Arrowhead Indus. Water, Inc. v. Ecolochem, Inc.

• Decision Date: 06 May 1988
• Docket Number: No. 87-1626,87-1626
• Citation: 6 USPQ2d 1685,846 F.2d 731
• Parties: , 6 U.S.P.Q.2d 1685 ARROWHEAD INDUSTRIAL WATER, INC., Plaintiff-Appellant, v. ECOLOCHEM, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

Page 731

846 F.2d 731

56 USLW 2663, 6 U.S.P.Q.2d 1685

ARROWHEAD INDUSTRIAL WATER, INC., Plaintiff-Appellant, v. ECOLOCHEM, INC., Defendant-Appellee.

No. 87-1626.

United States Court of Appeals Federal Circuit.

May 6, 1988.

George H. Gerstman of Pigott & Gerstman, Chicago, Ill., argued for plaintiff-appellant.

Richard L. Aitken of Lane & Aitken, Washington, D.C., argued for defendant-appellee. Of counsel was Clifton E. McCann, of Lane & Aitken, Washington, D.C.

Before MARKEY, Chief Judge, FRIEDMAN, Circuit Judge, and SKELTON, Senior Circuit Judge.

MARKEY, Chief Judge.

Appeal from an order of the United States District Court for the Northern District of Illinois, Eastern Division, No. 87-C-3839 (August 24, 1987), that dismissed a complaint of Arrowhead Industrial Water, Inc. (Arrowhead), seeking a declaratory judgment of invalidity, unenforceability, and noninfringement of U.S. Patent No. 4,556,492 ('492 patent) owned by Ecolochem, Inc. (Ecolochem). We reverse and remand.

Background

Arrowhead and Ecolochem compete in providing water treatment services. On December 3, 1985, the '492 patent issued to Ecolochem for "Deoxygenation Process."

In early 1986, Ecolochem sued a third party, Memphis Mobile Water Technology, Inc., for infringement of the '492 patent in Arkansas (Arkansas suit).

On June 23, 1986, Arrowhead's customer, Virginia Power, issued a purchase order for deoxygenation services to Arrowhead.

On July 16, 1986, the president of Ecolochem sent Virginia Power a letter memorializing the visit of himself and three others with Virginia Power's senior buyer. That letter included:

Please be advised that Arrowhead Industrial Water is not licensed to use our process and we would therefore consider any use a direct patent infringement. Unfortunately, any such infringement could possibly involve Virginia Power as well so I believe it is valuable for you to have information on this patent in order to protect yourself and eliminate any potential conflict.

Fearing litigation if it pursued its agreement to purchase Arrowhead's services, Virginia Power demanded and got an indemnity agreement from Arrowhead.

On August 27, 1986, Ecolochem's lawyer sent Arrowhead a letter enclosing the '492 patent and saying Ecolochem "has reason to believe that Arrowhead is contemplating or has initiated the practice of the patented process" and demanding, within 20 days, a confirmation that any "unauthorized" practice, "if such practice exists" be "immediately" discontinued. The letter concluded with a statement that Ecolochem "has in the past not hesitated to protect its patent rights whenever appropriate."

On September 8, 1986, Arrowhead's attorney asked Ecolochem what that concluding statement referred to. On September 15, 1986, Ecolochem's attorney replied that the concluding sentence "refers to federal patent infringement litigation brought by our client in respect of its patents."

On September 26, 1986, Arrowhead started delivering its deoxygenation services to Virginia Power. Three days later, it sought a declaratory judgment that the '492 patent is invalid, unenforceable and not infringed. On April 20, 1987, the court dismissed that action for lack of actual controversy. The court's reasoning was:

These letters [between Ecolochem and Arrowhead] do not contain a threat of immediate litigation; they do not allege that Arrowhead's process infringed, is infringing, or will infringe its deoxygenation process [sic, patent]. All the "threats" are conditional upon Arrowhead using Ecolochem's deoxygenation process. * * *

The lawsuit pending between Ecolochem and a third party does not support a reasonable apprehension either. * * *

Finally, Arrowhead has not demonstrated convincingly that its deoxygenation process is the same as Ecolochem's. Arrowhead, as the party invoking this court's jurisdiction, has the burden of showing the process is the same as Ecolochem's patent process. Super Products [Corp. v. D P Way Corp.], 546 F.2d [748,] 754 [192 USPQ 417, 421 (7th Cir.1976) ]. Arrowhead has not even alleged its process is identical to Ecolochem's process and it certainly has not shown the process is the same. In the absence of such evidence, the court cannot conclude an apprehension of a patent infringement Slip op. at 7-8.

action is imminent. ¹

The district court did not discuss the effect of Ecolochem's letter on Virginia Power. In dismissing the effect of the Arkansas suit as not indicating a belief by Ecolochem that Arrowhead's process infringed, the district court said, "It is undisputed, [sic] that Ecolochem has yet to make such a determination [of infringement by Arrowhead]." Slip op. at 8.

On April 24, 1987, Arrowhead filed a second declaratory action, repeating its complaint and citing an event not in the record of the first action. That event occurred in Ecolochem's Arkansas suit, when Ecolochem proposed this finding to the court:

Two of the plaintiff's major competitors, the defendant and Arrowhead Industrial Water, Inc., have practiced, only since plaintiff's practice of the invention in suit at San Onofre, a process that infringes the patent in suit.

On May 11, 1987, Ecolochem wrote Arrowhead's customer, Omaha Public Power District, attaching a copy of the '492 patent and including statements similar to those in its letter to Virginia Power. Omaha Power demanded indemnification by Arrowhead. ²

On August 24, 1987, the court granted Ecolochem's motion to dismiss for lack of actual controversy, citing its reasons for dismissing the first action and stating that Arrowhead's additional fact is not "sufficient to generate a reasonable apprehension of a patent infringement suit." The court held that Ecolochem's proposed finding could not contribute to a reasonable apprehension because it was communicated to the court rather than directly to Arrowhead. Saying "[b]y closely monitoring the Arkansas litigation, plaintiff [Arrowhead] has placed itself in apprehension of a patent infringement suit," the court concluded that it was Arrowhead's conduct in learning of Ecolochem's proposed finding that contributed to apprehension of suit, not Ecolochem's conduct in preparing and submitting its finding. The court said its first dismissal was not "based upon defendant's lack of belief that plaintiff's process was infringing," but "on the fact that defendant did not communicate such a belief to plaintiff" (emphasis in original). ³

Issue

Whether the district court erred in dismissing the action.

OPINION

I. INTRODUCTION

This appeal presents a type of the sad and saddening scenario that led to enactment of the Declaratory Judgment Act (Act), 28 U.S.C. Sec. 2201. In the patent version of that scenario, a patent owner engages in a danse macabre, brandishing a Damoclean threat with a sheathed sword. See Japan Gas Lighter Ass'n v. Ronson Corp., 257 F.Supp. 219, 237, 150 USPQ 589, 601 (D.N.J.1966). Guerrilla-like, the 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. See E. Borchard,Declaratory Judgments 803-04 (2d ed. 1941). 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 an 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 sole requirement for jurisdiction under the Act is that the conflict be real and immediate, i.e., that there be a true, actual "controversy" required by the Act. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-41, 57 S.Ct. 461, 463-64, 81 L.Ed. 617 (1937); Jervis B. Webb Co., 742 F.2d at 1398, 222 USPQ at 949. ⁴

II. ANALYSIS

(a) Legal Principles

The foregoing facts of defendant's and plaintiff's conduct being undisputed, the question before us is one of law, and the clearly erroneous standard set forth in Fed.R.Civ.P. 52(a) is not involved. ⁵ A district court's view of the legal effect of the fact pattern before it is not to be lightly disregarded. Nonetheless, when a misapplication of the relevant legal principles to that fact pattern is clearly present, the district court's dismissal of the complaint cannot stand. ⁶

The competing considerations are of constitutional dimension: (1) there must be an actual controversy over which a federal court may exercise jurisdiction, Aetna Life Insurance Co., 300 U.S. at 239-40, 57 S.Ct. at 463 (Declaratory Judgment Act "is operative only in respect to controversies which are such in the constitutional sense"); (2) to proceed in the absence of a case or controversy would involve the court in rendering a forbidden advisory opinion. Id. at 240-41, 57 S.Ct. at 463-64. In broadly determining between (1) and (2), there is no specific, all-purpose test. As the Supreme Court noted in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941):

The difference between an abstract question and a "controversy" contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. Basically, the question in each case 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.

A test often useful in evaluating complaints for declaratory judgments in patent cases has been variously stated, its most recent statement appearing in Goodyear Tire & Rubber Co. v. Releasomers, Inc., 824 F.2d 953, 955, 3 USPQ2d 1310,...