Capo, Inc. v. Dioptics Medical Products

• Citation: 387 F.3d 1352
• Decision Date: 25 October 2004
• Docket Number: No. 04-1045.,04-1045.
• Parties: CAPO, INC., Plaintiff-Appellant, v. DIOPTICS MEDICAL PRODUCTS, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

387 F.3d 1352

CAPO, INC., Plaintiff-Appellant, v. DIOPTICS MEDICAL PRODUCTS, INC., Defendant-Appellee.

No. 04-1045.

United States Court of Appeals, Federal Circuit.

DECIDED: October 25, 2004.

Appeal from the United States District Court for the Middle District of Florida, Anne C. Conway, J Stephen D. Milbrath, Allen, Dyer, Doppelt, Milbrath & Gilchrist, P.A., of Orlando, Florida, argued for plaintiff-appellant. Of counsel was Herbert L. Allen.

Hal K. Litchford, Litchford & Christopher, of Orlando, Florida, argued for defendant-appellee. With him on the brief was Richard C. Swank. Of counsel was David S. Bloch, McDermott, Will & Emery, of Palo Alto, California.

Before NEWMAN, LOURIE, and DYK, Circuit Judges.

PAULINE NEWMAN, Circuit Judge.

Capo, Inc. appeals an order of the United States District Court for the Middle District of Florida, dismissing Capo's declaratory judgment action against Dioptics Medical Products, Inc.¹ The district court held that, in exercise of its discretion, the action would not be accepted. We conclude that in refusing the action as it arose herein, the district court exceeded the discretionary authority provided by the Declaratory Judgment Act.

BACKGROUND

Dioptics is in the business of producing "wear-over" sunglasses adapted to fit over or clip onto eyeglasses, and Capo is a wholesale marketer of sunglasses. Capo has been a customer and reseller of Dioptics products since 1988. In 2002 Capo developed its own design of wear-over sunglasses, and was preparing to market this product.

In September 2002 Mr. Henry Lane, the president of Dioptics, and Mr. Mark Ascik, the president of Capo, both attended a Wal-Mart suppliers meeting. During that meeting Mr. Lane told Mr. Ascik that Lane had seen Capo's intent-to-use trademark application for the mark "Suncovers" for wear-over sunglasses. The district court found that the conversation included the following: Lane told Ascik that Dioptics has a large number of issued patents and pending applications for designs of wear-over sunglasses, and that he wished to avoid legal dispute with a valued customer. Lane told Ascik that Dioptics vigorously enforces its patents against infringers. Ascik said that Capo had engaged patent counsel to aid in designing around the Dioptics patents and that Capo had a detailed non-infringement opinion from its counsel. Lane said that Capo's counsel could not know the content of Dioptics' pending patent applications.

Lane then is said to have placed several phone calls to Ascik, and on October 23, 2002 Lane left a voice mail message stating that if he did not hear promptly from Ascik, he would have to "presume that you are just ducking and racing forward to infringement;" Lane cautioned Ascik about "charging down a path here that's going to end up into a multi-million dollar lawsuit." Ascik then phoned Lane, and Ascik's affidavit states that Lane said that Dioptics had thirteen United States patents and would soon have forty, and that these patents covered all of the basic wear-over sunglass frame shapes. Lane said that Dioptics would have no choice but to defend its patents against infringement, and that he was sure he would win an infringement suit. This conversation, on a speaker-phone, was corroborated by Capo's designer of the "Suncovers" product.

Capo then filed this declaratory judgment complaint, seeking a declaration of noninfringement of fourteen Dioptics design patents. Dioptics moved for dismissal of the declaratory action, on the ground that Mr. Lane could not have threatened suit for infringement because neither he nor anyone else at Dioptics had seen Capo's "Suncovers" product, and no one had analyzed it for infringement of any Dioptics patent. Dioptics declined to file a counterclaim for infringement, stating that it could not ethically do so, when it had not seen the Capo product. Capo responded by referring to Lane's reference to Dioptics' patents and his threats of suit for infringement. Ascik averred that he had "the very definite conviction that Dioptics would sue Capo for patent infringement, unless Capo withdrew the Suncovers product from the marketplace." Ascik stated that Lane's threats were intended to deter marketing of Capo's "Suncovers" product, by stating that Capo risked "a multimillion dollar lawsuit."

While this proceeding was pending Dioptics filed suit against Capo in the Northern District of California, alleging trade dress infringement and unfair competition by the "Suncovers" product. Dioptics' California complaint did not mention patent infringement, but it stated that the Capo "Suncovers" product is "substantially identical in overall appearance, design, and functionality, but inferior in style and performance, to the Dioptics `Solar-Shield Fits Over Glasses.'" Capo pointed out in this suit that the California complaint is inconsistent with Dioptics' contention that it has not seen the Capo product and that there is no threat of suit. Thus Capo argued that there was an actual patent controversy, and a commercial need to resolve the controversy.

The district court found that an actual controversy existed between Capo and Dioptics, but declined to decide the "close question of whether Dioptics' President's statements created a reasonable apprehension that Dioptics would sue Capo for patent infringement." The court found that the dispute was not "sufficiently crystallized" for declaratory action because at the time the charges of infringement were made by Mr. Lane he had not seen Capo's product, Dioptics had not filed the compulsory counterclaim for infringement, and Dioptics stated that it had pending applications, not yet granted, that better covered the accused product. The court ruled that "in its considerable discretion under the Declaratory Judgment Act, it should nevertheless decline to exercise declaratory judgment jurisdiction in this particular case."

A district court's decision to stay or to dismiss an action seeking a declaratory judgment is reviewed under an abuse of discretion standard. Wilton v. Seven Falls Co., 515 U.S. 277, 289, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995).

DISCUSSION

I

The Declaratory Judgment Act provides:

28 U.S.C. § 2201. In a case of actual controversy within its jurisdiction . . . any court of the United States . . . 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.

The purpose of the declaratory action is to allow a party "who is reasonably at legal risk because of an unresolved dispute, to obtain judicial resolution of that dispute without having to await the commencement of legal action by the other side." BP Chemicals Ltd. v. Union Carbide Corp., 4 F.3d 975, 977 (Fed.Cir.1993). See also Cardinal Chemical Co. v. Morton Int'l Inc., 508 U.S. 83, 113 S.Ct. 1967, 124 L.Ed.2d 1 (1993) (recounting the motivation in patent cases for recourse to the Declaratory Judgment Act).

In accordance with Article III of the Constitution, the Act requires existence of an actual controversy. Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 887 (Fed.Cir.1992). More is needed than knowledge of or notice of an adversely held patent. BP Chemicals, 4 F.3d at 978. Declaratory justiciability of patent disputes requires both (1) a threat or other action by the patentee whereby the declaratory plaintiff has a reasonable apprehension that he will be sued for infringement, and (2) activity by the declaratory plaintiff that constitutes the alleged infringement or active preparation to conduct such activity. Jervis B. Webb Co. v. Southern Sys., Inc., 742 F.2d 1388, 1398-99 (Fed.Cir. 1984). The standard is objective, and focuses on whether the patentee manifested the intention to enforce the patent, and would be reasonably expected to enforce the patent against the declaratory plaintiff. Indium Corp. v. Semi-Alloys, Inc., 781 F.2d 879, 883 (Fed.Cir.1985). When these criteria are met the declaratory action should proceed. Arrowhead Indus. Water Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed.Cir.1988) ("If defendant has expressly charged a current activity of the plaintiff as an infringement, there is clearly an actual controversy, certainty has rendered apprehension irrelevant, and one need say no more.")

The district court retains appropriate discretion to decline to accept a declaratory action, Wilton, 515 U.S. at 290, 115 S.Ct. 2137, to be exercised "in accordance with the purposes of the Declaratory Judgment Act and the principles of sound judicial administration." EMC Corp. v. Norand Corp., 89 F.3d 807, 813-14 (Fed.Cir. 1996). The court must determine whether hearing the case would "serve the objectives for which the Declaratory Judgment Act was created." EMC, 89 F.3d at 814. However, when these objectives are served, dismissal is rarely proper, as illustrated in those circumstances in which dismissal was sustained. In EMC the court found that the declaratory action was brought in order to gain an advantage in licensing negotiations, and deemed that an improper purpose. Id. at 815. In BP Chemicals the court observed that dismissal of a declaratory judgment action was supported by the lack of joinder of necessary parties. 4 F.3d at 981.

There must be well-founded reasons for declining to entertain a declaratory judgment action. Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112, 82 S.Ct. 580, 7 L.Ed.2d 604 (1962). Absent such reasons, precedent establishes that when there has been a direct charge of infringement by the patentee, and an actual controversy exists due to ongoing activity that has been accused of infringement, the accused infringer has the right to resolve the dispute. See Telectronics Pacing Sys., Inc. v. Ventritex, Inc., 982 F.2d 1520, 1526 (Fed.Cir.1992) (declaratory judgment actions evidencing a conflict of sufficient immediacy and reality should be allowed to proceed).

In sum, Capo argues that this declaratory action should be...