In Communications Test Design, Inc., v. Contec, LLC, [2019-1672] (March 13, 2020), the Federal Circuit affirmed the dismissal of Communications Test Design, Inc.’s (CTDI) declaratory judgment action in favor of Contec’s later filed infringement action, agreeing that equitable considerations warranted departure from the first-to-file rule.
Contec argued that CTDI filed the Pennsylvania action in bad faith during active licensing discussions only after inducing Contec to refrain from filing its own complaint against CTDI in a different forum. Relying on the timing and content of the parties’ communications, the district court found that “CTDI filed suit in anticipation of Contec’s impending infringement suit.” The district court found that, although CTDI had every right, in its business and legal judgment, to break off negotiations and resort to litigation, it was not permitted to string Contec along just long enough to get the judicial drop and file this lawsuit in its own backyard.
The Federal Circuit noted that as long as the district court acts in accordance with the purposes of the Declaratory Judgment Act and the principles of sound judicial administration, it has broad discretion to refuse to entertain a declaratory judgment action.
The general rule is that the first-filed action is preferred, even if it is declaratory, unless considerations of judicial and litigant economy and the just and effective disposition of disputes require otherwise. Trial courts have discretion to make exceptions to this general rule in the interest of justice or expediency, and such exceptions are not rare.
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.
The Federal Circuit said that 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.
Overall, the Federal Circuit found no abuse of discretion in the district court’s analysis. The Federal Circuit affirmed the district court’s dismissal.