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A declaratory judgment is a judgment of a court in a civil case which declares the rights, duties, or obligations of each party in a dispute. It is commonly called a declaratory ruling, a term which also includes decisions of regulatory agencies. A declaratory judgment or ruling is legally binding as to the duties, rights, obligations and status of the parties. However, a declaratory judgment does not order any action or result in any award of damages to any party to the case. Unlike an advisory opinion, a declaratory judgment requires an actual case or controversy.

A declaratory judgment is typically requested when a party is threatened with lawsuit and the threatened lawsuit is not yet filed; or when it is thought by one of two (or more) parties that their rights under law and/or contract might conflict; or as part of a counterclaim to prevent further, similar lawsuits from the same plaintiff (for example, when only a contract claim is filed, but a copyright claim might also be applicable). It may also be sought in administrative law instead of prerogative writs such as certiorari or prohibitions.

In the United Statesmarker, the federal government and most states have enacted statutes authorizing their courts to issue declaratory judgments. In some common law jurisdictions, declaratory judgment is a form of equitable relief.

Cease and desist

The filing of a declaratory judgment lawsuit can follow one party sending a cease and desist letter to another. A party contemplating the sending of such a letter risks that the recipient, or a party related to the recipient, such as a customer or supplier of the recipient, may file for a declaratory judgment in their own jurisdiction. This may require the sender to appear in a distant court, at their own expense. Thus the sending of a cease and desist letter presents a dilemma to the sender, as it would be desirable to be able to address the issues at hand in a candid manner without the need for litigation, but upon sending a candid letter, the recipient may seek a tactical advantage by instituting declaratory judgment litigation in a more favorable jurisdiction. Sometimes the parties agree in advance of discussions that no declaratory judgment lawsuit will be filed while the negotiations are continuing. Sometimes a lawsuit is filed, but not served, prior to sending such a notice, to preserve a jurisdiction advantage without engaging the judicial process fully. Some parties send cease and desist letters that make "an oblique suggestion of possible infringement" to lower the risk that the recipient files a declaratory judgment lawsuit.

Declaratory judgment actions in patent litigation

Declaratory judgments are common in patent litigation - as well as in other areas of intellectual property litigation - because declaratory judgments allow an alleged infringer to "clear the air" with regard to a product or service which may be the focal point of a business. Take for example a typical claim of patent infringement. When a patent owner becomes aware of an infringer, the owner can simply wait until he pleases to bring a suit for infringement. Meanwhile, the monetary damages continuously accrue - with no effort expended by the patent owner, apart from marking the patent number on products the patent owner sold or licensed. On the other hand, the alleged infringer could do nothing to rectify the situation if no declaratory judgment existed. The alleged infringer would be forced to continue to operate his business with the cloud of a lawsuit over his head. Fortunately, the declaratory judgment procedure allows the alleged infringer to proactively bring suit to resolve the situation and eliminate the cloud of uncertainty looming overhead.

Common claims for declaratory judgment in patent cases are non-infringement,patent invalidity, and unenforceability. In order to bring a claim for declaratory judgment, the claimant must (1) have a basis in federal subject matter jurisdiction in the claim and (2) establish that an actual controversy exists. In patent infringement cases, as opposed to disagreements about a patent license, it is clear that federal subject matter exists, because patent infringement cases are exclusively determined by the federal court system. If there is a substantial controversy of sufficient immediacy and reality, the court will generally proceed with the declaratory judgment action. The standard for subject matter jurisdiction was recently revised by the Supreme Court in MedImmune, Inc. v. Genentech, Inc. 127 S.Ct 764 (2007). However, even if subject matter exists, because the declaratory judgment statute is permissive--a district court, in its discretion, may decline to hear a declaratory judgment action.

Usually the claimant is actually making, using, selling, offering to sell or importing or is prepared to actually make, use or sell, offer to sell or import an allegedly infringing device or method, and usually the patent owner has claimed that such activities by claimant will result in patent infringement. An express threat of litigation is not needed, nor is it a guarantee that jurisdiction will be granted. Some factors courts have considered in this analysis are whether a patent owner has asserted its rights against an alleged infringer in a royalty dispute, whether the owner has sued a customer of an alleged infringer, or whether an owner has made statements regarding its patents in trade magazines.

Noteā€”The Supreme court has recently revised the standard for bringing a declaratory judgment action. see MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 S.Ct 764 (2007).

Patent pitfalls and strategy

The patent owner must be very careful when communicating with possible infringers. If a patent owner does suggest that there is patent coverage of what an alleged infringer is doing or planning to do, the alleged infringer may bring suit. The alleged infringer - as plaintiff in the suit - can choose the venue of the suit subject to constitutional restrictions and the state long-arm statute of the forum in question. The suit can be brought in any forum in which the local federal district court can properly obtain personal jurisdiction over the alleged infringer. The patent owner who has been sued for a declaratory judgment has created a situation where he has lost the "home field advantage." Travel costs to a distant courthouse can be substantial, and a party that is litigating in a distant forum may have to hire a local attorney, if required by the local rules, in addition to its regular patent litigation counsel. Further, distant juries sometimes prefer the "home town" guy over the foreigner.

Defendants in infringement cases should also not forget the utility of a declaratory judgment as a counterclaim. If a defendant brings a declaratory judgment counterclaim, plaintiff may not be able to so easily drop the suit if the outcome begins to look dismal. By bringing a counterclaim of non-infringement - as well as the affirmative defense - the defendant is assured that the issue of infringement, although perhaps not patent validity, will be resolved in the process. The fees expended on the defense are now guaranteed to be of value towards a final resolution with respect to infringement.

Patent owners should also be aware that a counterclaim of infringement is a compulsory counterclaim to a claim for declaratory judgment of non-infringement. C.f. Vivid Techs., Inc. v. Am. Sci. & Eng'g Inc., 200 F.3d 795, 802 (Fed. Cir. 1999). If a patent owner fails to assert an infringement counterclaim in a declaratory judgment non-infringement suit, the patent infringement claim will be deemed waived.

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