U.S. Water Services, Inc. v. ChemTreat, Inc. ( 2015 )

United States Court of Appeals
For the Eighth Circuit
___________________________
No. 14-3057
___________________________
U.S. Water Services, Inc.
lllllllllllllllllllll Plaintiff - Appellant
Global Process Technologies, Inc.; Roy Johnson
lllllllllllllllllllllCounter Defendants - Appellants
v.
ChemTreat, Inc.
lllllllllllllllllllll Defendant - Appellee
____________
Appeal from United States District Court
for the District of Minnesota - Minneapolis
____________
Submitted: May 13, 2015
Filed: July 24, 2015
____________
Before RILEY, Chief Judge, MURPHY and MELLOY, Circuit Judges.
____________
RILEY, Chief Judge.
In April 2011, while its patent application was pending with the United States
Patent and Trademark Office (USPTO), U.S. Water Services, Inc. sued its competitor,
ChemTreat, Inc. for misappropriation of trade secrets. On October 18, 2011, the
USPTO issued U.S. Patent No. 8,039,244 (’244 patent). Three days before U.S.
Water and ChemTreat settled the misappropriation claim, ChemTreat filed
counterclaims against U.S. Water, Global Process Technologies, Inc. and Roy
Johnson (collectively, counterclaim defendants) requesting declaratory judgments of
noninfringement and invalidity of the ’244 patent.1 The counterclaim defendants
moved to dismiss the counterclaims for lack of subject matter jurisdiction, and
ChemTreat moved for summary judgment of noninfringement. The district court2
denied the counterclaim defendants’ motion to dismiss and later granted ChemTreat’s
subsequent motion for summary judgment as to the noninfringement counterclaim
and dismissed the invalidity counterclaim. The counterclaim defendants appeal. We
affirm the district court’s well-reasoned judgment.
I. BACKGROUND
A. Facts
In its second amended complaint (complaint), U.S. Water stated it “sell[s]
water treatment and purification equipment, materials, and services,” especially “to
ethanol process technologies.” U.S. Water claimed it “developed a method to reduce
the formation of insoluble scale deposits during the production of ethanol” using an
1
The cover page of the ’244 patent lists Roy Johnson and Paul Young as
inventors and Global Process Technologies, Inc. as an assignee. Although the parties
do not cite to a license agreement in the record, the parties agree U.S. Water is the
“exclusive licensee” of the ’244 patent, and the counterclaim defendants “own[]
and/or control[]” the ’244 patent. The counterclaim defendants explained to the
district court, “During the application process, Dr. Young assigned his ownership of
the patent to U.S. Water, which in turn assigned its interest to its corporate parent,
Global Process Technologies, Inc. Mr. Johnson retains his one-half undivided
ownership interest in the ’244 Patent.”
2
The Honorable Patrick J. Schiltz, United States District Judge for the District
of Minnesota.
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enzyme, phytase, in its “pHytOUT® system.” U.S. Water alleged, among other
things, ChemTreat persuaded one of U.S. Water’s business acquaintances to breach
a non-disclosure agreement and disclose U.S. Water’s “pHytOUT® Trade Secrets”
such that ChemTreat was able to begin selling its own phytase product, PE1000,
modeled on U.S. Water’s product, to U.S. Water’s ethanol industry customers.
At the time U.S. Water filed the complaint, the application for what would
become the ’244 patent was pending with the USPTO. U.S. Water attached the
application to the complaint and described its scientific claims in some detail. The
complaint explained, “U.S. Water adopted the brand ‘pHytOUT®’ to use in
connection with the sale and offer for sale to its customers and the trade of the system
described in the pHytOUT® [patent] Application.” The complaint alleged
ChemTreat “misappropriat[ed] the pHytOUT® Trade Secrets,” which, together with
“the pHytOUT® invention” disclosed in the patent application, form “the
pHytOUTTM system.”3
In April 2011, Johnson, Chief Innovation Officer at U.S. Water, sent an email
to a customer who had also been approached by ChemTreat, remarking,
I need to speak with you later today about the ChemTreat ‘offering’ and
what has happened. They are on very thin ice & are putting people at
risk. While [U.S. Water’s European Patent Office] patent application
has been allowed, the USPTO patent prosecution remains painfully slow
in an underfunded agency. The consequences gets [sic] too many
attorneys involved.
A week later, U.S. Water sent an email to its phytase supplier, who was also
supplying phytase to ChemTreat, declaring,
3
The complaint refers both to a “pHytOUTTM system” and a “pHytOUT®
system.”
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We have been granted an EU patent and anticipate the USPTO patent
soon. . . . Now we have a competitor going around our patent
application buying your . . . product in violation of our supply agreement
and what would appear to be a much lower price. . . . This is a very
serious issue to us and we are not seeing much openness or response
from you . . . . We have filed a lawsuit against this competitor regarding
misappropriation of trade secrets, and misrepresenting our product. We
are filing additional actions against them today.4
After receiving the email, the phytase supplier told U.S. Water it would “walk[] away
from ChemTreat” and told ChemTreat it “will not be able to supply [ChemTreat] with
phytase” because “doing so would lead to possible infringements in [U.S. Water’s]
patented propositions to the market place.”
In a deposition, one of ChemTreat’s customers testified that a particular person
at U.S. Water had told him about the ’244 patent application at an industry trade
workshop. The customer responded it was “probably fair” to say “the only reason”
his employer stopped a trial run of ChemTreat’s phytase product, PE1000, was
because U.S. Water told the customer that U.S. Water “had a patent on that
application” of phytase.
B. Procedural History
U.S. Water, a citizen of Minnesota, sued ChemTreat, a citizen of Virginia, in
the district court, asserting Minnesota state law claims of misappropriation of trade
secrets, among other things, and invoking diversity jurisdiction under 28 U.S.C.
§ 1332(a)(1).
4
At oral argument, the counterclaim defendants alleged the additional action
to be filed “today” was merely the first amended complaint in the trade secret case,
filed four days later.
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On the day the ’244 patent issued, ChemTreat moved to amend its answer to
add counterclaims, which U.S. Water initially opposed. The district court eventually
granted ChemTreat’s new, unopposed motion to file counterclaims. Three days
before U.S. Water and ChemTreat settled the misappropriation claim, which disposed
of all claims in U.S. Water’s complaint, ChemTreat filed the counterclaims requesting
declaratory judgments of noninfringement and invalidity of the ’244 patent.
The counterclaim defendants moved to dismiss the counterclaims for lack of
subject matter jurisdiction, and ChemTreat moved for summary judgment of
noninfringement. The district court heard argument on the motions. Finding subject
matter jurisdiction existed, the district court denied the counterclaim defendants’
motion to dismiss and denied without prejudice ChemTreat’s motion for summary
judgment. After additional limited discovery, the district court granted ChemTreat’s
motion for summary declaratory judgment as to noninfringement and dismissed
without prejudice ChemTreat’s invalidity counterclaim.
C. Appellate Jurisdiction
The counterclaim defendants appealed to the United States Court of Appeals
for the Federal Circuit. After full briefing and argument, the Federal Circuit
concluded it lacked appellate jurisdiction because U.S. Water’s initial complaint did
not state a cause of action arising under the patent laws. See 28 U.S.C. §§ 1295(a)(1),
1338(a) (2011).
While ChemTreat’s counterclaims do allege patent law claims, U.S. Water
initiated the action on April 12, 2011, before the Leahy-Smith America Invents Act,
125 Stat. 284 (2011) (AIA), took effect, so the counterclaims independently did not
establish appellate jurisdiction for the Federal Circuit. See Wawrzynski v. H.J. Heinz
Co., 728 F.3d 1374, 1378-79 (Fed. Cir. 2013) (determining the AIA confers appellate
jurisdiction on the Federal Circuit for compulsory counterclaims filed in actions
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commenced after September 16, 2011). The Federal Circuit transferred the appeal to
the Eighth Circuit. This court has appellate jurisdiction under 28 U.S.C. § 1291.
II. DISCUSSION
In the realm of patent law, we rely on the Federal Circuit’s precedent for
persuasive guidance. See, e.g., Schinzing v. Mid-States Stainless, Inc., 415 F.3d 807,
811 (8th Cir. 2005).
A. Subject Matter Jurisdiction
“The threshold issue is whether the district court had subject matter
jurisdiction. This court reviews subject matter jurisdiction de novo.” Cascades Dev.
of Minn., LLC v. Nat’l Specialty Ins., 675 F.3d 1095, 1098 (8th Cir. 2012); see also
Vanguard Research, Inc. v. PEAT, Inc., 304 F.3d 1249, 1254 (Fed. Cir. 2002) (“The
determination of whether an actual controversy exists under the Declaratory
Judgment Act in a patent case is a question of law that we review de novo.”). “If the
district court resolves disputed factual issues, its findings are reviewed for clear
error.” ABF Freight Sys., Inc. v. Int’l Bhd. of Teamsters, 645 F.3d 954, 958 (8th Cir.
2011); accord Vanguard, 304 F.3d at 1254. ChemTreat bears the burden to show
subject matter jurisdiction existed when it filed its counterclaims. See, e.g., ABF
Freight, 645 F.3d at 958; accord Powertech Tech. Inc. v. Tessera, Inc., 660 F.3d 1301,
1306 (Fed. Cir. 2011).
The Declaratory Judgment Act provides, “In a case of actual controversy within
its jurisdiction, . . . any court of the United States, upon the filing of an appropriate
pleading, may declare the rights and other legal relations of any interested party
seeking such declaration.” 28 U.S.C. § 2201(a). “The phrase ‘case of actual
controversy’ in § 2201 ‘refers to the type of Cases and Controversies that are
justiciable under Article III.’” Maytag Corp. v. Int’l Union, United Auto., Aerospace
& Agric. Implement Workers, 687 F.3d 1076, 1081 (8th Cir. 2012) (quoting
MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007)).
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1. Reasonable Apprehension of Suit
The counterclaim defendants moved to dismiss ChemTreat’s counterclaims,
arguing the district court “lack[ed] subject-matter jurisdiction over ChemTreat’s
claim for a declaratory judgment of non-infringement because the Counterclaim
Defendants have not asserted the ’244 Patent against ChemTreat or its customers.”
The district court concluded subject matter jurisdiction exists and denied the motion,
relying principally on two cases from the Federal Circuit, both of which address the
relationship between trade secrets and patents.5
First, in Goodyear Tire & Rubber Co. v. Releasomers, Inc., 824 F.2d 953 (Fed.
Cir. 1987), after Releasomers filed suit in state court alleging Goodyear had
misappropriated trade secrets, the USPTO issued two patents to Releasomers based
on the same technology involved in the state action. See id. at 954. Goodyear then
filed a complaint in federal court seeking a declaratory judgment of invalidity and
noninfringement of Releasomers’s patents. See id. The federal district court
dismissed Goodyear’s suit for lack of subject matter jurisdiction and granted summary
judgment to Releasomers. See id. Goodyear appealed to the Federal Circuit. See id.
5
See AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp., 663 F.3d 966, 972-
73 (8th Cir. 2011) (“[E]xistence of a trade secret is determined by the value of a
secret, not the merit of its technical improvements. Unlike patent law, which
predicates protection on novelty and nonobviousness, trade secret laws are meant to
govern commercial ethics.”); see also Accent Packaging, Inc. v. Leggett & Platt, Inc.,
707 F.3d 1318, 1329 (Fed. Cir. 2013) (“As a matter of law, any specifications and
tolerances disclosed in or ascertainable from the asserted patents became publicly
available . . . when the . . . patent application was published and, as such, could not
constitute a trade secret [a few months later] when [the defendant] is alleged to have
engaged in misappropriation.”); On-Line Techs., Inc. v. Bodenseewerk Perkin-Elmer,
386 F.3d 1133, 1141 (Fed. Cir. 2004) (“After a patent has issued, the information
contained within it is ordinarily regarded as public and not subject to protection as a
trade secret.”).
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The Federal Circuit laid out its two-pronged test for determining subject matter
jurisdiction in a declaratory judgment patent case, as follows:
First, the defendant’s conduct must have created on the part of the
plaintiff a reasonable apprehension that the defendant will initiate suit
if the plaintiff continues the allegedly infringing activity. Second, the
plaintiff must actually have either produced the device or have prepared
to produce that device.
Id. at 955. The Goodyear court found Releasomers’s misappropriation suit created
such reasonable apprehension for Goodyear, deciding that the fact the state court
misappropriation claim did not name the patents at issue was irrelevant because “that
proceeding involves trade secret misappropriation of the same technology covered by
the Releasomers’ . . . patents. Accordingly, the [litigious] conduct of Releasomers,
in itself, is sufficient to give Goodyear an objective inference of an impending
infringement suit now that the patents have issued” and “shows a willingness to
protect that technology.” Id. at 955-56. The Federal Circuit decided “an express
threat of litigation” was not essential “to meet the requirements of an actual case or
controversy. Such a requirement would utterly defeat the purpose of the Declaratory
Judgment Act, which in patent cases is to provide the allegedly infringing party relief
from uncertainty and delay regarding its legal rights.” Id. at 956.
Similarly, in Vanguard, after being sued for misappropriation of trade secrets
in the Northern District of Alabama, Vanguard brought an action seeking a
declaratory judgment of invalidity and noninfringement of PEAT’s patent. See
Vanguard, 304 F.3d at 1252. The district court in the declaratory action granted
PEAT’s motion to dismiss for lack of subject matter jurisdiction. See id. at 1252-53.
Vanguard appealed to the Federal Circuit. See id. at 1253.
The Federal Circuit addressed the “reasonable apprehension” declaratory
judgment prong, as in Goodyear. See id. at 1254-55. The court reiterated, “Although
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the best evidence of a reasonable apprehension of suit comes in the form of an
express threat of litigation, an express threat is not required.” Id. at 1254. Finding
the case “indistinguishable from . . . Goodyear,” the Federal Circuit stated, “PEAT
sued Vanguard for . . . misappropriation of trade secrets regarding the same
technology in the same district court. The . . . district court found no actual
controversy based on PEAT’s repeated statement that it does not intend to sue
Vanguard for patent infringement and its ongoing failure to bring such a suit.” Id. at
1255 (quotation omitted). But the Federal Circuit emphasized an objective standard,
stating, “[A] patentee’s present intentions do not control whether a case or
controversy exists. The appropriate inquiry asks whether Vanguard had a reasonable
apprehension that PEAT would sue it for patent infringement in the future.” Id.
(internal citation omitted). Of particular importance was the patentee’s
communications not to the potential infringer, but to the potential infringer’s
customers: “By filing the earlier lawsuit and informing Vanguard’s clients that
Vanguard is using the PEAT technology without a license, PEAT has shown ‘a
willingness to protect that technology.’ Filing a lawsuit for patent infringement
would be just another logical step in its quest to protect its technology.” Id. (quoting
Goodyear, 824 F.2d at 956).
After Goodyear and Vanguard, the United States Supreme Court in
MedImmune “rejected [the Federal Circuit’s] prior, more stringent standard for
declaratory judgment standing insofar as it required a ‘reasonable apprehension of
imminent suit.’” Arris Grp., Inc. v. British Telecommc’ns PLC, 639 F.3d 1368, 1373
(Fed. Cir. 2011) (quoting MedImmune, 549 U.S. at 132 n.11). “Under the [Supreme]
Court’s new standard, an Article III case or controversy exists when ‘the facts
alleged, under all the circumstances, show that there is a substantial controversy,
between parties having adverse legal interests, of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment.’” Id. at 1373 (quoting MedImmune,
549 U.S. at 127).
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“While the Supreme Court rejected the reasonable apprehension of suit test as
the sole test for jurisdiction, it did not completely do away with the relevance of a
reasonable apprehension of suit.” Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d
1329, 1336 (Fed. Cir. 2008). The test is still relevant because, “following
MedImmune, proving a reasonable apprehension of suit is one of multiple ways that
a declaratory judgment plaintiff can satisfy the more general all-the-circumstances
test to establish that an action presents a justiciable Article III controversy.” Id.
“Prior litigious conduct is one circumstance to be considered in assessing whether the
totality of circumstances creates an actual controversy.” Id. at 1341.
A recent post-MedImmune Federal Circuit case, issued after the district court’s
decision in this case, confirms that “a showing [of reasonable apprehension of suit]
remains sufficient to establish jurisdiction.” Arkema Inc. v. Honeywell Int’l, Inc.,
706 F.3d 1351, 1358 n.5 (Fed. Cir. 2013). Arkema approvingly cites Goodyear and
Vanguard and states the declaratory judgment defendant need not “directly
accuse[ the declaratory judgment plaintiff] of potential indirect infringement. Even
under the now-discarded reasonable apprehension of suit test, it was well established
that a sufficient controversy existed for declaratory judgment jurisdiction where the
patentee had accused the declaratory judgment plaintiff of misappropriating the same
technology in related litigation.” Id. at 1358 (footnote omitted) (citing Goodyear, 824
F.2d at 955, and Vanguard, 304 F.3d at 1255); see also Danisco U.S. Inc. v.
Novozymes A/S, 744 F.3d 1325, 1330 (Fed. Cir. 2014) (concluding “the standard for
finding a justiciable controversy [wa]s satisfied” even though the patent holder “had
not affirmatively accused [the declaratory judgment plaintiff’s] products of infringing
the issued . . . patent,” because “that fact alone is not dispositive of whether an actual
controversy exists,” “and the Supreme Court has repeatedly found the existence of an
actual case or controversy even in situations in which there was no indication that the
declaratory judgment defendant was preparing to enforce its legal rights”); cf. Teva
Pharm. USA, Inc. v. Novartis Pharm. Corp., 482 F.3d 1330, 1344 (Fed. Cir. 2007)
(“[R]elated litigation involving the same technology and the same parties is relevant
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in determining whether a justiciable declaratory judgment controversy exists on other
related patents.”).6
In this case, the district court, relying on Goodyear and Vanguard, concluded
U.S. Water’s suit alleging misappropriation of trade secrets, filed one month after
ChemTreat began selling its phytase product, was an important factor in determining
whether ChemTreat had a reasonable apprehension of suit. On appeal, the
counterclaim defendants argue the misappropriation claim should not be considered
in the evaluation of subject matter jurisdiction because U.S. Water “was asserting
different legal rights—contractual rights with prospective customers, active
customers, and its phytase supplier.” The counterclaim defendants contend, “The
presumption is erroneous that prior litigation of any kind between the same parties
that involves the same technology is sufficient to establish declaratory judgment
jurisdiction.” (Emphasis added). But U.S. Water’s complaint does not equal “prior
litigation of any kind”—U.S. Water pled a misappropriation of trade secrets claim,
which is the same claim brought in Goodyear and Vanguard. See Arkema, 706 F.3d
at 1358.
The counterclaim defendants also argue the misappropriation claim was not
based on the same technology as the invention taught by the ’244 patent. They
maintain U.S. Water’s “references to the ’244 Patent in its trade secrets complaint
explicitly differentiated the patented method from the claimed trade secrets.” U.S.
6
The counterclaim defendants submitted a letter to this court pursuant to
Federal Rule of Appellate Procedure 28(j) citing a case issued a year before,
Microsoft Corp. v. DataTern, Inc., 755 F.3d 899 (Fed. Cir. 2014), where the Federal
Circuit found it lacked jurisdiction over Microsoft’s challenge to one of DataTern’s
patents. See id. at 903. Microsoft is inapposite here, because the patent holder,
DataTern, did not sue Microsoft for misappropriation of trade secrets before
Microsoft filed motions for declaratory judgment of noninfringement and invalidity.
See id. at 902-03.
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Water’s complaint does not support this conclusion. First, U.S. Water attached to the
complaint the application for what would become the ’244 patent and described its
claims in detail.
Second, the complaint states, “U.S. Water adopted the brand ‘pHytOUT®’ to
use in connection with the sale and offer for sale to its customers and the trade of the
system described in the pHytOUT® [patent] Application.” The complaint alleges
ChemTreat misappropriated “the pHytOUT® Trade Secrets,” which U.S. Water was
obliged to distinguish from “the pHytOUT® invention” disclosed in its patent
application, since the patent application is publicly available and thus could not
contain a trade secret. See Minn. Stat. § 325C.01, subd. 5(i) (defining a “trade secret”
as “information” that “derives independent economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic value from its disclosure or use”). As the
district court recognized, the declaratory judgment defendants in Goodyear and
Vanguard would have had to make the same distinction, yet the Federal Circuit still
found the same technology was involved in both the misappropriation claim and
asserted patent infringement claims in those cases.
At the same time, U.S. Water defines “the pHytOUT® system” to include both
“the pHytOUT® Trade Secrets” and “the pHytOUT® invention.” The complaint
connects ChemTreat with the whole system, not just the trade secrets, contending,
“ChemTreat does not have the ability or expertise to support the pHytOUT® system
at [a U.S. Water customer’s] ethanol plant and would not have understood the specific
benefits and consequences of the pHytOUT® process if ChemTreat had not obtained
unlawful access to the pHytOUT® Trade Secrets,” and “[b]y obtaining access to the
pHytOUT® Trade Secrets, ChemTreat on information and belief acquired in
approximately four months or less know-how and expertise in the pHytOUT® system
that is virtually identical to U.S. Water’s and that could not have been acquired by
proper means.”
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In its originally filed complaint, U.S. Water declared that the pHytOUTTM
system—which would also include the trade secrets—would be protected when its
pending patent issued: “In October of 2007, U.S. Water filed Application No.
11/873,630 with the [USPTO] seeking a patent to protect the system its employees
have invented for the reduction of scale deposits.” U.S. Water implies as much in the
operative second amended complaint at issue: “The pHytOUT® Application
describes a system for the reduction of scale deposits. . . . U.S. Water adopted the
brand ‘pHytOUT®’ to use in connection with the sale and offer for sale to its
customers and the trade of the system described in the pHytOUT® Application.”
U.S. Water proposes, “The claims in the patent were only relevant to the case
because they were not among the trade secrets that [U.S. Water] accused ChemTreat
of misappropriating,” and its complaint was “carefully drafted to underscore that
[U.S. Water] was accusing ChemTreat of the misappropriation of trade secrets and
to distinguish [U.S. Water]’s secret and confidential information from publicly
available information in the patent application or the file wrapper.” We reject U.S.
Water’s attempt to distance itself from the connections it pointedly made in its
complaint about the elements of its “pHytOUT® system.” We conclude, as
ChemTreat states it, that the complaint “expressly noted the close interrelationship
between U.S. Water’s purported trade secret and patent rights,” and “U.S. Water
expressly equated its pHytOUT® ‘system’ with its trade secrets and patent rights.”
The district court did not err by finding the misappropriation claim involved the same
technology as the ’244 patent.
In its jurisdiction order, issued before Arkema, the district court was not willing
to go as far as Goodyear and Vanguard might suggest—that is, to conclude a prior
misappropriation claim categorically establishes a reasonable apprehension of an
infringement suit after a patent on the same technology has issued. See Goodyear,
824 F.2d at 955; Vanguard, 304 F.3d at 1255. Yet the district court found that when
combined with the counterclaim defendants’ other actions, a reasonable apprehension
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was present. Specifically, these include (1) Johnson’s April 2011 email to U.S.
Water’s customer; (2) U.S. Water’s email to its phytase supplier; and (3) U.S. Water
informing ChemTreat’s customer about U.S. Water’s patent, leading to the customer’s
decision not to continue a trial of ChemTreat’s PE1000 phytase product.
The counterclaim defendants assert these communications show they merely
were trying to protect their contractual rights with their customers and phytase
supplier. But the cited exchanges, while sometimes alluding to contractual
relationships, invoke what the counterclaim defendants hoped would evolve into
patent rights, even though the counterclaim defendants did not explicitly threaten
patent litigation. See Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362
(Fed. Cir. 2009) (“The purpose of a declaratory judgment action cannot be defeated
simply by the stratagem of a correspondence that avoids the magic words such as
‘litigation’ or ‘infringement.’ . . . [I]t is implausible (especially after MedImmune and
several post MedImmune decisions from this court) to expect that a competent lawyer
drafting such correspondence for a patent owner would identify specific claims,
present claim charts, and explicitly allege infringement.”). As the magistrate judge
in this case7 wrote three years ago, addressing the same issue, “U.S. Water . . . has
done more than just communicate with ChemTreat’s . . . customers without directly
accusing ChemTreat of infringement. U.S. Water’s litigation activities reveal both
its hostile stance to ChemTreat’s competing product and its willingness to protect
aggressively its technology, making patent litigation the next logical, if not inevitable,
step.” See Vanguard, 304 F.3d at 1255.
Before the district court, the counterclaim defendants stated that if the district
court were to “construe[] the ’244 Patent in the manner” suggested by the ’244
patent’s attorney prosecutor, then “ChemTreat would be a contributory infringer, and
7
The Honorable Tony N. Leung, United States Magistrate Judge for the District
of Minnesota.
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its customers direct infringers, of the ’244 Patent, under the doctrine of equivalents”
and “ChemTreat may be inducing infringement.” See 35 U.S.C. § 271(a)-(c). In
addition, as the district court reasoned,
Notably, in its brief in opposition to ChemTreat’s motion for leave to
assert its counterclaims, U.S. Water stated that it might bring a patent
action against ChemTreat if U.S. Water were to discover that an ethanol
plant was using PE1000. In other words, U.S. Water has admitted that,
as soon as ChemTreat is successful in finding a customer for PE1000,
U.S. Water may sue ChemTreat. U.S. Water cannot have its cake and
eat it too. It cannot, on the one hand, scare off ChemTreat customers by
wafting allusions to patents and litigation into conversations about
PE1000, and then, on the other hand, argue that ChemTreat cannot bring
a declaratory-judgment action because ChemTreat does not have any
customers.
(Internal citation omitted). ChemTreat responds, and offers evidence in support,
“This confirmed ChemTreat’s apprehension of suit because ChemTreat was already
offering for sale and selling PE1000 at that time.”
Evaluating the “totality of [the] circumstances,” Prasco, 537 F.3d at 1341, we
conclude the district court did not err in finding the misappropriation action, together
with U.S. Water’s statements to its customers and supplier, produced an objective,
“reasonable apprehension of suit,” Vanguard, 304 F.3d at 1254, and therefore did not
err in concluding declaratory judgment subject matter jurisdiction existed in this
action, see Arkema, 706 F.3d at 1358 n.5.
2. Advisory Opinion
In the district court, the counterclaim defendants “t[oo]k[] no position in
response to ChemTreat’s requested motion for summary judgment of
noninfringement,” only repeating their argument that the district court lacked subject
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matter jurisdiction over ChemTreat’s counterclaims.8 Here, the counterclaim
defendants argue the district court’s summary judgment opinion is a prohibited
advisory opinion because ChemTreat cannot establish it directly or indirectly
infringes the ’244 patent.
The Supreme Court cautions against “‘an opinion advising what the law would
be upon a hypothetical state of facts.’” MedImmune, 549 U.S. at 127 (quoting Aetna
Life Ins. Co. v. Haworth, 300 U.S. 227, 241 (1937)). Rather, “[t]he dispute must be
‘definite and concrete, touching the legal relations of parties having adverse legal
interests.’” Arris, 639 F.3d at 1373 (quoting MedImmune, 549 U.S. at 127). In Arris,
as here, the declaratory judgment defendant “surprisingly appear[ed] to contend that
. . . the declaratory judgment plaintiff[’s burden] includes the burden of presenting
evidence that [its] actions indirectly infringe the patents-in-suit.” Id. at 1380. As
explained by the Federal Circuit, “Ironically, [the declaratory judgment defendant]
overlook[ed] the fact that the very purpose for an accused infringer to bring a
declaratory judgment action is to seek a judicial determination that a coercive claim
by the patent holder would not succeed on the merits.” Id. (internal marks and
citation omitted). Here, to establish standing, ChemTreat must show “an actual case
or controversy exists,” but “that burden does not extend to showing that the
[declaratory judgment] defendant holds meritorious positions on the issues in
controversy.” Id. (internal marks and citation omitted). “To require declaratory
judgment plaintiffs to allege or show that their products or processes are
infringements would limit the judgments they seek to declarations of invalidity or
unenforceability. The Declaratory Judgment Act is not so limited.” Id. (internal
marks and citation omitted).
8
The district court stated, “U.S. Water’s decision not to contest ChemTreat’s
motion on the merits is wise, as it is absolutely clear that ChemTreat neither directly
infringes, nor induces nor contributes to infringement, of the ’244 patent.”
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The Arris court also noted that where, as here, the declaratory judgment
defendant “refus[es] to grant [the declaratory judgment plaintiff] a covenant not to
sue, this provides a level of additional support for [the] finding that an actual
controversy exists.” Id. at 1381; cf. Already, LLC v. Nike, Inc., 568 U.S. ___, ___,
133 S. Ct. 721, 725, 732 (2013) (holding “a covenant not to enforce a trademark
against a competitor’s existing products and any future ‘colorable imitations’ moots
the competitor’s action to have the trademark declared invalid”); Cisco Sys., Inc. v.
Alberta Telecommc’ns Research Ctr., 538 F. App’x 894, 898 (Fed. Cir. 2013)
(unpublished) (finding that the fact the declaratory judgment defendant had offered
to the declaratory plaintiff—albeit not to the plaintiff’s customers—a covenant not
to sue for patent infringement further evidence of a lack of a justiciable case or
controversy).
We conclude the district court issued no advisory opinion here.
B. Attorney Fees
ChemTreat filed a motion for attorney fees with this court, claiming the
counterclaim defendants’ appeal was frivolous. “If a court of appeals determines that
an appeal is frivolous, it may, after a separately filed motion or notice from the court
and reasonable opportunity to respond, award just damages and single or double costs
to the appellee.” Fed. R. App. P. 38. “Under Rule 38, an appeal is frivolous ‘when
the result is obvious or when the appellant’s argument is wholly without merit.’”
Misischia v. St. John’s Mercy Health Sys., 457 F.3d 800, 806 (8th Cir. 2006) (quoting
Newhouse v. McCormick & Co., 130 F.3d 302, 305 (8th Cir. 1997) (order)).
The result here was not obvious, and the counterclaim defendants’ arguments
on appeal were not wholly without merit. Even considering the fact Arkema, which
arguably strengthened ChemTreat’s case, was issued after the district court’s opinion
but before briefing had begun in this appeal, the counterclaim defendants still had a
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nonfrivolous, if unsuccessful, argument. We deny ChemTreat’s motion for attorney
fees.
III. CONCLUSION
We affirm the judgment of the district court for the reasons stated in its well-
reasoned opinion.
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