Dismissal and covenant not to sue for past acts divests court of jurisdictionJuly 20, 2007

In a case decided today, the Federal Circuit affirmed a district court's dismissal of a patent infringement defendant's counterclaim for invalidity for lack of subject matter jurisdiction. The patent holder voluntarily dismissed its claims for infringement and agreed not to sue for acts occurring before the dismissal, and there was an insufficiently "immediate" controversy between the parties to support jurisdiction over the invalidity counterclaim.

When the infringement case was originally brought, the defendant was engaging in acts that were arguably infringing, but an intervening case regarding the scope of the research exemption provided in 35 U.S.C. § 271(e)(1) rendered those claims of infringement meritless. This prompted the dismissal, and because the defendant admitted it was at least several years away from filing a new drug application, which would be an act of infringement, jurisdiction was lacking. In short, the court stated, citing MedImmune, there was no "substantial controversy" between the parties of "sufficient immediacy and reality to warrant the issuance of a declaratory judgment."

Benitec and Nucleonics are companies that work in the area of gene silencing, a technique for treating certain diseases by shutting down expression of certain target genes. Benitec holds a patent relating to such therapies.

In 2004, Nucleonics was engaging in research to develop a therapy that may have infringed Benitec's patent, and Benitec sued. Nucleonics answered, and then moved to dismiss on the basis that its conduct was exempt from infringement under 35 U.S.C. § 271(e)(1), which provides an exception to infringement for certain research activities. The district court denied the motion.

While the case was pending, the Supreme Court decided Merck KGaA v. Integra Lifesciences I, Ltd., which construed the scope of § 271(e)(1)'s research exception broadly. As a result, Benitec conceded that it did not have a current infringement claim, and voluntarily dismissed its claims. The district court also dismissed Nucleonics' invalidity counterclaim, and Nucleonics appealed. In its appellee brief, Benitec covenanted not to sue Nucleonics for any activities that occurred before the date of the district court's dismissal.

The Federal Circuit affirmed. As an initial matter, the court noted that some of its earlier precedent regarding the effect of covenants not to sue on subject matter jurisdiction, such as Super Sack and Amana Refrigeration were in doubt after the Supreme Court's MedImmune decision, and ultimately decided the issue based on the MedImmune standard.

There was no doubt that a case or controversy existed when Benitec filed its suit, as an actual claim of infringement necessarily demonstrates an actual case or controversy under the Declaratory Judgment Act. However, once the parties agreed there were no current infringing acts and Benitec agreed not to sue for past acts, the court held that there was no longer a case or controversy of "sufficient immediacy" to support a declaratory judgment action. This was partially because Nucleonics had stated that it would not be ready to file a New Drug Application with the FDA (which would be considered an act of infringement) until at least 2010-2012, "if ever." As a result, while there may be a case or controversy sufficient to support Nucleonics' declaratory judgment claim in the future, one does not exist now.

Judge Dyk dissented. He believes that when a case or controversy exists when the case is filed, the burden should rest upon the party challenging jurisdiction to show that there is no longer the necessary case or controversy. In fact, he asserts that such a case should not be dismissed "unless the patentee demonstrates that there is no possibility of a future controversy with respect to invalidity." He cited the Supreme Court's Cardinal Chemical decision, which ended the Federal Circuit's practice of dismissing as moot counterclaims for invalidity when a patent was held to be not infringed. The majority and dissent disagreed as to the scope of Cardinal Chemical, the majority finding it limited to subject matter jurisdiction of the courts of appeal, and Judge Dyk finding it generally applicable to subject matter jurisdiction in all federal courts.

This case represents some possible good news for patent holders who thought any action may lead to a party being able to file a declaratory judgment action against them after the Federal Circuit's first few post-MedImmune decisions on the subject, such as STmicroelectronics and Teva Pharmaceuticals.

To read the full decision in Benitec Australia, Ltd. v. Nucleonics, Inc., click here.

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