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BASF Plant Science, LP v. Nuseed Americas Inc.

United States District Court, D. Delaware

August 17, 2017



          KEARNEY, J.

         The Declaratory Judgment Act allows us to exercise our limited subject matter jurisdiction to invalidate a patent when someone fears they may be sued for infringement. To establish a real and imminent threat of harm absent declaratory relief, the potentially infringing plaintiff must sue the person with the legal right to sue him for infringement. We cannot otherwise invalidate a patent when there is no threat of an infringement suit by the sole defendant who, as a matter of law, cannot sue for infringement. The wrinkle presented today arises when a patent owner authorizes others to negotiate terms of a license agreement with a potential infringer. The issue is the scope of authority given to those agents representing the patent owner in license negotiations but not necessarily vested with the legal right to sue for infringement. When, as here, we address an apparent impetuous impasse in patent license negotiations between a potential infringer and a company negotiating on the patent owner's behalf, we must scrutinize whether there is a real and immediate threat of a patent infringement action by the named defendant against the potential infringer. If not, we lack subject matter jurisdiction and must enter the accompanying Order dismissing the declaratory judgment action against the agent defendant mindful the potential infringer may seek a declaration from a court with personal jurisdiction over the patent owner or another party with the legal right to sue it for infringement.

         I. Facts[1]

         As best as we can discern, BASF Plant Science, LP is somehow involved in technologies modifying and commercializing long chain polyunsaturated fatty acids (omega-3 fatty acid) used in “human and animal health.”[2] BASF admits Nuseed Americas is a wholly owned subsidiary of Nufarm Ltd. which collaborates with the Commonwealth Scientific and Industrial Research Organization (“CSIRO”) and the Australian Grains Research and Development Corporation (“GRDC”) in modifying omega-3 fatty acids. CSIRO and GRDC own numerous patents in methods for modifying omega-3 fatty acids, including eight patents at issue here.[3]

         In August 2013, a CSIRO director contacted BASF to begin “a broader discussion” regarding cross-licensing of their patents relating to modifying omega-3 fatty acids and included GRDC and Nuseed Pty Ltd. in the discussion.[4] In summer 2016, CSIRO told BASF to negotiate with Nuseed Americas “concerning the U.S. markets in particular.”[5]

         BASF and Nuseed Americas agreed to confidentiality and began negotiations in October 2016.[6] Nuseed Americas presented BASF with a PowerPoint presentation entitled “Nuseed Omega-3 Patent Portfolio (co-owned or in-licensed)” which includes the eight patents at issue.[7]The parties continued to periodically negotiate.

         On January 16, 2017, GRDC's managing director told BASF “CSIRO and GRDC authorise Nuseed, as the exclusive, global licensee of the CSIRO and GFDC technology, to negotiate on their behalf with BASF …. Of course, any negotiated resolution would require an agreement executed by all parties. Pending such resolution, CSIRO will continue overall management of existing and future oppositions and disputes, in relation to the CSIRO and GRDC technology.”[8] On January 20, 2017, a CSIRO director sent an identically worded letter to BASF.[9]

         On April 13, 2017, BASF and Nuseed Americas negotiated again but the parties' bargaining positions remained far apart.[10] The negotiation ended unsuccessfully with Nuseed Americas not seeing a “path forward” with BASF's numbers. When BASF suggested the parties reached impasse and “should be in court” if Nuseed Americas did not reduce its numbers, Nuseed Americas responded, “Maybe that's where we're at.”[11]

         Later the same day, BASF sued Nuseed Americas but not the patent owners seeking we declare eight patents owned by CSIRO and one jointly owned with GRDC invalid.[12] BASF alleges a real and immediate controversy under the Declaratory Judgment Act because “Nuseed [Americas] has expressed an intent to enforce the Patents-in-Suits against BASF Plant Science, if the parties do not enter into a negotiated license agreement.”[13]

         To plead the necessary harm for declaratory relief, BASF alleges, “[o]n information and belief, Nuseed [Americas] is the exclusive licensee of each of the Patents-in-Suit” and directs us to a Nuseed press release.[14] The press release describes collaboration between Nuseed (a wholly owned subsidiary of Nufarm Ltd), CSIRO, and GRDC to “use leading edge technology to develop and commercialise vegetable oil which will contain the same high quality, DHA (docosahexaenoic acid) rich long chain omega-3 that traditionally comes from fish.” It announces Nuseed, CSIRO, and GRDC signed two agreements, a multiyear collaborative research project and “a global exclusive commercial license to Nuseed for existing and co-developed long chain omega-3 intellectual property.” In response, Nuseed Americas Global General Manager Thomas swears Nuseed Americas is a commercial partner and “does not have any right, title or interest in any of the patents-in-suit.”[15] He also swears Nuseed Proprietary Limited is the exclusive licensee of the patents-in-suit “only in the field of plant based production of long chain omega-3 oil in genetically modified canola seed.”[16] Mr. Thomas swears Nuseed Americas and the exclusive licensee of the patents-in-suit, Nuseed Propriety Limited, share the same parent company Nufarm.[17]

         II. Analysis

         Nuseed Americas moves to dismiss BASF's Complaint under Fed.R.Civ.P. 12(b)(1) arguing we lack subject matter jurisdiction because Nuseed Americas does not own the patents-in-suit and is not a licensee of the patents-in-suit so there is no standing. Nuseed Americas also moves to dismiss under Fed.R.Civ.P. 12(b)(7) for failure to join necessary parties licensee Nuseed Proprietary Limited and the patent owners CSIRO and GRDC. Nuseed Americas also moves to dismiss under Fed.R.Civ.P. 12(b)(6) arguing BASF fails to state a claim under the Declaratory Judgment Act because BASF's allegations do not show a real and immediate controversy between BASF and Nuseed Americas.

         We must first, and always, ensure subject matter jurisdiction. We review Nuseed Americas' motion to dismiss for lack of subject matter jurisdiction under our court of appeals' standard, not the Federal Circuit's, because these standards are “not unique to patent law.”[18]Nuseed Americas may facially and factually attack BASF's Complaint for lack of subject matter jurisdiction. After reviewing the parties' briefs, affidavits, and exhibits, we find Nuseed Americas makes a factual based attack because it disputes BASF's allegation it is the exclusive licensee of the patents-in-suit.[19]

         BASF bears the burden of proving we have subject matter jurisdiction.[20] In a factual attack, our review is “not confined to the allegations of the complaint, and the presumption of truthfulness does not attach to those allegations.”[21] We consider “evidence outside the pleadings, including affidavits, depositions, and testimony, to resolve any factual issues bearing on jurisdiction.”[22]

         BASF asks we declare the eight patents-in-suit invalid alleging there is an actual controversy between the parties because Nuseed Americas “expressed an intent to enforce the Patents-in-Suit.”[23] Nuseed Americas argues it is neither the patent owner nor the exclusive licensee and cannot have standing to bring a patent infringement suit against BASF. As a result, BASF is suing the wrong party and thus lacks standing to pursue a declaratory judgment against it alone.

         A. Subject matter jurisdiction under the Declaratory Judgment Act.

         BASF's only claim is for declaratory judgment. The Declaratory Judgment Act allows us to “declare the rights” of parties where their dispute is “definite and concrete, touching the legal relations of parties having adverse legal interests.”[24] Bound by Article III's case-or-controversy requirement, we determine “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”[25]

         The Declaratory Judgment Act does not grant us independent subject matter jurisdiction.[26] Instead, we must examine our jurisdiction over the underlying controversy between the parties.[27] We may only redress a party's action under the Declaratory Judgment Act if we have jurisdiction over the underlying controversy from another source.[28] “Thus, as long as the suit meets the case or controversy requirement of Article III, a district court may have jurisdiction over a declaratory judgment action.”[29] The Supreme Court “developed various more specific but overlapping doctrines rooted in the same Article III inquiry” of standing, ripeness, and mootness as “satisfying these doctrines” is the “absolute constitutional minimum for a justiciable controversy.”[30]

         We must ensure subject matter jurisdiction.[31] We turn to Nuseed Americas' motion bearing in mind the Supreme Court's instruction we “have an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party.”[32] BASF alleges the underlying controversy is Nuseed Americas possibly suing BASF for patent infringement so we begin our analysis by examining whether Nuseed Americas has constitutional standing to bring an infringement action against BASF for the patents-in-suit.

         B. Standing to sue for patent infringement must be resolved first.

         Congress allows a patentee to bring a civil action for infringement.[33] Congress defined “patentee” as “not only the patentee to whom the patent was issued but also the successors in title to the patentee.”[34] Interpreting those sections together, the Federal Circuit held “ordinarily” the “party holding legal title to the patent” has standing to bring an infringement claim.[35]

         Standing becomes more complicated where the patent owner licensed some or all of its patent rights to another party. If a party is “bare licensee, i.e., party with only a covenant from the patentee that it will not be sued for infringing the patent rights, [it] lacks standing to sue third parties for infringement of the patent.… [t]hus, an infringement action brought by a bare licensee must be dismissed. A bare licensee cannot sure its lack of standing by joining a patentee as a party.”[36]

         Where a patent owner exclusively licenses “all substantial rights” to the patent, the Federal Circuit deemed the exclusive licensee is the “effective” patentee and “may maintain an infringement suit in its own name, without joining the patentee” actually holding legal title.[37]

         If an exclusive licensee has less than “all substantial rights”, the Federal Circuit “adheres to the principle that a patent owner should be joined, either voluntarily or involuntarily, in any patent infringement suit.”[38] We require joinder of the patent owner for prudential standing rather than constitutional standing.[39] “As a prudential principle, an exclusive licensee having fewer than all substantial patent rights possesses standing under the Patent Act as long as it sues in the name of, and jointly with, the patent owner and meets the Lujan requirements.”[40] The Federal Circuit requires joinder of the patent owner to protect the infringer from multiple lawsuits for the same patent and to allow the patent owner to protect its rights in the patent from invalidity claims or enforceability it might lose in the litigation.[41]

         Whether the exclusive licensee has “all substantial rights” is based upon the exclusive right to sue and the licensing rights retained by the patent owner.[42] The Federal Circuit held the right to sue is “critical” and where the patent owner retains the right to sue for infringement “we require joinder of the patent [owner].”[43] If the licensee holds the exclusive right to sue, we then examine the license agreement analyzing the extent of the other rights the patent owner gave up including the exclusive licensee's right to sub-license, patent owner's reversionary interests, duration of license, and patent owner's degree of control over the license among others and we determine if the patent owner will “risk losing a substantial right if the claims are invalidated or the patent held unenforceable.”[44]

         The Federal Circuit held the same prudential standing applies to defendants in patent declaratory judgment actions and the “accused infringer must likewise join both the exclusive licensee and the patentee in a declaratory action because the patentee is a necessary party.”[45]

         If we find the exclusive licensee lacks “all substantial rights” to the patents, we dismiss without prejudice to allow the exclusive licensee sue the patent owners in a court which can exercise personal jurisdiction over the defendants.[46]

         C. We lack subject matter jurisdiction over the underlying controversy.

         BASF filed a declaratory judgment action. It alleges a real and immediate controversy between it and Nuseed Americas under the Declaratory Judgment Act because “Nuseed [Americas] has expressed an intent to enforce the Patents-in-Suits against BASF…”, in other words, BASF is alleging the real and immediate controversy is Nuseed Americas will sue it for patent infringement.[47] To exercise jurisdiction over BASF's declaratory judgment claim, there must be an underlying justiciable controversy between parties.[48] To meet the constitutional minimum for a justiciable controversy, Nuseed Americas must have standing to bring a ripe, non-moot patent infringement claim against BASF.[49]

         1. Nuseed Americas does not own ...

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