"When two actions that sufficiently overlap are filed in different federal district courts, one for infringement and the other for declaratory relief, the declaratory judgment action, if filed later, generally is to be stayed, dismissed, or transferred to the forum of the infringement action."
On December 3, 2013, in Futurewei Techs., Inc. v. Acacia Research Corp., the Federal Circuit (Reyna, Mayer, Taranto*) affirmed the district court's dismissal of Huawei's complaint seeking a declaratory judgment of noninfringement and invalidity of five patents, which related to mobile handsets and tablets. The Federal Circuit stated:
This "first-to-file" rule exists to "avoid conflicting decisions and promote judicial efficiency." But the rule is not absolute; exceptions may be made if justified by "considerations of judicial and litigant economy, and the just and effective disposition of disputes." Justification for an exception may be found in "the convenience and availability of witnesses, [the] absence of jurisdiction over all necessary or desirable parties, . . . the possibility of consolidation with related litigation, or considerations relating to the real party in interest." Resolution of whether the second-filed action should proceed presents a question sufficiently tied to patent law that the question is governed by this circuit's law. Application of the first-to file rule is generally a matter for a district court's discretion, exercised within governing legal constraints.
It is not disputed that the district court properly invoked the first-to-file rule to dismiss counts 1-10, which request declaratory judgments of non-infringement and invalidity of the five patents already in litigation in Texas. The analysis that supported that result applies as well to count 11. We assume, for present purposes, that count 11 requests some relief, namely, a declaratory judgment that Huawei is a third-party beneficiary of the license agreement entitled to enforce its provisions. We have no doubt that it would be both just and efficient to have Huawei's third-party-beneficiary status litigated, if necessary, in Texas.
Third-party-beneficiary status benefits Huawei not for its own sake but only instrumentally -- to give it the right to enforce certain contract provisions. Here, Huawei has said that its status as a third-party beneficiary can matter for two purposes: to invoke the license agreement's section 2.1 to protect it against the allegations it is infringing the five patents; and to invoke the agreement's section 9.1 regarding forum selection. Those provisions of the license agreement are already at issue in the first-filed Texas action, or readily could be. In that action, Huawei has raised an affirmative defense that, as an Access customer, it is "licensed and/or impliedly licensed to practice the asserted patents." It also has moved to transfer the Texas case. Huawei can litigate its status as a third-party beneficiary in support of its positions in that action.
It may be that Huawei can secure protection against or transfer of the Texas suit without having to establish that it has the legal status of a third-party beneficiary of the agreement. For example, section 2.1 may give Huawei a license for the challenged activities, and transfer may be required or warranted based in whole or in part on the forum-selection clause or based on the more multi-factored approach that generally governs change of venue. Those possibilities may make it unnecessary for Huawei's status as a third-party beneficiary to be decided in the Texas case, but there is no doubt that Huawei can argue for that status in the Texas case. And there is likewise no doubt that keeping the issue in the Texas case will serve key objectives of the first-to-file rule, including minimization or avoidance of "duplication of effort, waste of judicial resources, and risk of inconsistent rulings that would accompany parallel litigation." Finding an exception to the first-to-file rule here is unsupported by any substantial countervailing considera¬tions. Huawei has not shown that judicial or litigant interests in economy favor allowing count 11 to proceed in this second-filed declaratory judgment action. Indeed, Huawei is a Texas corporation and has its principal place of business in Texas. At this point, moreover, with the dismissal of counts 1-10 no longer disputed, the non-infringement and invalidity issues will be litigated in the Texas case, unless that case is transferred. Separating the third-party-beneficiary issue cannot serve the objective of efficiency. The interest in the just and effective disposition of disputes likewise does not warrant an exception to the first-to-file rule. The Texas court can decide the issues presented by count 11, if necessary, including the relationship between the no-third-party-beneficiary rights provision of the license agreement and either (a) the enforcement-protection provision or (b) the forum-selection provision. Those issues may raise questions of California law, such as whether (as the parties suggested to this court during oral argument) status as a third-party beneficiary is not always all or nothing: where a contract broadly disclaims third-party-beneficiary rights, but another provision conferring particular benefits meets the standard for such rights, perhaps third-party-beneficiary status is limited to that provision. Such questions may not have to be answered, but if they do, the Texas court can answer them. Choice of law may affect a transfer analysis, but the possibility of having to decide a California-law question is not enough, in the present posture of this case, to support an exception to the first-to-file rule. . . .
A logical relationship exists when the counterclaim arises from the same aggregate set of operative facts as the initial claim, in that the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant. Here, the logical relationship is strong: the license agreement gives rise to Huawei's alter-ego claim, to SmartPhone's affirmative right to enforce the patents in the Texas case, and to Huawei's defense in that case that it may practice the patents as an Access customer -- a defense that undergirds Huawei's standing to seek a declaratory judgment on the alter-ego issue in the first place. Rule 13 analysis thus bolsters the first-to-file conclusion here. Because counts 11 and 16 are properly dismissed under the first-to-file rule, we need not address Huawei's motion to amend its complaint and its request for additional discovery to establish jurisdiction.