In ABB Inc. v. Cooper Industries, LLC, 97 U.S.P.Q. 2d 1885 (Fed. Cir. 2011), the Federal Circuit resolved an open question concerning subject matter jurisdiction of declaratory judgment actions based on patent infringement.
Cooper Industries owned several patents covering electrical equipment containing dielectric fluid. ABB manufactured a type of dielectric fluid called “Biotemp.” Cooper sued ABB for patent infringement. Cooper and ABB later settled the case, and Cooper granted ABB a non-exclusive license to make, have made, sell, or import the Biotemp product. The license stated that it did not include any rights of third parties to make the Biotemp product. In the license, ABB admitted that Cooper’s patents were valid and that the claims of the patents covered the Biotemp product.
ABB then entered into an agreement with Dow Chemicals for Dow to make Biotemp for ABB. ABB agreed to indemnify Dow against any claims of patent infringement by Cooper.
Cooper responded with letters to both ABB and Dow, stating that it would aggressively defend its rights. Cooper asserted that ABB had breached the license and settlement agreement by outsourcing the production of Biotemp to Dow, because the license did not grant rights to third parties to manufacture Biotemp. Cooper also asserted that Dow was on notice that Cooper would defend its rights if Dow manufactured Biotemp.
ABB then filed a declaratory judgment action in a federal district court in Texas. ABB sought a declaration that its outsourcing of Biotemp to Dow was permitted under the license and settlement agreement, and also sought a declaration of noninfringement. Shortly thereafter, Cooper filed a declaratory judgment action in a state court in Texas. Cooper’s action sought a declaration that ABB’s outsourcing was not permitted under the license and settlement agreement.
In the federal court case, Cooper moved to dismiss ABB’s declaratory judgment action on the grounds that there was no subject matter jurisdiction because there was no actual controversy concerning infringement. Cooper contended and that the complaint was based on the state law defense of a license. ABB argued that there was subject matter jurisdiction because of Cooper’s potential patent infringement claim. ABB also argued that it was asserting the federal defenses of invalidity and unenforceability of the patent.
The district court granted Cooper’s motion, holding that the court had no subject matter jurisdiction because ABB’s complaint was solely based on contract law, a state law matter, and that there was no federal question.
ABB appealed. The Federal Circuit Court of Appeals reversed.
The appellate court held that a specific threat to sue for patent infringement was not required for subject matter jurisdiction. The court explained that Cooper was attempting to argue the “reasonable apprehension of imminent suit” test that was rejected by the Supreme Court in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). The court noted that for Cooper to obtain an injunction or damages, it would have to sue ABB for inducing infringement or Dow for direct infringement.
According to the court:
“[T]the warning letters from Cooper to ABB and Dow indicates 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.”
The court held that the character of the declaratory judgment defendant’s hypothetical suit determines whether subject matter jurisdiction for the declaratory judgment action exists. The court found that, Cooper’s hypothetical suit was a patent infringement action, which arose under federal law. It did not matter that the case would turn on a state law defense to patent infringement.
Cooper then argued that even though the cause of action arose under federal law, the district court had no jurisdiction because the only defense was a state law defense. The court acknowledged that this was a question the Supreme Court had not resolved. The court concluded that the general rule set forth by the Supreme Court still applied – a court has jurisdiction over a declaratory judgment action when “the defendant’s coercive action arises under federal law.”