Federal Circuit Affirms Dismissal of First-Filed Declaratory Judgment Action

The case is Communications Test Design, Inc. v. Contec, LLC, opinion by Judge O'Malley.  The patent owner, Contec, based in New York, initiated communications with Communications Test Design, Inc. (CDTI), based in Pennsylvania, regarding the possible infringement of two Contec patents.  As described in the opinion:

In September 2018, Contec’s counsel sent a letter to CTDI stating that “the parties’ extrajudicial process for obtaining information about CTDI’s systems, without the full discovery obligations that would be imposed during litigation, has proved unsatisfactory.” . . . The letter asked CTDI to indicate, by September 19, 2018, whether it was willing to “discuss potential terms for a patent license agreement.” . . . Contec warned that, if it did not receive such confirmation, it would sue for patent infringement. . . . Contec attached to its letter a draft of its proposed complaint. . . .

On September 19—Contec’s stated deadline—Jerry Parsons, CTDI’s Chairman and chief executive officer (CEO), spoke on the phone with Hari Pillai, Contec’s CEO, about a possible license for Contec’s patents. During that conversation, Pillai proposed initial terms, and the executives agreed to talk again on September 24, when Parsons would make a counterproposal. . . .

Later that same day, CTDI’s counsel sent an email to Contec’s counsel, confirming that “CTDI will consider potential terms as requested in your most recent letter.” . . .

On September 21—two days after accepting Contec’s request to discuss licensing terms—CTDI filed a declaratory judgment action in Pennsylvania. . . . 

On September 24—the day the CEOs were scheduled to talk—CTDI’s counsel emailed Contec’s counsel a copy of the declaratory judgment complaint. Counsel stated that official service would be held for a period of time to allow further discussion between the executives.

Contec thereafter filed its infringement action in federal district court in New York, and moved to dismiss the declaratory judgment action in Pennsylvania.  The Pennsylvania court dismissed the action, and CDTI appealed.

The Federal Circuit affirms, stating:

When one of two competing suits in a first-to-file analysis is a declaratory judgment action, district courts enjoy a “double dose” of discretion: discretion to decline to exercise jurisdiction over a declaratory judgment action and discretion when considering and applying the first-to-file rule
and its equitable exceptions. . . .

Here, the district court carefully considered the record of the parties’ dispute, up to and including the competing filings, and concluded that several factors warranted departure from the first-to-file rule. Specifically, the court found that: (1) CTDI filed its declaratory judgment complaint in anticipation of Contec’s patent infringement complaint; (2) CTDI’s suit interfered with ongoing negotiations between the parties and did not serve the objectives of the Declaratory Judgment Act; and (3) on balance, the Northern District of New York is a more convenient forum. As explained below, we find no abuse of discretion in the district court’s analysis.

Reviewing the record, the court further finds that a remand for an evidentiary hearing is not warranted.