Declaratory Judgment

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A declaratory judgment is a judgment from a court that defines the legal relationship that exists between the parties to a lawsuit, as well as their rights in the matter. A declaratory judgment does not make a conclusive decision on a case. Rather, it is used for the purpose of settling a dispute so that the case can progress freely with the matter in question having been resolved. To explore this concept, consider the following declaratory judgment definition.

Definition of Declaratory Judgment

Noun

  1. A legal determination, made by a court, resolving a legal uncertainty within a legal action by outlining the facts of the case before it.

History of Declaratory Judgments

The history of declaratory judgments began in the U.S. in the early 1900s. In 1922, Congress enacted the Uniform Declaratory Judgment Act (UDJA), which was implemented by the Uniform Law Commission (ULC). The ULC was first established in 1892, and its chief goal is to provide states with properly researched and drafted legislation, to ensure that their statutory laws are clear and stable. The purpose of the UDJA is to establish that courts are within their rights to make declarations without issuing any further relief.

The history of declaratory judgments continues with Congress enacting a statute in 1934, similar to that of the UDJA, that authorizes federal courts to grant declaratory judgments. This statute is known as the Federal Declaratory Judgments Act (FDJA). The FDJA does not dictate the procedure for gaining a declaratory judgment in federal court, however. This process is governed by the Federal Rules of Civil Procedure.

Purpose of a Declaratory Judgment

The purpose of declaratory judgments is to make the parties to an action aware of their legal rights if those rights are not entirely clear to them up front. Further, the purpose of a declaratory judgment is to provide answers to the more basic questions at the beginning of a case, so that the matter can proceed to the more important material. It has been said that the purpose of a declaratory judgment is to ensure that courts act like “preventative clinics, as well as hospitals for the injured.”

An example of a declaratory judgment being necessary in a case is provided by the UDJA, which affirms the importance of a declaratory judgment in an insurance coverage action. Here, those who are parties to a written contract may have questions insofar as the validity of the contract, or the wording of it. The court’s issuing of a declaratory judgment clears up any potential confusion, so that the case can proceed with everyone being aware of their rights and the legitimacy of the contract.

Examples of declaratory judgments that can be issued during an insurance coverage case, such as one outlining the existence of coverage for a claim, the priority of coverage if issued by multiple insurers, and whether a policy exclusion can be applied. A policy exclusion is a provision that eliminates a risk that the company does not wish to insure. Depending on the jurisdiction, a declaratory judgment may or may not be used for the purposes of reforming an insurance policy. Further, some jurisdictions have ruled that declaratory judgments cannot be sought by an insurer that has already denied the other party coverage.

A party wishing to commence a declaratory judgment action must first consider which court the action will be brought in, and the state laws that will apply to that case. Consider the following example:

William, a New York resident, has a car insurance policy with a company that is based out of Michigan. While on vacation in California, William gets into a car accident and decides to pursue a declaratory judgment matter against the person who hit him, who hails from Illinois. There are now four states involved in the pending lawsuit. The appropriate jurisdiction for the case must be determined, so as to ensure that the relevant state laws are involved in governing such an action.

Declaratory Judgment Act

The two main features of the Declaratory Judgment Act are:

  • It allows potential defendants to sue to establish their lack of liability in the case
  • It provides a party who is faced with liability an opportunity to settle before his adversary begins to litigate the case

The Declaratory Judgment Act makes no mention of how to resolve disputes in a preventative fashion. However, the very intention of the declaratory relief created by the statute was to resolve pending or potential issues before court intervention became necessary. Per Section 1 of the Declaratory Judgment Act:

“In a case of actual controversy within its jurisdiction, … any court of the United States … may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment and shall be reviewable as such.”

While declaratory relief was meant to be used as a softer alternative to a remedy obtained after the court becomes involved in a case, Section 2 of the Act goes on to say that:

“[F]urther necessary or proper relief based upon a declaratory judgment or decree may be granted, after reasonable notice and hearing, against any adverse party whose rights have been determined by such judgment.”

The relief mentioned here may include damages or injunctive remedies. This relief is considered supplementary to the declaratory judgment at hand.

Declaratory Judgment Example Involving Patents

An example of a declaratory judgment matter being brought before the Supreme Court occurred in 2014. In 1991, two companies – Medtronic, Inc. and Mirowski Family Ventures, LLC – entered into an agreement that allowed Medtronic to use some of Mirowski’s medical device patents, so long as Mirowski received royalties from Medtronic’s usage of them. The agreement also specified that, if Mirowski notified Medtronic that one of Medtronic’s products infringed upon one of Mirowski’s patents, Medtronic had two options:

  1. It could simply pay Mirowski the royalties owed to it; or
  2. It could pay the royalties, and then challenge Mirowski’s infringement claim by seeking a declaratory judgment.

Of course, Medtronic also had the option of ignoring the agreement and not paying any royalties to Mirowski whatsoever. If this was the case, then Mirowski would be within its rights to end the license granted to Medtronic, and bring an infringement lawsuit against it.

In 2006, the companies amended the agreement to modify the procedure by which they could resolve any disputes between them. The new agreement specified that, if Medtronic was provided timely written notice of the alleged infringement, and if it then chose to seek a declaratory judgment to challenge that claim, it should deposit any disputed royalties into an escrow account. Whoever then won the declaratory judgment action would be awarded those royalties.

The two companies found themselves embroiled in an infringement dispute the following year. Mirowski noticed Medtronic for seven of its new products that Mirowski believed infringed upon its patents. Medtronic disagreed that the products infringed on the patents, believing that the so-called patents were invalid, and it filed a declaratory judgment action in the Federal District Court in Delaware. Medtronic was compliant with the amended agreement, however, and continued to deposit all potential royalties into an escrow account.

The District Court acknowledged that Mirowski was the defendant in this action. However, it ruled that, because Mirowski was alleging infringement, it carried the burden of proving that infringement. After a bench trial, the court found that Mirowski did not successfully prove infringement and ruled in favor of Medtronic.

The Court of Appeals for the Federal Circuit, however, ruled the exact opposite. The appellate court believed that Medtronic actually bore the burden of proof based on the fact that the patentee is normally the one to prove the infringement. The court did note, however, that different rules apply when the patentee is a defendant in a declaratory judgment case, as Mirowski was here. As such, Mirowski was “foreclosed” from asserting a counterclaim of infringement by the “continued existence of a license.”

Medtronic then sought certiorari from the Supreme Court, asking the Court to review the Federal Circuit Court’s rule regarding the burden of proof. The Court granted Medtronic’s request, and ultimately reversed the Federal Circuit Court’s decision. In its decision, the Court held that:

“Indeed, it was Mirowski that set the present dispute in motion by accusing Medtronic of infringement. And in such an instance, we see no convincing reason why burden of proof law should favor the patentee.”

Related Legal Terms and Issues

  • Burden of Proof – The responsibility of a party to a trial to produce evidence that will prove that party’s legal position.
  • Counterclaim – A claim made to offset, or counter, another claim; a retaliatory claim by a defendant against a plaintiff in a civil lawsuit.
  • Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
  • Infringement – The act of breaking the terms of an agreement; a violation.
  • Litigation – The process of taking legal action; the process of suing someone, or trying them for a criminal act.
  • Royalty – A sum of money paid to a patentee for the use of a patent.
  • Writ of Certiorari – An order issued by a higher court demanding a lower court forward all records of a specific case for review.