US SUPREME COURT DECISIONS

III

The Declaratory Judgment Act provides that, “[i]n 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.” 28 U. S. C. §2201(a). There was a time when this Court harbored doubts about the compatibility of declaratory-judgment actions with Article III’s case-or-controversy requirement. See Willing v. Chicago Auditorium Assn., 277 U. S. 274, 289 (1928); Liberty Warehouse Co. v. Grannis, 273 U. S. 70 (1927); see also Gordon v. United States, 117 U. S. Appx. 697, 702 (1864) (the last opinion of Taney, C.J., published posthumously) (“The award of execution is … an essential part of every judgment passed by a court exercising judicial power”). We dispelled those doubts, however, in Nashville, C. & St. L. R. Co. v. Wallace, 288 U. S. 249 (1933), holding (in a case involving a declaratory judgment rendered in state court) that an appropriate action for declaratory relief can be a case or controversy under Article III. The federal Declaratory Judgment Act was signed into law the following year, and we upheld its constitutionality in Aetna Life Ins. Co. v. Haworth, 300 U. S. 227 (1937). Our opinion explained that the phrase “case of actual controversy” in the Act refers to the type of “Cases” and “Controversies” that are justiciable under Article III. Id., at 240.

Aetna and the cases following it do not draw the brightest of lines between those declaratory-judgment actions that satisfy the case-or-controversy requirement and those that do not. Our decisions have required that the dispute be “definite and concrete, touching the legal relations of parties having adverse legal interests”; and that it be “real and substantial” and “admi[t] of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.” Id., at 240–241. In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U. S. 270, 273 (1941), we summarized as follows: “Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” [Footnote 7].

There is no dispute that these standards would have been satisfied if petitioner had taken the final step of refusing to make royalty payments under the 1997 license agreement. Respondents claim a right to royalties under the licensing agreement. Petitioner asserts that no royalties are owing because the Cabilly II patent is invalid and not infringed; and alleges (without contradiction) a threat by respondents to enjoin sales if royalties are not forthcoming. The factual and legal dimensions of the dispute are well defined and, but for petitioner’s continuing to make royalty payments, nothing about the dispute would render it unfit for judicial resolution. Assuming (without deciding) that respondents here could not claim an anticipatory breach and repudiate the license, the continuation of royalty payments makes what would otherwise be an imminent threat at least remote, if not nonexistent. As long as those payments are made, there is no risk that respondents will seek to enjoin petitioner’s sales. Petitioner’s own acts, in other words, eliminate the imminent threat of harm. [Footnote 8] The question before us is whether this causes the dispute no longer to be a case or controversy within the meaning of Article III.

Our analysis must begin with the recognition that, where threatened action by government is concerned, we do not require a plaintiff to expose himself to liability before bringing suit to challenge the basis for the threat—for example, the constitutionality of a law threatened to be enforced. The plaintiff’s own action (or inaction) in failing to violate the law eliminates the imminent threat of prosecution, but nonetheless does not eliminate Article III jurisdiction. For example, in Terrace v. Thompson, 263 U. S. 197 (1923), the State threatened the plaintiff with forfeiture of his farm, fines, and penalties if he entered into a lease with an alien in violation of the State’s anti-alien land law. Given this genuine threat of enforcement, we did not require, as a prerequisite to testing the validity of the law in a suit for injunction, that the plaintiff bet the farm, so to speak, by taking the violative action. Id., at 216. See also, e.g., Village of Euclid v. Ambler Realty Co., 272 U. S. 365 (1926); Ex parte Young, 209 U. S. 123 (1908). Likewise, in Steffel v. Thompson, 415 U. S. 452 (1974), we did not require the plaintiff to proceed to distribute handbills and risk actual prosecution before he could seek a declaratory judgment regarding the constitutionality of a state statute prohibiting such distribution. Id., at 458–460. As then-Justice Rehnquist put it in his concurrence, “the declaratory judgment procedure is an alternative to pursuit of the arguably illegal activity.” Id., at 480. In each of these cases, the plaintiff had eliminated the imminent threat of harm by simply not doing what he claimed the right to do (enter into a lease, or distribute handbills at the shopping center). That did not preclude subject-matter jurisdiction because the threat-eliminating behavior was effectively coerced. See Terrace, supra, at 215–216; Steffel, supra, at 459. The dilemma posed by that coercion—putting the challenger to the choice between abandoning his rights or risking prosecution—is “a dilemma that it was the very purpose of the Declaratory Judgment Act to ameliorate.” Abbott Laboratories v. Gardner, 387 U. S. 136, 152 (1967).

Supreme Court jurisprudence is more rare regarding application of the Declaratory Judgment Act to situations in which the plaintiff’s self-avoidance of imminent injury is coerced by threatened enforcement action of a private party rather than the government. Lower federal courts, however (and state courts interpreting declaratory judgment Acts requiring “actual controversy”), have long accepted jurisdiction in such cases. See, e.g., Keener Oil & Gas Co. v. Consolidated Gas Utilities Corp., 190 F. 2d 985, 989 (CA10 1951); American Machine & Metals, Inc. v. De Bothezat Impeller Co., 166 F. 2d 535 (CA2 1948); Hess v. Country Club Park, 213 Cal. 613, 614, 2 P. 2d 782, 783 (1931) (in bank); Washington-Detroit Theater Co. v. Moore, 249 Mich. 673, 675, 229 N. W. 618, 618–619 (1930); see also Advisory Committee’s Note on Fed. Rule Civ. Proc. 57. [Footnote 9].

The only Supreme Court decision in point is, fortuitously, close on its facts to the case before us. Altvater v. Freeman, 319 U. S. 359 (1943), held that a licensee’s failure to cease its payment of royalties did not render nonjusticiable a dispute over the validity of the patent. In that litigation, several patentees had sued their licensees to enforce territorial restrictions in the license. The licensees filed a counterclaim for declaratory judgment that the underlying patents were invalid, in the meantime paying “under protest” royalties required by an injunction the patentees had obtained in an earlier case. The patentees argued that “so long as [licensees] continue to pay royalties, there is only an academic, not a real controversy, between the parties.” Id., at 364. We rejected that argument and held that the declaratory-judgment claim presented a justiciable case or controversy: “The fact that royalties were being paid did not make this a ‘difference or dispute of a hypothetical or abstract character.’ ” Ibid. (quoting Aetna, 300 U. S., at 240). The royalties “were being paid under protest and under the compulsion of an injunction decree,” and “[u]nless the injunction decree were modified, the only other course [of action] was to defy it, and to risk not only actual but treble damages in infringement suits.” 319 U. S., at 365. We concluded that “the requirements of [a] case or controversy are met where payment of a claim is demanded as of right and where payment is made, but where the involuntary or coercive nature of the exaction preserves the right to recover the sums paid or to challenge the legality of the claim.” Ibid. [Footnote 10]

   The Federal Circuit’s Gen-Probe decision distinguished Altvater on the ground that it involved the compulsion of an injunction. But Altvater cannot be so readily dismissed. Never mind that the injunction had been privately obtained and was ultimately within the control of the patentees, who could permit its modification. More fundamentally, and contrary to the Federal Circuit’s conclusion, Altvater did not say that the coercion dispositive of the case was governmental, but suggested just the opposite. The opinion acknowledged that the licensees had the option of stopping payments in defiance of the injunction, but explained that the consequence of doing so would be to risk “actual [and] treble damages in infringement suits” by the patentees. 319 U. S., at 365. It significantly did not mention the threat of prosecution for contempt, or any other sort of governmental sanction. Moreover, it cited approvingly a treatise which said that an “actual or threatened serious injury to business or employment” by a private party can be as coercive as other forms of coercion supporting restitution actions at common law; and that “[t]o imperil a man’s livelihood, his business enterprises, or his solvency, [was] ordinarily quite as coercive” as, for example, “detaining his property.” F. Woodward, The Law of Quasi Contracts §218 (1913), cited in Altvater, supra, at 365. [Footnote 11].

Jurisdiction over the present case is not contradicted by Willing v. Chicago Auditorium Association, 277 U. S. 274. There a ground lessee wanted to demolish an antiquated auditorium and replace it with a modern commercial building. The lessee believed it had the right to do this without the lessors’ consent, but was unwilling to drop the wrecking ball first and test its belief later. Because there was no declaratory judgment act at the time under federal or applicable state law, the lessee filed an action to remove a “cloud” on its lease. This Court held that an Article III case or controversy had not arisen because “[n]o defendant ha[d] wronged the plaintiff or ha[d] threatened to do so.” Id., at 288, 290. It was true that one of the colessors had disagreed with the lessee’s interpretation of the lease, but that happened in an “informal, friendly, private conversation,” id., at 286, a year before the lawsuit was filed; and the lessee never even bothered to approach the other co-lessors. The Court went on to remark that “[w]hat the plaintiff seeks is simply a declaratory judgment,” and “[t]o grant that relief is beyond the power conferred upon the federal judiciary.” Id., at 289. Had Willing been decided after the enactment (and our upholding) of the Declaratory Judgment Act, and had the legal disagreement between the parties been as lively as this one, we are confident a different result would have obtained. The rule that a plaintiff must destroy a large building, bet the farm, or (as here) risk treble damages and the loss of 80 percent of its business, before seeking a declaration of its actively contested legal rights finds no support in Article III. [Footnote 12].

Respondents assert that the parties in effect settled this dispute when they entered into the 1997 license agreement. When a licensee enters such an agreement, they contend, it essentially purchases an insurance policy, immunizing it from suits for infringement so long as it continues to pay royalties and does not challenge the covered patents. Permitting it to challenge the validity of the patent without terminating or breaking the agreement alters the deal, allowing the licensee to continue enjoying its immunity while bringing a suit, the elimination of which was part of the patentee’s quid pro quo. Of course even if it were valid, this argument would have no force with regard to petitioner’s claim that the agreement does not call for royalties because their product does not infringe the patent. But even as to the patent invalidity claim, the point seems to us mistaken. To begin with, it is not clear where the prohibition against challenging the validity of the patents is to be found. It can hardly be implied from the mere promise to pay royalties on patents “which have neither expired nor been held invalid by a court or other body of competent jurisdiction from which no appeal has been or may be taken,” App. 399. Promising to pay royalties on patents that have not been held invalid does not amount to a promise not to seek a holding of their invalidity.

Respondents appeal to the common-law rule that a party to a contract cannot at one and the same time challenge its validity and continue to reap its benefits, citing Commodity Credit Corp. v. Rosenberg Bros. & Co., 243 F. 2d 504, 512 (CA9 1957), and Kingman & Co. v. Stoddard, 85 F. 740, 745 (CA7 1898). Lear, they contend, did not suspend that rule for patent licensing agreements, since the plaintiff in that case had already repudiated the contract. Even if Lear’s repudiation of the doctrine of licensee estoppel was so limited (a point on which, as we have said earlier, we do not opine), it is hard to see how the common-law rule has any application here. Petitioner is not repudiating or impugning the contract while continuing to reap its benefits. Rather, it is asserting that the contract, properly interpreted, does not prevent it from challenging the patents, and does not require the payment of royalties because the patents do not cover its products and are invalid. Of course even if respondents were correct that the licensing agreement or the common-law rule precludes this suit, the consequence would be that respondents win this case on the merits—not that the very genuine contract dispute disappears, so that Article III jurisdiction is somehow defeated. In short, Article III jurisdiction has nothing to do with this “insurance-policy” contention.

Lastly, respondents urge us to affirm the dismissal of the declaratory-judgment claims on discretionary grounds. The Declaratory Judgment Act provides that a court “may declare the rights and other legal relations of any interested party,” 28 U. S. C. §2201(a) (emphasis added), not that it must do so. This text has long been understood “to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants.” Wilton v. Seven Falls Co., 515 U. S. 277, 286 (1995); see also Cardinal Chemical Co. v. Morton Int’l, Inc., 508 U. S. 83, 95, n. 17 (1993); Brillhart v. Excess Ins. Co. of America, 316 U. S. 491, 494–496 (1942). We have found it “more consistent with the statute,” however, “to vest district courts with discretion in the first instance, because facts bearing on the usefulness of the declaratory judgment remedy, and the fitness of the case for resolution, are peculiarly within their grasp.” Wilton, supra, at 289. The District Court here gave no consideration to discretionary dismissal, since, despite its “serious misgivings” about the Federal Circuit’s rule, it considered itself bound to dismiss by Gen-Probe. App. to Pet. for Cert. 31a. Discretionary dismissal was irrelevant to the Federal Circuit for the same reason. Respondents have raised the issue for the first time before this Court, exchanging competing accusations of inequitable conduct with petitioner. See, e.g., Brief for Respondent Genentech 42–44; Reply Brief for Petitioner 17, and n. 15. Under these circumstances, it would be imprudent for us to decide whether the District Court should, or must, decline to issue the requested declaratory relief. We leave the equitable, prudential, and policy arguments in favor of such a discretionary dismissal for the lower courts’ consideration on remand. Similarly available for consideration on remand are any merits-based arguments for denial of declaratory relief.

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We hold that petitioner was not required, insofar as Article III is concerned, to break or terminate its 1997 license agreement before seeking a declaratory judgment in federal court that the underlying patent is invalid, unenforceable, or not infringed. The Court of Appeals erred in affirming the dismissal of this action for lack of subject-matter jurisdiction.

The judgment of the Court of Appeals is reversed, and the cause is remanded for proceedings consistent with this opinion.

It is so ordered.