Court Opinion

ID: 204988
Source: CourtListenerOpinion
Date Created: 2011-02-17 16:08:30+00
Date Added: 2024-06-11T17:27:46.392174
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
               __________________________

        ABB INC. AND ABB HOLDINGS, INC.
               Plaintiffs-Appellants,
                            v.
          COOPER INDUSTRIES, LLC AND
         COOPER POWER SYSTEMS, INC.,
              Defendants-Appellees.
               __________________________

                       2010-1227
               __________________________

   Appeal from the United States District Court for the
Southern District of Texas in case no. 09-CV-2394, Judge
Kenneth M. Hoyt.
             ___________________________

               Decided: February 17, 2010
              ___________________________

   DAVID L. BURGERT, Porter & Hedges, LLP, of Houston,
Texas, argued for plaintiffs-appellants. On the brief were
KYLE B. FLEMING, TODD R. TUCKER and JAY R. CAMPBELL,
Renner, Otto, Boisselle & Sklar, LLP, of Cleveland, Ohio.

    ROBERT J. MCAUGHAN, JR., Locke Lord Bissell & Lid-
dell LLP, of Houston, Texas, argued for defendants-
appellees. With him on the brief were CRAIG L.
WEINSTOCK and THOMAS L. CASAGRANDE.
              __________________________
ABB   v. COOPER INDUSTRIES                                 2

  Before RADER, Chief Judge, LOURIE and DYK, Circuit
                       Judges.
DYK, Circuit Judge.
    Plaintiffs ABB Inc. and ABB Holdings, Inc. (collec-
tively “ABB”) filed a declaratory judgment action against
defendants Cooper Industries, LLC and Cooper Power
Systems, Inc. (collectively “Cooper”) seeking a declaration
of noninfringement as to the claims of several Cooper
patents. The district court dismissed ABB’s claim for lack
of subject matter jurisdiction, determining that the case
did not arise under the patent laws and that there was no
diversity of citizenship. ABB Inc v. Cooper Indus., LLC,
2010 WL 376310 (S.D. Tex. Jan. 26, 2010). We reverse
because we conclude that ABB’s declaratory judgment
action did arise under the patent laws, and that jurisdic-
tion was conferred by 28 U.S.C. § 1338.
                        BACKGROUND
    Cooper is the owner of United States patent numbers
6,037,537, 6,184,459, 6,352,655, 6,398,986, 6,613,250, and
6,905,638. These patents involve electrical equipment
containing dielectric fluid, which is used to electrically
insulate and thermally protect equipment such as trans-
formers. In 2003, Cooper sued ABB in federal court in
Wisconsin, claiming that BIOTEMP, an ABB produced
vegetable oil based dielectric fluid, infringed. ABB and
Cooper settled that lawsuit in 2005 and entered into a
Settlement and License Agreement wherein Cooper
granted ABB a non-exclusive “license under the Cooper
Patents to make, have made, use, have used, offer to sell,
have offered to sell, sell, have sold, import, have imported,
export or have exported BIOTEMP.” J.A. 141. However,
the agreement also provided that “[l]icenses do not in-
clude the right of any third party to make BIOTEMP or
any other fluid covered by the Cooper Patents.” J.A. 142.
3                                 ABB   v. COOPER INDUSTRIES

ABB paid Cooper a lump-sum of $1,000,000 in exchange
for the license. In the agreement, ABB also “acknowl-
edge[d] that each of [Cooper’s patents-in-suit] is valid and
enforceable” and “further acknowledge[d] that BIOTEMP
is covered by one or more claims of the Cooper Patents
asserted in the Litigation.” J.A. 145.
     After signing the settlement, ABB began outsourcing
the manufacture of BIOTEMP to Dow Chemicals (“Dow”).
ABB also contracted to indemnify Dow against claims of
infringement by Cooper. On June 12, 2009, Cooper wrote
to both ABB and Dow concerning Dow’s manufacture of
BIOTEMP for ABB. In its letter to ABB, Cooper took the
position that ABB’s rights under the “have made” provi-
sion of the settlement agreement “do not include the right
of third parties such as Dow to manufacture BIOTEMP.”
J.A. 20. “Therefore,” it continued, “any attempt by ABB
to outsource the manufacture of BIOTEMP to any entity
other than an ABB Related Company . . . would be a
material breach, and Cooper will act vigorously to protect
its rights in that event.” Id. Similarly, Cooper wrote to
Dow: “We wish to formally put Dow on notice that Cooper
will vigorously defend its rights should Dow attempt to
make products covered by one or more of Cooper’s pat-
ents.” J.A. 23.
    On July 29, 2009, ABB filed its declaratory judgment
action in the United States District Court for the South-
ern District of Texas, initially seeking a declaration that
its activities were authorized under the license agree-
ment. In September 2009, Cooper filed its own declara-
tory judgment action in Texas state court, seeking a
declaration that the license did not include the right to
have Dow manufacture BIOTEMP for ABB and that
ABB   v. COOPER INDUSTRIES                                4

ABB’s actions were outside the scope of the agreement. 1
On November 16, 2009, ABB amended its original com-
plaint, seeking declarations that it “does not infringe, and
has not infringed directly, indirectly, willfully or other-
wise, any valid enforceable claim” of the Cooper patents-
in-suit. J.A. 58–61. 2
    Cooper moved to dismiss ABB’s declaratory judgment
claim for lack of subject matter jurisdiction, arguing that
there was no actual controversy involving infringement
and that, in any event, ABB’s complaint raised only a
state law license defense to infringement. In its opposi-
tion to Cooper’s Motion to Dismiss, ABB did not assert
any potential federal defenses, such as invalidity, and
instead relied on Cooper’s potential claim for patent
infringement (which was allegedly defeated by a license
defense) to demonstrate jurisdiction. At oral argument,
ABB asserted that it raised federal defenses of invalidity
and unenforceability. However, ABB admitted that these
defenses were not “articulated in the [district court]
record” and that it “certainly did not go into detail” about
the federal defenses. Oral Arg. at 2:52-54, 3:41-44, avail-
able    at    http://www.cafc.uscourts.gov/oral-argument-
recordings/2010-1227/all. The district court found “the
issues raised by ABB’s complaint sound[ed] entirely in
contract and hinge[d] exclusively on the interpretation
and construction of the terms of the [settlement agree-
ment]––matters governed entirely by state law.” ABB,
2010 WL 376310 at *3. Therefore, it concluded, “since
      1 The Texas state court has granted partial sum-
mary judgment to Cooper on this issue but has also
denied Cooper’s request for summary judgment that the
contract contains a negative implied covenant on the part
of ABB not to infringe.
    2   Dow has also filed an ongoing declaratory judg-
ment action against Cooper in federal district court in
Indiana.
5                                   ABB   v. COOPER INDUSTRIES

ABB’s [complaint] presents no federal question . . . and
only entails a determination of the parties’ rights under
the [settlement agreement], this case must be dismissed
for lack of subject matter jurisdiction.” Id. at *4. ABB
timely appealed, and we have jurisdiction pursuant to 28
U.S.C. § 1295(a)(1).
                        DISCUSSION
    This court reviews a district court’s dismissal for lack
of subject matter jurisdiction de novo. Air Measurement
Techs. Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 504
F.3d 1262, 1267 (Fed. Cir. 2007). Section 1338 grants
federal question jurisdiction in “any civil action relating to
patents.” 28 U.S.C. § 1338.
                              I
    Cooper first asserts that subject matter jurisdiction
does not exist because there was no actual controversy
surrounding infringement but instead a dispute about
contract interpretation. An Article III case or controversy
exists when “the facts alleged, under all the circum-
stances, show that there is a substantial controversy,
between parties having adverse legal interests, of suffi-
cient immediacy and reality to warrant the issuance of a
declaratory judgment.” MedImmune, Inc. v. Genetech,
Inc., 549 U.S. 118, 127 (2007) (quoting Maryland Cas. Co.
v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).
MedImmune rejected our prior, more stringent standard
insofar as it included a requirement of a “reasonable
apprehension of imminent suit.” Id. at 132 n.11; see also
SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372,
1378–80 (Fed. Cir. 2007) (recognizing MedImmune’s
rejection of the reasonable apprehension test); Teva
Pharm. USA, Inc. v. Novartis Pharm. Corp., 482 F.3d
1330, 1338–39 (Fed. Cir. 2007) (same).
ABB   v. COOPER INDUSTRIES                                 6

    Thus, a specific threat of infringement litigation by
the patentee is not required to establish jurisdiction, and
a “declaratory judgment action cannot be defeated simply
by the stratagem of a correspondence that avoids magic
words such as ‘litigation’ or ‘infringement.’” Hewlett-
Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed.
Cir. 2009). Cooper’s argument that the controversy must
be judged based on the actually threatened litigation is an
impermissible attempt to revive the “reasonable appre-
hension of imminent suit” test rejected by the Supreme
Court in MedImmune.
    Despite Cooper’s attempt to characterize the contro-
versy as solely involving a state law issue, there was a
controversy “of sufficient immediacy and reality” sur-
rounding infringement “to warrant the issuance of a
declaratory judgment.” See MedImmune, 544 U.S. at 127.
Cooper clearly advised ABB and Dow that they had no
rights under the license. Cooper stated that it “will act
vigorously to protect its rights,” J.A. 20, and that it would
“vigorously defend its rights,” J.A. 23. Cooper does not
contend in its brief here that it can recover damages
against ABB on a breach of contract theory for the Dow
outsourcing, and the Texas district court rejected Cooper’s
argument that the contract contains an enforceable
negative implied covenant on the part of ABB not to
infringe. 3 To obtain an injunction or damages remedy,
Cooper would have to sue ABB for induced infringement

      3 Even if it did, such a claim would be within fed-
eral subject matter jurisdiction because Cooper’s “right to
relief [would] necessarily depend[] on resolution of a
substantial question of federal law,” i.e. whether ABB
had, in fact, infringed the patents. See Christianson v.
Colt Indus. Operating Corp., 486 U.S. 800, 808 (1988)
(quoting Franchise Tax Bd. of Cal. v. Constr. Laborers
Vacation Trust, 463 U.S. 1, 27–28 (1983)).
7                                   ABB   v. COOPER INDUSTRIES

or Dow for direct infringement (which would have obli-
gated ABB to indemnify Dow).
    In MedImmune, the Supreme Court held that state-
ments similar to Cooper’s created a case or controversy
sufficient to establish declaratory judgment jurisdiction.
See 549 U.S. at 121–22. The respondent in MedImmune
“delivered petitioner a letter expressing its belief that [the
accused product] was covered by [one of respondent’s
patents] and its expectation that petitioner would pay
royalties,” and the Court found there was a case or con-
troversy. Id. Under similar circumstances, our court
recently applied the MedImmune standard in finding an
infringement controversy where the declaratory defen-
dant had sent veiled warnings to the declaratory plaintiff
and had already sued other companies that produced the
same product accused of infringement. See Micron Tech.,
Inc. v. Mosaid Techs., Inc., 518 F.3d 897, 899–901 (Fed.
Cir. 2008). We found these facts “show[ed] a substantial
controversy between parties with adverse legal interests
of sufficient immediacy and reality to warrant the issu-
ance of a declaratory judgment.” Id. at 902. The warning
letters from Cooper to ABB and Dow indicate that, under
Micron and MedImmune, there was an immediate contro-
versy surrounding infringement. ABB had an interest in
determining whether it would incur liability for induced
infringement, and it had an interest in determining
whether it would be liable for indemnification, which
turned on whether Dow would be liable for infringement.
See Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846
F.2d 731, 733, 736–37 (Fed. Cir. 1988).
                              II
    Cooper argues that, even if there is an immediate con-
troversy as to infringement, that controversy would be
insufficient to create jurisdiction under section 1338
ABB   v. COOPER INDUSTRIES                                 8

because ABB raises only a state law defense to the in-
fringement claim. 4 Cooper argues that controversy does
not create federal jurisdiction. In determining whether
there is federal subject matter jurisdiction for declaratory
judgment actions: “[I]t is the character of the threatened
action, and not of the defense, which will determine
whether there is federal-question jurisdiction in the
District Court.” Pub. Serv. Comm’n of Utah v. Wycoff Co.,
344 U.S. 237, 248 (1952). 5 In other words, the court
examines the declaratory defendant’s hypothetical well-
pleaded complaint to determine if subject matter jurisdic-
tion exists. See Franchise Tax Bd., 463 U.S. at 16, 19
(citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S.
667, 671–72 (1950)); see also Speedco, Inc. v. Estes, 853
F.2d 909, 912 (Fed. Cir. 1988) (applying, under Skelly Oil,
“the well-pleaded complaint rule not to the declaratory
judgment complaint, but to the action that the declaratory
defendant would have brought”). Thus, for declaratory
judgment suits, the character of the action is judged based
on the declaratory judgment defendant’s hypothetical
complaint. See Wycoff, 344 U.S. at 248; Speedco, 853 F.2d
at 912. When the declaratory defendant’s hypothetical

      4 Section 1338 provides: “The district courts shall
have original jurisdiction of any civil action arising under
any Act of Congress relating to patents, plant variety
protection, copyrights and trademarks.”
    5   There are of course two other bases for declara-
tory jurisdiction––diversity of citizenship and the right of
the declaratory judgment plaintiff itself to assert a federal
claim. See Oneida Indian Nation of New York State v.
County of Oneida, 414 U.S. 661, 667 (1974) (finding
jurisdiction where declaratory plaintiff’s claim asserted a
right to possession of property under federal law); Skelly
Oil, 339 U.S. at 674 (finding jurisdiction against one of
several declaratory defendants because there was diver-
sity jurisdiction as to that defendant). Neither basis
exists here.
9                                  ABB   v. COOPER INDUSTRIES

suit arises under federal law, “[w]hat is litigated in such a
situation is ‘the precise issue which could have been
litigated in federal court in a coercive action brought by’
the declaratory defendant.” Lowe v. Ingalls Shipbuilding,
723 F.2d 1173, 1179 (5th Cir. 1984) (quoting Wright,
Miller & Kane, Federal Practice and Procedure § 2767 at
740). We have repeatedly recognized this rule. See, e.g.,
Cedars-Sinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1578
(Fed. Cir. 1993).
    Because the actual controversy in this case is over in-
fringement, the declaratory defendant’s hypothetical
coercive complaint here is a patent infringement suit. It
is well-established that a claim for infringement arises
under federal law. Even if the only issue in that suit
would be a state law defense, subject matter jurisdiction
does not depend on whether a federal law issue will be the
crux of the case but instead whether “federal patent law
creates the cause of action.” See Christianson, 486 U.S.
at 808. Cooper could unquestionably bring its patent
infringement claim in the federal courts, even if ultimate
resolution of the case depended entirely on ABB’s state
law defense, because an infringement suit is a federal
cause of action. Therefore, the defendant’s cause of action
here arises under federal law, and the cases suggest that
the district court possesses subject matter jurisdiction
over a declaratory action seeking a declaration that there
is no infringement liability.
    Cooper nevertheless contends that the rule does not
apply here because the sole defense actually raised by
ABB in the district court was its state law license defense.
The question then is whether federal courts have jurisdic-
tion over a declaratory judgment action where there is a
federal cause of action but only a state law defense. In
Textron Lycoming Reciprocating Engine Div., AVCO Corp.
ABB   v. COOPER INDUSTRIES                                   10

v. Auto. Workers, 523 U.S. 653, 659–60 (1998), the Su-
preme Court recognized this was an open question.
    Textron involved a declaratory judgment claim filed
under section 301(a) of the Labor Management Relations
Act by a union alleging that the employer had fraudu-
lently induced the union into signing a collective bargain-
ing agreement and seeking a judgment that the
agreement was voidable. Id. at 655. While a contract
action under section 301 would arise under federal law,
the union’s fraudulent inducement defense in Textron
arose under state law, and the Court said it was “not
clear” whether “a declaratory-judgment complaint raising
a nonfederal defense to an anticipated federal claim [ ]
would confer [subject matter] jurisdiction.” Id. at 659
(emphases altered). The Court continued:
      It can be argued that anticipating a federal claim
      in a suit asserting a nonfederal defense no more
      effectively invokes [subject matter] jurisdiction
      than anticipating a federal defense in a suit as-
      serting a nonfederal claim. . . . Perhaps it was the
      purpose of the Declaratory Judgment Act to per-
      mit such anticipation [citing Franchise Tax
      Board], but Skelly Oil did not present that issue,
      and some of its language[ 6 ] suggests that the de-
      claratory-judgment plaintiff must himself have a
      federal claim. No decision of this Court has
      squarely confronted and explicitly upheld federal-
      question jurisdiction on the basis of the antici-
      pated claim against which the declaratory-

      6 There, the Court said that the “suggestion of one
party, that the other will or may set up a claim under the
Constitution or laws of the United States, does not make
the suit one arising under that Constitution or those
laws.” 339 U.S. at 672 (quoting Tennessee v. Union &
Planters’ Bank, 152 U.S. 454, 464 (1894)).
11                                   ABB   v. COOPER INDUSTRIES

     judgment plaintiff presents a nonfederal defense;
     and neither the Union nor the Government cites
     such a decision by any other federal court.
Id. at 659–60 (footnotes omitted).
    The Court found it did not need to, and did not, decide
this subject matter jurisdiction question in Textron. In a
concurrence, Justice Breyer argued that the Court should
have resolved the question and found that the anticipated
federal claim would have created subject matter jurisdic-
tion over the declaratory judgment action even though the
defense arose under state law. See 523 U.S. at 663–65
(Breyer, J., concurring in part and concurring in the
judgment). Whether the declaratory plaintiff’s defense
could “independently” support jurisdiction, he asserted,
was “beside the point.” Id. at 664. Instead, he empha-
sized, “it is the character of the threatened action, and not
of the defense, which will determine whether there is
federal-question jurisdiction in the District Court.” Id.
(quoting Wycoff, 344 U.S. at 248).
    Subsequent to Textron, so far as we have been able to
determine, neither the Supreme Court nor any court of
appeals has definitively resolved the jurisdictional ques-
tion raised by Textron, and some courts of appeals have
recognized that the issue remains open. 7 Despite the lack
of direct authority on point and the language in Skelly
Oil, we conclude that federal question jurisdiction exists
here. The general rule, articulated repeatedly by the
Supreme Court, is that declaratory judgment jurisdiction
exists where the defendant’s coercive action arises under
federal law. See Franchise Tax Bd., 463 U.S. at 16, 19;

     7 See Metro. Life Ins. Co. v. Price, 501 F.3d 271,
277–78 n.4 (3d Cir. 2007); United Food & Commercial.
Workers Union v. Albertson’s, Inc., 207 F.3d 1193, 1196,
1198 (10th Cir. 2000).
ABB   v. COOPER INDUSTRIES                                12

Wycoff, 344 U.S. at 248; see also Speedco, 853 F.2d at 912.
We see no reason to depart from that general principle
where the defense is non-federal in nature.
     Moreover, Franchise Tax Board speaks specifically to
patent infringement suits. In Franchise Tax Board, the
Court noted that “[f]ederal courts have regularly taken
original jurisdiction over declaratory judgment suits in
which, if the declaratory judgment defendant brought a
coercive action to enforce its rights, that suit would neces-
sarily present a federal question.” 463 U.S. at 19. The
Court further explained that “federal courts have consis-
tently adjudicated suits by alleged patent infringers to
declare a patent invalid, on the theory that an infringe-
ment suit by the declaratory judgment defendant would
raise a federal question over which the federal courts have
exclusive jurisdiction.” Id. at 19 n.19 (citing E. Edelmann
& Co. v. Triple-A Specialty Co., 88 F.2d 852 (7th Cir.
1937)) (emphasis added). According to Franchise Tax
Board, then, federal jurisdiction in this type of case
depends on the federal character of the hypothetical
infringement suit and not the federal character of the
invalidity defense. Indeed, “it now seems settled that [a
party threatened with an infringement suit] can sue for a
declaratory judgment of invalidity or noninfringement
[because] the federal nature of the claims appears on the
complaint . . . and the precise issue could have been
litigated in federal court in a coercive action brought by
[the patentee].” 10B Wright, Miller & Kane, Federal
Practice and Procedure § 2767, at 650–51 (3d ed. 1998)
(emphasis added)).
    Cooper argues that two older Supreme Court cases,
Luckett v. Delpark, Inc., 270 U.S. 496 (1926), and Wilson
v. Sandford, 51 U.S. 99 (1850), resolve the question in its
favor by demonstrating that the federal courts do not
have jurisdiction over contract disputes concerning pat-
13                                ABB   v. COOPER INDUSTRIES

ents. Those cases simply hold that a suit to collect royal-
ties under a license and a suit for forfeiture of a license
did not arise under federal law. Luckett, 270 U.S. at 502;
Wilson, 51 U.S. at 102. They are clearly distinguishable,
standing only for the unremarkable proposition that a
plaintiff’s coercive complaint in a normal civil action does
not arise under federal law when it is based on a contract
or license. Those cases predated the Declaratory Judg-
ment Act. They in no way suggest that a declaratory
judgment of non-infringement does not arise under the
patent laws.
                            III
    For the foregoing reasons, we reverse the district
court’s dismissal of the case for lack of subject matter
jurisdiction.
                       REVERSED
                          COSTS
     No costs.