Looming specter of litigation creates sufficient uncertainty for declaratory judgment action

Electronics for Imaging v. Coyle (Fed. Cir. 2005) [pdf]. 

By Dennis Crouch

EFI makes controllers for network printing.  Coyle obtained patents on his network printing inventions and informed EFI that it was (allegedly) violating his patent.

Coyle began to pressure EFI on an almost daily basis, threatening to drive EFI out of business. EFI alleges that Coyle repeatedly warned that he would bring multiple lawsuits, stating that “we’ll sue all of your customers” and “bad things are going to happen.”  Coyle even identified specific attorneys and law firms in support of his litigation threats.

EFI sued for declaratory judgment.  The district court, however, dismissed the action. EFI appealed to the Federal Circuit.

A declaratory action allows a party “who is reasonably at legal risk because of an unresolved dispute, to obtain judicial resolution of that dispute without having to await the commencement of legal action by the other side.” 

The district court had dismissed the declaratory judgment action because it determined that EFI did not have any uncertainty about Coyle’s intention to sue (Coyle stated flatly that it he would sue).  Additionally, the court found that EFI was not uncertain about the strength of its legal position.

On appeal, the Federal Circuit reversed, disagreeing with the district court’s interpretation of "uncertainty."

The proper inquiry should not have been whether a party is “certain” that its legal position and defense theories are sound, because litigation is rarely “certain,” even if one is confident of one’s position. When a party is threatened … there are other uncertainties, including whether there will be legal proceedings at all, not just whether one will prevail. There is the uncertainty whether one will have to incur the expense and inconvenience of litigation, and how it will affect the threatened party’s customers, suppliers, and shareholders. Reservation of funds for potential damages may be necessary. … “Uncertainty” in the context of the [Declaratory Judgment] Act refers to the reasonable apprehension created by a patentee’s threats and the looming specter of litigation that results from those threats.