By Jason Rantanen
ABB Inc. v. Cooper Industries, LLC (Fed. Cir. 2011) Download 10-1227
Panel: Rader, Lourie, and Dyk (author)
In ABB v. Cooper, the CAFC addressed the previously unanswered question of whether federal subject matter jurisdiction exists over a declaratory judgment patent infringement action where the alleged infringer raises only a state law defense to infringement.
Four years prior to the litigation on appeal the parties had entered into a license agreement to settle a lawsuit in which Cooper asserted that ABB's manufacture of a vegetable oil based dielectric fluid, called BIOTEMP, infringed several of Cooper's patents. That license permitted ABB to make or "have made" its dielectric fluid; however, it did not include "the right of any third party to make BIOTEMP or any other fluid covered by the Cooper Patents." ABB also acknowledged in the agreement that each of the Cooper patents are valid and enforceable and that BIOTEMP is covered by one or more of their claims.
ABB subsequently outsourced the manufacture of BIOTEMP to Dow Chemicals, which it agreed to indemnify against claims of infringement by Cooper. In response, Cooper wrote to ABB and Dow to indicate that it viewed this as a material breach of the license agreement and would "act vigorously to protect its rights in that event." This led to ABB's filing of a declaratory judgment action in federal court in which it sought a declaration that its activities were authorized under the license agreement and, in an amended complaint, seeking declarations that it does not infringe the Cooper patents. The district judge concluded that ABB's complaint presents no federal question, and thus dismissed the case for lack of subject matter jurisdiction.
Comment: Although not completely clear, the opinion's treatment of the issue suggests that the noninfringement contention is based entirely on ABB's license defense.
No specific threat of infringement litigation required
On appeal, the CAFC first rejected Cooper's argument that no actual controversy existed. After dismissing the view that there must be a specific threat of infringement litigation by the patentee as being an impermissible attempt to revive the "reasonable apprehension of imminent suit" test rejected by the Supreme Court in MedImmune, the CAFC concluded that the facts of this case were sufficiently similar to those of MedImmune and Micron Tech., v. Mosaid Techs., Inc., 518 F.3d 897 (Fed. Cir. 2008) to warrant the issuance of a declaratory judgment. Focusing on the warning letters, the court concluded that "under Micron and MedImmune, there was an immediate controversy surrounding infringement. ABB had an interest in determining whether it would incur liability for induced infringement, and it had an interest in determining whether it would be liable for indemnification, which turned on whether Dow would be liable for infringement." Slip Op. at 6-7.
Resolution of the state law defense issue left open by Textron
The CAFC also resolved a jurisdictional question left open by the Supreme Court in Textron Lycoming Reciprocating Engine Div., AVCO Corp. v. Auto. Workers, 523 U.S. 653 (1998): "whether federal courts have jurisdiction over a declaratory judgment action where there is a federal cause of action but only a state law defense." Slip Op. at 9. While a longstanding rule holds that subject matter jurisdiction exists over declaratory judgment actions that are based on a claim of patent infringement, Cooper contended that it did not apply because the only defense raised by ABB in the district court was its state law license defense. Although discussed in Justice Breyer's concurrence, the Supreme Court explicitly left the issue open in Textron, and it remained unresolved by subsequent courts of appeals.
Addressing the issue as one of first impression, the CAFC reached the same conclusion as Justice Breyer:
[W]e conclude that federal question jurisdiction exists here. The general rule, articulated repeatedly by the Supreme Court, is that declaratory judgment jurisdiction exists where the defendant’s coercive action arises under federal law. See Franchise Tax Bd., 463 U.S. at 16, 19; Wycoff, 344 U.S. at 248; see also Speedco, 853 F.2d at 912. We see no reason to depart from that general principle where the defense is non-federal in nature.
Slip Op. at 11-12. In short, the subject matter inquiry for a declaratory judgment action focuses on the defendant's hypothetical well-pleaded Complaint, and thus the defenses raised by the declaratory judgment plaintiff are irrelevant to the inquiry:
According to Franchise Tax Board, then, federal jurisdiction in this type of case depends on the federal character of the hypothetical infringement suit and not the federal character of the invalidity defense. Indeed, “it now seems settled that [a party threatened with an infringement suit] can sue for a declaratory judgment of invalidity or noninfringement [because] the federal nature of the claims appears on the complaint . . . and the precise issue could have been litigated in federal court in a coercive action brought by [the patentee].” 10B Wright, Miller & Kane, Federal Practice and Procedure § 2767, at 650–51 (3d ed. 1998) (emphasis added)).
Slip Op. at 12.