasingly broad range of conduct in this analysis.

The Federal Circuit’s decision in Danisco now establishes that conduct prior to patent issuance may establish declaratory judgment jurisdiction.

How ‘Danisco’ changed the law

Before 2007, the Federal Circuit employed a “reasonable-apprehension-of-suit” test in assessing declaratory judgment jurisdiction. See, e.g., Medimmune, Inc. v. Genentech, Inc., 427 F.3d 958, 964 (Fed. Cir. 2005), rev’d and remanded, 549 U.S. 118 (2007).

To satisfy the test, the declaratory judgment plaintiff had to prove: (i) reasonable apprehension of a patent infringement suit; and (ii) present activity that could constitute infringement.

In Medimmune, the Federal Circuit applied the “reasonable-apprehension-of-suit” test in affirming the District Court’s holding that MedImmune had not established the existence of a justiciable case or controversy.

The case related to Genetech’s license to Medimmune under its U.S. Patent No. 4,816,567 (Cabilly I), and a then-pending continuation application (Cabilly II). When Cabilly II issued in 2001, Genentech demanded that MedImmune pay additional royalties under the parties’ agreement because Cabilly II covered Synagis®, MedImmune’s most successful product.

Although MedImmune contended Cabilly II was invalid and unenforceable, it also believed it would be sued for patent infringement if it stopped paying royalties, exposing it to the threat of treble damages, attorneys’ fees, and an injunction from selling Synagis®.

Faced with that predicament, MedImmune continued to pay royalties, but filed a declaratory judgment action challenging the validity of Cabilly II. MedImmune conceded there was no apprehension of suit, but nonetheless argued a controversy existed because Genentech could file suit if it stopped royalty payments.

The District Court disagreed, finding no justiciable controversy, and the Federal Circuit affirmed that determination.

The Federal Circuit concluded that Med-Immune did not satisfy the “reasonable-apprehension-of-suit” test because it was a licensee in good standing under no threat or apprehension of suit.

On appeal, the U.S. Supreme Court reversed, holding that a patent licensee need not breach or terminate its license agreement before filing a declaratory judgment action concerning non-infringement, invalidity or unenforceability of a licensed patent.

The court explained that its past decisions relating to governmental coercion established that it is not necessary for a plaintiff fearing government action to risk liability before raising a justiciable challenge to the constitutionality of a law threatened to be enforced.

The court further pointed out that, in the context of private-party coercion, it had previously found a patent validity dispute justiciable even where the licensee continued to pay royalties in order to avoid a threatened injunction.

Furthermore, the Supreme Court criticized the Federal Circuit’s “reasonable apprehension” test, which conflicted with the court’s earlier decisions permitting jurisdiction where the declaratory judgment plaintiff had no reasonable apprehension of suit.

The court reaffirmed that the proper test was whether the totality of the circumstances established an actual controversy.

In Danisco U.S. Inc. v. Novozymes A/S, 744 F.3d 1325 (Fed. Cir. 2014), the Federal Circuit held that, in assessing justiciability of a declaratory judgment action, the “totality of the circumstances” may include conduct occurring prior to patent issuance.

Danisco and Novozymes compete in the business of developing and supplying Rapid Starch Liquefaction (or RSL) products, which are genetically modified industrial enzymes used in converting plant-based material into ethanol. Both companies have patents that claim modified enzymes and, since 2001, Novozymes has sued Danisco (or its predecessors in interest) numerous times for patent infringement.

Danisco owns US Patent No. 8,084,240 (“the ’240 patent”), which covers the modified enzyme in its RSL products. When the PTO issued a notice of allowance in the application that later issued as the ’240 patent, Novozymes attempted to provoke an interference by amending one of its then-pending patent applications to claim the modified enzyme covered by Danisco’s ’240 patent.

The examiner, however, denied Novozymes’ request, disagreeing with Novozymes’ argument that its amended claim covered the enzyme specified in Danisco’s then-pending claim.

Then, after the ’240 patent issued, Novozymes again requested an interference, and the examiner again denied that request. Novozymes subsequently submitted public comments to the PTO representing that, in its opinion, Danisco’s ’240 patent covered the same subject matter as Novozymes’ claim, which later issued in US Patent No. 8,252,573 (“the ’573 patent”).

The same day that the ’573 patent issued, Danisco filed suit seeking declaratory relief of non-infringement, invalidity of the ’573 patent, and priority of the ’240 patent over the ’573 patent.

Novozymes moved to dismiss Danisco’s complaint for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1).

The District Court acknowledged that the parties’ competitor status, past litigation, and conduct during prosecution history might support a reasonable inference that Novozymes pursued the ’573 patent with the hope of “wielding it against” Danisco’s RSL products. Danisco U.S. Inc. v. Novozymes A/S, No. C 12-4502 RS, 2013 WL 2351723, at *2 (N.D. Cal. Jan. 8, 2013) rev’d in part, vacated in part, 744 F.3d 1325 (Fed. Cir. 2014).

The court nonetheless granted Novozymes’ motion. In the District Court’s view, there was no Article III case or controversy because Novozymes had not taken any affirmative act to enforce its patent rights.

The court further concluded that even though prior litigation history and statements made during prosecution can demonstrate an actual controversy exists, “there is no precedent for finding jurisdiction based on such pre-patent issuance events alone, without any affirmative act of attempted enforcement.”

The Federal Circuit reversed, holding that the facts established a justiciable controversy. Citing MedImmune’s Footnote 11, the Federal Circuit explained that “Article III does not mandate that the declaratory judgment defendant have threatened litigation or otherwise taken action to enforce its rights before a justiciable controversy can arise.” Instead, the plaintiff need only demonstrate a definite and concrete patent dispute exists between the parties.

In the Federal Circuit’s view, the totality of the circumstances demonstrated the existence of a definite and concrete patent dispute. For example, Novozymes insisted on multiple occasions that its ’573 patent covers the modified enzyme in Danisco’s RSL products.

Novozymes, moreover, sought the ’573 patent because it believed that Danisco’s products would infringe once it issued and twice asserted Danisco’s ’240 patent was invalid.

Danisco, on the other hand, had taken a legal position opposed to Novozymes, i.e., that it successfully prosecuted the ’240 patent and that its RSL products do not infringe the ’573 patent.

The Federal Circuit also noted that Novozymes never offered any assurance, such as a covenant not to sue, that it would not accuse Danisco’s RSL products of infringement. As a result, the parties’ past litigation, status as competitors, and the likelihood that they would be “at war over patents” involving genetically modified enzymes for the foreseeable future established the existence of a justiciable controversy.

Lastly, the Federal Circuit criticized the District Court’s categorical distinction between pre- and post-issuance conduct as irreconcilable with the Supreme Court’s flexible totality of the circumstances test.

The Federal Circuit emphasized that it never held that pre-issuance conduct cannot constitute an affirmative act, or that only affirmative acts sufficient to create an actual controversy are implied or express enforcement threats.

Consequently, the Federal Circuit concluded that pre-patent issuance conduct can establish declaratory judgment jurisdiction under the totality of the circumstances test.

Takeaways from ‘Danisco’

In line with MedImmune, establishing an actual controversy for declaratory judgment purposes following Danisco remains a highly fact-dependent inquiry.

Danisco, however, arguably broadens the circumstances under which a party may establish declaratory judgment jurisdiction by holding that pre-patent issuance conduct, standing alone, may be sufficient.

Against this backdrop, patentees must consider factors such as their past litigation, conduct during prosecution, and competitor status in the declaratory judgment analysis, for they could establish an Article III case or controversy once the patent in dispute eventually issues.

Paul W. Browning Ph.D., is a partner at Finnegan, Henderson, Farrabow, Garrett & Dunner. He focuses on patent litigation and appeals, primarily in the chemical and pharmaceutical areas. Jolie D. Lechner, Ph.D., is an associate at the firm. She assists with District Court litigation, patent prosecution and client counseling in the pharmaceutical and chemical fields.

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