The US Court of Appeals for the Federal Circuit vacated and remanded the dismissal of a declaratory judgment action because the district court failed to sufficiently support its decision. Mitek Systems, Inc. v. United Services Automobile Association, Case No. 21-1989 (Fed. Cir. May 20, 2022) (Dyk, Taranto, Cunningham, JJ.)

United Services Automobile Association (USAA) owns four patents directed to using a mobile device to capture and transmit an image of a bank check for deposit. Mitek created software for mobile check capture called MiSnap™, which it licenses in the form of a software development kit to financial institutions. In 2017, USAA sent letters to Mitek’s customers, some with claim charts and patent lists. The customers subsequently demanded indemnification by Mitek. In 2018, USAA sued Wells Fargo, a Mitek customer, in the Eastern District of Texas. As the case progressed, USAA served a subpoena on Mitek seeking documents, source code and testimony about MiSnap™. The case went to trial on two of the four patents, and Mitek and its products were frequently mentioned.

Shortly thereafter, Mitek filed a complaint in California seeking declaratory judgment of no infringement as to all four USAA patents. To support jurisdiction for its declaratory judgment claim, Mitek alleged that there was real and substantial apprehension of imminent litigation between Mitek and USAA for infringement of the patents-in-suit. In response, USAA argued that there was no case or controversy as required by Article III of the Constitution, and thus the case should be dismissed under Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction. USAA also argued that the California court should exercise discretion to decline to hear claims for declaratory relief. USAA requested alternatively that the action be transferred to the Eastern District of Texas.

The California court transferred the case to the Eastern District of Texas. The Texas court then dismissed the action for lack of a case or controversy and stated that the court would exercise discretion to decline to entertain the declaratory judgment action. Mitek appealed.

Addressing subject matter jurisdiction, the Federal Circuit explained that the question was “whether the facts alleged, under all the circumstances, show that there is substantial controversy, between parties having adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Along these lines, a plaintiff must plead facts sufficient to establish jurisdiction at the time of the complaint, and a case or controversy must remain present throughout the course of the suit. The Court found that the Texas court’s decision provided insufficient reasoning for dismissal because it failed to identify first whether to treat the Rule 12(b)(1) motion as a facial or factual challenge, as required under Fifth Circuit precedent. The Federal Circuit instructed the district court on remand to explore any post-filing events that may have impacted jurisdiction, as well as similarities between Mitek’s relationships with Wells Fargo and other customers.

The Federal Circuit found that the district court’s case or controversy analysis was similarly inadequate. The Court explained [...]

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