The Declaratory Judgment Act permits a court to rule on the rights and other legal relations of parties when there is an actual "case or controversy" between those parties. A party often seeks a declaratory judgment when facing the undesirable choice of either engaging in arguably illegal behavior, or abandoning an activity it believes it has a right to pursue.
In Arkema Inc. v. Honeywell Int'l, Inc.,1 the Federal Circuit determined that a supplier who contracted to provide a product to customers may ask a court to rule that it does not indirectly infringe patents covering methods of using that product even if it cannot specifically identify customers that may presently be directly infringing the method patent. After considering the availability of noninfringing methods for using the product and the immediacy and reality of the dispute, the Federal Circuit explained that establishing a justiciable controversy does not require acts of direct infringement, specific accusations, or direct accusations of potential indirect infringement.
Honeywell and Arkema compete in the manufacture and sale of automotive refrigerants. Honeywell owns patents covering the composition of and methods of using an automotive refrigerant with low global-warming potential in automobile air-conditioning systems. Both Arkema and Honeywell seek to supply the industry with this refrigerant and have invested substantial resources in its production.
In 2009, as a result of Arkema's offers to sell the refrigerant in Germany, Honeywell sued Arkema for infringement of its European patent. Arkema responded by asking a U.S. district court to rule that two of Honeywell's U.S. patents to refrigerant compounds were invalid and not infringed by Arkema's plans to supply U.S. automobile manufacturers with refrigerant. Honeywell counterclaimed, alleging infringement of both patents. While that suit was in discovery, Honeywell obtained two patents covering methods of using the refrigerant. As a result, Arkema moved to supplement its complaint to ask the court to rule that it also would not infringe these patents. The district court refused to add these patents, finding that they presented no justiciable controversy.
The Arkema Decision
On appeal, the Federal Circuit reversed and remanded, finding the case to be a "quintessential example" of when declaratory relief is warranted, relying on the Supreme Court’s test from MedImmune, Inc. v. Genetech, Inc.—"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."
First, the Federal Circuit addressed whether Arkema needed to allege or offer evidence that one of its customers committed an act of direct infringement of the method patents and concluded that, while accusations of direct infringement have supported standing for declaratory-judgment jurisdiction in a suit brought by suppliers, such accusations are not required to establish standing to seek a declaratory judgment regarding potential indirect-infringement liability. It further noted that specific accusations by Honeywell against either the potential direct infringers or Arkema were not necessary, explaining that there is no requirement that Arkema identify the particular manufacturers that will purchase its refrigerant, the particular automobile purchasers who will purchase the cars from the manufacturers, or the particular dates on which those purchases will occur.
The Federal Circuit further explained that Honeywell need not directly accuse Arkema of potential indirect infringement, relying on well-established Federal Circuit law that a sufficient controversy exists for declaratory-judgment jurisdiction where the patent owner had accused the declaratory-judgment plaintiff of misappropriating the same technology in related litigation. According to the Federal Circuit, Honeywell’s claim that Arkema infringed some of Honeywell’s other patents related to the refrigerant sufficed to create a basis for declaratory-judgment jurisdiction. Additionally, Honeywell refused to grant Arkema a covenant not to sue on the two method patents, further suggesting an active and substantial controversy between the parties.
The Federal Circuit then turned to the district court's conclusion that Arkema did not allege an adequate "specific planned activity" because of the availability of noninfringing methods for using the refrigerant in an automobile's air-conditioning system. The court noted that both Honeywell and Arkema conceded the absence of known methods of using the refrigerant in an automobile's air-conditioning system that did not at least arguably infringe Honeywell's patents. Because the parties did not dispute that the intended use would be at least arguably infringing and actively encouraged by Arkema, the controversy was "sufficiently real" for the purposes of declaratory-judgment jurisdiction.
Next, the Federal Circuit considered the immediacy of the dispute and rejected the district court's finding that any acts of direct infringement were not sufficiently immediate to create a justiciable controversy because the first predicted commercial launch of any product using the refrigerant was not for at least another year. Signing of long-term supply contracts put Arkema in the present situation of either committing to contracts that could expose it to indirect-infringement liability or abandoning its plans to supply the refrigerant to automobile manufacturers in the United States. This situation created a controversy sufficiently immediate to establish declaratory-judgment jurisdiction, the Federal Circuit found.
Finally, the Federal Circuit rejected the district court's conclusion that Arkema had not satisfied MedImmune's "reality requirement" because Arkema did not demonstrate that the design of its customers' products was sufficiently fixed. Because Arkema intended to offer the refrigerant for use in automobile air-conditioning systems, the Federal Circuit explained, any uncertainty about the precise parameters of doing so was irrelevant because Honeywell's patents were not limited to a particular set of parameters.
Strategy and Conclusion
A declaratory judgment can be useful to businesses needing to choose whether to engage in arguably infringing activities. The factors discussed in Arkema can help guide suppliers and other businesses in pursuing a declaratory judgment of noninfringement when they are accused of indirectly infringing a patent by supplying products to customers who will use the products in an arguably infringing manner.