Intellectual Property > IP Newsflash > Substantial Controversy Exists to Support Declaratory Judgment Complaint under Totality of Circumstances Test Where Patentee’s Conduct Demonstrates Intent to Enforce its Patents
19 Sep '16

Asia Vital Components Co., Ltd. (AVC) filed a declaratory judgment complaint seeking a declaration that its K7 and K9 products do not infringe two of Asetek Danmark A/S’s (“Asetek”) patents. According to AVC, those two products were similar to products made by other companies that Asetek had sued for infringement. Asetek moved to dismiss the complaint, relying on the fact that it never accused the K7 and K9 products of infringement, and that it did not even know the products existed before AVC filed its complaint. The Court of Appeals for the Federal Circuit reversed the district court’s dismissal of the AVC complaint for lack of subject matter jurisdiction, finding that the complaint pled sufficient facts to show a substantial controversy between the parties.

The court applied the MedImmune totality of the circumstances test to determine whether an actual controversy existed between the parties. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). That test analyzes “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” The court explained that this test requires that the case or controversy be a real and immediate injury or threat of future injury caused by the defendant. The test is objective and cannot be met by subjective or speculative fear of future harm.

In applying the totality of the circumstances test, the court addressed a variety of factors, including the status of the parties as competitors and Asetek’s history of enforcing its patent rights against other companies. But the court’s analysis focused most keenly on the history of interactions between the parties. For example, Asetek sent a demand letter to AVC, along with an infringement claim chart, accusing a product called Liquidmax 120s of infringement. In response, AVC told Asetek that it does not make the Liquidmax 120s product. The parties continued to exchange correspondence about Asetek’s patents, and ultimately, Asetek stated that it believed AVC was likely selling other infringing products in the United States, that Asetek enforces its patents through patent infringement lawsuits, and that Asetek would not license its patents to AVC in view of previous conflicts between the parties. A meeting took place between the parties during which AVC sought a license to Asetek’s patents and licensing terms were discussed, but no agreement was reached. Asetek never identified any specific AVC product that potentially infringes any of Asetek’s patents.

The court found that, under the totality of the circumstances, AVC showed that an actual controversy exists between it and Asetek. Even though Asetek incorrectly accused the Liquidmax 120s product of infringement, Asetek still sent AVC a demand letter that referenced a product that is similar to AVC’s K7 and K9 products. After Asetek was informed by AVC that it accused the wrong product of infringement, Asetek was undeterred and continued to press AVC about other unidentified products that Asetek alleged were likely infringing, and affirmatively stated that it would not license its patents. The totality of Asetek’s actions demonstrated intent to enforce its patents and the court found that this was sufficient to conclude that a substantial controversy existed between the parties at the time AVC filed its complaint.

Asetek argued, among other things, that, because it never referred to AVC’s K7 and K9 products, and in fact, did not even know about these products at the time the complaint was filed, there could not be a substantial controversy between the parties. The court rejected this argument, finding that the question of jurisdiction turns on whether, under all the circumstances, one can reasonably infer from Asetek’s actions that it intends to enforce its patents. Neither Asetek’s knowledge of specific AVC products, nor specific allegations by Asetek that specific products infringe its patents are relevant to the question of jurisdiction.

Asia Vital Components Co., Ltd. v. Asetek Danmark A/S., 2015-1597 (Fed. Cir. Sept. 8, 2016).
Judges Prost (opinion), Linn, Taranto.