Federal Circuit Applies Supreme Court’s New Test for Declaratory Judgment Jurisdiction

The Federal Circuit Court of Appeals recently reversed a district court’s dismissal of a declaratory judgment action, relying on the Supreme Court’s decision in MedImmune Inc. v. Genentech Inc., 127 S.Ct. 764 (2007). See Micron Technology, Inc. v. MOSAID Technologies, Inc., 2008 WL 540182 (Feb. 29, 2008)

Micron was one of the four largest manufacturers of dynamic random access memory (DRAM) chips. Micron, together with Samsung Electronics Company, Ltd, Hynix Semiconductor, Inc., and Infineon Technologies of North America, controlled seventy-five percent of the worldwide market for these chips.

MOSAID held patents on the circuit technology that was used in the manufacture of DRAM chips. In 2001 and 2002, MOSAID sent a series of four letters to Micron inviting Micron to license MOSAID’s patents.

After sending letters to all four of the manufacturers who declined to enter into licenses with MOSAID, MOSAID began patent infringement litigation against each of the manufacturers. MOSAID first sued Samsung. Infineon then sued MOSAID for declaratory judgment of noninfringement. MOSAID and Samsung settled. MOSAID then sued Hynix, who later settled. MOSAID then settled with Infineon. In each settlement, MOSAID granted the manufacturer a license under its patents. MOSAID made statements in public and in its 2005 annual report that it intended to “aggressively” pursue all other DRAM manufacturers to force them to license MOSAID’s technology, and that it would be “unrelenting” in its litigation strategy. The industry believed that Micron was the next target of MOSAID.

In July 2005, Micron filed a declaratory judgment in the Northern District of California seeking a declaration of noninfringement of 14 patents owned by MOSAID. The following day, MOSAID sued Micron and two other defendants, in the Eastern District of Texas, for infringing seven patents. MOSAID later added one more defendant and three more patents to the Texas action.

MOSAID then moved to dismiss the California action for lack of subject matter jurisdiction. The district court granted MOSAID’s motion on the grounds that Micron had no reasonable apprehension of being sued by MOSAID. The district court found that there was no evidence of threats from MOSAID to Micron for the last four years, no threats from MOSAID to Micron’s customers, and no public statements by MOSAID that it intented to sue Micron.

Micron appealed and the Federal Circuit reversed.

The court first held that the district court in California did have subject matter jurisdiction over the case. The district court had applied the wrong test – the “reasonable apprehension” test is not the proper test, according to the Supreme Court in MedImmune. The correct test, which the appellate court repeatedly stated “is more lenient,” 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.” Micron, quoting MedImmune, 127 S.Ct. at 771.

In applying this test, a district court must look at the evidence of all of the circumstances. In this case, the evidence included the series of letters from MOSAID to Micron, the previous suits from MOSAID against the other three manufacturers, and MOSAID’s public statements of its intent to aggressively pursue litigation against the remaining manufacturers.

The appellate court explained that this case was just the type of case for which the Declaratory Judgment Act was intended. The court explained the purpose of the Act as follows, quoting from a previous decision in Electronics for Imaging, Inc. v. Coyle, 394 F.3d 1341, 1346 (Fed. Cir. 2005):

“[A] patent owner…attempts extra-judicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business community with uncertainty and insecurity…Before the Act, competitors victimized by that tactic were rendered helpless and immobile so long as the patent owner refused to grasp the nettle and sue. After the Act, those competitors were no longer restricted to in terrorem choice between the incurrence of a growing potential liability for patent infringement and abandonment of their enterprises; they could clear the air by suing for a judgment that would settle the conflict of interests.”

The court next addressed the district court’s discretion not to hear a case even if it has subject matter jurisdiction. The court explained that, based on MOSAID’s filing of its patent infringement suit against Micron in Texas one day after Micron filed its declaratory judgment action in California, “the parties in this dispute are really just contesting the location and right to choose the form for their inevitable suit.” Because of the “more lenient” test for declaratory judgment jurisdiction, the court noted that there is an increased likelihood of “a forum-seeking race to the courthouse between accused infringers and patent holders.” As a result, district courts must perform an analysis under 28 U.S.C. §1404(a), considering the factors of convenience. In essence, if there is subject matter jurisdiction in two different forums, the real issue is “the convenience and suitability of competing forums.”

The court stated that under §1404(a), in general, the forum of the first-filed action controls, but that the interests of justice and convenience factors could alter that rule. In particular, courts should consider the convenience of witnesses, the lack of jurisdiction over necessary or desirable parties, and the existence and possible consolidation of related cases.

In this case, the court found that MOSAID is a Canadian company, but that it had operations in the Northern District of California. Both MOSAID and Micron did business in both California and Texas; there were no related cases in Texas; and there was no evidence regarding the convenience or availability of witnesses. Therefore, the first-filed forum, the Northern District of California, was proper.