Declaratory Judgment Actions in Intellectual Property Cases

When a company is accused of intellectual property infringement, it can respond in several ways. The accused party can agree to the other side’s demands. The accused party can try to negotiate with the other side. The accused party can reject the other side’s demands and adopt a wait-and-see approach. Or, in certain circumstances, the accused party can sue first.

When the accused party sues first, it files what is called a “declaratory judgment action” (sometimes called a “DJ action,” “pre-emptive lawsuit,” or “anticipatory lawsuit”). A declaratory judgment action is a special type of lawsuit where the accused party asks the court for a binding declaration that it has not infringed the other side’s rights. The accused party may gain a number of advantages by suing first, assuming it can satisfy the requirements for filing a declaratory judgment action.

Requirements for Filing Declaratory Judgment Actions

The U.S. Supreme Court adopted a new standard for filing declaratory judgment actions in 2007. The adoption of this standard is widely considered to have made it easier to file declaratory judgment actions. According to the Court’s decision in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007), the main requirement for filing a declaratory judgment action is that a “substantial controversy” must exist between parties having “adverse legal interests,” as shown by “all the circumstances” of the case. The accused party cannot file a declaratory judgment action out of the blue. As the Court of Appeals for the Federal Circuit held in SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372 (Fed. Cir. 2007), there must be “some affirmative act” by the accuser that creates a substantial controversy.

There are no set rules regarding the affirmative acts required to create declaratory judgment jurisdiction, but numerous types of acts have been found to trigger such jurisdiction, or to contribute to the exercise of such jurisdiction, including threats of litigation, accusations of infringement, offers to license intellectual property rights, and other actions that create a “reasonable apprehension of suit.”

If the accusing party has engaged in these types of acts, there is a significant chance that the court hearing the dispute will find a substantial controversy exists and exercise declaratory judgment jurisdiction. This is the case even if the accusing party denies an intent to file a lawsuit, but otherwise demonstrates such an intent, as occurred in SanDisk v. STMicroelectronics.

Advantages of Filing Declaratory Judgment Actions

Assuming the accused party can satisfy the requirements for filing a declaration judgment action, suing fist may provide the accused party with several advantages.

First, filing a declaratory judgment action may help set the tone of a dispute. The accused party can tell the court its side of the story first and, as a result, it can frame the dispute in a way that benefits its case. The accused party may find this approach preferable to merely responding to the accusing party’s version of events.

Second, suing first may help the accused party obtain a procedural advantage. The accused party in most lawsuits is the defendant, but in a declaratory judgment action, the accused party becomes the plaintiff. While both parties are responsible for the conduct of the litigation, acting as the plaintiff may help enable the accused party to take the initiative in several areas (such as serving discovery requests and filing motions), rather than always reacting to the other side’s initiatives and being on the defensive throughout the litigation.

Third, suing first may allow the accused party to select the court where the litigation will occur. This may provide the accused party with a legal advantage if the court follows law that is more favorable to the accused party than to the accusing party, or if the forum is more convenient to the accused party than other forums. The accusing party may try to disturb the accused party’s choice of forum by filing its own lawsuit, but the accused party’s choice of forum is generally entitled to substantial weight under the “first to file” rule.

Fourth, as a practical matter, suing first may place unexpected budgetary and other pressures on the accusing party. This may lead to early settlement negotiations, and perhaps to a better result for the accused party than otherwise would have been possible.

Implications for the Accused and the Accuser

In view of the new standard for filing declaratory judgment actions and the potential advantages of suing first, companies accused of intellectual property infringement may have increased incentives to initiate litigation in response to such accusations.  Conversely, companies accusing others of intellectual property infringement may have increased incentives to adopt a cautious approach in cease-and-desist letter, demand letters, and other communications with infringers when they wish to avoid litigation, or to sue first when they wish to preserve their right to choose the time and place of such litigation.