American Machine & Metals, Inc. v. De Bothezat Impeller Co.

American Machine & Metals, Inc. (American Machine) (plaintiff) entered into an agreement with De Bothezat Impeller Co. (De Bothezat) (defendant). Under the contract, De Bothezat conveyed certain patents to American Machine, and American Machine agreed to pay De Bothezat license fees based on the net sales of its products, regardless of whether its products were covered by the patents. After 12 years, American Machine stopped manufacturing or selling any product that required possession of the patents. As a result, American Machine wanted to terminate the agreement and continue manufacturing and selling its non-infringing products. However, American Machine was reluctant to do so because De Bothezat said that upon termination of the contract, American Machine would no longer have the right to manufacture or sell the non-infringing products, and because De Bothezat threatened to sue American Machine if it did so. American Machine brought this action seeking a declaration of its rights under the agreement to continue manufacturing and selling the non-infringing products after the termination of the contract. The district court dismissed the action because American Machine had not terminated the contract. Therefore, no controversy yet existed under the Declaratory Judgment Act. American Machine appealed on the grounds that the district court’s dismissal was improper.