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 rеsident, 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 subjеct 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 prоgress 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. (Deck of James L. Etheridge ¶ 2.) In April 2000, the two parties met under a new nondisclosure 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 Coylfe’s patent application, then still pending. In September '200Í, Coyle notified EFI that the United States Patent and *1344 Trademark Office would soоn issue Coyle’s patent, and he asserted that his patent would cover all of EFI’s print controllers. EFI claims that 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 yоu 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 16 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.
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 pаnel of this court reversed the district court’s dismissal and remanded the case to the district court.
Elecs. for Imaging, Inc. v. Coyle,
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 *1345 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 fаilure to comport with the 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 Declarаtory Judgment Act. The decision to stay or dismiss a declaratory action is reviewed for an abuse of discretion,
Wilton v. Seven Falls Co.,
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.,
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 dеclaration 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,
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.,
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 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.,
[A] patent owner ... attempts extrajudicial patent enforcement with seare-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 incur-rence 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.
Arrowhead Indus. Water, Inc. v. Ecolochem, Inc.,
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 inсonvenience 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 resоlution of disputes, as parties threatened with unjustified litigation, even if they are “certain” that they will
*1347
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 aрprehension ere1 ated by a patentee’s threats and the looming specter of litigation that results from those threats.
See Minn. Mining,
In Minnesota Mining, which is instructive on this point, the Norton Company threatened 3M and its customers with allegations of patent infringement. Meanwhile, 3M сontinued to sell products that it believed did not infringe. As a result, in that case, despite confidence in its nonin-fringement position, 3M’s potential liability grew with each 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 Sews.,
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 inаccurately described the filing of its suit as prompting a “race to the courthouse.” Coyle responds that the district 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,
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.,
In
Genentech,
we reversed the district court’s dismissal of a declaratory actiоn, 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, including the location of witnesses and documents.
Serco Servs.,
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 оf 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
Notes
. 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 sepаrate occasions. See infra note 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.,
Also in February 2004, EFI filed a sеcond 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.