Abb Inc. v. Cooper Indus., 2010–1227.

CourtUnited States Courts of Appeals. United States Court of Appeals for the Federal Circuit
Citation635 F.3d 1345
Docket NumberNo. 2010–1227.,2010–1227.
PartiesABB INC. and ABB Holdings, Inc., Plaintiffs–Appellants,v.COOPER INDUSTRIES, LLC and Cooper Power Systems, Inc., Defendants–Appellees.
Decision Date13 May 2011

OPINION TEXT STARTS HERE

David L. Burgert, Porter & Hedges, LLP, of Houston, TX, argued for plaintiffs-appellants. On the brief were Kyle B. Fleming, Todd R. Tucker and Jay R. Campbell, Renner, Otto, Boisselle & Sklar, LLP, of Cleveland, OH.Robert J. McAughan, Jr., Locke Lord Bissell & Liddell LLP, of Houston, TX, argued for defendants-appellees. With him on the brief were Craig L. Weinstock and Thomas L. Casagrande.Before RADER, Chief Judge, LOURIE and DYK, Circuit Judges.DYK, Circuit Judge.

Plaintiffs ABB Inc. and ABB Holdings, Inc. (collectively ABB) filed a declaratory judgment action against defendants Cooper Industries, LLC and Cooper Power Systems, Inc. (collectively Cooper) seeking a declaration of noninfringement as to the claims of several Cooper patents. The district court dismissed ABB's claim for lack of subject matter jurisdiction, determining that the case did not arise under the patent laws and that there was no diversity of citizenship. ABB Inc. v. Cooper Indus., LLC, 2010 WL 376310 (S.D.Tex. Jan.26, 2010). We reverse because we conclude that ABB's declaratory judgment action did arise under the patent laws, and that jurisdiction was conferred by 28 U.S.C. § 1338.

Background

Cooper is the owner of United States patent numbers 6,037,537, 6,184,459, 6,352,655, 6,398,986, 6,613,250, and 6,905,638. These patents involve electrical equipment containing dielectric fluid, which is used to electrically insulate and thermally protect equipment such as transformers. In 2003, Cooper sued ABB in federal court in Wisconsin, claiming that BIOTEMP, an ABB produced vegetable oil based dielectric fluid, infringed. ABB and Cooper settled that lawsuit in 2005 and entered into a Settlement and License Agreement wherein Cooper granted ABB a non-exclusive “license under the Cooper Patents to make, have made, use, have used, offer to sell, have offered to sell, sell, have sold, import, have imported, export or have exported BIOTEMP.” J.A. 141. However, the agreement also provided that [l]icenses do not include the right of any third party to make BIOTEMP or any other fluid covered by the Cooper Patents.” J.A. 142. ABB paid Cooper a lump-sum of $1,000,000 in exchange for the license. In the agreement, ABB also “acknowledge[d] that each of [Cooper's patents-in-suit] is valid and enforceable” and “further acknowledge[d] that BIOTEMP is covered by one or more claims of the Cooper Patents asserted in the Litigation.” J.A. 145.

After signing the settlement, ABB began outsourcing the manufacture of BIOTEMP to Dow Chemicals (“Dow”). ABB also contracted to indemnify Dow against claims of infringement by Cooper. On June 12, 2009, Cooper wrote to both ABB and Dow concerning Dow's manufacture of BIOTEMP for ABB. In its letter to ABB, Cooper took the position that ABB's rights under the “have made” provision of the settlement agreement “do not include the right of third parties such as Dow to manufacture BIOTEMP.” J.A. 20. “Therefore,” it continued, “any attempt by ABB to outsource the manufacture of BIOTEMP to any entity other than an ABB Related Company ... would be a material breach, and Cooper will act vigorously to protect its rights in that event.” Id. Similarly, Cooper wrote to Dow: We wish to formally put Dow on notice that Cooper will vigorously defend its rights should Dow attempt to make products covered by one or more of Cooper's patents.” J.A. 23.

On July 29, 2009, ABB filed its declaratory judgment action in the United States District Court for the Southern District of Texas, initially seeking a declaration that its activities were authorized under the license agreement. In September 2009, Cooper filed its own declaratory judgment action in Texas state court, seeking a declaration that the license did not include the right to have Dow manufacture BIOTEMP for ABB and that ABB's actions were outside the scope of the agreement.1 On November 16, 2009, ABB amended its original complaint, seeking declarations that it “does not infringe, and has not infringed directly, indirectly, willfully or otherwise, any valid enforceable claim” of the Cooper patents-in-suit. J.A. 5861.2

Cooper moved to dismiss ABB's declaratory judgment claim for lack of subject matter jurisdiction, arguing that there was no actual controversy involving infringement and that, in any event, ABB's complaint raised only a state law license defense to infringement. In its opposition to Cooper's Motion to Dismiss, ABB did not assert any potential federal defenses, such as invalidity, and instead relied on Cooper's potential claim for patent infringement (which was allegedly defeated by a license defense) to demonstrate jurisdiction. At oral argument, ABB asserted that it raised federal defenses of invalidity and unenforceability. However, ABB admitted that these defenses were not “articulated in the [district court] record” and that it “certainly did not go into detail” about the federal defenses. Oral Arg. at 2:52–54, 3:41–44, available at http:// www. cafc. uscourts. gov/ oral– argument– recordings/ 2010– 1227/ all. The district court found “the issues raised by ABB's complaint sound[ed] entirely in contract and hinge[d] exclusively on the interpretation and construction of the terms of the [settlement agreement]—matters governed entirely by state law.” ABB, 2010 WL 376310 at *3. Therefore, it concluded, “since ABB's [complaint] presents no federal question ... and only entails a determination of the parties' rights under the [settlement agreement], this case must be dismissed for lack of subject matter jurisdiction.” Id. at *4. ABB timely appealed, and we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

Discussion

This court reviews a district court's dismissal for lack of subject matter jurisdiction de novo. Air Measurement Techs. Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 504 F.3d 1262, 1267 (Fed.Cir.2007). Section 1338 grants federal question jurisdiction in “any civil action relating to patents.” 28 U.S.C. § 1338.

I

Cooper first asserts that subject matter jurisdiction does not exist because there was no actual controversy surrounding infringement but instead a dispute about contract interpretation. An Article III case or controversy exists when “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.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007) (quoting Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941)). MedImmune rejected our prior, more stringent standard insofar as it included a requirement of a “reasonable apprehension of imminent suit.” Id. at 132 n. 11, 127 S.Ct. 764; see also SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1378–80 (Fed.Cir.2007) (recognizing MedImmune's rejection of the reasonable apprehension test); Teva Pharm. USA, Inc. v. Novartis Pharm. Corp., 482 F.3d 1330, 1338–39 (Fed.Cir.2007) (same).

Thus, a specific threat of infringement litigation by the patentee is not required to establish jurisdiction, and a “declaratory judgment action cannot be defeated simply by the stratagem of a correspondence that avoids magic words such as ‘litigation’ or ‘infringement.’ Hewlett–Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed.Cir.2009). Cooper's argument that the controversy must be judged based on the actually threatened litigation is an impermissible attempt to revive the “reasonable apprehension of imminent suit” test rejected by the Supreme Court in MedImmune.

Despite Cooper's attempt to characterize the controversy as solely involving a state law issue, there was a controversy “of sufficient immediacy and reality” surrounding infringement “to warrant the issuance of a declaratory judgment.” See MedImmune, 549 U.S. at 127, 127 S.Ct. 764. Cooper clearly advised ABB and Dow that they had no rights under the license. Cooper stated that it “will act vigorously to protect its rights,” J.A. 20, and that it would “vigorously defend its rights,” J.A. 23. Cooper does not contend in its brief here that it can recover damages against ABB on a breach of contract theory for the Dow outsourcing, and the Texas district court has not adopted Cooper's argument that the contract contains an enforceable negative implied covenant on the part of ABB not to infringe.3 To obtain an injunction or damages remedy, Cooper likely would have to sue ABB for induced infringement or Dow for direct infringement (which would have obligated ABB to indemnify Dow).

In MedImmune, the Supreme Court held that statements similar to Cooper's created a case or controversy sufficient to establish declaratory judgment jurisdiction. See 549 U.S. at 121–22, 127 S.Ct. 764. The respondent in MedImmune “delivered petitioner a letter expressing its belief that [the accused product] was covered by [one of respondent's patents] and its expectation that petitioner would pay royalties,” and the Court found there was a case or controversy. Id. Under similar circumstances, our court recently applied the MedImmune standard in finding an infringement controversy where the declaratory defendant had sent veiled warnings to the declaratory plaintiff and had already sued other companies that produced the same product accused of infringement. See Micron Tech., Inc. v. Mosaid Techs., Inc., 518 F.3d 897, 899–901 (Fed.Cir.2008). We found these facts “show[ed] a substantial controversy between parties with adverse legal interests of sufficient immediacy and reality to warrant the issuance of a declaratory...

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