The Supreme Court’s jurisdictional holding in Village of Euclid has recently taken on increased practical importance in patent litigation, for Village of Euclid was one of a number of precedents that the Court cited as authority supporting its reversal of the Federal Circuit’s judgment in MedImmune Inc. v. Genentech Inc., 427 F.3d 958 (Fed. Cir. 2005), rev’d, 127 S. Ct. 764 (2007). The Supreme Court MedImmune decision makes clear that U.S. courts have, and always have had, far more authority to review the validity of U.S. patent grants than was recognized in pre-2007 precedent of the Court of Appeals for the Federal Circuit.

Article III and Standing

Article III, §2 of the Constitution states that “[t]he judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States,” and to certain defined “Controversies.”

Between 1983 and 2007, Federal Circuit precedent held that in the context of “a patent invalidity declaratory judgment action,” the Article III “case or controversy requirement” included, as an “element” thereof, the following predicate condition: “the defendant in such an action must have engaged in conduct that created on the part of the declaratory plaintiff a reasonable apprehension that it will face an infringement suit if it commences or continues the activity in question.”2

This case law “rule” was said to be one that “protects quiescent patent owners against unwarranted litigation.”3

As a rigid rule that purported to limit judicial review of patent grants, the Federal Circuit’s “reasonable-apprehension-of-suit” test stood in strong and obvious tension with a sizable body of Supreme Court precedent.4 Generally, under modern Supreme Court precedent, a three-part legal standard is applied to determine whether a plaintiff has “standing” to complain of an alleged violation of law, such that the plaintiff’s civil action may be deemed an Article III “case” or “controversy.”5 The elements of the Supreme Court three-part legal standard are:

• First, a party seeking to invoke a federal court’s jurisdiction must complain of actual or threatened “injury-in-fact”;

• Second, the complained of injury must be “fairly traceable” to the challenged action of the defendant; and

• Third, it must be likely that the complained of injury will be “redressed by a favorable decision.”

The MedImmune case illustrated that a plaintiff could meet the Supreme Court three-part legal standard for Article III standing, and yet be held to lack standing under pre-2007 Federal Circuit precedent.

Meeting the Two Standards

The plaintiff in MedImmune was a party to a patent license agreement with the defendant. During the term of the agreement, a disagreement arose over whether royalties were owed on account of a certain patent (the “Cabilly II patent”) that had issued after the license agreement had been executed.

The plaintiff contended (among other things) that invalidity of one or more Cabilly II patent claims excused any payment of royalties on account of that patent; the defendants expressed a contrary view. The plaintiff paid the disputed royalties “under protest” and filed suit seeking, among other things, a declaratory judgment that its activities did not infringe any valid claim of the Cabilly II patent.

The MedImmune plaintiff easily satisfied the Supreme Court three-part legal standard for Article III standing:

(1) the plaintiff complained of actual and threatened injury (namely, alleged over-payment of royalties and potential liability for patent infringement if it ceased to pay royalties);

(2) the plaintiff’s claimed injury was “fairly traceable” to the challenged action of the defendant (the defendants claimed that they were entitled to receive and retain the disputed royalty payments and further claimed a right to enjoin sales of the plaintiff’s products if the royalty payments were not paid); and

(3) the plaintiff’s claimed injury would likely be redressed by a favorable judgment (a determination that Cabilly II patent claims were invalid would likely relieve the plaintiff of any future royalty payments and could also entitle the plaintiff to a refund of past royalty payments).

But in a 2005 Federal Circuit decision, the MedImmune plaintiff was held to lack “standing to bring a declaratory challenge to the validity of the Cabilly II patent.” 427 F.3d at 965. By virtue of its having paid (albeit under protest) all contractually due royalties, the MedImmune plaintiff’s own actions had made it unlikely that the defendants would sue it for patent infringement.

Under pre-2007 Federal Circuit precedent, that one fact was said to be controlling. The Federal Circuit held that “MedImmune, since under no threat or apprehension of suit, did not have standing to bring a declaratory challenge to the Cabilly II patent.” 427 F.3d at 965.

The Supreme Court granted certiorari and reversed.

Under Supreme Court precedent, the relevant inquiry in MedImmune was whether the plaintiff complained of “injury-in-fact” that was “fairly traceable” to challenged action of the defendant. See id. at 772 n.8. Although the existence or non-existence of “reasonable apprehension of suit” might, in some cases, be relevant to an analysis of whether a plaintiff complained of actual or threatened “injury-in-fact” that was “fairly traceable” to a defendant’s actions, the existence or non-existence of “reasonable apprehension of suit” was simply not an accurate proxy for the Supreme Court three-part test of Article III standing.

In the Supreme Court’s words, “the Federal Circuit’s ‘reasonable apprehension of suit’ test” both “conflict[ed]” with, and was “ contradict[ed]” by, multiple prior Supreme Court decisions in which judicial jurisdiction had been upheld and exercised notwithstanding the absence of any “ reasonable apprehension of suit” on the part of the plaintiff seeking declaratory or injunctive relief. 127 S. Ct. at 774 n.11.

Prior Decisions Held Sway

For example, in Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-44 (1937), the plaintiff, an insurance company, had asked a U.S. court to declare whether certain policies of life insurance had lapsed due to non-payment of premiums (as the plaintiff contended), or continued in force because the defendant was disabled at relevant times (as the defendant contended).

The plaintiff asserted that without declaratory relief, it might lose the benefit of evidence through disappearance, illness or death of witnesses; and meanwhile, in the absence of a judicial decision with respect to the alleged disability, the plaintiff would be compelled to maintain a reserve in excess of $20,000 against the possibility that it might have to pay out on the policies.

On these facts, the Supreme Court held that the Aetna plaintiff’s complaint stated a justiciable controversy. The Aetna plaintiff made no assertion that it was in “reasonable apprehension of suit,” but this omission was extraneous to the Court’s analysis.

The Court in MedImmune also cited and relied on a line of authorities, exemplified by Steffel v. Thompson, 415 U.S. 452, 458-60 (1974),6 in which plaintiffs had complied with allegedly invalid statutory prohibitions (and thereby avoided apprehension of civil or criminal sanctions), but had nevertheless been held to have Article III standing because “the threat-eliminating behavior was effectively coerced.” 127 S. Ct. at 772.

The eight-Justice MedImmune majority saw no distinction in principle between the Article III standing of a person who “voluntarily” refrained from engaging in conduct prohibited by an allegedly invalid statute or rule, on the one hand, and a person who “voluntarily” refrained from engaging in conduct prohibited by an allegedly invalid patent, on the other:

“Article III does not favor litigants challenging threatened government enforcement action over litigants challenging threatened private enforcement action.” MedImmune, 127 S. Ct. at 775 n.12 (emphasis in original).

In this respect the MedImmune majority specifically disagreed with dissenting views expressed by Justice Clarence Thomas, who contended that a private patent owner had no “coercive” power that was comparable to that of a government actor. 127 S. Ct. at 780-81.

The Court in MedImmune further stated that the “reasonable-apprehension-of-suit test” was “in tension with” the Court’s decision in Cardinal Chemical Co. v. Morton International Inc., 508 U.S. 83 (1993). In Cardinal Chemical, the Supreme Court disapproved of what had been a routine practice of the Federal Circuit to vacate, as purportedly “moot,” district court judgments that declared patents or patent claims invalid, upon an appellate determination that a patent-in-suit had not been infringed. 508 U.S. at 95-103.

Routinely vacating final judgments of patent invalidity was, of course, a great boon for patent owners, as was the “reasonable-apprehension-of-suit test.” But Supreme Court precedent has “emphasized the importance to the public at large of resolving questions of patent validity,” 508 U.S. at 100, and has abrogated multiple case law doctrines that once constrained the standing of plaintiffs to raise questions of patent validity.7

Supreme Court precedent has further and consistently held that “the federal patent laws” do not merely authorize grants of rights to “exclude,” 35 U.S.C. §154(a)(1), but through their many conditions and limitations, create “a federal right to copy and to use” both subject matter disclosed in expired patents and unpatented but “potentially patentable ideas which are fully exposed to the public.”8

Another Line of Authority Followed

Perhaps most significantly, the Court in MedImmune cited and relied on authorities, including Village of Euclid, in which the mere existence of an allegedly invalid statute or rule had been alleged to cause harm that was sufficient to give rise to an Article III “case” or “controversy.”

In this line of authority falls Abbott Laboratories v. Gardner, 387 U.S. 136 (1967). Although best known for its articulation of a “ripeness” doctrine in administrative law, Abbott is also a significant precedent interpreting the Declaratory Judgment Act. The underlying merits question in Abbott was whether a newly adopted FDA rule was invalid as having been promulgated in excess of the agency’s statutory authority. The rule had purported to require the plaintiffs, a group of manufacturers of prescription drugs, to change their packaging and advertising so as to list the “established name” of drugs in type at least half as large as that used thereon for any proprietary name or designation. 387 U.S. at 137-38.

Although the government had taken no action to enforce the disputed rule – indeed, the Court characterized the plaintiffs’ claims as seeking “pre-enforcement review,” 387 U.S. at 139 – the Court held that “the impact of the regulations upon the petitioners is sufficiently direct and immediate as to render the issue appropriate for judicial review at this stage.” Id. at 152 (emphasis added). That “impact” was: “Either they [the plaintiffs] must comply with the every time requirement and incur the costs of changing over their promotional material and labeling or they must follow their present course and risk prosecution.” Id. (quoting 228 F. Supp. 861).

In reversing the D.C. Circuit and holding that the plaintiffs’ complaint stated a justiciable controversy, the Court stated:

Where the legal issue presented is fit for judicial resolution, and where a regulation requires an immediate and significant change in the plaintiffs’ conduct of their affairs with serious penalties attached to noncompliance, access to the courts under the Administrative Procedure Act and the Declaratory Judgment Act must be permitted, absent a statutory bar or some other unusual circumstance, neither of which appears here. 9


Post-’MedImmune’ Decisions

The Federal Circuit has recognized that MedImmune “represents a rejection of our reasonable apprehension of suit test.” Sandisk Corp. v. STMicroelectronics Inc., 480 F.3d 1372, 1380 (Fed. Cir. 2007).

In a number of post-MedImmune decisions, the Federal Circuit has upheld declaratory judgment jurisdiction at the suit of plaintiffs who were not themselves in any apprehension of suit, but who nevertheless alleged injuries that were fairly traceable to a defendant’s procurement and maintenance of an allegedly invalid patent. The impact of MedImmune has been especially marked in the Hatch-Waxman area.

In Caraco Pharmaceutical Laboratories, Ltd. v. Forest Laboratories Inc., 527 F.3d 1278 (Fed. Cir. 2008), the Federal Circuit reversed a dismissal of a plaintiff’s Hatch-Waxman complaint challenging the validity of an Orange book listed patent, notwithstanding that the defendant had granted the plaintiff a covenant not to sue for alleged infringement of the patent. Although the patent owner’s covenant might have eliminated any apprehension of suit on the part of the plaintiff, it did not alleviate the plaintiff’s claimed injury, because under FDA law the plaintiff’s right to begin marketing a generic version of the patented drug would be delayed if resolution of the validity dispute were delayed.

On the other hand, in Prasco, LLC v. Medicis Pharmaceutical Corp., 537 F.3d 1329 (Fed. Cir. 2008), the Federal Circuit affirmed the dismissal of a complaint for a declaratory judgment of non-infringement of patents whose numbers were marked on products sold by the defendant, notwithstanding that

(a) the plaintiff was a direct competitor of the defendant,

(b) the plaintiff had sent the defendant a sample of a proposed new product that allegedly would compete with one or more of the defendant’s patent-protected products,

(c) the plaintiff had requested that the defendant grant a covenant not to sue for patent infringement with respect to the submitted product sample, and

(d) the defendant had simply declined to respond substantively to the plaintiff’s communications. 537 F.3d at 1338-42.

Unlike the plaintiff in Caraco, the plaintiff in Prasco did not challenge the validity of the defendant’s patents and did not claim that it had suffered injury apart from the claimed “uncertainty” concerning its non-infringement position. The Federal Circuit concluded that the plaintiff had “suffered no actual present injury traceable to the defendants” and was improperly asking the district court for an “advisory opinion.” 537 F.3d at 1341-42.

The Federal Circuit has yet to decide a case, post-MedImmune, in which the issuance or maintenance of a patent was itself alleged to be a cause of loss or damage. In Hunter Douglas Inc. v. Harmonic Design Inc., 153 F.3d 1318 (Fed. Cir. 1998), the plaintiff alleged that the defendant had procured allowance of invalid patent claims, and that the issuance of the defendant’s patent had caused the plaintiff to delay a product launch and thereby to suffer substantial economic losses. The defendant’s actions were challenged as both “unlawful” business acts under Cal. Bus. & Prof. Code 17200 and as violative of the “federal right to copy and to use” identified in Bonito Boats Inc. v. Thunder Craft Boats Inc., 489 U.S. 141, 165 (1989).

In seeking declaratory relief, the plaintiff relied on the Supreme Court three-part legal standard for Article III standing. The Federal Circuit held that the plaintiff’s state law claims (which included prayers for declaratory relief) gave rise to a justiciable controversy, but invoked the “reasonable apprehension of suit test” as a purported basis for dismissing the plaintiff’s federal law claim seeking a declaratory judgment:

Essentially, Hunter Douglas contends that this court’s two-part test, which was not satisfied, diverges from the constitutional requirements for a case or controversy, which is all that the Declaratory Judgment Act requires for a justiciable claim.