Sierra Applied Sciences v. Advanced Energy Indus.

• Decision Date: 13 April 2004
• Docket Number: No. 03-1356.,03-1356.
• Citation: 363 F.3d 1361
• Parties: SIERRA APPLIED SCIENCES, INC., Plaintiff-Appellant, v. ADVANCED ENERGY INDUSTRIES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Federal Circuit

363 F.3d 1361

SIERRA APPLIED SCIENCES, INC., Plaintiff-Appellant, v. ADVANCED ENERGY INDUSTRIES, INC., Defendant-Appellee.

No. 03-1356.

United States Court of Appeals, Federal Circuit.

DECIDED: April 13, 2004.

COPYRIGHT MATERIAL OMITTED

M. Gabriel McFarland, Evans & McFarland, LLC, of Denver, CO, argued for plaintiff-appellant. The briefs were submitted by Susan E. Chetlin, Dahl & Osterloth, L.L.P. of Denver, CO, for the appellant. Of counsel was Bruce E. Dahl.

Thomas C. Grimm, Morris, Nichols, Arsht & Tunnell, of Wilmington, DE, argued for defendant-appellee. With him on the brief were Kristen M. Healey and Sean P. Haney. Of counsel on the brief was Craig A. Neugeboren, Cooley Godward LLP, of Broomfield, CO.

Before MICHEL, GAJARSA, and DYK, Circuit Judges.

MICHEL, Circuit Judge.

This case raises the jurisdictional issue of when a patent suit seeking a declaratory judgment of noninfringement or invalidity presents a "case or controversy" within the meaning of Article III of the United States Constitution. Sierra Applied Sciences, Inc. ("Sierra") appeals the decision of the United States District Court for the District of Colorado that dismissed Sierra's declaratory-judgment complaint against Advanced Energy Industries, Inc. ("AEI") for lack of a case or controversy. Sierra Applied Scis., Inc. v. Advanced Energy Indus., Inc., 258 F.Supp.2d 1148 (D.Colo. 2003). We reverse-in-part, vacate-in-part, affirm-in-part, and remand.

BACKGROUND

The following facts are uncontested, except where otherwise noted:

I. AEI and Its Reactive-Sputtering Patents

AEI sells power supplies, including power supplies designed for use in reactive sputtering. AEI describes reactive sputtering as "a process whereby the surface of an item is coated with a thin film formed through chemical reactions in the presence of a plasma of charged particles in a vacuum chamber." Reactive sputtering is used in, inter alia, the fabrication of electrical circuits.

AEI's patent portfolio includes U.S. Patent Nos. 5,718,813 ("'813 patent"), 6,217,717 ("'717 patent"), and 6,001,224 ("'224 patent"). According to AEI, these patents "cover methods of reactive sputtering using a direct current power supply to create a sputtering plasma of positively charged ions in the chamber. By periodically reversing the voltage applied to the sputtering target in the chamber, the occurrence of electrical discharges or arcs within the chamber is reduced or eliminated." See also '813 patent, col. 2, ll. 41-44 ("The present invention discloses both the fundamental understandings and circuitry designs which virtually eliminate the occurrences of arcs and which afford processing advantages within a reactive DC sputtering system."); '224 patent, col. 2, ll. 41-44 (same); '717 patent, col. 2, ll. 36-39 ("The present invention discloses both the fundamental understandings and circuitry designs which minimize and in some instances completely eliminate the occurrences of arcs within a DC plasma processing system.").

Each of the patents includes both method and system claims. Salient to the instant case, each patent includes at least one claim that recites the use of a direct-current ("DC") power source in a method or system of reactive sputtering, without specifying a particular numerical wattage for the power source. See, e.g., '813 patent, col. 10, ll. 46-63 (claim 1, reciting limitation of "furnishing direct current power to said coating chamber to create a plasma composed of charged particles"). The three patents' claims also recite language directed to arc prevention; in some claims, this language focuses on the functioning of the power supply. See, e.g., id. at col. 11, ll. 13-17 (claim 3, reciting limitation of "reversing said voltage so as to avoid potential arcing conditions in the first place during said deposition wherein said step of reversing said direct current power occurs for a time which does not extinguish said plasma").

II. Sierra's Reactive-Sputtering Power Supplies

Sierra is involved in developing and commercializing at least two types of reactive-sputtering products: cathodes and power supplies. Only the latter are at issue in this suit. Sierra's attempts to develop and commercialize reactive-sputtering power supplies date back approximately a decade, as described below.

A. 2 kW Power Supply

• At some point in the early to mid-1990s, Sierra developed a 2 kW power supply that could be used in reactive sputtering.

• Sierra asserts that at least two or three times in every year since 1993, it has used its 2 kW power supply for in-house reactive sputtering, for customer tests and product development.

• In 1994, Sierra began manufacturing and selling a 2 kW power supply for use in, inter alia, reactive sputtering. Sierra stopped selling the 2 kW power supply in the fall of 1995, because, according to Sierra's president and owner Barry Manley, "it [was] just not a large base of customers requiring only two kilowatts."

B. 150 kW Power Supplies

• In 1998, Sierra began developing a 150 kW power supply that could be used for reactive sputtering. In late 1999, Sierra advertised its plans to market a 150 kW power supply, using a picture of a prototype. This prototype was principally designed by Charlie Coleman, a Sierra engineer. The Coleman prototype was destroyed during testing in 2000. It is unclear on the appellate record whether the Coleman prototype was used successfully in reactive sputtering before it failed.

• In mid-2000, Sierra started work on a second version of a 150 kW power supply. This second version was principally designed by a different engineer, Keith Billings. Sierra first tested a "breadboard unit" — i.e., a unit whose circuitry is laid out on a table or board, as opposed to a unit in a housing (or "box") — of the Billings 150 kW power supply in 2002.

III. AEI's Correspondence with Sierra

On December 1, 1995, AEI's outside counsel sent Sierra a letter that stated in part:

This firm represents Advanced Energy Industries, Inc. Recently we have become aware that Sierra Applied Sciences makes, uses, or sells certain power supplies for thin film applications. Please be advised that Advanced Energy Industries, Inc. has been issued the above-referenced United States Patent (and has others pending) involving processes and systems which it appears your company is using. A copy of United States Patent No. 5,427,669 is enclosed as the first in a series of patents involving this technology. Based upon an initial analysis, we believe that your equipment infringes upon this first patent. Since my client has invested heavily in developing and protecting its technology, it intends to protect its position.

Accordingly, by this letter we are formally notifying you of this first patent and the likelihood of an infringement.... In addition, should you consider redesigning your systems, be aware that other patents are pending and are expected to issue which will further cover our client's technology....

[O]ur client has invested heavily in developing and patenting this technology and has been granted the exclusive right to it. Our client does intend to aggressively protect its rights.

At the time of this letter, Sierra had used, manufactured, and sold a 2 kW reactive-sputtering power supply.

On January 15, 1996, Sierra's outside counsel sent AEI's counsel a letter that stated in part:

We have now completed our investigation of the matter referred to in your letter of December 1, 1995. While Sierra Applied Sciences once manufactured and sold a power supply which we presume to be the power supply referenced in your letter, Sierra only manufactured and sold less than five of those power supplies. Sierra is no longer manufacturing those power supplies and has no plans to do so in the future. In the light of the foregoing, then, we regard any charges of infringement moot and will consider this matter closed.

Please note that Sierra's decision to discontinue production of the power supply should in no way be construed as an admission of infringement. The decision to discontinue the product was based solely on business considerations and not on any considerations of patent infringement.

Sierra did not receive a response from AEI.

On December 8, 1999 — almost four years later — AEI's counsel sent Sierra another letter, which stated in part:

Several years ago, we informed you of an initial patent (No. 5427669) and of a growing patent position which protects some significant technologies in the field of thin film processing. In a letter dated January 15, 1996, we were assured that less than five of the offending power supplies had been manufactured and that Sierra had changed its plans and was no longer manufacturing that type of power supply. In spite of those assurances, it appears that Sierra is now in fact again marketing pulsed power supplies which use some of AEI's technology. As a result, it appears that we need to again reiterate to you our client's patent position and our concern regarding certain of Sierra's business activities.

Specifically, as you already know, Advanced Energy Industries, Inc. has been issued United States Patent No. 5,427,669. We provided you a copy of that patent in late 1995. In 1995 we told you that other patents were pending which further covered our client's technology. As you could have easily determined, several of these have now issued. Specifically, we attach U.S. Patent Nos. 5576939, 5718813, and 5917286. Once more, do be aware that other patents protecting yet other aspects of the technology are also pending and are anticipated to issue....

It seems the situation of several years ago is now recurring because it appears that your current designs still infringing [sic] upon AEI's rights. Unlike the prior situation, however, we are concerned because your actions now appear to present a situation of intentional infringement....

[E]lecting to continue to make, use, or sell infringing products in the face...