998 F.2d 931 (Fed. Cir. 1993), 91-1249, Genentech, Inc. v. Eli Lilly and Co.

Docket Nº:91-1249.
Citation:998 F.2d 931
Party Name:27 U.S.P.Q.2d 1241 GENENTECH, INC., Plaintiff-Appellant, v. ELI LILLY AND COMPANY, Defendant, and The Regents of the University of California, Defendant-Appellee.
Case Date:July 01, 1993
Court:United States Courts of Appeals, Court of Appeals for the Federal Circuit

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998 F.2d 931 (Fed. Cir. 1993)

27 U.S.P.Q.2d 1241

GENENTECH, INC., Plaintiff-Appellant,




The Regents of the University of California, Defendant-Appellee.

No. 91-1249.

United States Court of Appeals, Federal Circuit

July 1, 1993

        Rehearing Denied Sept. 13, 1993.

        Rehearing Denied; Suggestion for Rehearing In Banc Declined

        Sept. 23, 1993.

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        Salem M. Katsh, Weil, Gotshal & Manges, New York City, argued, for plaintiff-appellant. With him on the brief, were Ira M. Millstein, Howard B. Comet, Edmund J. Fish and Patrick A. Fraioli, Jr. Also on the brief, were Hugh E. Reynolds and David T. Kasper, Locke, Reynolds, Boyd & Weisell, Indianapolis, IN.

        Thomas D. Nevins, III, Broad, Schulz, Larson & Wineberg, San Francisco, CA, argued, for defendant-appellee. With him on the brief, was Paula L. Baca. Also on the brief, were Allen B. Wagner, Office of the Gen. Counsel to the Regents of the University of California, Oakland, CA and Susan B. Tabler, Ice Miller Donadio & Ryan, Indianapolis, IN.

        Before NEWMAN, Circuit Judge, SKELTON, Senior Circuit Judge, and LOURIE, Circuit Judge.

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        PAULINE NEWMAN, Circuit Judge.

        Genentech, Inc. appeals the judgment of the United States District Court for the Southern District of Indiana 1 dismissing, as to the Regents of the University of California ("the University"), the declaratory judgment action brought by Genentech against the University and Eli Lilly and Company ("Lilly"). We affirm in part, vacate in part and remand for further proceedings.

        This is one of several lawsuits filed in the federal courts of Indiana and California involving these parties, 2 relating to recombinant DNA technology as used for the production of human growth hormone ("hGH"), a product having medicinal and therapeutic properties. The patent here involved is United States Patent No. 4,363,877 entitled "Recombinant DNA Transfer Vectors", granted December 14, 1982, inventors Howard M. Goodman, John Shine, and Peter H. Seeburg ("the '877 patent"). The patent is owned by the University.

        The legal issues raised in this declaratory action relate to the infringement, validity, and enforceability of the '877 patent, and include charges by Genentech of violation of federal antitrust laws and state tort and contract laws based on certain patent licensing arrangements between the University and Lilly. The activities of the University are relevant to a threshold question in this appeal: whether the University, viewed as an arm of the state, is entitled, as to some or all of the charges made by Genentech, to Eleventh Amendment immunity under the Constitution of the United States or to State Action immunity. The University's activities are also relevant to another threshold question: whether the district court properly exercised its discretion in dismissing this declaratory judgment action as to the University.

        The district court decided these questions under Federal Rules of Civil Procedure 12(b)(1) (lack of jurisdiction over the subject matter) and 12(b)(6) (failure to state a claim upon which relief can be granted), on motions made by the University following the filing of Genentech's complaint. Therefore the premises and allegations of Genentech's complaint are accepted as true for the purpose of deciding these threshold questions.

        Genentech filed this declaratory action against Lilly and the University in the Southern District of Indiana, requesting judicial declaration that the '877 patent is invalid and not infringed. Genentech also sought declaration that the '877 patent is unenforceable for inequitable conduct, Genentech alleging that a Certificate of Correction was obtained through false or misleading representations by the University to the Patent and Trademark Office. Genentech also alleged that a waiver from the Department of Health, Education & Welfare (herein "HEW", now the Department of Health and Human Services), that permitted the University to grant an exclusive license to Lilly, was obtained through false representations to HEW and omissions of fact. Genentech also asserted that certain contractual obligations estopped the University from enforcing the '877 patent against Genentech. In addition, Genentech raised antitrust and patent misuse counts and state law tort counts as grounds of patent invalidity, unenforceability, and other relief.

        The day after Genentech filed this declaratory action the University filed a patent infringement suit against Genentech in the United States District Court for the Northern District of California. The University then moved in the Indiana district court to dismiss this declaratory action as to the University. The Indiana court granted the motion on the ground that the suit was barred by the University's immunity and, alternatively, on exercise of the court's discretion to decline to entertain this declaratory action. The suit as to Lilly was not dismissed.

        As we shall discuss in Part I, the district court erred in declining to hear this action against the University under the Declaratory Judgment Act. As we shall discuss in Part II, the University is not immune from suit as

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to the patent counts and certain other counts of the complaint. Thus, the suit was improperly dismissed under Rules 12(b)(1) and 12(b)(6).



        We review first the dismissal under the Declaratory Judgment Act, for if that ruling is sustainable the questions of constitutional and State Action immunity need not be addressed.

        The Declaratory Judgment Act provides:

28 U.S.C. § 2201. In a case of actual controversy within its jurisdiction, except with respect to Federal taxes ..., any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.

        The use of the word "may" in § 2201 has been interpreted as meaning both that the court is authorized to declare legal rights and relations, and that in appropriate circumstances the court may decline to do so. E.g., Minnesota Mining and Mfg. Co. v. Norton Co., 929 F.2d 670, 672, 18 USPQ2d 1302, 1304 (Fed.Cir.1991). However, the declaratory action is not a permissive action that may be heard or dismissed in absolute judicial discretion. See 10A Charles A. Wright et al., Federal Practice and Procedure § 2759, at 655-56 (2d ed. 1983 & Supp.1992) ("The discretion of the trial court is not absolute and the court cannot refuse to entertain a declaratory judgment action on a whim"); Edwin Borchard, Declaratory Judgments, 293-94 (2d ed. 1941) (although the court is granted discretion, it is "a judicial discretion, hardened by experience into rule, and its exercise is subject to appellate review"). The exercise of discretion in a declaratory judgment must have a basis in sound reason. Samuel Goldwyn, Inc. v. United Artists Corp., 113 F.2d 703, 709 (3d Cir.1940).

        An abuse of discretion may occur when the trial court's decision was based on an incorrect conclusion of law or clearly erroneous findings of fact, was devoid of any evidence in the record upon which the court rationally could have based its decision, or was clearly unreasonable or arbitrary. Minnesota Mining, 929 F.2d at 672-73, 18 USPQ2d at 1304-05. See also Charter Financial Sav. Bank v. Office of Thrift Supervision, 976 F.2d 203, 208 n. 8 (4th Cir.1992) (noting that most circuits give plenary review to the question of exercise of jurisdiction in a declaratory action); 6A James W. Moore et al., Moore's Federal Practice p 57.08 at 57-36 (2d ed. 1993) ("The determination of the trial court may, therefore, be reversed where, though not arbitrary or capricious, it was nevertheless erroneous"). Indeed, the district court in this case, although it declined to entertain the declaratory action, did not do so arbitrarily. However, we conclude that it did so incorrectly.


The Case of Actual Controversy

        To meet the requirements of the Declaratory Judgment Act there must be a "case of actual controversy", as the Constitution requires for any invocation of federal judicial authority. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-40, 57 S.Ct. 461, 463-64, 81 L.Ed. 617 (1937). The case must be "of sufficient immediacy and reality" to warrant declaratory relief. Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941).

        Determination of whether there is an actual controversy in patent actions generally entails the two part inquiry of (1) whether the declaratory plaintiff has acted in a way that the patentee asserts infringes the patent, or is preparing to act in such a way; and (2) whether the patentee has created, in the declaratory plaintiff, a reasonable apprehension of suit for infringement. Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735-36, 6 USPQ2d 1685, 1688-89 (Fed.Cir.1988). When the patentee has explicitly charged that a current activity of the

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declaratory plaintiff is an infringement, "certainty has rendered apprehension irrelevant, and one need say no more." Id. at 736, 6 USPQ2d at 1689.

        The University does not dispute that it charged Genentech with infringement of the '877 patent. Thus the case of actual controversy requirement was met.


The Tempco Electric Case

        When there is an actual controversy and a declaratory judgment would settle the legal relations in dispute and afford relief from uncertainty or insecurity, in...

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