The U.S. Court of Appeals for the Federal Circuit (“CAFC”) recently reversed a lower court’s dismissal of a declaratory judgement action for lack of subject matter jurisdiction in a case where the defendant, Asetek Danmark A/S (“Asetek”), did not actually allege that any particular product made by the plaintiff, Asia Vital Components Co. (“AVC”), infringed its patents. Instead, Asetek mistakenly accused AVC of infringement based on a potentially infringing product (the Liqmax 120s) that AVC does not manufacture. When the U.S. District Court for the Eastern District of Virginia dismissed the case, “[t]he district court held that the ‘complaint does not plead sufficient facts to show that there is a substantial controversy under the totality of the circumstances.’” AVC v. Asetek, No. 2015-1597, slip op., p. 4 (Fed. Cir. Sept. 8, 2016). The district court relied on Asetek’s response that it had “never accused [AVC’s] K7 or K9 products of infringement, and … did not even know that those products existed before AVC’s complaint.” Id.
The CAFC reversed, stating that:
Asetek relies heavily on the fact that it never referenced AVC’s particular products or product line as potentially infringing, and, in fact, did not even know of AVC’s products at the time of the complaint. But we have not required such specific facts to find jurisdiction.
The question of jurisdiction does not turn on Asetek’s knowledge of the specific AVC products or whether Asetek specifically alleged that the K7 and K9 products infringed the asserted patents; instead, the question is whether, under all the circumstances, Asetek’s actions “can be reasonably inferred as demonstrating intent to enforce a patent.” Hewlett-Packard, 587 F.3d at 1363. We conclude that Asetek’s conduct demonstrates just that.
Id. at pp. 8-9
Regarding “the circumstances,” the CAFC said:
We agree with AVC that the totality of circumstances indicates that an actual controversy existed between the parties at the time of the declaratory judgment complaint. Although the April 30, 2014 letter incorrectly accused AVC of manufacturing the Liqmax 120s, it was still a demand letter that referenced a product that AVC contends is similar to its own K7 and K9 products. Upon receiving the letter, AVC contacted Asetek, saying that it did not manufacture the Liqmax 120s, and then, in a follow-up email, AVC requested a meeting with Asetek “to discuss the related matter.” J.A. 105. Instead of simply responding that it had made a mistake with respect to the Liqmax 120s, Asetek’s August 2, 2014 email contained a number of statements that indicate that an actual controversy between the parties existed.
Id. at p. 6
It is not uncommon for patent owners to send out demand letters (e.g., cease and desist letters) to potential infringers. The CAFC’s ruling in AVC v. Asetek highlights the risks of doing so. In light of the CAFC’s ruling, patent owners are reminded to take care not to send demand letters to parties that they do not wish to litigate against. They are also reminded to exercise caution when making threatening statements because even an erroneously accused party (like AVC) can bring a declaratory judgement action against a patent owner when the totality of circumstances indicate that an actual controversy between the parties exists.