Federal courts have subject matter jurisdiction over a declaratory judgment action seeking a declaration of noninfringement, even if the declaratory judgment plaintiff’s sole infringement defense is based on state law.
Pursuant to a settlement agreement, a patentee granted an accused infringer a license to manufacture the accused product. Thereafter, the licensee outsourced the manufacture of the product to a third-party. Believing this to be beyond the scope of the license, the patentee advised the licensee and third-party that it would protect and defend its "rights." The licensee then filed a declaratory judgment action against the patentee, seeking a declaration of noninfringement. The district court dismissed the action for lack of subject matter jurisdiction, construing it as a contract dispute, the resolution of which would be unrelated to the patent laws. The Federal Circuit reversed.
On appeal, the patentee first argued that subject matter jurisdiction was lacking because there was no controversy as to infringement. In the patentee's view, the dispute between the parties was solely a matter of contract interpretation. The Federal Circuit disagreed. It found that an immediate controversy regarding infringement arose when the patentee advised the licensee and third-party that it would protect and defend its "rights."
The patentee then argued that regardless, dismissal was proper because the licensee only raised a state law defense to infringement. The Federal Circuit determined that this fact was not dispositive. For declaratory judgment actions, the general rule is that subject matter jurisdiction is assessed "based on the declaratory judgment defendant's hypothetical complaint." Any potential defense to infringement is irrelevant. The Federal Circuit saw "no reason to depart from that general principle where the defense is non-federal in nature."
A copy of the opinion can be found here.