Declaratory Judgment Action (v. Complaint for Patent
Infringement)
Declaratory Judgment Act
First-to-File Rule
Anticipatory filing was made in bad faith during
active licensing discussions
Equitable considerations warranted departure
from the first-to-file rule
Federal Comity
Forum Non Conveniens
Communications Test Design, Inc. (“CTDI”) filed
suit in the United States District Court for the Eastern District of
Pennsylvania, seeking declaratory judgment that its test systems do not
infringe two of Contec, LLC’s patents (“the Pennsylvania action”). Six days
later, Contec sued CTDI for patent infringement in the United States District
Court for the Northern District of New York (“the New York action”). Contec
moved to dismiss the Pennsylvania action, arguing that CTDI’s anticipatory
filing was made in bad faith during active licensing discussions. The district
court granted the motion, exercising its discretion to decline jurisdiction
over CTDI’s declaratory judgment action. Commc’ns Test Design, Inc. v.
Contec LLC, 367 F. Supp. 3d 350, 360 (E.D. Pa. 2019). In doing so, the
court found that equitable considerations warranted departure from the
first-to-file rule. CTDI appeals the district court’s dismissal of the
Pennsylvania action. Because we conclude that the district court did not abuse
the broad discretion accorded to it—both under the Declaratory Judgment Act, 28
U.S.C. § 2201(a) and pursuant to the first-to-file rule—we affirm.
(…) In September 2017, Contec sent a letter to CTDI to determine whether
CTDI’s test systems infringed any claims of the asserted patents. Over the
course of the following year, the parties exchanged numerous emails and
letters. In June 2018, counsel for both parties met in person, and CTDI
disclosed certain information about its test systems pursuant to a
confidentiality agreement.
In September 2018, Contec’s counsel sent a letter to CTDI stating that
“the parties’ extrajudicial process for obtaining information about CTDI’s
systems, without the full discovery obligations that would be imposed during
litigation, has proved unsatisfactory.” Counsel explained that Contec had a
good faith basis to believe that CTDI infringes at least one claim of the
asserted patents. The letter asked CTDI to indicate, by September 19, 2018,
whether it was willing to “discuss potential terms for a patent license
agreement.” Contec warned that, if it did not receive such confirmation, it
would sue for patent infringement. Contec attached to its letter a draft of its
proposed complaint.
On September 19—Contec’s stated deadline—Jerry Parsons, CTDI’s Chairman
and chief executive officer (CEO), spoke on the phone with Hari Pillai,
Contec’s CEO, about a possible license for Contec’s patents. During that conversation,
Pillai proposed initial terms, and the executives agreed to talk again on
September 24, when Parsons would make a counterproposal. After their
discussion, Pillai emailed Parsons, confirming the follow-up call and
indicating that he looked forward to the counterproposal.
Later that same day, CTDI’s counsel sent an email to Contec’s counsel,
confirming that “CTDI will consider potential terms as requested in your most
recent letter.” Counsel reiterated that, “despite our firm position on non-
infringement and without admission, in an attempt to avoid an impasse, we
remain willing to consider reasonable licensing terms and so, we encourage a
continued conversation between the executives.”
On September 21—two days after accepting Contec’s request to discuss
licensing terms—CTDI filed a declaratory judgment action in Pennsylvania. Later
that afternoon, Parsons sent an email to Pillai, confirming that CTDI would put
a licensing proposal together and accepting Pillai’s suggested time for their
follow-up call on September 24. Parsons made no mention of the fact that CTDI
had filed its declaratory judgment complaint.
On September 24—the day the CEOs were scheduled to talk—CTDI’s counsel
emailed Contec’s counsel a copy of the declaratory judgment complaint. Counsel
stated that official service would be held for a period of time to allow
further discussion between the executives.
CTDI ultimately served its declaratory judgment complaint on October 15,
2018.
On September 27, 2018, Contec filed its complaint for patent
infringement in the Northern District of New York.
On February 15, 2019, the district court granted Contec’s motion and
dismissed CTDI’s complaint. At the outset, the court noted that “neither party
disputes that an actual controversy exists here.” Commc’ns Test Design, 367
F. Supp. 3d at 355. Both the Pennsylvania and New York actions involve the same
parties, the same patents, the same allegedly infringing products, and the same
issue: whether CTDI’s test systems infringe Contec’s patents. The court
recognized that, between CTDI’s first-filed declaratory judgment action and
Contec’s subsequently filed patent infringement action, CTDI’s first-filed
action is preferred “unless considerations of judicial and litigant economy,
and the just and effective disposition of disputes, require otherwise.” Id.
at 356 (quoting Genentech, Inc. v. Eli Lilly & Co., 998 F.2d 931,
937 (Fed. Cir. 1993), abrogated on other grounds by Wilton v. Seven Falls Co.,
515 U.S. 277, 288 (1995)).
Recognizing that the anticipatory nature of CTDI’s suit is “merely one
factor in the analysis” under the first-to-file rule, the district court explained
that “interference with ongoing negotiations constitutes another ‘sound reason
that would make it unjust’ to exercise jurisdiction over the declaratory
judgment action.” The court also considered the convenience of the parties and
availability of witnesses and determined that, “on balance the Northern
District of New York is a more convenient forum to resolve the dispute between
the parties.” Given these considerations, the district court dismissed the
Pennsylvania action in favor of Contec’s later- filed infringement action.
(…) The district court dismissed CTDI’s declaratory judgment action so
that Contec’s patent infringement action— filed six days later—could proceed in
New York. In these circumstances, where the issue is whether a suit for declaration
of patent rights should yield to a later-filed infringement suit, the trial
court’s discretion is guided by the first- to-file rule, “whereby the forum of
the first-filed case is favored.” Genentech, 998 F.2d at 937. “The
‘first-to-file’ rule is a doctrine of federal comity, intended to avoid
conflicting decisions and promote judicial efficiency, that generally favors
pursuing only the first-filed action when multiple lawsuits involving the same
claims are filed in different jurisdictions.” Merial Ltd. v. Cipla Ltd.,
681 F.3d 1283, 1299 (Fed. Cir. 2012) (citing Genentech, 998 F.2d at 937–
38). The filing date of an action derives from the filing of the complaint. Id.
(citing Fed. R. Civ. P. 3). Under the first-to-file rule, a district court may
choose to stay, transfer, or dismiss a later-filed duplicative action. Id.
(…) Here, the district court carefully considered the record of the
parties’ dispute, up to and including the competing filings, and concluded that
several factors warranted departure from the first-to-file rule. Specifically,
the court found that: (1) CTDI filed its declaratory judgment complaint in
anticipation of Contec’s patent infringement complaint; (2) CTDI’s suit
interfered with ongoing negotiations between the parties and did not serve the
objectives of the Declaratory Judgment Act; and (3) on balance, the Northern
District of New York is a more convenient forum. As explained below, we find no
abuse of discretion in the district court’s analysis.
(…) As to Contec, the district court considered that: (1) its corporate
headquarters are in New York; (2) it has no witnesses, physical facilities or
place of business in Pennsylvania; (3) Contec’s employee files for its current
and former employees, its email server and its record databases are maintained
in its New York facility; (4) three of the six inventors of the patents at
issue are current residents of New York; and (5) five of the inventors, “who
would serve as key witnesses,” are beyond the subpoena power of the district
court. On balance, the court found that these factors favored Contec’s
later-filed New York action.
(…) We find no error in the district court’s balancing of the
convenience factors, which is committed to the court’s sound discretion. These
factors, coupled with the district court’s findings that CTDI’s complaint
interfered with ongoing negotiations and was filed in anticipation of Contec’s
infringement suit, support the district court’s decision to depart from the
first-to-file rule and dismiss CTDI’s complaint.
(U.S. Court of Appeals for the Federal Circuit,
March 13, 2020, Communications Test Design, Inc. v. Contec, LLC, Docket No.
2019-1672, Circuit Judge O’Malley)
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