Fina Research, S.A. v. Baroid Ltd., 97-1429

Decision Date17 April 1998
Docket NumberNo. 97-1429,97-1429
Citation46 USPQ2d 1461,141 F.3d 1479
PartiesFINA RESEARCH, S.A., Plaintiff-Appellant, v. BAROID LIMITED, Defendant-Appellee, and Henkel Kgaa, Defendant-Appellee.
CourtU.S. Court of Appeals — Federal Circuit

William D. Harris, Jr., Locke, Purnell, Rain, Harrell, P.C., of Dallas, TX, argued for plaintiff-appellant. With him on brief was Michael W. Piper.

Rudolf E. Hutz, Connolly, Bove, Lodge & Hutz, of Wilmington, DE, argued for defendants-appellees. With him on brief were Collins J. Seitz, Jr., and James M. Mulligan, Jr. of counsel were V. Bryan Medlock Jr. and John A. Dondrea, Sidley & Austin, of Dallas, TX.

Before CLEVENGER, Circuit Judge, SMITH, Senior Circuit Judge, and SCHALL, Circuit Judge.

CLEVENGER, Circuit Judge.

This appeal presents the issue whether there may be an "actual controversy" for purposes of the Declaratory Judgment Act, 28 U.S.C. § 2201, when the plaintiff's potential liability is only for inducing infringement under 35 U.S.C. § 271(b). Fina Research, S.A. (FRSA) appeals the dismissal of its declaratory judgment action against Baroid Limited (Baroid) and Henkel KGaA (Henkel). Fina Research S.A. v. Baroid Ltd., Civil No. 3:94-CV-2075-H (N.D.Tex. May 30, 1997) (order). Holding that FRSA had no reasonable apprehension of suit for inducing infringement, the district court dismissed, without prejudice, the action for lack of jurisdiction. Because this ruling was in error, we reverse.

I

FRSA manufactures FINAGREEN, which is derived from vegetable oil. FRSA sells FINAGREEN to customers for use as an ingredient in a drilling mud or fluid employed when drilling for oil. According to the record, FRSA has not, to date, sold FINAGREEN to any customer in the United States.

In this action, FRSA seeks a judicial declaration that FINAGREEN does not infringe U.S. Patent Nos. 5,232,910 (the '910 patent) or 5,252,554 (the '554 patent), and that the two patents are invalid and unenforceable. The defendants are the joint assignees of the two patents. The two patents claim multi-ingredient drilling muds, of which FINAGREEN may be one of the ingredients. Because FRSA has not sold FINAGREEN to any customer in the United States, none of the parties contend that any direct infringement has yet occurred. See 35 U.S.C. § 271(a) (1994).

This dispute has been before this court previously on appeal. In 1994, FRSA filed a declaratory judgment action against Baroid Drilling Fluids Inc. (BDFI). BDFI stipulated that it had no legal interest in either of the patents in suit. FRSA subsequently amended its complaint to join Baroid and Henkel. On BDFI's motion, the district court dismissed, without prejudice, the case against BDFI for want of jurisdiction. We affirmed the dismissal. Fina Research S.A. v. Baroid Drilling Fluids, Inc., No. 96-1137, 1996 WL 521465 (Fed.Cir.1996) (nonprecedential) (disposition reported in table format at 98 F.3d 1357). We reasoned that, because BDFI had no legal interest in the two patents and therefore could not bring suit for patent infringement, there was no actual controversy between FRSA and BDFI that would support jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201 (1994). See Fina, 1996 WL 521465, at * 2. With respect to Baroid and Henkel, it was not clear that either party had been properly served and made a party to the suit by the time of the district court's dismissal order. See id. at * 3. Consequently, we affirmed the dismissal of FRSA's action. In so doing, we wrote that "[w]e wish to make clear that we do not address or resolve any possible dispute between [FRSA] and the patent owners, [Baroid] and Henkel." Id.

In 1996, FRSA filed a motion requesting that the district court reopen the case, which the court granted with respect to Baroid and Henkel. The defendants moved to dismiss the action for want of jurisdiction. After a hearing, the district court issued an order dismissing the case. FRSA appealed the dismissal, and we have jurisdiction over the appeal pursuant to 28 U.S.C. § 1295(a)(1) (1994).

II

We regularly review whether there is jurisdiction over an action seeking a declaratory judgment. See generally Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1058-59, 35 USPQ2d 1139, 1142-43 (Fed.Cir.1995). Jurisdiction under the Declaratory Judgment Act requires an "actual controversy." 28 U.S.C. § 2201(a). To determine whether there is an actual controversy in declaratory judgment actions involving allegations of patent noninfringement, invalidity, or unenforceability, we apply a two-prong inquiry:

There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity.

Super Sack, 57 F.3d at 1058, 35 USPQ2d at 1142 (quoting BP Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 978, 28 USPQ2d 1124, 1126 (Fed.Cir.1993)) (internal quotation marks and emphases omitted). The declaratory judgment plaintiff bears the burden of proving that there is an actual controversy. See id. Finally, even if there is an actual controversy and thus jurisdiction, the exercise of that jurisdiction rests within the sound discretion of the district court. See, e.g., Serco Servs. Co. v. Kelley Co., 51 F.3d 1037, 1039, 34 USPQ2d 1217, 1218 (Fed.Cir.1995).

We review a dismissal for lack of an actual controversy as a question of law subject to plenary appellate review. See, e.g., Super Sack, 57 F.3d at 1058, 35 USPQ2d at 1142. Even so, we keep in mind that the district court's "view of the legal effect of the fact pattern before it is not to be lightly disregarded." Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735, 6 USPQ2d 1685, 1688 (Fed.Cir.1988).

III

The issue on appeal distills down to whether there is an actual controversy over the declaratory judgment action when FRSA may be liable only for inducing infringement. This issue comes to us in the following manner.

The defendants have averred that FINAGREEN in combination with other ingredients would not infringe the '554 patent. Such an admission means that suit for infringing, in any fashion, the '554 patent may not be brought against FRSA for FINAGREEN. See Super Sack, 57 F.3d at 1059, 35 USPQ2d at 1143; Spectronics Corp. v. H.B. Fuller Co., 940 F.2d 631, 636, 19 USPQ2d 1545, 1549 (Fed.Cir.1991). Of course, this covenant applies only to the composition of FINAGREEN that FRSA has disclosed during this litigation.

With respect to the '910 patent, FRSA may be liable, under the present circumstances, only for inducing infringement under 35 U.S.C. § 271(b). First, suit may not be brought against FRSA for contributory infringement, because according to the defendants, FINAGREEN is a "staple article or commodity of commerce suitable for substantial noninfringing use." 35 U.S.C. § 271(c). Second, both parties agree that FRSA has no intention of directly infringing the '910 patent. According to the defendants, the '910 patent claims drilling muds having several elements, and FINAGREEN would satisfy, at most, one element of the multi-element claims. In its usual course of business, FRSA does not, before selling FINAGREEN, combine it with any other ingredients. Direct infringement of the '910 patent would therefore be possible, under the present circumstances, only if a customer of FRSA were to mix FINAGREEN with other ingredients.

In sum, FRSA may be liable, at this time, only for inducing infringement of the '910 patent.

IV

In dismissing the case, the district court held that FRSA had failed to satisfy the first prong of the two-prong inquiry for justiciability. According to the court, there was no reasonable apprehension on the part of FRSA that it would face a suit for inducing infringement. We reverse the dismissal of the case, for the defendants made threats that create a reasonable apprehension on the part of FRSA that it will face suit for inducing infringement.

On appeal, FRSA points to, among other things, two letters that it urges satisfy the first prong of the justiciability test. In the first letter, dated October 21, 1993, an attorney for the defendants, William Johnson, wrote:

Our firm represents Baroid Drilling Fluids, Inc. ("Baroid") in its various intellectual property matters. Baroid and the Henkel Corporation together own all right, title and interest in U.S. Patent Nos. 5,232,910 and 5,252,554, copies of which are enclosed for your ease of reference.

In your faxed letter of October 1, 1993 to Baroid, a copy of which is also enclosed, you indicate your company's intention to introduce FINAGREEN into the United States to be used as a drilling fluid.

Please be advised that Baroid considers FINAGREEN, if introduced into the United States, to be an infringement of one or both of the subject patents. Baroid, in cooperation with Henkel, intends to vigorously protect and enforce its rights in the subject patents, including the filing of suit if necessary.

(Emphasis added.) After counsel for FRSA responded to these allegations in a letter dated November 9, 1993, Mr. Johnson wrote to FRSA a second time in a letter dated November 15, 1993:

To provide you with a better understanding of our basis for the opinion that [FRSA's] proposed introduction of its FINAGREEN product into the United States would constitute infringement of one or both of U.S. Patent Nos. 5,232,910 and 5,252,554, I have enclosed a copy of SPE Paper No. 26737 which was presented by [FRSA] at the Offshore European Conference held in Aberdeen, Scotland on September 7-10, 1993.

. . . . .

It is our considered opinion that for the reasons as set forth above, [FRSA] is actively inducing the infringement of one or both of the subject patents under 35 U.S.C. 271(b) and may very well be held to be a contributory infringer under 35 U.S.C. 271(c)....

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