EMC Cоrporation filed an action in the United States District Court for the District of Massachusetts seeking a declaratory judgment against Norand Corporation. EMC requested that the court declare certain patents owned by Norand to be invalid and to declare that EMC did not infringe those patents. The district court dismissed the action, exercising its discretion to decline jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201(a). Because we conclude that the district court did not abuse the broad discretion accorded it by the Act, we affirm.
I
The parties present widely divergent vеrsions of the circumstances that led to EMC’s filing of its request for a declaratory judgment. Because the district court decided this case without making findings of fact, we confine ourselves to those facts that are undisputed.
EMC manufactures disk drive storage subsystems. Norand does not manufacture or sell such devices but holds four United States patents on technology in that general field. In August 1994, W. Mark Goode, the president of a consulting company representing Norand, wrote to an EMC vice president suggesting that Norand and EMC initiate license negotiations related to Norand’s pаtents. After receiving no reply to his letter, Goode sent a letter to Paul Dacier, EMC’s General Counsel, again suggesting license negotiations. In the letter, Goode stated that Norand had “requested that we simply turn the matter over to McAndrews, Held & Malloy [Norand’s outside patent counsel] for action,” but that he wanted to have a preliminary business discussion, “perhaps avoiding this matter escalating into a contentious legal activity.”
EMC officials agreed to meet with Norand. Norand’s outside patent counsel then contacted EMC and requested that the meetings nоt be used as a basis for filing a declaratory judgment action. EMC and Norand held meetings in September and October 1994 in which the parties discussed the potential sale or license of the patents. EMC alleges that Norand’s representatives made explicit claims of infringement by EMC at the meetings; Norand denies that its representatives made any such claims or otherwise threatened suit.
At the parties’ third meeting, held on January 19, 1995, Norand informed EMC that there were six other companies in EMC’s market that Norand was approaching regarding the sale or licensing of its patents. Goode subsequently sent a letter to EMC officials confirming plans for a fourth meeting and assuring EMC that he would call later in the week to arrange a time for the meeting. Three days later, however, EMC filed its declaratory judgment action in the United States District Court for the District of Massachusetts. A telephone message left by an EMC attorney on the day after the filing indicated that EMC had taken the step because its management “thought it was in their interest to protect themselves first and continue discussions.” The parties held two further meetings while the action was pending and scheduled a third meeting, but that meeting was later canceled.
Norand moved to dismiss the complaint for lack of jurisdiction on the ground that EMC had failed to establish that there was a justi-ciable case or controversy between the parties. In addressing the motion, the district court first considered whether Norand’s conduct gave rise to a reasonable apprehension that Norand would sue EMC for patent infringement. The court found that making that determination would be a significant undertaking and would involve a close question. The court therefore decided that it would not dеtermine whether EMC could prove a case or controversy for jurisdictional purposes, but that it would exercise its discretion under the Declaratory Judgment Act to decline to entertain the action.
The court found that the parties were still in active license or sale negotiations, that Norand was not a competitor of EMC, and that it was considering entering negotiations with others as well. Under those eircum-
may be able to obtain a more favorable bargaining position with the defendant by filing a declaratory judgment action, thereby inducing if not virtually forcing defendant to consider whether as a practical matter it would be better to avoid litigation costs and any risk of adverse rulings that might render their patents less valuable. It would be reasonable to expect that, if there is in fact a market for the patents, the mere pendency of the lawsuit may negatively affect the value of the defendant’s patents in that market and the price any potential purchaser, either the plaintiff or another prospective purchaser, might be willing to pay.
The court added that a plaintiff such as EMC “may prefer that a defendant, such as No-rand, own a patent rather than that a competitor of the plaintiff own the patent,” as a competitor might be more likely to try to enforce the patent against EMC than No-rand would. In that setting, the district court concluded, the pendency of a declaratory judgment action might have the effect of impeding the sale of the patent to the plaintiffs competitor, regardless of whether it was filed for that reason. The court therefore determined that to exerсise its discretionary jurisdiction in this case would create “an incentive structure that is inconsistent with the public interest in preserving declaratory proceedings for eases closer to the central objectives of declaratory proceedings.”
II
The Declaratory Judgment Act, 28 U.S.C. § 2201(a), provides in pertinent part:
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 declaratiоn, whether or not further relief is or could be sought.
The Act, paralleling Article III of the Constitution, requires an actual controversy between the parties before a federal court may exercise jurisdiction over an action for a declaratory judgment. Aetna Life Ins. Co. v. Haworth,
Even if there is an actual controversy, the district court is not required to exercise declaratory judgment jurisdiction, but has discretion to decline that jurisdiction. Public Serv. Comm’n v. Wycoff Co.,
The district court did not decide whether this case presented an actual case or controversy, as it concluded that it would dismiss as a discretionary mattеr even if it found that it had jurisdiction. EMC argues that the district court erred in bypassing the question of jurisdiction and contends that there is a sufficient case or controversy as a matter of law.
A
We agree with EMC that the undisputed facts establish a sufficient controversy between the parties to give the district court statutory and constitutional authority to hear this declaratory judgment action. We therefore find it unnecessary to decide whether it was appropriate for the district court to bypass the issue of jurisdiction without deciding that issue.
This court has developed a two-part inquiry to determine whether there is an actual controversy in suits requesting a declaration of patent non-infringement or invalidity. First, the plaintiff must actually produce or be prepared to produce an allegedly infringing product. Second, the patentee's conduct must have created an objectively reasonable apprehension on the part of the plaintiff that the patentee will initiate suit if the activity in question continues. Spectronics,
The parties do not dispute that EMC satisfies the first part of the test. We therefore address only the question whether No-rand's conduct placed EMC in reasonable apprehension that it would be sued for infringing Norand's patent rights. To put a putative infringer in reasonable apprehension of suit does not require an express charge of infringement and threat of suit; rather, such apprehension may be induced by subtler conduct if that conduct rises "to a level sufficient to indicate an intent [on the part of the patentee] to enforce its paten~," i.e., to initiate an infringement action. Shell Oil,
A certain minimum degree of adverseness must be present in order to establish the requisite controversy. Thus, "more is required than the existence of an adversely held patent." BP Chemicals Ltd. v. Union Carbide Corp.,
To be sure, any time parties are in negotiation over patent rights, the possibility of a lawsuit looms in the background. No patent owner with any sense would open negotiations by assuring his opposite party that he does not intend tо enforce his patent rights under any circumstances. The threat of enforcement-either directly by the patentee or indirectly by a third party to whom the pat-entee licenses or sells the patent-is the entire source of the patentee's bargaining power. See Shell Oil,
This court's two-part test for declaratory judgment jurisdiction is designed to police the sometimes subtle line between cases in which the parties have adverse interests and cases in which those adverse interests have ripened into a dispute that may properly be deemed a controversy. The test for finding a "controversy" for jurisdictional purposes is a pragmatic one and cannot turn on whether the parties use polite terms in dealing with one another or engage in more bellicose saber rattling. The need to look to substance
In this case, we conclude that an “actual controversy” was present. In particular, the undisputed evidence makes it clear that No-rand’s conduct created a reasonable apprehension on EMC’s part that Norand would sue if EMC did not satisfy Norand’s economic demands. The most telling evidence on that issue is the August 19, 1994, letter that Goode sent to Dacier, EMC’s general counsel. The letter referred to Norand’s inclination to “turn the matter over to” Norand’s litigation counsel “for action,” and urged a “preliminary business discussion,” “perhaps avoiding this matter escalating into a contentious legal activity.” That language plainly suggested that Norand’s management favored filing suit immediately and had to be persuaded by its consultant to hold off for a period of time necessary to seek a solution short of litigation. An objective reader of Goode’s August 19 letter could only conclude that Norand had already decided EMC was infringing its рatents and that Norand intended to file suit unless it could obtain satisfaction without having to sue.
Norand argues that the August 19 letter was merely an invitation to engage in a licensing discussion, of the sort that was held not to create a justiciable controversy in Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, supra. In Phillips Plastics, however, the patentee had not stated or even hinted that it would pursue legal recourse if it were not satisfied with the outcome of the proposed licensing negotiations. This court held that where all that is present is negotiation unaccompanied by threats of legal action, the setting is not sufficiently adverse to create a justiciable controversy. That principle, however, is inapplicable in a case such as this one, where the patentee has made explicit references to the prospect of initiating legal action.
This case is also unlike those in which it was the declaratory judgment plaintiff, not the patentee-defendant, who first approached the opposing party. See Shell Oil,
The Shell Oil case exemplifies the broader principle that a declaratory judgment action should not be used to force unwanted litigation on “quiescent patent owners.” Arrowhead, 846 F.2d at 736, 6 USPQ2d at 1689; see also West Interaсtive Corp. v. First Data Resources, Inc.,
In the weeks following Goode’s August 19 letter, EMC and Norand held three meetings at which they discussed the possibility of licensing the Norand patents. Nоrand’s outside litigation counsel was present at each meeting. Although the parties dispute whether Norand made any charges of infringement or threats of suit during that period, we do not regard the resolution of that question to be essential to determining whether there was an actual controversy between the parties at the time EMC filed suit. Goode’s letter made it reasonably clear that
We conclude from the undisputed evidence before the district court that Norand and EMC had adverse interests and that those adverse interests had ripened into a concrete dispute by the time EMC filed its c6mplaint. EMC's complaint therefore satisfied the case or controversy requirement of the Constitution as well as the "case of actual controversy" requirement of the Declaratory Judgment Act.
B
Simply because there is an actual controversy between the parties does not mean that the district court is required to exercise that jurisdiction. The Act states that a court may grant declaratory relief. The Supreme Court recently reaffirmed that the Declaratory Judgment Act thereby accords district courts a "unique breadth of ... discretion to decline to enter a declaratory judgment." Wilton v. Seven Falls Co., - U.S. -,
The Court in Wilton, also addressed the appropriate standard of review by appellate courts of a district court's exercise of its discretion to decline jurisdiction under the Declaratory Judgment Act. Recognizing a difference of approach among the circuits, the Court adopted a deferential "abuse of discrеtion" standard and explicitly rejected the more probing review previously practiced by this court. - U.S. at - ,
EMC is correct in contending that the district court's discretion is not unfettered. A district court, for example, "cannot decline to entertain [a declaratory judgment] action as a matter of whim or personal disinclination." Public Affairs Assocs., Inc. v. Rickover,
EMC argues that it should be an abuse of discretion for a district court to dismiss a declaratory judgment action except when special circumstances are present, such as when the court lacks jurisdiction over all the necessary parties, when the suit is filed in an inconvenient forum, or when the declaratory judgment action would interfere with proceedings in another forum. We disagree. We detect no such implied restriction on the scope of the district court's discretion, as described by the Supreme Court in Wilton~. Rather, we heed the Supreme Court's instruction that special flexibility is cаlled for in the declaratory judgment context, where "the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration." Wilton, - U.S. at -,
In this case, the district court based its decision to decline jurisdiction on its conclusion that allowing the declaratory judgment action to proceed would "creat[e] an incentive structure that is inconsistent with the public interest in preserving declaratory proceedings for cases closer to the central objectives of declaratory proceedings. . . The court explained that a party in EMC's position could abuse the declaratory judgment device to obtain a more favorable bargaining position in its ongoing negotiations with the patentee and also to undermine the value of the patent so as to impede its sale or licensing to a third party.
In addition, in exрlaining the reasons for its discretionary dismissal, the district court cited Davox Corp. v. Digital Systems Inter national, Inc.,
In Arrowhead Industrial Water, Inc. v. Ecolochem, Inc.,
[A] patent owner engages in a danse macabre, brandishing a Damoclean threat with a sheathed sword.... Guerilla-like, the patent owner attempts extra-judicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business communi-ty 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 nеttle 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.
See also BP Chemicals,
Of course, there may be situations in which the patentee has entered negotiations with an alleged infringer but nonetheless is engaging in the “danse macabre” referred to in Arrowhead, feigning interest in continued negotiations merely to deflect a declaratory judgment action. Such manipulation could well justify a district court’s decision to accept a declaratory judgment action. In any event, the alleged infringer can usually avoid that problem altogether simply by cutting off negotiations if it appears that the patentee is not negotiating in good faith.
In this case, EMC and Norand were involved in negotiations over the sale or licensing of Norand’s patents up to the time the complaint was filеd. Although EMC complains that Norand’s position in the negotiations was unreasonable, there is no suggestion in any of the evidence proffered by EMC that Norand’s participation in the negotiations was merely a pretext designed to give Norand a basis for keeping EMC from obtaining declaratory judgment relief.
Moreover, the circumstances surrounding and immediately following the filing of the complaint lend further support to the district court’s decision not to exercise its jurisdiction in this case. The complaint was filed shortly after Norand informed EMC of its plans to enter negotiаtions with EMC’s competitors. The day after the complaint was filed, EMC’s senior intellectual property counsel called Norand’s outside patent counsel and explained that the declaratory judgment complaint had been filed as “merely a defensive step” and that EMC “would like to continue to discuss with you all the options hopefully in a more meaningful manner over the near term.” By way of explaining why the complaint was filed, EMC’s counsel added that EMC’s management decided to file suit because “they just thought it was in their interest to protect themselves first and continue discussions.” Under these circumstances, the district court could properly view the declaratory judgment complaint as a tactical measure filed in order to improve EMC’s posture in the ongoing negotiations — not a purpose that the Declaratory Judgment Act was designed to serve.
In sum, the district court was able to determine from the undisputed facts that this case was not one that furthered the objectives of the Declaratory Judgment Act. In light of the limited scope of our review, we cannot conclude that the district court’s decision on that issue was so contrary to “the teachings and experience concerning the functions and extent of federal judicial power,” Public Serv. Comm’n v. Wycoff Co.,
AFFIRMED.