Sherwood Medical Industries, Inc. v. Deknatel, Inc.

• Citation: 512 F.2d 724
• Decision Date: 25 March 1975
• Docket Number: No. 74-1693,74-1693
• Parties: SHERWOOD MEDICAL INDUSTRIES, INC., Appellant, v. DEKNATEL, INC., Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

Page 724

512 F.2d 724

185 U.S.P.Q. 133

SHERWOOD MEDICAL INDUSTRIES, INC., Appellant, v. DEKNATEL, INC., Appellee.

No. 74-1693.

United States Court of Appeals Eighth Circuit.

Submitted Feb. 13, 1975.

Decided March 5, 1975.

Rehearing and Rehearing En Banc Denied March 25, 1975.

Paul L. Gardner, Los Angeles, Cal., for appellant.

Roberts B. Larson, Arlington, Va., for appellee.

Before BRIGHT, ROSS and STEPHENSON, Circuit Judges.

ROSS, Circuit Judge.

Sherwood Medical Industries, Inc. (Sherwood) brought this action against Deknatel, Inc., seeking a declaratory judgment that certain patents held by Deknatel are invalid, unenforceable and not infringed by Sherwood. The district court ¹ found that there was no "actual controversy" between the parties as required by the Declaratory Judgment Act, 28 U.S.C. § 2201, and granted a summary judgment for Deknatel dismissing the cause for lack of jurisdiction. This appeal followed.

The complaint, affidavits and depositions which were before the court on the motion to dismiss ² reveal the following uncontroverted facts:

Deknatel is the owner of two United States patents (numbers 3,363,626 and 3,363,627) each of which covers an "underwater drainage apparatus." Deknatel utilizes these patents in the manufacture and sale of chest drainage devices used for the evacuation of fluids and gases from the pleural cavities of human beings during surgery.

Sherwood also desires to market a chest drainage device throughout the United States and during the past several years has spent in excess of $100,000 in a research and development program in connection with its drainage apparatus. It has built approximately one hundred prototype units and has placed around thirty of these in St. Louis hospitals for testing. Additionally, Sherwood has ordered and plans to order more relatively expensive equipment, materials and promotional literature for the manufacture and marketing of these items. It also expects to expand its manufacturing facilities and hire additional employees in the near future.

On April 16-18, 1973, Sherwood exhibited one of its prototype units at a convention of the American Association for Thoracic Surgery in Dallas, Texas. This was brought to the attention of Deknatel's patent attorney who sent a letter to Sherwood on April 23, 1973. This letter ³ stated in rather circumspect language that Deknatel wanted to determine whether Sherwood's new device might infringe its patents and noted that Deknatel had in the past litigated these patents. It further requested a sample for inspection.

On May 1, 1973, Sherwood's patent attorney responded in writing to the April 23 letter, refusing to send a sample to Deknatel because the new "thoracic drainage device is not at present available to the medical community." Nonetheless, Deknatel made some effort to obtain a sample and eventually obtained more than one through other sources.

In January, 1974, Mr. Byron Economidy, a product engineer at Sherwood who was in charge of that company's chest drainage device project, attended a meeting of the Society of Thoracic Surgeons in Los Angeles. While there he met and spoke with Mr. Robert Smith, director of new products for Deknatel. In their brief conversation, according to Economidy's uncontradicted affidavit and deposition testimony, Smith told him that Sherwood's chest drainage unit would infringe Deknatel's patents and that Deknatel's attorneys had advised their client that Sherwood's unit did infringe the patents.

The district judge concluded that on these facts there was no actual controversy. We disagree and reverse the summary judgment of dismissal.

The Declaratory Judgment Act's requirement of an "actual controversy" is no more than a recognition that the Constitution limits the exercise of judicial power to "cases" and "controversies" in the constitutional sense. Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 239-240, 57 S.Ct. 461, 81 L.Ed. 617 (1937); Dewey & Almy Chemical Co. v. American Anode, Inc., 137 F.2d 68, 70 (3d Cir.), cert. denied, 320 U.S. 761, 64 S.Ct. 70, 88 L.Ed. 454 (1943). Under this standard (t)here must be a concrete case touching the legal relations of parties having adverse legal interests, and susceptible "of an immediate and definitive determination of the legal rights of the parties in an adversary proceeding upon the facts alleged." The distinction is between a case "appropriate for judicial determination" on the one hand, and a "difference or dispute of a hypothetical or abstract character" on the other.

Dewey & Almy Chemical Co. v. American Anode, Inc., supra, 137 F.2d at 70, citing, Aetna Life Insurance Co. v. Haworth, supra, 300 U.S. at 240-241, 57 S.Ct. 461.

Applying these general principles in any given case is somewhat difficult; for, as the Supreme Court stated in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941):

The difference between an abstract question and a "controversy" contemplated by the Declaratory Judgment Act is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. Basically, the question in each case is whether 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.

Generally speaking, in patent cases it is held that there is such an "actual controversy" only if the patentee-defendant in the declaratory judgment lawsuit has either expressly or impliedly charged the plaintiff with infringement of its patent. However, the requirement of a charge of infringement is liberally construed. Sweetheart Plastics, Inc. v. Illinois Tool Works, Inc., 439 F.2d 871, 874 (1st Cir. 1971); Muller v. Olin Mathieson Chemical Corp., 404 F.2d 501, 504 (2d Cir. 1968).

In Robin Products Co. v. Tomecek, 465 F.2d 1193, 1195 (6th Cir. 1972), Chief Judge Phillips of the Sixth Circuit stated:

In actions of the type herein involved, a justiciable controversy is made out upon plaintiff's showing of "any indirect or implicit or covert charge (of infringement) or threat (of suit or) ... any conduct or course of action from which any charge or threat could be inferred." Goodrich-Gulf Chemicals, Inc. v. Phillips Petroleum Co., 376 F.2d 1015, 1019 (6th Cir. 1967).

And in discussing what type of conduct or course of action should be deemed to be a charge the court in the Robin Products case said:

The appropriate test is whether the course of action would be regarded by a reasonable man as a charge of infringement and was so regarded by the party seeking declaratory relief.

Id. at 1196.

This same test is expressed somewhat differently in Japan Gas Lighter Association v. Ronson Corp., 257 F.Supp. 219, 237 (D.N.J.1966).

Such an action must be based on the plaintiff's well grounded fear that should he continue or commence the activity in question, he faces an infringement suit or the damaging threat of one to himself and his customers. The touchstone is a reasonable apprehension. (Emphasis in original.)

See also Medtronic, Inc. v. American Optical Corp., 327 F.Supp. 1327, 1333 (D.Minn.1971); Owatonna Manufacturing Co. v. Melroe Co., 301 F.Supp. 1296, 1299 (D.Minn.1969).

In summary, an "actual controversy" exists if there has been a charge of infringement. However, such a charge need not be express and can be found in any conduct or course of action on the part of the patentee which would lead a reasonable man to fear that he or his customers face an infringement suit or the threat of one if he continues or commences the activity in question.

Finally, in applying these rules to fact situations before them to determine whether or not there is an "actual controversy" courts should make a pragmatic judgment, aware of the business realities that are involved. See Wallace & Tiernan, Inc. v. General Electric Co., 291 F.Supp. 217, 221 (S.D.N.Y.1968).

In the instant case Sherwood points to four actions on the part of Deknatel which led it to have a "reasonable apprehension" that it would be faced with an infringement suit if it commenced marketing its chest drainage device. First, Deknatel had brought an action for infringement of these patents against another competitor in...