Medtronic, Inc. v. American Optical Corporation, 4-70-Civ. 472.

• Citation: 327 F. Supp. 1327
• Decision Date: 23 April 1971
• Docket Number: No. 4-70-Civ. 472.,4-70-Civ. 472.
• Parties: MEDTRONIC, INC., Plaintiff, v. AMERICAN OPTICAL CORPORATION, Defendant.
• Court: U.S. District Court — District of Minnesota

327 F. Supp. 1327

MEDTRONIC, INC., Plaintiff, v. AMERICAN OPTICAL CORPORATION, Defendant.

No. 4-70-Civ. 472.

United States District Court, D. Minnesota, Fourth Division.

April 23, 1971.

Tom Arnold, Arnold, White & Durkee, Houston, Tex., Lawrence Perlman, Fredrikson, Byron & Colborn, Minneapolis, Minn., for plaintiff.

Benno F. Wolff, Oppenheimer, Brown, Wolff, Leach & Foster, St. Paul, Minn., Stanton T. Lawrence, Jr., Pennie, Edmonds, Morton, Taylor & Adams, New York City, for defendant.

MEMORANDUM DECISION

LARSON, District Judge.

This is an action for declaratory relief under 28 U.S.C. §§ 2201 and 2202. Plaintiff Medtronic, Inc. seeks a declaratory judgment that two patents of defendant American Optical Corporation are invalid and that no heart pacemaker of plaintiff has infringed either patent. In addition, plaintiff seeks to enjoin defendant from both collecting royalties from plaintiff in consideration for a license under the patents, and from threatening suit against plaintiff or its customers for alleged infringement of the patents. Finally, plaintiff seeks a temporary decree authorizing it to pay royalties which are accruing under a license agreement with defendant to an escrow agent during the pendency of this litigation.

Defendant has moved to dismiss the complaint on the ground that this Court lacks jurisdiction over the subject matter. Fed.R.Civ.P. 12(b) (6). It asserts that the complaint fails to set forth the existence of an actual controversy between the parties as required for a declaratory judgment under 28 U.S.C. § 2201.

By stipulation of the parties, the plaintiff's motion for a temporary decree authorizing it to escrow royalty payments was postponed until the jurisdictional question was decided. The parties submitted lengthy memoranda on the merits of defendant's motion to dismiss for lack of jurisdiction. It was also the subject of a hearing on March 27, 1971.

Plaintiff is a Minnesota corporation and the leading manufacturer of cardiac pacemakers. Defendant is a Delaware corporation with principal offices in Massachusetts. The defendant owns the two patents involved in this controversy: (a) Patent 3,345,990 ("the '990 patent"), issued on October 10, 1967, relates to a "demand" cardiac pacemaker which stimulates the heart only in the absence of a natural beat; and (b) Patent 3,528,428 ("the '428 patent"), issued on September 15, 1970, relates to a pacemaker which is protected from malfunctioning due to stray electrical interference.

After the issuance of the '990 patent, the defendant charged plaintiff with infringement. While the charge was denied, it triggered negotiations which resulted in a non-exclusive License Agreement on November 23, 1968. This Agreement called for the plaintiff to make royalty payments on devices covered by "valid" claims of patent '990 within thirty days after the last day of each January, April, July and October. The Agreement provided that the plaintiff's royalty obligations would be unaffected by any court decision regarding the validity of the patent until that decision became final and unappealable. The plaintiff paid over $750,000 in royalties before filing this suit on October 30, 1970. On that date $78,000 in royalties had accrued but was not yet due.

After the License was signed the plaintiff developed a demand pacemaker —Model 5843—which operates on a "rate hysteresis" principle and contains an interference-avoidance circuit. Model 5843 was produced and sold by the plaintiff prior to the filing of the suit. About $1,000 in royalties had accrued on these sales as of that date.

The Agreement granted the plaintiff the right to notify the defendant of any substantial infringement of patent '990. After being informed that Viatron Medical, Inc., was infringing its patent, the defendant filed suit against that company in the District Court in Massachusetts. That suit is now pending trial. The plaintiff also informed the defendant that the General Electric Company was manufacturing an implantable pacemaker which operated on a rate hysteresis principle; but it contended that this device did not infringe the '990 patent. The defendant, however, took the position that a rate hysteresis pacemaker was covered by the '990 patent and it informed the plaintiff that it would bring suit against General Electric if it did not take a license on its implantable pacemaker. General Electric, according to the defendant, orally admitted infringement by its external pacemaker but denied infringement by its implantable device.

In March 1970 the plaintiff informed defendant that it was about to manufacture and market its own rate hysteresis device in Europe. On October 6, 1970, plaintiff's patent counsel, Donald R. Stone, informed defendant's chief patent counsel, William C. Nealon, that a "significant number" had been sold to plaintiff's Dutch subsidiary for resale in Europe. Stone continued, "We believe that the manufacture and sale of these devices by Medtronic, Inc., incurs no obligation to pay royalties under our license agreement of November 23, 1968, because we believe that such activity does not infringe any valid claim of the Berkovits 3,345,990 patent. We will appreciate your prompt concurrence with our opinion in this matter because we are not accruing royalties on these devices."

Nealon replied promptly but did not concur. In a letter dated October 14, 1970, he stated in part:

"We have now completed a study of your October 6th letter and attached circuitry relative to the Medtronic Model #5843 pacemaker. We believe this pacemaker is covered by the Berkovits patent No. 3,345,990. We also believe it conflicts with our recently-issued patent No. 3,528,428 (copy attached).

"Since we have been very open with each other to date, I am attaching a copy of the memorandum prepared by our electronics expert applying claim 3 of Berkovits No. 3,345,990 and claim 40 of No. 3,528,428. If you disagree with our reasoning, may we suggest a meeting to discuss the matter in detail." (Emphasis added.)

The attached memorandum was titled, "Medtronic Model 5843 Infringement Study." It posed the following question: "Is the subject demand pulse generator (pacemaker) read on by the claims of Patent No. 3,345,990 and Patent No. 3,528,428?" It concluded: "The subject pacemaker is read on by the claims of both patents."

The fundamental question in this case, as in every declaratory judgment action, is whether a justiciable controversy exists—that is, whether the facts reveal the existence of an actual controversy between parties having opposing legal interests of such immediacy that a declaration of rights is warranted. Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S. Ct. 510, 85 L.Ed. 826 (1941). Hypothetical or abstract questions are thus not suitable for this type of judicial determination. Aetna Life Insurance Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 240, 57 S.Ct. 461, 81 L.Ed. 617 (1936). The Declaratory Judgment Act is procedural and does not grant jurisdiction to Federal courts; it simply allows adjudication of select cases where courts already have jurisdiction. In the present case, plaintiff predicates subject matter jurisdiction with respect to the '990 patent on two separate grounds: (a) the action arises under the patent laws of the United States, 28 U.S.C. § 1338; and (b) the matter in controversy exceeds $10,000 and arises between parties which are citizens of different States, 28 U.S.C. § 1332. With respect to the '428 patent, jurisdiction is predicated only of 28 U.S.C. § 1338.

PATENT LAW JURISDICTION: THE '990 PATENT

There was a good bit of fencing in the parties' briefs over the issue of whether a formal charge of infringement or explicit threat of suit is a prerequisite to the maintenance of an action for declaration of non-infringement or invalidity. A charge of infringement is a court's greatest assurance that it is not being asked to decide an abstract question. This is the policy consideration underlying the requirement. The charge creates an actual case or controversy fit for judicial determination.

While conceding that many courts have found this requirement lacking in cases between parties to a license agreement, plaintiff nevertheless argues that a justiciable controversy exists over the scope and validity of patent '990. Plaintiff contends that courts in these cases have concentrated to such a degree on the charge of infringement requirement that they have lost sight of the more fundamental question—namely, whether there is an actual controversy between the parties.

Defendant, on the other hand, submits that a "charge of infringement or conduct tantamount thereto, which creates a reasonable apprehension of liability on the part of a declaratory judgment plaintiff, is the minimum requirement for an actual controversy arising under the patent laws." This broad interpretation, focusing as much on the plaintiff's state of mind as on the defendant's conduct, is by far the majority rule. Owatonna Manufacturing Company v. Melroe Company, 301 F.Supp. 1296, 1299 (D.Minn.1969); and cases collected in 6A Moore's Federal Practice 3118-3121.

Defendant contends that because the license was in full force it could not possibly charge plaintiff with infringement of the '990 patent. In essence it reasons as follows: because there is a license, there can be no charge; because there is no charge, there can be no controversy; because there is no controversy, this Court lacks jurisdiction.

The defendant's letter of October 14, 1970, and the accompanying "Infringement Study" unequivocally maintain that Model 5843 is covered by the '990 patent. Earlier it threatened suit against General Electric for manufacture of devices that operated on the same principle. There can be no question that, absent the license, these statements and actions would be enough to constitute the "actual controversy" that is the necessary basis for a declaratory...