Oh Snap: Sufficient Reasoning Must Support Declaratory Judgment Dismissal | McDermott Will & Emery

Oh Snap: Sufficient Reasoning Must Support Declaratory Judgment Dismissal | McDermott Will & Emery


The U.S. Court of Appeals for the Federal Circuit dropped and remanded the dismissal of a declaratory judgment action because the district court did not support its decision sufficiently. Mitek Systems, Inc. against United Services Automobile Associationcase no. 21-1989 (Fed. Cir. May 20, 2022) (Dyk, TarantoCunningham, JJ.)

United Services Automobile Association (USAA) holds four patents for the use of a mobile device to capture and transmit an image of a bank check by deposit. Mitek created a software for capturing mobile checks called MiSnap ™, which is licensed in the form of a software development kit to financial institutions. In 2017, USAA sent letters to Mitek customers, some with claims charts and patent lists. Customers subsequently sought compensation from Mitek. In 2018, USAA sued Wells Fargo, a client of Mitek, in the East Texas District. As the case progressed, USAA sent a subpoena to Mitek for documents, source code, and testimony about MiSnap. The case was tried in two of the four patents, and Mitek and its products were frequently mentioned.

Shortly afterwards, Mitek filed a lawsuit in California seeking a declaration of non-infringement of the four U.S. patents. To support the jurisdiction of its declaratory court claim, Mitek alleged that there was a real and substantial apprehension of an impending litigation between Mitek and USAA for infringement of the patents in the lawsuit. In response, the USAA argued that there was no case or controversy as required by Article III of the Constitution, and therefore the case should be dismissed under the Fed. R. Civ. P. 12 (b) (1) for lack of jurisdiction in the matter. USAA also argued that the California court should exercise discretion in refusing to hear declaratory relief claims. USAA alternately requested that the action be moved to the East Texas District.

The California court moved the case to the Eastern District of Texas. The Texas court then dismissed the action for lack of a case or controversy and declared that the court would exercise its discretion to dismiss the declaratory judgment action. Mitek appealed.

Addressing the jurisdiction in this matter, the Federal Circuit explained that the question was “whether the alleged facts, in all circumstances, show that there is a substantial controversy between the parties who have an unfavorable legal interest, immediate and real sufficient to justify the issuance of a declaratory statement. “In this line, a plaintiff must allege sufficient facts to establish jurisdiction at the time of the complaint, and a case or dispute must remain present during the course of the lawsuit. the Texas court’s decision did not provide sufficient reasoning for the dismissal because it did not first identify whether the Rule 12 (b) (1) motion should be treated as a factual or factual challenge, as required. The Fifth Circuit precedent The Federal Circuit instructed the district court in pretrial detention to explore any post-filing events that may have affected the jurisdiction, as well as the similarities between Mitek’s relationship with Wells Fargo and other clients. .

The Federal Circuit found the analysis of the district court case or dispute to be equally inadequate. The Court explained that the first basis for the analysis of the case or dispute was possible liability for infringement, which the district court did not address. The court explained that the district court:

  • It did not determine whether the USAA had waived its interest or taken decisions against Mitek
  • It could not be explained why the lack of intervention during the Wells Fargo affair, his best indicator of Mitek’s attention in relation to the USAA litigation, was of particular weight.
  • The different types of infringement could not be considered separately. For example, the district court cited evidence in the Wells Fargo case that without personalization, Mitek did not infringe. But the need for personalization did not exclude Mitek from liability for incentives if, for example, Mitek encouraged infringement through certain manuals.

The Federal Circuit explained that the second basis was the alleged compensation claims made by licensees after USAA sent letters. The Court held that the letters created sufficient litigation for infringement for Mitek’s customers to claim declaratory compensation, which was a necessary element of the interest based on compensation. The Court noted that Mitek’s only example letter included a list of patents with three patents in demand and a claims chart, and that as a result of Wells Fargo’s litigation, the client would also know that the technology was related to Mitek. The Court also noted that the second aspect of the indemnity-based claim, if there was a reasonable potential for Mitek’s indemnity liability beyond mere claims or claims, should be determine the district court in prevention.

The Federal Circuit recognized that if a district court “acts in accordance with the purposes of the Statutory Judgment Act and the principles of good judicial administration, [it] It has wide discretion to refuse to accept a declaratory action. “However, the Court insisted that there must be” substantiated reasons “for declining jurisdiction. inadequate explanation and could be different without the deficiencies, must annul the decision and stop it for reconsideration.The Court explained that it was following this course here and reconsidered it.

The Federal Circuit rejected Mitek’s invitation to order the case to be remanded in custody in California, despite Mitek’s argument that critical witnesses were in California. The Court found no abuse of discretion, concluding that California was not a much more convenient place than Texas.

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