United States Court of Appeals for the Federal Circuit
04-1266
ELECTRONICS FOR IMAGING, INC.,
Plaintiff-Appellant,
v.
JAN R. COYLE and KOLBET LABS,
Defendants-Appellees.
William C. Rooklidge, Howrey Simon Arnold & White, LLP, of Irvine, California,
argued for plaintiff-appellant. With him on the brief were Russell B. Hill and Tom Crunk.
James D. Boyle, Santoro, Driggs, Walch, Kearney, Johnson & Thompson, of Las
Vegas, Nevada, argued for defendants-appellees. With him on the brief was Steven A.
Gibson.
Appealed from: United States District Court for the Northern District of California
Judge Martin J. Jenkins
United States Court of Appeals for the Federal Circuit
04-1266
ELECTRONICS FOR IMAGING, INC.,
Plaintiff-Appellant,
v.
JAN R. COYLE and KOLBET LABS,
Defendants-Appellees.
__________________________
DECIDED: January 5, 2005
__________________________
Before LOURIE, RADER, and GAJARSA, Circuit Judges.
LOURIE, Circuit Judge.
Electronics for Imaging, Inc. (“EFI”) appeals from the decision of the district court
granting a motion to dismiss its lawsuit against Jan R. Coyle and Kolbet Labs under the
Declaratory Judgment Act (“the Act”). Elecs. for Imaging, Inc. v. Coyle, No. C 01-4853
(N.D. Cal. Feb. 13, 2003) (“Dismissal Order”). Because the district court erred as a
matter of law and hence abused its discretion, we reverse and remand.
BACKGROUND
EFI is a company that specializes in network printing solutions, particularly print
controllers. It sells its products to companies such as Canon, Hewlett-Packard, and
Xerox, who in turn incorporate EFI’s technology into their own print servers, printers,
and copiers. EFI is a Delaware corporation with its principal place of business in Foster
City, California. Jan Coyle, a Nevada resident, is a listed inventor on U.S. Patents
6,337,746 and 6,618,157, both directed to printing technology.1 Kolbet Labs is a
Nevada sole proprietorship owned by Daniel Kolbet, who is also a Nevada resident and
an inventor listed on both patents.
Coyle first contacted EFI in September 1997, offering to license his technology,
which was still in development and not yet the subject of an issued U.S. patent.
Subsequently, Coyle and EFI met in Nevada under a non-disclosure agreement. EFI
left that meeting uninterested in Coyle’s work and did not retain any written information
from it. It was not until 1999 that the two parties convened again, apparently at the
request of EFI. According to EFI, its inquiry to Coyle was made in light of Coyle’s
statements concerning progress on the technology and a pending patent application;
Coyle also mentioned his own history of filing patent infringement lawsuits against such
corporations as Atari, Nintendo, Sega, and NEC Technologies. (Decl. of James L.
Etheridge ¶ 2.) In April 2000, the two parties met under a new non-disclosure
agreement to discuss possible licensing arrangements, but those talks also ended
without any agreement.
In June 2001, Coyle discovered certain EFI sales and marketing information that
convinced him that EFI was manufacturing products that were within the scope of
Coyle’s patent application, then still pending. In September 2001, Coyle notified EFI
that the United States Patent and Trademark Office would soon issue Coyle’s patent,
and he asserted that his patent would cover all of EFI’s print controllers. EFI claims that
1
J & L Electronics, LLC (“J & L”) is a separate business entity created by
Jan Coyle and was assigned title to the ’746 patent. J & L has independently filed suit
against EFI on two separate occasions. See infra note 2.
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during the week of November 26, 2001, Coyle began to pressure EFI on an almost daily
basis, threatening to drive EFI out of business. EFI alleges that Coyle repeatedly
warned that he would bring multiple lawsuits, stating that “we’ll sue all of your
customers” and “bad things are going to happen.” (Compl. ¶ 18.) Coyle even identified
specific attorneys and law firms in support of his litigation threats.2 Id.
EFI’s general counsel traveled to Nevada on December 5, 2001 to negotiate
terms of an agreement by which EFI could purchase or license Coyle’s technology. In
the course of the discussions, Coyle stated that “I will sue you and I will fight” and that
“all hell w[ill] break loose, I will fight until the end . . . .” Dismissal Order, slip op. at 5.
Additionally, Coyle purportedly gave EFI an ultimatum, warning that December 15 was
the deadline to pay (“If we don’t get a deal, we will pull the trigger and execute the
litigation,” (Compl. ¶ 19)), but negotiations between the two parties again broke down.
On December 11, 2001, EFI sued Coyle and Kolbet Labs in the United States District
Court for the Northern District of California, seeking a declaratory judgment that EFI did
not breach the two non-disclosure agreements and that EFI did not misappropriate
Coyle’s trade secrets.
2
The present case is only one of several suits pending between EFI and
Coyle, Kolbet Labs, and J & L. J & L filed a patent infringement suit against EFI in the
District of Nevada in February 2002, which was dismissed for lack of personal
jurisdiction. In February 2004, we affirmed, without opinion, the district court’s decision
in the Nevada case. J & L Elecs., LLC v. Elecs. for Imaging, Inc., 87 Fed. Appx. 753
(Fed. Cir. 2004).
Also in February 2004, EFI filed a second action in the Northern District of
California, seeking declaratory relief with respect to Coyle’s ’157 patent. That patent
issued on September 9, 2003 from a continuation of the application from which the ’746
patent originated. Presently, the second California suit is still pending.
Finally, J & L sued EFI in the District of Arizona in May 2004. That case is also
pending.
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On January 8, 2002, Coyle’s ’746 patent issued, and EFI amended its complaint
that same day to assert noninfringement and invalidity of the patent. Later that month,
Coyle filed motions to dismiss the complaint for lack of personal jurisdiction, for
improper venue, and for failure to comport with the objectives of the Declaratory
Judgment Act. In March 2002, the court granted Coyle’s motion to dismiss specifically
for lack of personal jurisdiction, but it reserved judgment on Coyle’s other motions to
dismiss.
In August 2003, a panel of this court reversed the district court’s dismissal and
remanded the case to the district court. Elecs. for Imaging, Inc. v. Coyle, 340 F.3d 1344
(Fed. Cir. 2003). We determined that the district court erred by applying Ninth Circuit
law on personal jurisdiction to the patent invalidity claim. Instead, we applied Federal
Circuit law, concluding that Coyle had not shown that the case was “one of the ‘rare’
situations in which sufficient minimum contacts exist but where the exercise of
jurisdiction would be unreasonable.” Id. at 1352.
In February 2004, on remand, the district court considered the other grounds for
dismissal previously raised by Coyle. The court determined that EFI did not have any
uncertainty about Coyle’s intention to sue because Coyle had provided EFI with specific
deadlines for reaching an agreement, which deadlines had not yet been met. Dismissal
Order, slip op. at 4-5. Additionally, the court found that EFI was not uncertain about the
strength of its legal position. Id. The court thus decided that EFI’s declaratory suit did
not serve the objectives of the Act and was merely anticipatory, designed to preempt
Coyle’s suit and to secure EFI’s own choice of forum instead. Id. at 6-7. Ultimately, the
court granted Coyle’s motion to dismiss the complaint for failure to comport with the
04-1266 4
objectives of the Act and did not reach the remaining issues (e.g., motion to dismiss or
transfer for improper venue and motion to transfer for convenience). Id. at 1. EFI timely
appealed; we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).
DISCUSSION
The sole issue now before us is whether the district court properly dismissed
EFI’s lawsuit under the Declaratory Judgment Act. The decision to stay or dismiss a
declaratory action is reviewed for an abuse of discretion, Wilton v. Seven Falls Co., 515
U.S. 277, 289 (1995), which occurs when: “(1) the court’s decision was clearly
unreasonable, arbitrary, or fanciful; (2) the decision was based on an erroneous
conclusion of law; (3) the court’s findings were clearly erroneous; or (4) the record
contains no evidence upon which the court rationally could have based its decision,”
Minn. Mining & Mfg. Co. v. Norton Co., 929 F.2d 670, 673 (Fed. Cir. 1991).
A declaratory action allows a party “who is reasonably at legal risk because of an
unresolved dispute, to obtain judicial resolution of that dispute without having to await
the commencement of legal action by the other side.” BP Chems. Ltd. v. Union Carbide
Corp., 4 F.3d 975, 977 (Fed. Cir. 1993). The Declaratory Judgment Act provides that:
In a case of actual controversy within its jurisdiction, . . . any court of the
United States, upon the filing of an appropriate pleading, may declare the
rights and other legal relations of any interested party seeking such
declaration, whether or not further relief is or could be sought. Any such
declaration shall have the force and effect of a final judgment or decree
and shall be reviewable as such.
28 U.S.C. § 2201(a) (2000).
The district court is not required to exercise declaratory judgment jurisdiction, but
has “unique and substantial discretion” to decline that jurisdiction. Wilton, 515 U.S. at
286; EMC Corp. v. Norand Corp., 89 F.3d 807, 810 (Fed. Cir. 1996). The use of
04-1266 5
discretion is not plenary, however, for “[t]here must be well-founded reasons for
declining to entertain a declaratory judgment action.” Capo, Inc. v. Dioptics Med.
Prods., 387 F.3d 1352, 1355 (Fed. Cir. 2004); see also Genentech v. Eli Lilly & Co., 998
F.2d 931, 937 (Fed. Cir. 1993) (“When there is an actual controversy and a declaratory
judgment would settle the legal relations in dispute and afford relief from uncertainty or
insecurity, in the usual circumstance the declaratory judgment is not subject to
dismissal.”); cf. BP Chems., 4 F.3d at 981 (“A court may decline to exercise declaratory
judgment jurisdiction if it would not afford relief from the uncertainty, insecurity, and
controversy giving rise to the proceeding.”).
Federal courts must act “in accordance with the purposes of the Declaratory
Judgment Act and the principles of sound judicial administration” when declining
jurisdiction in declaratory suits. EMC Corp., 89 F.3d at 813-14. The question whether
to accept or decline jurisdiction in an action for a declaration of patent rights in view of a
later-filed suit for patent infringement impacts this court’s mandate to promote national
uniformity in patent practice. Because it is an issue that falls within our exclusive
subject matter jurisdiction, we do not defer to the procedural rules of the regional circuits
nor are we bound by their decisions. Serco Servs. Co., L.P. v. Kelley Co., Inc., 51 F.3d
1037, 1038 (Fed. Cir. 1995); Genentech, 998 F.2d at 937.
A. EFI’s “Uncertainty”
On appeal, EFI argues that the district court incorrectly determined that EFI’s suit
against Coyle and Kolbet Labs would not serve the objectives of the Declaratory
Judgment Act. Particularly, EFI assigns error to the court’s conclusion that because EFI
was confident in its legal position, EFI had no “uncertainty” of the type contemplated by
04-1266 6
the Act. Instead, EFI asserts that the district court should have focused on the
uncertainty created by Coyle’s persistent and forceful threats of patent infringement
against EFI.
Coyle responds by arguing that the district court properly rejected EFI’s argument
regarding uncertainty in the context of the Act. He claims that because EFI had assured
itself that Coyle’s claims of patent infringement were, in EFI’s view, meritless, EFI had
no ultimate uncertainty regarding its liability to Coyle. Coyle avers that because EFI
was, in fact, “certain” of its rights following an investigation of Coyle’s claims, EFI’s suit
did not serve the purposes of the Act and EFI thus had no basis upon which it could
properly file a declaratory action.
We agree with EFI that the district court erred as a matter of law when it held that
EFI suffered no uncertainty of the kind recognized by the Declaratory Judgment Act.
We have stated that “the purpose of the Declaratory Judgment Act . . . in patent cases
is to provide the allegedly infringing party relief from uncertainty and delay regarding its
legal rights.” Goodyear Tire & Rubber Co. v. Releasomers, Inc., 824 F.2d 953, 956
(Fed. Cir. 1987). The very scenario that EFI faced was a motivation for enacting the
Act, as we have stated in the past:
[A] patent owner . . . attempts extra-judicial patent enforcement with scare-
the-customer-and-run tactics that infect the competitive environment of the
business community with uncertainty and insecurity. . . . Before the Act,
competitors victimized by that tactic were rendered helpless and immobile
so long as the patent owner refused to grasp the nettle and sue. After the
Act, those competitors were no longer restricted to an in terrorem choice
between the incurrence of a growing potential liability for patent
infringement and abandonment of their enterprises; they could clear the air
by suing for a judgment that would settle the conflict of interests.
04-1266 7
Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735 (Fed. Cir. 1988)
(citation omitted).
Here, the district court misinterpreted the term “uncertainty” in the context of the
Declaratory Judgment Act. The proper inquiry should not have been whether a party is
“certain” that its legal position and defense theories are sound, because litigation is
rarely “certain,” even if one is confident of one’s position. When a party is threatened as
EFI has been, there are other uncertainties, including whether there will be legal
proceedings at all, not just whether one will prevail. There is the uncertainty whether
one will have to incur the expense and inconvenience of litigation, and how it will affect
the threatened party’s customers, suppliers, and shareholders. Reservation of funds for
potential damages may be necessary. If “certainty” in one’s position were to preclude
invocation of the Act, then the Act would fail to achieve its purpose of promoting
resolution of disputes, as parties threatened with unjustified litigation, even if they are
“certain” that they will prevail, must incur other uncertainties. When threatened, they
are therefore entitled to sue to bring an end to the threat, despite their confidence in
their position. “Uncertainty” in the context of the Act refers to the reasonable
apprehension created by a patentee’s threats and the looming specter of litigation that
results from those threats. See Minn. Mining, 929 F.2d at 673. Those uncertainties
were surely present here, and they were created by Coyle.
In Minnesota Mining, which is instructive on this point, the Norton Company
threatened 3M and its customers with allegations of patent infringement. Meanwhile,
3M continued to sell products that it believed did not infringe. As a result, in that case,
despite confidence in its noninfringement position, 3M’s potential liability grew with each
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sale. Id. at 673-74. We recognized that 3M’s situation was the quandary that the Act
was designed to alleviate and stated: “In promulgating the Declaratory Judgment Act,
Congress intended to prevent avoidable damages from being incurred by a person
uncertain of his rights and threatened with damage by delayed adjudication.” Id. at 673.
Likewise, in the present case, EFI may in fact be confident that it would
eventually prevail in a patent infringement action. Indeed, Coyle has identified
communications between EFI and its counsel that indicated confidence in their invalidity
defense against Coyle’s “meritless” allegations. Nevertheless, Coyle’s forceful threats
created a cloud over EFI’s business, shareholders, and customers, and EFI’s potential
liability increased as it continued to sell the allegedly infringing products. EFI is entitled
under the Declaratory Judgment Act to seek a timely resolution of Coyle’s threats of
litigation and remove itself from “the shadow of threatened infringement litigation.”
Serco Servs., 51 F.3d at 1038. The fact that Coyle had stated a deadline for
negotiations to be concluded, and that that deadline had not passed when EFI brought
suit, does not deprive EFI of the right to sue. Given that Coyle had a record of
threatening suit in such clear and descriptive language without always following through
promptly on those threats, EFI was not required to await suit by Coyle. It was entitled to
bring the matter to a head and have it resolved in court.
B. Anticipatory Suit
EFI also argues that the district court abused its discretion by finding that EFI’s
declaratory action was filed in anticipation of Coyle’s impending suit, and that such a
filing justified dismissal. EFI asserts that the district court inaccurately described the
filing of its suit as prompting a “race to the courthouse.” Coyle responds that the district
04-1266 9
court properly concluded that EFI’s suit was anticipatory because EFI knew that Coyle’s
suit was imminent.
We agree with EFI that the district court abused its discretion in its dismissal
order by focusing on the anticipatory nature of the suit. We apply the general rule
favoring the forum of the first-filed case, “unless considerations of judicial and litigant
economy, and the just and effective disposition of disputes, requires otherwise.”
Genentech, 998 F.2d at 938; see Serco Servs., 51 F.3d. at 1039. “Exceptions . . . are
not rare,” but we have explained that “[t]here must . . . be sound reason that would
make it unjust or inefficient to continue the first-filed action.” Genentech, 998 F.2d at
937-38.
While it is true that a district court may consider whether a party intended to
preempt another’s infringement suit when ruling on the dismissal of a declaratory action,
Serco Servs., 51 F.3d. at 1040, we have endorsed that as merely one factor in the
analysis. Other factors include “the convenience and availability of witnesses, or
absence of jurisdiction over all necessary or desirable parties, or the possibility of
consolidation with related litigation, or considerations relating to the real party in
interest.” Genentech, 998 F.2d at 938. “The considerations affecting transfer to or
dismissal in favor of another forum do not change simply because the first-filed action is
a declaratory action.” Id. No such “other factors” have been cited here.
In Genentech, we reversed the district court’s dismissal of a declaratory action,
as it was premised solely on the fact that the suit was designed to anticipate a later-filed
complaint in another forum. Id. On the other hand, in Serco Services, the district court
dismissed Serco’s declaratory action as anticipatory, but did so in view of other factors,
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including the location of witnesses and documents. Serco Servs., 51 F.3d at 1039-40.
We affirmed the dismissal in Serco Services because the district court did not rely solely
on the anticipatory nature of Serco’s declaratory action. Id. at 1040.
Here, the facts are more similar to those in Genentech and are distinguishable
from those in Serco Services. As we have determined that the district court’s reliance
on EFI’s lack of uncertainty in its legal position was erroneous, and no other compelling
factors have been cited, the court’s decision is left to rest exclusively on the alleged
anticipatory nature of EFI’s suit. Our precedent, however, favors the first-to-file rule in
the absence of circumstances making it “unjust or inefficient” to permit a first-filed action
to proceed to judgment, and, as indicated, no such circumstances have been shown
here.
The district court’s order dismissing EFI’s suit as anticipatory and contrary to the
purposes of the Declaratory Judgment Act was thus an abuse of discretion.
CONCLUSION
The district court abused its discretion by dismissing EFI’s suit against Coyle,
and we therefore reverse the court’s dismissal and remand for further proceedings
consistent with this opinion.
REVERSED AND REMANDED
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