Electronics for Imaging, Inc. v. Coyle

• Decision Date: 05 January 2005
• Docket Number: No. 04-1266.,04-1266.
• Citation: 394 F.3d 1341
• Parties: ELECTRONICS FOR IMAGING, INC., Plaintiff-Appellant, v. Jan R. COYLE and Kolbet Labs, Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

394 F.3d 1341

ELECTRONICS FOR IMAGING, INC., Plaintiff-Appellant, v. Jan R. COYLE and Kolbet Labs, Defendants-Appellees.

No. 04-1266.

United States Court of Appeals, Federal Circuit.

DECIDED: January 5, 2005.

COPYRIGHT MATERIAL OMITTED

William C. Rooklidge, Howrey Simon Arnold & White, LLP, of Irvine, California, argued for plaintiff-appellant. With him on the brief were Russell B. Hill and Tom Crunk.

James D. Boyle, Santoro, Driggs, Walch, Kearney, Johnson & Thompson, of Las Vegas, Nevada, argued for defendants-appellees. With him on the brief was Steven A. Gibson.

Before LOURIE, RADER, and GAJARSA, Circuit Judges.

LOURIE, Circuit Judge.

Electronics for Imaging, Inc. ("EFI") appeals from the decision of the district court granting a motion to dismiss its lawsuit against Jan R. Coyle and Kolbet Labs under the Declaratory Judgment Act ("the Act"). Elecs. for Imaging, Inc. v. Coyle, No. C 01-4853 (N.D.Cal. Feb. 13, 2003) ("Dismissal Order"). Because the district court erred as a matter of law and hence abused its discretion, we reverse and remand.

BACKGROUND

EFI is a company that specializes in network printing solutions, particularly print controllers. It sells its products to companies such as Canon, Hewlett-Packard, and Xerox, who in turn incorporate EFI's technology into their own print servers, printers, and copiers. EFI is a Delaware corporation with its principal place of business in Foster City, California. Jan Coyle, a Nevada resident, is a listed inventor on U.S. Patents 6,337,746 and 6,618,157, both directed to printing technology.¹ Kolbet Labs is a Nevada sole proprietorship owned by Daniel Kolbet, who is also a Nevada resident and an inventor listed on both patents.

Coyle first contacted EFI in September 1997, offering to license his technology, which was still in development and not yet the subject of an issued U.S. patent. Subsequently, Coyle and EFI met in Nevada under a non-disclosure agreement. EFI left that meeting uninterested in Coyle's work and did not retain any written information from it. It was not until 1999 that the two parties convened again, apparently at the request of EFI. According to EFI, its inquiry to Coyle was made in light of Coyle's statements concerning progress on the technology and a pending patent application; Coyle also mentioned his own history of filing patent infringement lawsuits against such corporations as Atari, Nintendo, Sega, and NEC Technologies. (Decl. of James L. Etheridge ¶ 2.) In April 2000, the two parties met under a new non-disclosure agreement to discuss possible licensing arrangements, but those talks also ended without any agreement.

In June 2001, Coyle discovered certain EFI sales and marketing information that convinced him that EFI was manufacturing products that were within the scope of Coyle's patent application, then still pending. In September 2001, Coyle notified EFI that the United States Patent and Trademark Office would soon issue Coyle's patent, and he asserted that his patent would cover all of EFI's print controllers. EFI claims that during the week of November 26, 2001, Coyle began to pressure EFI on an almost daily basis, threatening to drive EFI out of business. EFI alleges that Coyle repeatedly warned that he would bring multiple lawsuits, stating that "we'll sue all of your customers" and "bad things are going to happen." (Compl. ¶ 18.) Coyle even identified specific attorneys and law firms in support of his litigation threats.² Id.

EFI's general counsel traveled to Nevada on December 5, 2001 to negotiate terms of an agreement by which EFI could purchase or license Coyle's technology. In the course of the discussions, Coyle stated that "I will sue you and I will fight" and that "all hell w[ill] break loose, I will fight until the end...." Dismissal Order, slip op. at 5. Additionally, Coyle purportedly gave EFI an ultimatum, warning that December 15 was the deadline to pay ("If we don't get a deal, we will pull the trigger and execute the litigation," (Compl. ¶ 19)), but negotiations between the two parties again broke down. On December 11, 2001, EFI sued Coyle and Kolbet Labs in the United States District Court for the Northern District of California, seeking a declaratory judgment that EFI did not breach the two non-disclosure agreements and that EFI did not misappropriate Coyle's trade secrets.

On January 8, 2002, Coyle's '746 patent issued, and EFI amended its complaint that same day to assert noninfringement and invalidity of the patent. Later that month, Coyle filed motions to dismiss the complaint for lack of personal jurisdiction, for improper venue, and for failure to comport with the objectives of the Declaratory Judgment Act. In March 2002, the court granted Coyle's motion to dismiss specifically for lack of personal jurisdiction, but it reserved judgment on Coyle's other motions to dismiss.

In August 2003, a panel of this court reversed the district court's dismissal and remanded the case to the district court. Elecs. for Imaging, Inc. v. Coyle, 340 F.3d 1344 (Fed.Cir.2003). We determined that the district court erred by applying Ninth Circuit law on personal jurisdiction to the patent invalidity claim. Instead, we applied Federal Circuit law, concluding that Coyle had not shown that the case was "one of the `rare' situations in which sufficient minimum contacts exist but where the exercise of jurisdiction would be unreasonable." Id. at 1352.

In February 2004, on remand, the district court considered the other grounds for dismissal previously raised by Coyle. The court determined that EFI did not have any uncertainty about Coyle's intention to sue because Coyle had provided EFI with specific deadlines for reaching an agreement, which deadlines had not yet been met. Dismissal Order, slip op. at 4-5. Additionally, the court found that EFI was not uncertain about the strength of its legal position. Id. The court thus decided that EFI's declaratory suit did not serve the objectives of the Act and was merely anticipatory, designed to preempt Coyle's suit and to secure EFI's own choice of forum instead. Id. at 6-7. Ultimately, the court granted Coyle's motion to dismiss the complaint for failure to comport with the objectives of the Act and did not reach the remaining issues (e.g., motion to dismiss or transfer for improper venue and motion to transfer for convenience). Id. at 1. EFI timely appealed; we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

The sole issue now before us is whether the district court properly dismissed EFI's lawsuit under the Declaratory Judgment Act. The decision to stay or dismiss a declaratory action is reviewed for an abuse of discretion, Wilton v. Seven Falls Co., 515 U.S. 277, 289, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995), which occurs when: "(1) the court's decision was clearly unreasonable, arbitrary, or fanciful; (2) the decision was based on an erroneous conclusion of law; (3) the court's findings were clearly erroneous; or (4) the record contains no evidence upon which the court rationally could have based its decision," Minn. Mining & Mfg. Co. v. Norton Co., 929 F.2d 670, 673 (Fed.Cir.1991).

A declaratory action allows 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 Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 977 (Fed.Cir.1993). The Declaratory Judgment Act provides that:

In a case of actual controversy within its jurisdiction, ... 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.

28 U.S.C. § 2201(a) (2000).

The district court is not required to exercise declaratory judgment jurisdiction, but has "unique and substantial discretion" to decline that jurisdiction. Wilton, 515 U.S. at 286, 115 S.Ct. 2137; EMC Corp. v. Norand Corp., 89 F.3d 807, 810 (Fed.Cir.1996). The use of discretion is not plenary, however, for "[t]here must be well-founded reasons for declining to entertain a declaratory judgment action." Capo, Inc. v. Dioptics Med. Prods., 387 F.3d 1352, 1355 (Fed.Cir.2004); see also Genentech v. Eli Lilly & Co., 998 F.2d 931, 937 (Fed.Cir.1993) ("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 the usual circumstance the declaratory judgment is not subject to dismissal."); cf. BP Chems., 4 F.3d at 981 ("A court may decline to exercise declaratory judgment jurisdiction if it would not afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.").

Federal courts must act "in accordance with the purposes of the Declaratory Judgment Act and the principles of sound judicial administration" when declining jurisdiction in declaratory suits. EMC Corp., 89 F.3d at 813-14. The question whether to accept or decline jurisdiction in an action for a declaration of patent rights in view of a later-filed suit for patent infringement impacts this court's mandate to promote national uniformity in patent practice. Because it is an issue that falls within our exclusive subject matter jurisdiction we do not defer to the procedural rules of the regional circuits nor are we bound by their decisions. Serco Servs. Co., L.P. v. Kelley Co., Inc., 51 F.3d 1037, 1038 (Fed.Cir.1995); Genentech, 998 F.2d at 937.

A. EFI's "Uncertainty"

On appeal, EFI argues that the district court incorrectly determined that EFI's suit against Coyle and Kolbet Labs would not serve the objectives of the Declaratory Judgment Act. Particularly, EFI assigns error to the court's conclusion that because EFI was...