SanDisk Corp. v. STMicroelectronics, Inc.

United States Court of Appeals for the Federal Circuit

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SANDISK CORPORATION,

Plaintiff-Appellant,

v.

STMICROELECTRONICS, INC.,

Defendant-Appellee,

and

STMICROELECTRONICS NV,

Defendant.

Michael A. Ladra, Wilson Sonsini Goodrich & Rosati, of Palo Alto, California,
argued for plaintiff-appellant. With him on the brief were James C. Yoon and Julie M.
Holloway.

Edward V. Anderson, Sidley Austin Brown & Wood, LLP, of San Francisco,
California, argued for defendant-appellee. With him on the brief were Russell L.
Johnson, Georgia K. Van Zanten, Philip W. Woo, Matthew L. McCarthy, Peter Suen;
and Kathi A. Cover, of Washington, DC.

Appealed from: United States District Court for the Northern District of California

Judge Jeremy Fogel
 United States Court of Appeals for the Federal Circuit

05-1300

SANDISK CORPORATION,

Plaintiff-Appellant,

v.

STMICROELECTRONICS, INC.,

Defendant-Appellee,

and

STMICROELECTRONICS NV,

Defendant.

__________________________

DECIDED: March 26, 2007
__________________________

Before BRYSON, LINN, and DYK, Circuit Judges.

Opinion for the court filed by Circuit Judge LINN. Opinion concurring in the result filed
by Circuit Judge BRYSON.

LINN, Circuit Judge.

SanDisk Corporation (“SanDisk”) appeals from a decision of the U.S. District

Court for the Northern District of California granting STMicroelectronics’ (“ST’s”) motion

to dismiss SanDisk’s second through twenty-ninth claims relating to declaratory

judgment of noninfringement and invalidity for failure to present an actual controversy.

See SanDisk Corp. v. STMicroelectronics, Inc., No. 04-CV-04379 (N.D. Cal. Jan. 20,

2005). Because the district court erred in dismissing the declaratory judgment claims
for lack of subject matter jurisdiction, we vacate the judgment and remand the case to

the district court.

I. BACKGROUND

SanDisk is in the flash memory storage market and owns several patents related

to flash memory storage products. ST, traditionally in the market of semiconductor

integrated circuits, more recently entered the flash memory market and has a sizeable

portfolio of patents related to flash memory storage products. On April 16, 2004, ST’s

vice president of intellectual property and licensing, Lisa Jorgenson (“Jorgenson”), sent

a letter to SanDisk’s chief executive officer requesting a meeting to discuss a cross-

license agreement. The letter listed eight patents owned by ST that Jorgenson believed

“may be of interest” to SanDisk. SanDisk, slip op. at 2; Letter from Jorgenson to

SanDisk (Apr. 16, 2004). On April 28, 2004, SanDisk responded that it would need time

to review the listed patents and would be in touch in several weeks to discuss the

possibility of meeting in June.

On July 12, 2004, having heard nothing further from SanDisk, Jorgenson sent a

letter to SanDisk reiterating her request to meet in July to discuss a cross-license

agreement and listing four additional ST patents that “may also be of interest” to

SanDisk. SanDisk, slip op. at 2; Letter from Jorgenson to SanDisk (July 12, 2004). On

July 21, 2004, SanDisk’s chief intellectual property counsel and senior director, E. Earle

Thompson (“Thompson”), responded to ST’s letter by informing Jorgenson of his

“understanding that both sides wish to continue . . . friendly discussions” such as those

between the business representatives in May and June. SanDisk, slip op. at 2-3; Letter

from Thompson to Jorgenson (July 21, 2004). The discussions of May and June that

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Thompson referred to were discussions among managers and vice presidents of

SanDisk and ST at business meetings held on May 18, 2004, and June 9, 2004, to

explore the possibility of ST’s selling flash memory products to SanDisk. The business

meetings were unrelated to any patents. Thompson also requested that Jorgenson join

the next business meeting on August 5, 2005. On July 27, 2004, Jorgenson replied,

again urging a meeting with Thompson, noting that it was “best to separate the business

discussions from the patent license discussions.” SanDisk, slip op. at 3; Letter from

Jorgenson to Thompson (July 27, 2004).

On August 5, 2004, when the business representatives next met, SanDisk

presented an analysis of three of its patents and orally offered ST a license. ST

declined to present an analysis of any of its patents, stating instead that any patent and

licensing issues should be discussed in a separate meeting with Jorgenson. Later that

same day, Thompson wrote a letter to Jorgenson objecting to separating business and

intellectual property issues and stating that “[i]t has been SanDisk’s hope and desire to

enter into a mutually beneficial discussion without the rattling of sabers.” SanDisk, slip

op. at 4; Letter from Thompson to Jorgenson (Aug. 5, 2004). On August 11, 2004,

Jorgenson replied, stating that it was her understanding that the parties were going to

have a licensing/intellectual property meeting later that month “to discuss the possibility

for a patent cross-license.” Letter from Jorgenson to Thompson (Aug. 11, 2004). She

said that SanDisk should come to that meeting prepared to present an analysis of the

three SanDisk patents it identified during the August 5th business meeting, as well as

“any infringement analyses of an ST device or need for ST to have a license to these

patents.” Id. She also said that ST would be prepared at that meeting to discuss the

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twelve patents identified in her prior letters. In closing, Jorgenson said that ST was

“look[ing] forward to open and frank discussions with SanDisk concerning fair and

reasonable terms for a broad cross-license agreement.” Id.

On August 27, 2004, the licensing meeting was held. Jorgenson, two ST

licensing attorneys, and three technical experts retained by ST to perform the

infringement analyses of SanDisk’s products, attended on behalf of ST. Thompson and

an engineer attended on behalf of SanDisk. At the meeting, Jorgenson requested that

the parties’ discussions be treated as “settlement discussions” under Federal Rule of

Evidence 408. 1 SanDisk, slip op. at 5. ST then presented a slide show which

compared statistics regarding SanDisk’s and ST’s patent portfolios, revenue, and

research and development expenses, and listed SanDisk’s various “unlicensed

activities.” Id. This slide show was followed by a four- to five-hour presentation by ST’s

technical experts, during which they identified and discussed the specific claims of each

patent and alleged that they were infringed by SanDisk. According to Thompson, the

presentation by ST’s technical experts included “mapp[ing] the elements of each of the

allegedly infringed claims to the aspects of the accused SanDisk products alleged to

practice the elements.” Id. Thompson declares that “the experts liberally referred to

1
To avoid the risk of a declaratory judgment action, ST could have sought
SanDisk’s agreement to the terms of a suitable confidentiality agreement. The record
before us reflects that the parties did not enter into such an agreement. Rather, ST
sought to condition its open licensing discussions and the infringement study on
adherence to Federal Rule of Evidence 408. That rule expressly relates to evidence of
efforts toward compromising or attempting to compromise a claim in litigation and does
not prevent SanDisk from relying on the licensing discussions and infringement study to
support its claims. See Fed. R. Evid. 408. Furthermore, ST’s presentation was made
outside the context of litigation, and there is nothing on the record to indicate that it
could be properly considered an “offer” to settle a claim which was then in dispute. See,
e.g., Deere & Co. v. Int’l Harvester Co., 710 F.2d 1551, 1556-57 (Fed. Cir. 1983).

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SanDisk’s (alleged) infringement of [ST’s] products.” Id., slip op. at 5-6. SanDisk’s

engineer then made a presentation, describing several of SanDisk’s patents and

analyzing how a semiconductor chip product sold by ST infringes. Id., slip op. at 6.

At the end of the meeting, Jorgenson handed Thompson a packet of materials

containing, for each of ST’s fourteen patents under discussion, a copy of the patent,

reverse engineering reports for certain of SanDisk’s products, and diagrams showing

how elements of ST’s patent claims cover SanDisk’s products. According to SanDisk,

Jorgenson indicated (in words to this effect):

I know that this is material that would allow SanDisk to DJ [ST] on. We
have had some internal discussions on whether I should be giving you a
copy of these materials in light of that fact. But I have decided that I will
go ahead and give you these materials.

Id. Jorgenson further told Thompson that “ST has absolutely no plan whatsoever to sue

SanDisk.” Id. Thompson responded to Jorgenson that “SanDisk is not going to sue you

on Monday” and that another meeting might be appropriate. Id.

On September 1, 2004, Jorgenson wrote to Thompson, enclosing copies of ST’s

general slide presentation from the August meeting and also enclosing a hard copy

booklet containing each of the engineering reports “for each claim on all products where

ST demonstrated coverage by the 14 ST patents to-date [sic].” Id.; Letter from

Jorgenson to Thompson (Sept. 1, 2004). Jorgenson requested that SanDisk provide ST

with a copy of SanDisk’s presentation and information about the three SanDisk patents

presented. On September 8, 2004, Thompson replied by e-mail, confirming receipt of

the package from ST, attaching a copy of SanDisk’s presentation, indicating it was his

“personal feeling . . . that we have got to trust one another during these negotiations,”

and seeking a non-disclosure agreement. SanDisk, slip op. at 6-7; E-mail from

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Thompson to Jorgenson (Sept. 8, 2004). Thompson also wrote “I still owe you the rates

quoted.” Id.

On September 15, 2004, Thompson again corresponded with Jorgenson, this

time by letter, enclosing a confidential version of SanDisk’s cross licensing offer, which

noted that the offer would expire on September 27, 2004. SanDisk, slip op. at 7; Letter

from Thompson to Jorgenson (Sept. 15, 2004). Jorgenson destroyed this confidential

offer and did not retain a copy, and, on September 16, 2004, sent Thompson an e-mail

requesting that a non-confidential version be sent for ST’s consideration. SanDisk, slip

op. at 7; E-mail from Jorgenson to Thompson (Sept. 16, 2004). SanDisk refused to

send a non-confidential version. Instead, on September 27, 2004, Thompson offered to

send another confidential version, or to communicate the offer orally. E-mail from

Thompson to Jorgenson (Sept. 27, 2004). Thompson also indicated that SanDisk did

not need additional information regarding ST’s patents because SanDisk was “quite

comfortable with its position” and that it was “time to let our business people talk and

see if a peaceful resolution is possible.” Id. On September 28, 2004, Jorgenson

repeated her request for a written non-confidential version of SanDisk’s licensing offer.

SanDisk, slip op. at 7-8; E-mail from Jorgenson to Thompson (Sept. 28, 2004). The

following day, Thompson e-mailed Jorgenson another confidential version of SanDisk’s

offer. SanDisk, slip op. at 8.

On October 15, 2004, after several further e-mails and phone calls between the

business representatives trying to establish another meeting, SanDisk filed the instant

lawsuit. SanDisk alleged infringement of one of its patents and sought a declaratory

judgment of noninfringement and invalidity of the fourteen ST patents that had been

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discussed during the cross licensing negotiations. On December 3, 2004, ST filed a

motion to dismiss SanDisk’s declaratory judgment claims for lack of subject matter

jurisdiction, maintaining that there was no actual controversy at the time SanDisk filed

its complaint.

The district court granted ST’s motion to dismiss, holding that no actual

controversy existed for purposes of the Declaratory Judgment Act because SanDisk did

not have an objectively reasonable apprehension of suit, even though it may have

subjectively believed that ST would bring an infringement suit. See id., slip op. at 14.

The district court reasoned that “SanDisk has presented no evidence that ST threatened

it with litigation at any time during the parties’ negotiations, nor has SanDisk shown

other conduct by ST rising to a level sufficient to indicate an intent on the part of ST to

initiate an infringement action.” Id. The district court found that the studied and

determined infringement analyses that ST presented to SanDisk did not constitute the

requisite “express charges [of infringement] carrying with them the threat of

enforcement.” Id., slip op. at 14-15. The district court also found that the totality of the

circumstances did not evince an actual controversy because ST told SanDisk that it did

not intend to sue SanDisk for infringement. Id., slip op. at 15-16. In a footnote, the

court indicated that, as an alternative basis for its ruling, even if it did have jurisdiction, it

would exercise its discretion and decline to hear the case. Id., slip op. at 17 n.30.

SanDisk appealed the dismissal to this court. We have jurisdiction pursuant to

28 U.S.C. § 1295(a)(1) (2000).

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 II. DISCUSSION

A. Standard of Review

For purposes of Article III, this court reviews a dismissal of a patent claim for lack

of an actual controversy upon a particular set of facts as a question of law subject to

plenary appellate review. Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d

731, 735 (Fed. Cir. 1988). This court reviews the underlying factual findings for clear

error. Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376, 1379 (Fed. Cir. 2004).

B. Analysis

SanDisk argues that the district court erred as a matter of law by requiring an

express accusation of patent infringement coupled with an explicit threat of judicial

enforcement to support declaratory judgment jurisdiction, and that, under the correct

legal standard articulated by this court in Arrowhead, 846 F.2d at 736, the facts of this

case illustrate that SanDisk’s apprehension of an infringement suit was objectively

reasonable. SanDisk asserts that the infringement analysis presented by ST and its

experts at the August 27, 2004 licensing meeting constituted an allegation of

infringement and that the totality of the circumstances shows that ST’s conduct gave

rise to an actual case or controversy. SanDisk further points out that negotiations

regarding licensing had ceased by the time SanDisk filed its claims for declaratory

judgment.

ST counters that the district court applied the correct legal standard and argues

that SanDisk ignores the line of cases that have followed and interpreted Arrowhead.

ST asserts that the cases following Arrowhead reveal that the bare mention of

infringement, particularly during license negotiations, is not sufficient to meet the

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standard set forth in Arrowhead. ST asserts that its conduct at the August 27, 2004

licensing meeting was to strengthen its position during licensing negotiations and that,

under the totality of the circumstances, SanDisk has not shown that ST’s conduct gave

rise to declaratory judgment jurisdiction. Moreover, ST argues that the district court did

not abuse its discretion when it concluded, as an alternative basis for its ruling, that it

would exercise discretion to decline to decide SanDisk’s claims.

1. Case or Controversy

The first question we address is whether the facts alleged in this case show that

there is a case or controversy within the meaning of the Declaratory Judgment Act, 28

U.S.C. § 2201(a).

The Declaratory Judgment Act provides, in relevant part, that

[i]n 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.

28 U.S.C. § 2201(a). The “actual controversy” requirement of the Declaratory Judgment

Act is rooted in Article III of the Constitution, which provides for federal jurisdiction over

only “cases and controversies.” Thus, our jurisdiction extends only to matters that are

Article III cases or controversies.

The Supreme Court, in the context of a patent license dispute, recently examined

Article III’s case or controversy requirement as it relates to the Declaratory Judgment

Act. See MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007). In MedImmune,

the Supreme Court considered “whether Article III’s limitation of federal courts’

jurisdiction to ‘Cases’ and ‘Controversies,’ reflected in the ‘actual controversy’

requirement of the Declaratory Judgment Act, 28 U.S.C. § 2201(a), requires a patent

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licensee to terminate or be in breach of its license agreement before it can seek a

declaratory judgment that the underlying patent is invalid, unenforceable, or not

infringed.” Id. at 767.

The Supreme Court began its analysis

with the recognition that, where threatened action by government is
concerned, [the Court] do[es] not require a plaintiff to expose himself to
liability before bringing suit to challenge the basis for the threat—for
example, the constitutionality of a law threatened to be enforced. The
plaintiff’s own action (or inaction) in failing to violate the law eliminates the
imminent threat of prosecution, but nonetheless does not eliminate Article
III jurisdiction.

Id. at 772. The Supreme Court quoted its earlier decision in Maryland Casualty Co. v.

Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941), where the Court stated that “the

question in each case is 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.”

MedImmune, 127 S. Ct. at 771. The Supreme Court emphasized that Article III requires

that the dispute at issue be “‘definite and concrete, touching the legal relations of parties

having adverse legal interests’; and that it be ‘real and substantial’ and ‘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 state of facts.’” Id. (quoting

Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240–41 (1937)). The Supreme Court

stated that, when faced with a genuine threat of enforcement that the government will

penalize a certain private action, Article III “d[oes] not require, as a prerequisite to

testing the validity of the law in a suit for injunction, that the plaintiff bet the farm, so to

speak, by taking the violative action.” Id. at 772 (citations omitted). As the Supreme

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Court noted, “the declaratory judgment procedure is an alternative to pursuit of the

arguably illegal activity.” Id. (quotation marks omitted). The Supreme Court clarified

that, although a declaratory judgment plaintiff may eliminate an “imminent threat of harm

by simply not doing what he claimed the right to do[,] . . . [t]hat did not preclude subject-

matter jurisdiction [where] the threat-eliminating behavior was effectively coerced.” Id.

“The dilemma posed by that coercion—putting the challenger to the choice between

abandoning his rights or risking prosecution—is a dilemma that it was the very purpose

of the Declaratory Judgment Act to ameliorate.” Id. at 773 (internal quotation marks

omitted).

The Supreme Court then applied these principles to the facts of the case and

remarked that “the requirements of [a] case or controversy are met where payment of a

claim is demanded as of right and where payment is made, but where the involuntary or

coercive nature of the exaction preserves the right to recover the sums paid or to

challenge the legality of the claim.” Id. (internal quotation marks omitted). The

Supreme Court held that “[t]he rule that a plaintiff must destroy a large building, bet the

farm, or (as here) risk treble damages and the loss of 80 percent of its business, before

seeking a declaration of its actively contested legal rights finds no support in Article III.”

Id. at 775.

With regard to patent disputes, prior to MedImmune, this court articulated a two-

part test that first considers whether conduct by the patentee creates a reasonable

apprehension on the part of the declaratory judgment plaintiff that it will face an

infringement suit, and second examines whether conduct by the declaratory judgment

plaintiff amounts to infringing activity or demonstrates concrete steps taken with the

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intent to conduct such activity. See Arrowhead, 846 F.2d at 736. The Supreme Court,

in MedImmune, addressed the “reasonable apprehension of suit” aspect of this court’s

two-part test and concluded that it conflicts with Aetna Life Insurance and Maryland

Casualty, and is in tension with Cardinal Chemical Co. v. Morton International, Inc., 508

U.S. 83, 98 (1993). See MedImmune, 127 S. Ct. at 774 n.11.

In Aetna Life Insurance, an insurer sought a declaratory judgment that the

insured was not relieved of his duty to continue to pay insurance premiums and that,

since the insured had stopped making the payments, the insurance policy had lapsed.

In that case, the Supreme Court first upheld the constitutionality of the federal

Declaratory Judgment Act. 300 U.S. at 240-41. The Supreme Court then held that,

although the insured party gave no indication that he would file suit, id. at 239, the case

nevertheless presented a controversy under Article III because the parties had taken

adverse positions with regard to their obligations, each side presenting a concrete claim

of a specific right—the insured claiming that he had become disabled and therefore was

relieved of making insurance premium payments and the insurer claiming that the

insured was not disabled and that the failure to make payments caused the policy to

lapse, id. at 244. Similarly, in Maryland Casualty, the declaratory judgment plaintiff, an

insurance company which had agreed to indemnify and defend the insured against

actions brought by third parties against the insured, sought a declaration that it had no

duty to defend or to indemnify the insured. 312 U.S. at 272. In that case, the insured

could not have sued the declaratory judgment plaintiff without first obtaining a judgment

against the third party and the underlying action against the third party “[a]pparently . . .

ha[d] not proceeded to judgment.” Id. at 271. Nevertheless, the Supreme Court held

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that “[i]t is clear that there is an actual controversy between petitioner and the insured”

since the insured was in the process of seeking a judgment and had a statutory right to

proceed against the declaratory judgment plaintiff if such judgment were obtained and

not satisfied. Id. at 274. Finally, in Cardinal Chemical, the Supreme Court held that this

court’s affirmance of a judgment of noninfringement does not necessarily moot a

declaratory judgment counterclaim of patent invalidity. 508 U.S. at 98. The Supreme

Court’s rationale for holding that the declaratory judgment action can proceed consistent

with Article III was that a contrary result would create the potential for relitigation or

uncertainty with regard to the validity of patents and would be contrary to Blonder-

Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313 (1971).

The Supreme Court’s opinion in MedImmune represents a rejection of our

reasonable apprehension of suit test. 2 The Court first noted that “the continuation of

royalty payments makes what would otherwise be an imminent threat at least remote, if

not nonexistent. . . . Petitioner’s own acts, in other words, eliminate the imminent threat

of harm.” MedImmune, 127 S. Ct. at 772. The Court nonetheless concluded that

declaratory judgment jurisdiction existed relying in particular on its earlier decision in

Altvater v. Freeman, 319 U.S. 359 (1943). There, the patentee brought suit to enjoin

patent infringement, and the accused infringer filed declaratory judgment counterclaims

of invalidity. The district court found that there was no infringement and that the patent

was invalid. Id. at 362. The appellate court affirmed the finding of noninfringement but

vacated the finding of invalidity as moot. Id. The Supreme Court held that the

2
In this case, we address only the first prong of this court’s two-part test.
There is no dispute that the second prong is met. We therefore leave to another day
the effect of MedImmune, if any, on the second prong.

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declaratory judgment counterclaims were not mooted by the finding of noninfringement.

Id. at 365-66. In finding declaratory judgment jurisdiction in MedImmune, the Court

specifically addressed and rejected our reasonable apprehension test:

[e]ven if Altvater could be distinguished as an “injunction” case, it would
still contradict the Federal Circuit’s “reasonable apprehension of suit” test
(or, in its evolved form, the “reasonable apprehension of imminent suit”
test, Teva Pharm. USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1333 (2005)).
A licensee who pays royalties under compulsion of an injunction has no
more apprehension of imminent harm than a licensee who pays royalties
for fear of treble damages and an injunction fatal to his business. The
reasonable-apprehension-of-suit test also conflicts with our decisions in
Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273
(1941), where jurisdiction obtained even though the collision-victim
defendant could not have sued the declaratory-judgment plaintiff-insurer
without first obtaining a judgment against the insured; and Aetna Life Ins.
Co. v. Haworth, 300 U.S. 227, 239 (1937), where jurisdiction obtained
even though the very reason the insurer sought declaratory relief was that
the insured had given no indication that he would file suit. It is also in
tension with Cardinal Chemical Co. v. Morton Int’l, Inc., 508 U.S. 83, 98
(1993), which held that appellate affirmance of a judgment of
noninfringement, eliminating any apprehension of suit, does not moot a
declaratory judgment counterclaim of patent invalidity.

MedImmune, 127 S. Ct. at 774 n.11.

The Supreme Court in MedImmune addressed declaratory judgment jurisdiction

in the context of a signed license. In the context of conduct prior to the existence of a

license, declaratory judgment jurisdiction generally will not arise merely on the basis

that a party learns of the existence of a patent owned by another or even perceives

such a patent to pose a risk of infringement, without some affirmative act by the

patentee. But Article III jurisdiction may be met where the patentee takes a position that

puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal

behavior or abandoning that which he claims a right to do. We need not define the

outer boundaries of declaratory judgment jurisdiction, which will depend on the

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application of the principles of declaratory judgment jurisdiction to the facts and

circumstances of each case. We hold only that where a patentee asserts rights under a

patent based on certain identified ongoing or planned activity of another party, and

where that party contends that it has the right to engage in the accused activity without

license, an Article III case or controversy will arise and the party need not risk a suit for

infringement by engaging in the identified activity before seeking a declaration of its

legal rights. See id. Contra Cygnus Therapeutics Sys. v. ALZA Corp., 92 F.3d 1153

(Fed. Cir. 1996) (holding that declaratory judgment jurisdiction was not supported where

the “patentee does nothing more than exercise its lawful commercial prerogatives and,

in so doing, puts a competitor in the position of having to choose between abandoning a

particular business venture or bringing matters to a head by engaging in arguably

infringing activity”).

Our holding is consistent with decisions of other courts in various cases

unrelated to patent licensing. See, e.g., Bancroft & Masters, Inc. v. Augusta Nat’l Inc.,

223 F.3d 1082, 1085 (9th Cir. 2000) (finding declaratory judgment jurisdiction based on

trademark owner’s cease and desist letter despite the fact that trademark owner offered

to waive all trademark infringement and related claims); GNB Battery Tech., Inc. v.

Gould, Inc., 65 F.3d 615, 620 (7th Cir. 1995) (finding declaratory judgment jurisdiction

where declaratory judgment plaintiff filed action in anticipation of potential action by the

defendant based on new legislation although the defendant had not indicated whether

or when it may act); Kunkel v. Cont’l Cas. Co., 866 F.2d 1269, 1274 (10th Cir. 1989)

(affirming exercise of declaratory judgment jurisdiction over suit seeking declaratory

judgment for determination of value of insurance coverage even though existence of

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coverage remained dependent upon the outcome of a collateral action and noting that

“[t]he contingent nature of the right or obligation in controversy will not bar a litigant from

seeking declaratory relief when the circumstances reveal a need for present

adjudication”); see also IMS Health, Inc. v. Vality Tech. Inc., 59 F. Supp. 2d 454 (E.D.

Pa. 1999) (holding that requirements for declaratory judgment jurisdiction were satisfied

where copyright holder had not indicated it was going to file suit but had taken positions

and made demands such that the declaratory judgment plaintiff justifiably believed that

copyright holder might take such action in the future and noting that “[i]t is quite possible

for two parties to simultaneously consider nonlitigious settlement of a dispute, while at

the same time maintaining an awareness that either settlement is improbable or that

litigation is equally likely”); N. Shore Gas Co. v. Salomon, Inc., 896 F. Supp. 786, 789-

90 (N.D. Ill. 1995) (finding declaratory judgment jurisdiction where plaintiff, “rather than

wait an indefinite time to be sued,” filed suit after the settlement discussions came to an

impasse); J. Lyons & Co. Ltd. v. Republic of Tea, Inc., 892 F. Supp. 486 (S.D.N.Y.

1995) (dismissing trademark holder’s later-filed infringement action in favor of previously

filed declaratory judgment actions where declaratory judgment plaintiffs had received

cease and desist letters and no settlement appeared agreeable, despite the fact that

trademark holder did not give actual notice of litigation); Kmart Corp. v. Key Indus., Inc.,

877 F. Supp. 1048, 1055 (E.D. Mich. 1994) (holding that ongoing settlement

negotiations did not require dismissal of declaratory judgment action where the

evidence indicated that the trademark holder would accept no settlement short of total

capitulation); Agridyne Tech., Inc. v. W.R. Grace & Co., 863 F. Supp. 1522 (D. Utah

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1994) (refusing to dismiss declaratory judgment action where plaintiff justifiably believed

that further settlement negotiations would be fruitless).

Under the facts alleged in this case, SanDisk has established an Article III case

or controversy that gives rise to declaratory judgment jurisdiction. ST sought a right to a

royalty under its patents based on specific, identified activity by SanDisk. For example,

at the August 27, 2004 licensing meeting, ST presented, as part of the “license

negotiations,” a thorough infringement analysis presented by seasoned litigation

experts, detailing that one or more claims of its patents read on one or more of

SanDisk’s identified products. At that meeting, ST presented SanDisk with a detailed

presentation which identified, on an element-by-element basis, the manner in which ST

believed each of SanDisk’s products infringed the specific claims of each of ST’s

patents. During discussions, the experts liberally referred to SanDisk’s present,

ongoing infringement of ST’s patents and the need for SanDisk to license those patents.

ST also gave SanDisk a packet of materials, over 300 pages in length, containing, for

each of ST’s fourteen patents under discussion, a copy of the patent, reverse

engineering reports for certain of SanDisk’s products, and diagrams showing a detailed

infringement analysis of SanDisk’s products. ST communicated to SanDisk that it had

made a studied and determined infringement determination and asserted the right to a

royalty based on this determination. SanDisk, on the other hand, maintained that it

could proceed in its conduct without the payment of royalties to ST. These facts evince

that the conditions of creating “a substantial controversy, between parties having

adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a

declaratory judgment” were fulfilled. Md. Cas., 312 U.S. at 273. SanDisk need not “bet

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the farm,” so to speak, and risk a suit for infringement by cutting off licensing

discussions 3 and continuing in the identified activity before seeking a declaration of its

legal rights. See MedImmune, 127 S. Ct. at 774 n.11. Contra Phillips Plastics Corp. v.

Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051 (Fed. Cir. 1995) (“When there are

proposed or ongoing license negotiations, a litigation controversy normally does not

arise until the negotiations have broken down.”).

2. Promise Not to Sue

We next address whether Jorgenson’s direct and unequivocal statement that “ST

has absolutely no plan whatsoever to sue SanDisk” eliminates any actual controversy

and renders SanDisk’s declaratory judgment claims moot.

We decline to hold that Jorgenson’s statement that ST would not sue SanDisk

eliminates the justiciable controversy created by ST’s actions, because ST has engaged

in a course of conduct that shows a preparedness and willingness to enforce its patent

rights despite Jorgenson’s statement. Having approached SanDisk, having made a

studied and considered determination of infringement by SanDisk, having

communicated that determination to SanDisk, and then saying that it does not intend to

sue, ST is engaging in the kinds of “extra-judicial patent enforcement with scare-the-

customer-and-run tactics” that the Declaratory Judgment Act was intended to obviate.

Arrowhead, 846 F.2d at 735. ST’s statement that it does not intend to sue does not

moot the actual controversy created by its acts. See Md. Cas., 312 U.S. at 273

3
Although the district court found that licensing negotiations had not been
terminated, we note that SanDisk in fact declined to participate in further negotiations,
effectively bringing them to an end. Regardless, however, a party to licensing
negotiations is of course within its rights to terminate negotiations when it appears that
they will be unproductive.

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(jurisdiction obtained even though the defendant could not have sued the declaratory

judgment plaintiff).

3. District Court’s Discretion

Although the district court is given the discretion, in declaratory judgment actions,

to dismiss the case, there are boundaries to that discretion. See Wilton v. Seven Falls

Co., 515 U.S. 277, 289 (1995). “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.” Genentech v. Eli Lilly & Co., 998 F.2d 931, 937 (Fed. Cir. 1993).

Furthermore, the exercise of discretion must be supported by a sound basis for refusing

to adjudicate an actual controversy. See Elecs. for Imaging, Inc. v. Coyle, 394 F.3d

1341, 1345 (Fed. Cir. 2005); Capo, Inc. v. Dioptics Med. Prod., Inc., 387 F.3d 1352,

1357 (Fed. Cir. 2004).

In this case, the district court noted, without explanation in a footnote, that “[a]s

an alternative basis for its ruling, the Court concludes that even if it had subject matter

jurisdiction over the instant claims, it would exercise its discretion and decline to decide

them.” SanDisk, slip op. at 17 n.30. That decision, however, was made in the context

of our “reasonable apprehension” precedent without the benefit of the Supreme Court’s

views in MedImmune. Given the change reflected in MedImmune and our holding in

this case, we discern little basis for the district court’s refusal to hear the case and

expect that in the absence of additional facts, the case will be entertained on the merits

on remand.

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 CONCLUSION

For the above reasons, we conclude that the dismissal was improperly granted.

The dismissal is vacated, and the case is remanded for further proceedings consistent

with this opinion.

VACATED and REMANDED

COSTS

Costs are awarded to SanDisk.

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 United States Court of Appeals for the Federal Circuit

05-1300

SANDISK CORPORATION,

Plaintiff-Appellant,

v.

STMICROELECTRONICS, INC.,

Defendant-Appellee,

and

STMICROELECTRONICS NV,

Defendant.

BRYSON, Circuit Judge, concurring in the result.

Under our law, as things stood before the Supreme Court’s decision in

MedImmune, the district court’s order in this case was correct. ST, the patentee, had

offered a license to SanDisk, but had not threatened suit and had sought to continue

licensing negotiations. Although ST had made a detailed showing as to why it believed

SanDisk’s products were within the scope of its patent rights, there is nothing

exceptional in that. In the typical case, we would expect competent patent counsel who

offers a license to another party to be prepared to demonstrate why such a license is

required. By the time the suit was brought, ST had done nothing to give SanDisk cause

to be in reasonable apprehension of suit, and in fact ST had expressly stated that it did

not intend to sue SanDisk. In short, ST was simply availing itself of the safe haven our
cases had created for patentees to offer licenses without opening themselves up to

expensive litigation. See, e.g., Phillips Plastics Corp. v. Kato Hatsujou Kabushiki

Kaisha, 57 F.3d 1051, 1054 (Fed. Cir. 1995); Shell Oil Co. v. Amoco Corp., 970 F.2d

885, 888 (Fed. Cir. 1992).

The decision in MedImmune dealt with a narrow issue: whether a declaratory

judgment action can be brought by a patent licensee without terminating the licensing

agreement. Footnote 11 of the MedImmune opinion, however, went further and

criticized this court’s “reasonable apprehension of suit” test for declaratory judgment

jurisdiction. I agree with the court that the footnote calls our case law into question and

would appear to make declaratory judgments more readily available to parties who are

approached by patentees seeking to license their patents. In particular, the reasoning

of the MedImmune footnote seems to require us to hold that the district court in this

case had jurisdiction to entertain SanDisk’s declaratory judgment action. For that

reason I concur in the judgment of the court in this case reversing the jurisdictional

dismissal of the complaint.

I think it is important, however, to point out the implications of the footnote in

MedImmune as applied here, because the implications are broader than one might

suppose from reading the court’s opinion in this case. While noting that it is not

necessary to define the outer boundaries of declaratory judgment jurisdiction, the court

holds that “where a patentee asserts rights under a patent based on certain identified

ongoing or planned activity of another party, and where that party contends that it has

the right to engage in the accused activity without license,” the party may bring a

declaratory judgment action. Applying that principle, the court concludes that in this

05-1300 2
case, where “ST sought a right to a royalty under its patents based on specific,

identified activity by SanDisk,” an Article III case or controversy has arisen.

In practical application, the new test will not be confined to cases with facts

similar to this one. If a patentee offers a license for a fee, the offer typically will be

accompanied by a suggestion that the other party’s conduct is within the scope of the

patentee’s patent rights, or it will be apparent that the patentee believes that to be the

case. Offers to license a patent are not requests for gratuitous contributions to the

patentee; the rationale underlying a license offer is the patentee’s express or implied

suggestion that the other party’s current or planned conduct falls within the scope of the

patent. Therefore, it would appear that under the court’s standard virtually any invitation

to take a paid license relating to the prospective licensee’s activities would give rise to

an Article III case or controversy if the prospective licensee elects to assert that its

conduct does not fall within the scope of the patent. Indeed, as the court makes clear,

even a representation by the patentee that it does not propose to file suit against the

prospective licensee will not suffice to avoid the risk that the patentee will face a

declaratory judgment action. And if there is any uncertainty on that score, all the

prospective licensee has to do in order to dispel any doubt is to inquire of the patentee

whether the patentee believes its activities are within the scope of the patent. If the

patentee says “no,” it will have made a damaging admission that will make it very hard

ever to litigate the issue, and thus will effectively end its licensing efforts. If it says “yes”

or equivocates, it will have satisfied the court’s test and will have set itself up for a

declaratory judgment lawsuit.

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 For these reasons, I see nothing about the particular facts surrounding this

licensing negotiation in this case that triggers SanDisk’s right to bring a declaratory

judgment action under the new standard. The court emphasizes that ST made a

“detailed presentation [to SanDisk] which identified, on an element-by-element basis,

the manner in which ST believed each of SanDisk’s products infringed the specific

claims of each of ST’s patents.” The court summarizes ST’s presentation by stating that

“ST communicated to SanDisk that it had made a studied and determined infringement

determination and asserted a right to a royalty based on this determination” and that

SanDisk “maintained that it could proceed in its conduct without the payment of royalties

to ST.” Those facts, the court concludes, evinced a sufficient controversy to entitle

SanDisk to institute its declaratory judgment suit.

But what is the significance of those facts? The court’s legal test does not

suggest that the case would come out differently if ST had been less forthcoming about

why it believed SanDisk should take a license, or even if ST had simply contacted

SanDisk, provided copies of its patents, and suggested that SanDisk consider taking a

license. I doubt the court would hold that there was no controversy in that setting, as

long as SanDisk was prepared to assert that it believed its products were not within the

scope of ST’s valid patent rights. If SanDisk’s lawyers had any question about whether

this court would permit them to seek a declaratory judgment under those circumstances,

they could readily resolve that question by sending a “put up or shut up” response to

ST’s licensing offer—asking ST to state expressly whether it regarded SanDisk’s

products to be within the scope of ST’s patents and to identify with particularity how

05-1300 4
SanDisk’s products read on particular claims of those patents. Any response by ST

would either end its licensing efforts or expose it to a declaratory judgment action. 1

In sum, the rule adopted by the court in this case will effect a sweeping change in

our law regarding declaratory judgment jurisdiction. Despite the references in the

court’s opinion to the particular facts of this case, I see no practical stopping point short

of allowing declaratory judgment actions in virtually any case in which the recipient of an

invitation to take a patent license elects to dispute the need for a license and then to

sue the patentee. Although I have reservations about the wisdom of embarking on such

a course, I agree with the court that a fair reading of footnote 11 of the Supreme Court’s

opinion in MedImmune compels that result, and I therefore concur in the judgment

reversing the district court’s dismissal order in this case. 2

1
The court suggests that ST could have avoided the risk of a declaratory
judgment action by obtaining a suitable confidentiality agreement. The problem with
that suggestion is that it would normally work only when it was not needed—only a party
that was not interested in bringing a declaratory judgment action would enter into such
an agreement. A party that contemplates bringing a declaratory judgment action or at
least keeping that option open would have no incentive to enter into such an agreement.
2
Although I agree that the judgment must be reversed, I take issue with the
scope of the remand insofar as it applies to the district court’s exercise of its discretion
to decline to entertain this action as a discretionary matter. I would allow the district
court to reconsider that issue based on all the circumstances, not just “additional facts”
not previously before the district court, as the terms of this court’s remand seem to
require. Thus, for example, the fact that the parties are engaged in a parallel
infringement action in another district court is an important factor in the district court’s
decision on whether to allow SanDisk’s declaratory suit to proceed at this time. See
Intermedics Infusaid, Inc. v. Regents of Univ. of Minn., 804 F.2d 129 (Fed. Cir. 1986)
(pending action in another jurisdiction is sufficient ground on which to stay declaratory
suit). The district court should be free on remand to consider that factor in determining
how to exercise its discretion, even though the pendency of that parallel action is not an
“additional fact” that was not before the court at the time of its earlier decision.

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