Prasco v. Medicis: CAFC Draws a Line in the Sand

As the specific contours and threshold for meeting the “actual controversy” standard are still evolving, patent counsel should keep a close eye on developments in this area when contemplating issues of patent infringement and declaratory judgment.

Albert B. Chen is a Special Counsel and Matthew F. Abbott is an associate with Kramer Levin Naftalis & Frankel LLP.

The Declaratory Judgment Act forms one of the most active pieces of legislation in patent litigation, and enables potential patent infringers to launch a “pre-emptive strike” on patent owners by filing a declaratory infringement suit. The central question that courts often face in declaratory actions is whether there exists an “actual controversy” which is sufficient and real enough to warrant relief under the Declaratory Judgment Act. In January 2007, the Supreme Court substantially lowered the required standing threshold for bringing a declaratory suit in Medimmune v. Genentech. No longer did a declaratory plaintiff have to show a “reasonable apprehension of suit” to obtain standing; instead, the relevant inquiry became “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.” In the declaratory judgment cases that followed, the Federal Circuit recognized the Supreme Court's rejection of its sole “reasonable apprehension of suit” test and began to expand the threshold for establishing the requisite “actual controversy.” This “actual controversy” requirement of the Declaratory Judgment Act is used to satisfy the “cases and controversies” requirement of Article III of the Constitution.

In SanDisk v. STMicroelectronics, the Federal Circuit found “substantial controversy” for declaratory judgment based on the patentee's conduct which “showed a preparedness and willingness to enforce its patent rights.” 480 F.3d 1372, 1382-83 (Fed. Cir. 2007). This conduct included patentee's detailed presentation of the alleged patent infringement to SanDisk coupled with the patentee's assertion of right to royalty. Id.

Subsequently, in Teva Pharma. USA Inc. v. Novartis Pharma. Corp., the Federal Circuit again found that a justiciable controversy existed based on four unasserted patents that were all listed in the Orange Book, together with a fifth patent that the patentee had already brought suit on against the same party. 482 F.3d 1330 (Fed. Cir. 2007).

In Caraco Pharma. Labs. Ltd. v. Forest Labs., Inc., the Federal Circuit again held that a controversy on an unasserted second patent existed since it was listed in the Orange Book with another patent which was already asserted by the patentee against the same party. 527 F.3d 1278 (Fed. Cir. 2008).

Thus, for a short time it seemed as if the standard for “case or controversy” was one which would be easily and readily met for unasserted patents, even where the patentee represented that he would not assert the patent. However, in Prasco, LLC v. Medicis Pharm. Corp., the Federal Circuit declined to allow a declaratory judgment action on unasserted patents and provided some useful guidance in understanding what factual circumstances would be insufficient to establish a justiciable controversy. 537 F.3d 1329 (Fed. Cir. 2008).

The District Court Decision

Medicis Pharmaceutical Corp. (“Medicis”) markets a benzoyl peroxide skin cleanser which was marked with four patents owned by Medicis and Imaginative Research Associates (collectively “Defendants”). Prasco, LLC (“Prasco”) makes a generic competing benzoyl peroxide skin cleanser and filed a declaratory judgment action to clear its product from infringement of Defendants' four patents. Id. at 1334. Interestingly, Prasco did not actually begin marketing its product until after the lawsuit was filed, although it had devoted substantial efforts to development and marketing plans prior to filing the complaint. Defendants, who did not know of Prasco's product until after the lawsuit was filed, moved to dismiss the complaint and refused to sign a covenant not to sue as requested by Prasco. Id.

The District Court granted Defendants' motion to dismiss, initially applying the pre-Medimmune “reasonable apprehension of suit” test. The District Court held alternatively that there was, in any event, “no definite and concrete dispute that touches the legal relations of these parties.” Id. at 1335.

The Federal Circuit Decision

The Federal Circuit affirmed the dismissal of Prasco's complaint, citing Medimmune's requirement that a case or controversy must be “definite and concrete, touching the legal relations of the parties having adverse legal interests,” “real and substantial,” and must “admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical set of facts.” Id. at 1336. The Federal Circuit stated that “there is no bright-line rule for determining whether an action satisfies the case or controversy requirement,” stressing that the analysis was necessarily fact-specific to the circumstances of each case and required a totality-of-the-circumstances analysis. Id.

Notably, the Federal Circuit acknowledged that “[w]hile the Supreme Court rejected the reasonable apprehension of suit test as the sole test for jurisdiction, it did not completely do away with the relevance of the reasonable apprehension of suit” and thus, the “reasonable apprehension” test remains as one of several ways a plaintiff can use to demonstrate an injury sufficient to maintain a declaratory judgment action. Id.

The Federal Circuit found that Prasco had not demonstrated a controversy of sufficient “immediacy and reality” to create a justiciable controversy, stating that “the mere existence of a potentially adverse patent does not cause injury nor create an imminent risk of injury” and that “absent action by the patentee, a potential competitor ' is legally free to market its product in the face of an adversely-held patent.” Id. at 1338. More specifically, the Federal Circuit:

• Found that Prasco's alleged injury in the form of “paralyzing uncertainty” based on the possible threat of an infringement suit was “purely subjective” and otherwise insufficient to establish a controversy since Prasco went ahead and marketed its product anyway. Id.
• Held that Medicis' marking of its products with the four patents-in-suit provided “little, if any evidence that [Medicis] will ever enforce its patents”, and thus, Medicis' marking of the patents was irrelevant to whether Medicis believed its patents to be infringed or intended to interfere with Prasco's business. Id. at 1341.
• Ruled that a single suit by Medicis on a different product covered by an unrelated patent “could not alone create a real and immediate controversy,” and was “entitled to only minimal weight in analyzing whether such a controversy [had] been created.” Id.
• Held Defendants' silence on infringement and their refusal to sign covenants not to sue did not amount to an imminent suit or interference with a plaintiff's business absent some affirmative action, and that Defendants had no obligation in any event to test a competitor's product upon request. Id.

Most importantly, the Federal Circuit focused its decision on the lack of any evidence to indicate that the threat of future injury to Prasco was real, imminent, and traceable to the Defendants. In other words, missing from all of Prasco's allegations was any evidence that Defendants had accused Prasco of infringement or otherwise made any assertions or taken any action to imply they had a right to Prasco's product under those patents. Thus, in light of Prasco, it appears that some affirmative action by the patentee is required in order to meet the “actual controversy” requirement of the Declaratory Judgment Act. See Id. at 1341-42.

The Line in the Sand

There is no doubt that the standard for meeting the “actual controversy” requirement of the Declaratory Judgment Act has been substantially lowered since Medimmune. However, with Prasco, the Federal Circuit appears to have drawn a line in the sand as to how far it is willing to go in recognizing a controversy sufficient to allow a declaratory judgment action. In doing so, the Federal Circuit has indicated that it will not allow Medimmune to entirely erode the limitations on standing to bring suit. That is, in order for a declaratory judgment action to be properly maintained, it appears that the patentee must take some type of affirmative action with respect to the product other than to merely refuse to sign a covenant not to sue. Thus, before filing an action for declaratory judgment, plaintiffs should make sure to collect any and all evidence which indicates some sort of affirmative action by the patentee with respect to the plaintiffs' product. Conversely, patentees wishing to avoid declaratory judgment jurisdiction should be mindful to avoid taking any affirmative action or asserting any affirmative position with respect to a competitor's product in relation to the patentee's patents.

As the specific contours and threshold for meeting the “actual controversy” standard are still evolving, patent counsel should keep a close eye on developments in this area when contemplating issues of patent infringement and declaratory judgment.

Albert B. Chen is a Special Counsel and Matthew F. Abbott is an associate with Kramer Levin Naftalis & Frankel LLP.