The Federal Circuit recently held that the Supreme Court’s MedImmune decision did not alter a patentee’s ability to avoid declaratory judgment claims by dismissing its claims and issuing a covenant not to sue. Benitec Australia, Ltd. v. Nucleonics, Inc., 83 U.S.P.Q.2d 1449 (Fed. Cir. July 29, 2007).

The patentee, Benitec, sued Nucleonics for patent infringement for its development work relating to RNA-based disease therapy. Nucleonics later asserted declaratory counterclaims of invalidity and unenforceability. After the Supreme Court issued its decision in Merck KGaA v. Integra Lifesciences I, Ltd., 545 U.S. 193 (2005), Benitec concluded that it no longer possessed viable infringement claims against Nucleonics and sought to dismiss its complaint, along with Nucleonics’s declaratory counterclaims, without prejudice. The district court granted the dismissal.

Nucleonics challenged the dismissal on the grounds that Benitec’s covenant not to sue failed to divest the court of jurisdiction and, although its past and current work relating to the human application of RNAi was exempt from claims of infringement pursuant to 35 U.S.C. § 271(e)(1), Nucleonics had taken steps to expand its business to animal RNAi products, which business it contended was not exempt under 35 U.S.C. § 271(e)(1). In particular, Nucleonics had entered into discussions with another party regarding providing animal RNAi products and executed a non-disclosure agreement, which was a precursor to “detailed technical discussions.” Nucleonics also submitted an uncontroverted declaration that its work and research relating to animal RNAi products would “commence shortly.” During the appellate proceedings, Benitec granted Nucleonics a covenant not to sue for “patent infringement for any activities and/or products occurring on or before the date of dismissal.”

The Federal Circuit upheld the dismissal of the declaratory counterclaims and confirmed that the doctrine set forth in Super Sack Manufacturing Corp. v. Chase Packaging Corp., 57 F.3d 1054 (Fed. Cir. 1995), and its progeny remains intact. Specifically, the Federal Circuit confirmed that a patentee’s mid-suit grant of a covenant not to sue can divest a court of subject matter jurisdiction over declaratory judgment claims. It also noted that Fort James Corp. v. Solo Cup Co., 412 F.3d 1340 (Fed. Cir. 2005), which held that a patentee’s post-trial grant of a covenant not to sue failed to divest the court of jurisdiction, was an exception to the general rule and limited to a situation in which trial of the infringement issue has already occurred. The Federal Circuit also distinguished SanDisk Corp. v. STMicroelectronics NV, 480 F.3d 1372 (Fed. Cir. 2007), on the ground that the patentee in that case merely had made a statement regarding its intent not to sue, rather than a legallybinding promise.

As to Nucleonics’s plans with respect to animal RNAi products, the Federal Circuit held that Nucleonics failed to demonstrate that it had engaged in any “use” of a patented invention, thus it had not engaged in any “present activity” that could give rise to a claim of infringement. Accordingly, despite its intent to commence work shortly, Nucleonics’s plans to engage in potentially-infringing activity in the future failed to meet the “immediacy and reality requirement” of MedImmune. The Court further held that Nucleonics failed to carry its burden to show jurisdiction because it did not submit sufficient information to evaluate whether Nucleonics’s future work would be potentially infringing or whether the exemption of section 271(e)(1) would apply to that work.

In closing, the Federal Circuit acknowledged Nucleonics’s desire to remove concerns that it or potential investors might have concerning infringement of Benitec’s patent, but concluded that Nucleonics failed to carry its burden of showing a dispute of “sufficient immediacy and reality.”