Beeeep Beeeep Beeeep

Benitec Australia, Ltd. v. Nucleonics, Inc.

When does a back-up alarm become music to a patent holder's ears?  How about when it signals a possible way for that patent holder to back out of infringement litigation it started but which it would now like to stop.  Listen closely.  That beeping may be emanating from the decision in Benitec Australia, Ltd. v. Nucleonics, Inc.

In Benitec, the Federal Circuit clarifies how a patent holder may be able to escape infringement litigation gone bad-even if the alleged infringer wants to pursue invalidity by having sought declaratory relief under the broadened standards enunciated in MedImmune. 

Benitec involved a biotechnology patent related to gene silencing-a technique whereby foreign DNA is introduced to shut down or "silence" disease causing genes.  The patent holder commenced an infringement action against the alleged infringer, Nucleonics.  Nucleonics moved to dismiss the complaint on the grounds that its activities were limited to providing information to the U.S. Food & Drug Administration.  As such, Nucleonics claimed, the express terms of 35 U.S.C § 271(e)(1) exempted its conduct.

The trial court denied Nucleonics' motion, but did so without prejudice because of litigation pending in the Supreme Court regarding the scope of the exemption under the statute.  In the interim, Nucleonics discovered possible irregularities regarding the prosecution of the patent-in-suit and sought to amend its answer in order to bring a declaratory judgment counterclaim challenging the validity of Benitec's patent.  Before the motion was heard, the Supreme Court issued an opinion clarifying the terms of 35 U.S.C § 271(e)(1) which made clear that Benitec's infringement action could not proceed. 

Benitec moved to dismiss its now unviable infringement action (and, hopefully, preserve its suddenly shaky patent).  Nucleonics argued that its declaratory judgment action should nonetheless proceed-and that procedural antics shouldn't allow Benitec to dodge the invalidity bullet. The trial court allowed Nucleonics' amendment to bring a declaratory judgment action, but then dismissed all claims for lack of subject matter jurisdiction. On appeal, Benitec bolstered its argument about the lack of  justiciable controversy by including a covenant not to assert the patent in suit against any of Nucleonics' present activities, relying upon the Federal Circuit's decision in Super Sack Manufacturing Corp. v. Chase Packaging Corp., 57 F.3d 1054 (Fed. Cir.1995).

Nice move.

The Federal Circuit first focused on which party had the burden to demonstrate facts sufficient for it to invoke subject matter jurisdiction.  Nucleonics argued that having once established it, the burden of proving a lack of jurisdiction fell to the party (Benitec) seeking its divestiture.  While the dissent accepted this argument, the panel's majority rejected it after a thorough review of relevant precedent. Instead, the court concluded Nucleonics had a continuing burden to show ongoing jurisdiction.

This determination proved to be critical because Nucleonics claimed that it intended to pursue-and had even begun-certain additional activities that would eventually take it out of the purview of 35 U.S.C § 271(e)(1).  Nucleonics alleged that these activities created the real risk of additional infringement claims from Benitec.  Because it had the burden of proof, Nucleonics had to show that its potentially infringing activities were definite and concrete enough to satisfy the immediacy and reality requirements of MedImmune.

Nucleonics didn't meet that burden.

Benitec's covenant not to sue covered all activities to the present time-eliminating any current controversy.  (Interestingly, the panel criticized the Super Sack decision as not being based on the looser test for declaratory jurisdiction set forth in MedImmune; it nonetheless adopted the same rule decided in Super Sack.)  The court also carefully examined Nucleonics' declarations regarding future activities and decided that they were simply too speculative to support jurisdiction. It also relied upon an analysis of the contours of Benitec's earlier allegations, suggesting that, under Benitec's view of the scope of its patent, the future activity may not necessarily be viewed as an infringement.

While the court noted the legitimacy of Nucleonics' concerns regarding future infringement claims from Benitec, it felt the lack of a justiciable controversy tied its hands. The dissent vehemently protested the majority's opinion and its effect-arguing it both defeats the public policy goal of exposing invalid patents and encourages ongoing patent jousting.

(On second thought, maybe that beeping coming from the Benitec decision portends the sound of an en banc review.)

For now, Benitec makes preemptive patent invalidation efforts-particularly for future activities-more complicated.  Those who want to both challenge a patent's validity and control the timing and circumstances of that foray have a clearer picture of what's necessary to do so successfully.  Want to protect future activities from claims of infringement?  Then, before mounting a MedImmune-style invalidity challenge, get the necessary evidentiary ducks lined up.  Detailed showing of sales and marketing activities, potential offers of sale, and detailed business plans could shift the characterization of the situation from the speculative to the concrete-thereby creating the support necessary for a justiciable controversy. Of course doing so makes the patent holder's job that much easier for proving infringement should you be wrong on the invalidity challenge.

Patent holders need to realize that Benitec is no "Get Out of Jail Free" card. True, a patentee may now find it easier to use a covenant not to sue to back out of a dispute when unfavorable circumstances develop.  Still, to be effective, any such covenant must fully extend to cover all present activities of the alleged offender.  Additionally, the covenant must issue before a verdict or substantive determination on the merits because of precedent that deems post-verdict covenants procedurally meaningless.  Patent holders who leave a gap between the covenant not to sue (or the scope of previously asserted infringement allegations) and an alleged infringer's future activities risk turning that gap into a door-a door which a freshly minted declaratory judgment plaintiff can walk right through.

That back-up alarm?  It means everyone should watch their toes.

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