Inducing Delay: When a Court Can Deviate From the First-To-File Rule

Communications Test Design, Inc. v. Contec, LLC

Before O’Malley, Mayer, and Wallach. Appeal from the Eastern District of Pennsylvania.

Summary: Filing a declaratory judgment action in the midst of ongoing licensing negotiations may justify deviation from the “first-to-file” rule in favor of a later filed lawsuit.

Contec, LLC (“Contec”) contacted Communications Test Design, Inc. (“CTDI”) regarding its belief that CTDI’s set-top box testing systems were infringing its patents, threatening to file suit unless CTDI engaged in discussions regarding a potential license agreement. CTDI began discussions with Contec, indicated its intent to provide a counterproposal, and scheduled further discussions with Contec. Two days after accepting Contec’s invitation to discuss licensing terms, CTDI filed a declaratory judgment action in the Eastern District of Pennsylvania. Six days later, Contec filed a suit against CTDI in the Northern District of New York and moved to have CTDI’s suit in Pennsylvania dismissed. Contec alleged in its motion that CTDI had filed the declaratory judgment action in bad faith after inducing Contec to refrain from filing suit in a different forum by entering into licensing negotiations. The district court granted Contec’s motion to dismiss and CTDI appealed.

Citing the district court’s discretion to both decline to hear declaratory judgment suits and to deviate from the first-to-file rule, the Federal Circuit held that the district court did not abuse its discretion in dismissing CTDI’s declaratory judgment suit. Specifically, the Federal Circuit found no abuse of discretion in the district court’s determinations that: (1) CTDI filed its suit in anticipation of a lawsuit by Contec; (2) CTDI’s suit interfered with ongoing negotiations between the parties; and (3) the Northern District of New York was a more convenient forum.

Editor: Paul Stewart