Last week, the U.S. Court of Appeals for the Federal Circuit issued an opinion in Communications Test Design, Inc. v. Contec, LLC, 2019-1672 (March 13, 2020). CTDI sued Contec in 2017 in the Eastern District of Pennsylvania seeking declaratory judgment that its test systems did not infringe two of Contec’s patents. Less than a week later, Contec filed suit against CTDI for patent infringement in the Northern District of New York. Contec moved to dismiss the Pennsylvania action as an anticipatory suit filed in bad faith. The district court granted the motion, finding the equitable considerations warranted departure from the first-to-file rule. In particular, the parties’ licensing communications showed CTDI filed the Pennsylvania action in anticipation of Contec’s impending infringement suit. CTDI appealed.
The Federal Circuit affirmed. The Court noted the Declaratory Judgment Act, 28 U.S.C. § 2201(a), states that courts “may” declare the rights and legal relations of interested parties. The Court explained that the statute’s use of the term “may” confers on the courts unique discretion in deciding whether to entertain a DJ action. That discretion, however, is not plenary; there must be well-founded reasons for a court to decline exercising its jurisdiction.
The Court further explained that the first-to-file rule normally guides whether a DJ suit should yield to a later-filed patent infringement suit. Under the rule, the first-filed action is normally preferred, “unless considerations of judicial and litigant economy, and the just and effective disposition of disputes, require otherwise.” The Court found the district court had, in applying the rule, carefully considered the record of the parties’ dispute up to the competing filings, noting that: (1) CTDI filed its DJ complaint during the parties’ active licensing negotiations and in anticipation of Contec’s complaint for patent infringement; (2) CTDI’s suit interfered with the ongoing licensing discussions and contravened the objectives of the DJA; and (3) the Northern District of New York was, on balance, a more convenient forum. The Court held that those findings supported the district court’s departure from the first-to-file rule.
The Court rejected CTDI’s assertion that the district court’s factual findings on motive required an evidentiary hearing under Third Circuit procedural rules. The Court explained that the analysis under the DJA is separate from the question of subject matter jurisdiction. Thus, the requirement for a hearing to resolve disputes of material fact relevant to jurisdiction is inapplicable.