Must a business risk incurring liability by potentially infringing a known patent before seeking a declaratory judgment of non-infringement? Maybe not. The Federal Circuit has now ruled that under certain circumstances you can obtain a declaratory judgment that any potential infringing activity is not infringing before such activity occurs. In Arkema Inc. v. Honeywell Int’l, Inc., the Federal Circuit recently determined that a supplier can seek a declaratory judgment in certain circumstances. In particular, suppliers who have contracted to provide a product to customers may ask for a ruling of no liability for indirectly infringing patents covering methods of using such a product. This is true even if the supplier cannot identify customers that may be directly practicing the claimed methods at the time the declaratory judgment is sought. Because of this ruling, suppliers wary of waiting to be sued when they have knowledge of competitor patents can consider proactively moving forward in court to protect their interests.

Background

Honeywell and Arkema compete in the manufacture and sale of automotive refrigerants. Honeywell owns patents covering the composition and methods of using automotive refrigerant 1234yf (an environmentally-sensitive product with low-global warming contribution potential) in automobile air conditioning systems. Both Arkema and Honeywell seek to supply the industry with variations of this refrigerant and have invested substantial resources in its production.

As a result of Arkema’s offer to sell the refrigerant in Germany, Honeywell sued Arkema for infringement one of its European patents. Arkema responded by asking a U.S. District Court to rule that two of Honeywell’s U.S. patents to refrigerant compounds were invalid. Arkema also asked for a declaratory judgment that the patents would not be infringed should Arkema’s supply U.S. automobile manufacturers with 1234y refrigerant. Honeywell counterclaimed, alleging infringement of both patents. While that suit was in discovery, Honeywell obtained two additional patents covering methods of using the refrigerant. As a result, Arkema moved to amend its declaratory judgment complaint to also seek a ruling that it would not infringe these newly-issued patents. The District Court refused to add these patents to the suit, finding that they presented no “justiciable controversy.” The Federal Declaratory Judgment Act 28 USC §2201 permits a court to rule on the rights and other legal relations of parties only when there is an actual “case of actual controversy” between those parties.

On appeal, the Federal Circuit reversed and remanded, finding the case to be an example of when declaratory relief is warranted, relying on the Supreme Court’s test from Medimmune, Inc. v. Genetech, Inc. - which asks - “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interest, of sufficient immediacy and reality to warrant” the issuance of a declaratory judgment.

The Federal Circuit said this is not a case where a declaratory judgment plaintiff alleges only that it would “consider” potentially infringing activities. Rather, said the court, Arkema alleged a present intent to supply automobile manufacturers in the United States with the patented refrigerant for potentially infringing uses. Further, the Federal Circuit said this is not a case where “the accused infringers had not distributed sales literature or prepared to solicit orders.” Instead, the court said that Honeywell’s own allegation that Arkema was marketing the patented refrigerant to automobile dealers in the United States, and Arkema’s admissions that: 1) it had already responded to at least one supply request from a U.S. automobile manufacturer and 2) it was “poised to respond to other requests for quotations to supply” the patented refrigerant, strongly pointed to imminent potentially infringing activity. Accordingly, declaratory judgment jurisdiction was appropriate under the circumstances.

The District Court had concluded that Arkema had not satisfied the “reality” requirement under Medimmune because “it has not demonstrated that the design of its customer products . . . is sufficiently fixed.” The Federal Circuit held, however, that Arkema’s relevant plans were clear. It intended to offer the patented refrigerant for use in automobile air conditioning systems. Further, the Federal Circuit said this was not a situation in which there was uncertainty about whether the supplier’s product was going to be used in a way that might or might not infringe the patentee’s rights. Rather, the briefs of both parties made clear that Arkema’s prospective customers planned to use the patented refrigerant with a lubricant in automobile air conditioning systems. In such a situation, any uncertainly concerning the precise parameters under which the automobile manufacturers would use the patented refrigerant was irrelevant because Honeywell’s patents were not limited to a particular set of parameters.

Therefore the Federal Circuit concluded that the controversy between Arkema and Honeywell regarding the Honeywell patents is “of sufficient immediacy and reality to warrant the issuance of a declaratory judgment under the Medimmune test by the Supreme Court.”

Key Takeway

The Federal Circuit’s Arkema holding opens the door for suppliers to seek declaratory judgment when their offer (or actual sale) of a product to end users would give rise to an allegation of inducing infringement of a patented method. Suppliers in such a commercial scenario should carefully weigh the risks and benefits of seeking a declaratory judgment of non-infringement, especially where a commercial release of the product that can be used in an allegedly infringing method is imminent.