CAFC Expands Scope of Declaratory Judgment Jurisdiction

SanDisk v. STMicroelectronics (Fed. Cir. 2007).

SanDisk and ST were undergoing explicitly “friendly discussions” regarding cross-licensing of flash-memory technology rights. At a “settlement” meeting, ST showed a powerpoint presentation that mapped its claims to SanDisk technology and openly discussed SanDisk’s [alleged] infringement.

Apprehension: To avoid a declaratory judgment suit, ST’s attorney told SanDisk that “ST has absolutely no plan whatsoever to sue SanDisk.”  SanDisk agreed that it would at least wait until the following Tuesday to sue.   License proposals were exchanged, but SanDisk eventually didn’t like the deal.  About one month after the initial meetings, SanDisk sued for declaratory judgment of noninfringement and invalidity.

Case Dismissed: The district court dismissed the case — finding no actual controversy under the Declaratory Judgment Act “because SanDisk did not have an objectively reasonable apprehension of suit.”  Under Article III of the constitution, courts only have jurisdiction over actual “cases and controversies.” In regards to patent related declaratory judgment actions, the Federal Circuit has held that such a case or controversy only exists when a party has an objectively reasonable apprehension of being sued for patent infringement.

Deleting The Reasonable Apprehension Test: In the meantime, the Supreme Court decided MedImmune v. Genentech – tearing a large hole through the CAFC’s DJ reasonable apprehension test. 

“The Supreme Court’s opinion in MedImmune represents a rejection of our reasonable apprehension of suit test.”

Under the CAFC’s new rule, a patentee can create a situation amenable to declaratory judgment jurisdiction by making statements far short of threatening legal action. In particular, DJ jurisdiction can exist when the patentee’s position vis-a-vis a DJ plaintiff either (1) indicate that the DJ plaintiff is taking illegal actions or (2) pushes the DJ plaintiff toward abandoning legitimate activities.

“Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do.”

In particular, the following should be closely considered when writing cease and desist letters:

“We hold only that where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.”

Here, the CAFC found that ST’s activities were sufficient to create DJ jurisdiction.  In particular, the claim charts mapping out infringement along with ST’s discussion of SanDisk’s “infringement” were sufficient to create jurisdiction. There was no need to cut-off license negotiations prior to filing suit. Furthermore, ST’s self-serving statement that it did not intend to sue did “not moot the actual controversy created by its acts.” 

Vacated and remanded.

Notes:

  • The rule still requires some activity by the patentee: “In the context of conduct prior to the existence of a license, declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee.”
  • Concurrence: In a concurring opinion, Judge Bryson spells the fear of many patent holders: “it would appear that under the court’s standard virtually any invitation to take a paid license relating to the prospective licensee’s activities would give rise to an Article III case or controversy if the prospective licensee elects to assert that its conduct does not fall within the scope of the patent.”

16 thoughts on “CAFC Expands Scope of Declaratory Judgment Jurisdiction

  1. The problem I have with this is that the small entity /business is wide open to abuse by larger well financed companies. In effect the bigger the company the easier it will be for them to take IP and look for a reason to start litigation. I have already seen some affects of this – I was told that if I push they will see us in court. My options are to give a substantial slice and partner with someone with deep pockets or do nothing.

    Steve

  2. The problem I have with this is that the small entity /business is wide open to abuse by larger well financed companies. In effect the bigger the company the easier it will be for them to take IP and look for a reason to start litigation. I have already seen some affects of this – I was told that if I push they will see us in court. My options are to give a substantial slice and partner with someone with deep pockets or do nothing.

    Steve

  3. What really surprised me was the way the CAFC limited the reach of FRE 408 (see fn #1). I have operated on the assumption that an FRE 408-disclaimed letter regarding settlement/licensing discussions could never be used against me. I guess I thought wrong.

  4. “The US litigation community doesn’t have the experience of losing business to other jurisdictions, so sees no reason to pay any attention to anything happening outside USA.”

    I have to say that inventors also see no reason to adopt a clearly inferior system. What you call ultra fair and fast is not fair, it is in fact clearly biased to protect vested interests. This is at least in part the reason that Europe does not come close to producing the number of upstart startups which America produces.

    Ronald J. Riley,
    President – http://www.PIAUSA.org – RJR at PIAUSA.org
    Executive Director – http://www.InventorEd.org – RJR at InvEd.org
    Senior Fellow – http://www.PatentPolicy.org – RRiley at PatentPolicy.org
    Washington, DC
    Direct (202) 318-1595 – 9 am to 9 pm EST.

  5. Hello Confused of London, do you not think it futile to test US legal ways against the template of how we do things in Europe, because US common law (discovery, cross-examination, binding precedent, EQUITY) is by now UNIQUE in all the world. English common law got subsumed long ago by ROW civil law. Opposition works at the civil law EPO (fact-finding more than a bit dodgy) but how much are you willing to bet, that it will fail, in rigorous fact-finding common law USA. Users of the European patent system (both patent owners and petitioners for revocation) can present to a civil law German judge, if they (think: Asians and Europeans)don’t care for the common law. This has driven England to make its way of litigating patents ultra-fast and ultra-fair, which in turn has forced fact-finding reforms in German litigation, out of motivation not to lose any more of the litigation business to England. The US litigation community doesn’t have the experience of losing business to other jurisdictions, so sees no reason to pay any attention to anything happening outside USA.

  6. Thanks. I would say that, if a patent is invalid, it is in the public interest that it be be revoked and that, for that reason alone, the state should acknowledge a duty to undo via the courts or some other body what the patent office does wrong. But I don’t have to pay either patentees’ legal bills or the tax that (I assume?) funds the courts, so maybe it makes sense to have some hurdle to jump, in which case I suppose it is inveitable that there will be a lot of haggling over the hurdle’s height.

    Interesting point re inter-partes re-exam. I guess I hadn’t focused on that because it’s always so comprehensively written off in what I read here. Similarly, one can file for revocation in the UK Patent office (any time, no opposition term) instead of the court, but most people go to court. By contrast, EPO Oppositions aren’t perfect by any means but they’re not bad, and they’re good value compared to actual litigation, so they’re quite popular (when, of course, you know you need to challenge withing nine months of grant).

    In the US, the existence of re-exam does mostly address my point at a policy/theory level. And if re-exam were a better process, or if an opposition system were introduced that did not suffer from re-exam’s drawbacks, that would address it at a practical level too – I don’t see any absolute need to be able to begin the challenge in a court as long as you end up in front of a suitable tribunal some time.

  7. The real problem is that alleged infringers file DJ actions to get their choice of forum, not get out from under the proverbial Sword of Damocles. The solution is to recognize that the DJ defendant is the defacto plaintiff and to give him the right to an automatic change of venue. This will eliminate the incentive to race to the courthouse and, I suspect, dramatically reduce the number DJ actions which are filed.

  8. I’m curious what the magic “confidentiality agreement” is supposed to say exactly. The fact that there is a general agreement to keep discussions confidential does not seem relevant to whether there is a controversy. Is the agreement supposed to include stipulations that the information cannot be used to establish DJ jurisdiction? Is it supposed to include an express litigation standstill agreement?

  9. ConfusedOfLondon:

    Also keep in mind that a third party always has the option of seeking to invalidate the patent by way of reexamination. That process is undertaken at the Patent Office and, at least in the case of inter partes reexamination, can be appealed to a federal appellate court. Of course rarely do third parties elect to file a reexamination since most view the process as being undesirable.

  10. ConfusedOfLondon,

    As I understand it, the aversion to “first strike” suits comes from the fact that our constitution gives the federal courts jurisdiction over “cases and controversies,” and the courts have interpreted that to mean that they don’t adjudicate hypothetical questions.

    For example, if I see a patent I don’t like, but I have no intention of practicing the invention and the patentee has no intention of enforcing the patent, it’s a waste of everyone’s time for me to sue the patentee for a declaration that the patent is invalid. If, however, my business competes with the patentee’s business, and there’s a decent argument that one of my products infringes, it’s still not perfectly clear that my dispute with the patentee is “real” enough for me to drag him into court.

    The difference between a hypothetical question and a “case or controversy” isn’t always clear, and the courts have tried with mixed success to articulate rules on this. SanDisk is the latest effort in this regard.

  11. As a British/European Patent Attorney, I always find it difficult to understand why the US law provdes any restriction at all on a “first strike” by the a third party, irrespective of whether he is infringing (or might be infringing or might like to start infringing or whatever) or not. To us, even over and above EPO oppositions, which can only be filed within nine months from grant of an EP patent, first-strike national revocation/nullity actions, and also actions for declarations of non-infringement, are just a normal part of the landscape. I’ve never really understood why this is not so in the USA too; it just seems to stack the deck way too heavily in favour of the patentee.

    Maybe it has to do with the presumption of validity, another concept that confuses us here sometimes! Or a desire to avoid a lot of vexatious litigation, especially since the norm in the US is that parties bear their own (very substantial) costs whereas we are used to the losing side being exposed to at least some of the winning side’s costs as well as its own?

  12. Is there any supportable theory that the CAFC cut loose the bounds of Article III jurisdiction, due to their pique at the S. Ct. for its Medimmune ruling?

  13. Michael:

    One of the best pieces of advice I have read here in a long, long time. As someone who recently made thw switch from Big Law to inhouse, I quickly learned firsthand how licensing discussions between clients are usually much more productive than the lawyers exchanging letters and phone calls. Of course that does not mean that the client should be allowed to engage in such discussions without first consulting with counsel. But, in many respects, a lawyer should view license discussions as, first and foremost, a business transaction between two parties. Sure there are situations in which that is not possible, and an aggressive lawyer-to-lawyer approach is warranted. But, I think it is a good practice to start with the assumption that is not the best approach.

  14. I learned a valuable lesson many years ago. Patents belong to the business and not the lawyer. Moreover, patents are but one of many factors considered by a business in setting business strategy and what is best for its long term financial interest. Hence, as a lawyer I have always hewn to the line that it is what the business wants that is controlling, and that my role is to help it achieve its goal. It is never my job to define that goal for it. I work for the business, and not vice versa.

    Ignoring the principle of law involved here, especially after Medimmune, it totally escapes me why a lawyer would insist that licensing discussions be held completely independent from other business discussions. Time after time I have learned that licensing discussions are facilitated and likely to succeed when a lawyer resists the temptation to tell be business “Trust me, I know how best to do this”. In almost all cases where an arms length transaction is the goal, such an approach virtually ensures that the goal will not be met except in a court of law.

    In one of my most successful negotiations for a license, one involving the USG who rarely if ever willingly takes a license, I recommended to the business organization that it use the good will established over the years with the USG on a specific government program to secure agreement with the USG program’s manager that the USG would take a license. That agreement came quickly and was given as business direction for the lawyers to implement. Things went smoothly thereafter and an agreement was executed within only a few weeks. By the way, it was a license based on patents, the mention of which to the USG almost invariably leads to 1498 rearing its ugly head.

    The moral? Sometimes what you learn is law school is anathema to effectively serving your client. Setting the groundwork for litigation should generally be a last resort, and not the first.

    Business is conducted in “real time”, and not “legal time”.

  15. So, you make an offer to enter into a discussion regarding ‘business opportunities’ that is to be covered by a confidentiality agreement and if the infringer fails to agree to this confidential discussion then you file suit before attempting to negotiate?

  16. You’d think there’s a middle ground somewhere between Pfizer v Teva (Teva couldn’t get Pfizer to sue them and couldn’t get DJ jurisdiction) and the MedImmune/Sandisk cases. Why does the pendulum have to swing so wildly?

    What are the chances that someone will open up a clearinghouse to anonymously send copies of patents (or even infringement analyses) to potential infringers/licensees so as to place them on notice and possibly induce them to institute licensing negotiations, without triggering DJ jurisdiction?

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