Opinion ID: 212139
Heading Depth: 2
Heading Rank: 1

Heading: EFI's Uncertainty

Text: 16 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. 17 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. 18 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: 19 [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. 20 Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735 (Fed.Cir.1988) (citation omitted). 21 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. 22 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 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. 23 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.