Federal Circuit Lowers Bar for Declaratory Judgment Jurisdiction When Patentee is a Holding Company

Hewlett-Packard v. Acceleron 09-1283.pdf (Fed. Cir. 2009)

Acceleron’s patent No. 6,948,021 covers a hot-swappable server blade. In September 2007, Acceleron wrote to “call [HP's] attention to the referenced patent.” HP responded that they “would be willing to agree not to file” a declaratory judgment action for 120 days. Going back, Acceleron simply suggested that no declaratory judgment jurisdiction existed.

Rather than negotiating, HP filed a declaratory judgment action in Delaware District court. However, Judge Robinson dismissed that case – finding the potential for litigation by Acceleron “too speculative a prospect to support declaratory judgment jurisdiction.”

On appeal, the Federal Circuit found Acceleron’s actions were sufficient to support a declaratory judgment action — a holding that the court admits “undoubtedly marks a shift from past declaratory judgment cases.”


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The Constitution limits federal court jurisdiction to actual cases and controversies. Under the Supreme Court’s 2006 MedImmune decision, the question of declaratory judgment jurisdiction is answered after considering “all the circumstances” rather than any bright line rule. Subsequently, the Federal Circuit indicated that declaratory judgment jurisdiction exists when a patentee asserts rights against “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.” (Quoting SanDisk). Likewise, a party who has “actually been charged with infringement of a patent” will be able to identify declaratory judgment jurisdiction. (quoting Cardinal Chem).

Here, Acceleron argues that a patent owner should have some mechanism for contacting another party to discuss patent rights without raising declaratory judgment jurisdiction. Without disagreeing with that premise, the Federal Circuit held that this is not such a case.

Although Acceleron made no direct charges of infringement, the company did indicate that its patents were “relevant” to HP’s product line; that HP’s response must come within two-weeks; and asked HP not to file a DJ action. “Under the totality of the circumstances, therefore, it was not unreasonable for HP to interpret Acceleron’s letters as implicitly asserting its [patent] rights.”

Although dicta, the Federal Circuit also suggested that the “totality of the circumstances” analysis should included the fact that Acceleron is “solely a licensing entity.” That fact apparently creates a greater shadow of litigation because “without enforcement [Acceleron] receives no benefits from its patents.”

60 thoughts on “Federal Circuit Lowers Bar for Declaratory Judgment Jurisdiction When Patentee is a Holding Company

  1. Jerry: This is music to the ears of most NPE’s who would much rather swing for the fences in court than engage in long drawn out licensing dicsussions with reluctant potential licensees.

    That sort of short-term thinking is typical of troll cheerleaders, who tend towards Republican, teabagger type “analysis”. The faster the suits are filed, the faster the crap patents are invalidated. And the trolls won’t be able to make the usual b.s. argument that the existence of licensees is “evidence: of non-obviousness.

    By the way, speaking of Republican teabagger type cheerleaders, I noticed recently that a certain prominent patent blogger known for his self-promoting tendencies and ugly website design has finally outed himself as an anthropogenic climate change denier. Nobody could have predicted …

  2. This decision by the CAFC has unintended consequences and is actually an early Christmas present for patent litigation firms and NPE’s (non-producing entities) alike – or we can call them “trolls” if you prefer. The CAFC is simply telling NPE’s – “don’t bother trying to license your patents in a quasi-friendly way, just file a patent infringement suit in the jurisdiction of your choice and get on with it.”

    This is music to the ears of most NPE’s who would much rather swing for the fences in court than engage in long drawn out licensing dicsussions with reluctant potential licensees.

    Score another one for the mighty trolls!

  3. JAOI

    So, your opinion is either agree with you on everything or else someone is an asswhole?

    I disagree with Mooney on many issues. I also did not say I 100% agree with him on this issue.

  4. If following this decision even a mild assertion is going to ground a DJ action, why shouldn’t the patentee go all out?

    Oh, I dunno, maybe it’s best not to reveal the details of the battle plans to the enemy right away.

  5. From the decision:

    “But it is implausible (especially after MedImmune and several post-MedImmune decisions from this court) to expect that a competent lawyer drafting such correspondence for a patent owner would identify specific claims, present claim charts, and explicitly allege infringement.”

    Agree? Disagree? If following this decision even a mild assertion is going to ground a DJ action, why shouldn’t the patentee go all out?

  6. Patent Troll – a word conceived by idi0ts to attempt to influence the un-enlightened and susceptible

  7. Keep forgetting to mention: one of the best parts of this case is that even Judge Newman signed onto the opinion instead of writing one her patentee-hugging dissents.

    Savor.

  8. crazy prospector | Dec 08, 2009 at 10:57 AM

    Noise above Law | Dec 08, 2009 at 12:03 PM

    anon | Dec 08, 2009 at 10:47 AM

    I love the sound of patent trolls whining in the morning.

  9. “I do not expect MM to recognize much more than that which he already beholds.”

    With Malcolm’s prize shield of persistent ignorance – keep those expectations VERY low.

  10. MM demonstrates his lack of facility by arguing that a spam patent dictates the insignificant technological contribution of all small inventors that cannot afford to enforce.

    All this ruling will do is to have the NPE advise the inventor to send out the licensing inquiry with mild hints of potential backing before signing the NPE contract in order to further blur the issue for the courts.

    The courts should eventually recognize that their meddling is contributing to a greater morass.

    I do not expect MM to recognize much more than that which he already beholds.

  11. Quoting Malcolm:

    Yes, that’s the point. The producing entity’s patent benefits the producing entity by its mere existence, as knowledge of the patent’s existence dissuades competitors from copying the producing entity’s patent. A troll, on the other hand, receives nothing from the patent and must suck a producing entity’s blood in order to profit.

    That’s why we call them trolls.

    Maybe the CAFC should just adopt a rule that a patentee must produce at least a certain quantity of the patented article in order to enforce the patent. That way there wouldn’t be any more “trolls.” Let’s stop dancing around the issue and just say it: patents should not be transferrable. Inventors MUST manufacture. That’s the way the courts are headed with all of this hostility toward NPEs. After all, they are just “blood-sucking trolls.”

  12. “while a NPE is only interested in a cash pay out.”

    Not so.

    An NPE could be interested in licensing patented technology and technical expertise for new uses without being interested in suing based on current products. I don’t think that was the case here, but I don’t believe every contact by an NPE ought to trigger a DJ.

    But imagine if during such a discussion, it became obvious to one or both parties that current products were already using the NPEs solution. What if only the manufacturing party realizes their predicament?

  13. anon,

    I just want to note this is all based upon dicta in the first place.

    Your general point seems to be that the enforcement or the threat of enforcement is what brings people to the negotiating table regardless of whether the patentee is a practicing entity or NPE. True.

    However, a practicing entity is not always interested in a cash pay out while a NPE is only interested in a cash pay out. Therefore, if the parties disagree on the scope of a patent, the accused infringer will be sued with pretty much 100% certainty by a NPE. OTOH, the realistic threat of suit from a PE may be lower.

    The threat is absolutely there in both cases. But in the case of the PE, a calculation that the PE will not sue may be made where the argument for infringement is thin, the case may be hard to make, and/or the accused has patents that could read on the PE’s portfolio.

    The distinction is not about what legally may be doneby an NPE or a PE. It’s about what legally is likely to be done.

  14. Malcolm, have you ever considered that “troll” patents typically represent the inventions of individuals or small companies who, for one reasons or another, could not make the patented product or service themselves?

    Right. Like a method for sending out emails in bulk.

  15. So an entity that owns 1000 patents but only practices 500 of them is a troll half the time? Or does the “mere existance” standard apply as long as it practices one invention?

  16. MM: The producing entity’s patent benefits the producing entity by its mere existence, as knowledge of the patent’s existence dissuades competitors from copying the producing entity’s patent. A troll, on the other hand, receives nothing from the patent and must suck a producing entity’s blood in order to profit.

    That’s why we call them trolls.”

    Malcolm, have you ever considered that “troll” patents typically represent the inventions of individuals or small companies who, for one reasons or another, could not make the patented product or service themselves? Are we to let large company simply to use the inventions of the small inventor without compensation? Is that what you really, really want? Do you favor Goliath trampling on David? Do you really really favor the concept of might makes right?

    In your fantasy Utopian world, only large producers of products would have patents, and then only to protect against piracy of their products. If these companies were to develop patents that had applications outside of their core product lines, in your view of the world, they could not license them. That would be wrong. You would have them ignore the piracy of others and give the infringer a royalty-free license.

    Malcolm, I again note you seem to be 100% aligned with the big infringer against the small inventor, and you still have the unmitigated gall to accuse advocates of the small inventor names and to falsely accuse them also of being stooges of big corporations when the opposite is true.

  17. “Shoot, threaten to shoot, sue, threaten to sue, whatever. My point stands. The patent effects the exclusion of others, without its owner taking additional steps, in much the same way that a fence effects the exclusion of others without the property owner taking additional steps.”

    No, it does not — absent enforcement.

    Yes, it does, and as IBV pointed out upthread, the fence/wall is superfluous. I know it’s difficult by try to keep the context of this handful of comments fresh in your mind.

    The statement I was objecting to was anon’s statement at the tippy top of the thread where he/she wondered how a patent owner could derive benefits from a patent without “enforcement”. Anon stated that “without enforcement, there is no exclusion.” The term “enforcement” was taken from the Federal Circuit’s decision: “without enforcement [Acceleron] receives no benefits from its patents.”

    Obviously, when the Federal Circuit uses the term “enforcement” in this context, it means *actively* asserting a patent in court or threatening others with the patent to obtain licensing fees. Unless an NPE obtains licenses or wins lawsuits, it’s not making money from its patents which is the only tangible benefit of owning its patents, unless its patents cover some method or composition the NPE deems immoral.

    That’s not true of an entity that makes patented products. It benefits from merely excluding, just as I benefit from the public’s understanding that the sidewalk in front of my house is public but the grass between the sidewalk and my window is not. I don’t have to threaten trespassers or take them to court to achieve the benefits of ownership. I can do those things if I want to, of course, to achieve “better” results (in the short term, before some wise guy decides to set my lawn on fire) but I don’t have to do those things.

    Bottom line: engage in metaphysics about what is and what isn’t “enforcement” to your heart’s content. The Federal Circuit’s statement that “without enforcement [Acceleron] receives no benefits from its patents” is clear and logical. If the Federal Circuit meant to say “enforceability” instead of “enforcement”, they would have done so.

  18. “No, it does not — absent enforcement. Your right to real property exists only because the law enforces your rights (trespass, etc). Your title is a piece of paper. That paper, including the abstract concept it represents, does nothing to prevent trespass absent enforcement or a perceived threat thereof. ”

    What about the WALL that he just gave as an example?

    “Similarly, a patent effects NOTHING. ”

    There are a lot of patents that restrict myself, and a lot of other bright youngsters of having much hope of being able to practice our craft outside the environ of a large company in a very long time. And that’s if we could come up with the money to startup in the first place. This is occuring even if several of those other youngsters don’t even know it. Kind of like MM’s wall is keeping you out of his backyard without you even knowing it.

  19. MM, still insisting that property rights have meaning absent any enforcement, wrote:

    “Shoot, threaten to shoot, sue, threaten to sue, whatever. My point stands. The patent effects the exclusion of others, without its owner taking additional steps, in much the same way that a fence effects the exclusion of others without the property owner taking additional steps.”

    No, it does not — absent enforcement. Your right to real property exists only because the law enforces your rights (trespass, etc). Your title is a piece of paper. That paper, including the abstract concept it represents, does nothing to prevent trespass absent enforcement or a perceived threat thereof.

    Similarly, a patent effects NOTHING. Absent enforcement by the patentee, others are completely free to make, use, sell, import, etc. the patented invention.

  20. @Willton- We’ve gone from overly pro-patent to overly anti-patent. In recent years, we’ve seen the following anti-patent changes:

    a. doctrine of equivalence- trimmed.

    How is it “overly anti-patent” to limit the scope of a patent to be more closely to what the inventor actually invented, as opposed to what the inventor likely never envisioned?

    b. Permanent injunctions – harder to get

    For non-practicing entities, that’s correct. However, I don’t see that as a problem. And further, I don’t see how eBay v. Mercexchange presents the same problem for practicing entities.

    Besides, why should patent litigants get special rules when it comes to injunctions? What’s wrong with the traditional rules that one learned in Remedies class?

    c. Nonobviousness – tougher standard (wipes out most of the frivilous patents the anti-patent camp complains about).

    Shouldn’t pro-patent folks also want frivolous patents erradicated in order to make the system better? It would seem to me that whatever makes the system more pristine should garner favor among those who tout its virtues.

    d. Bilski – Might wipe out an entire block of patents, regardless of level of innovation.

    I’ll give you that, though I don’t see how that is overly anti-patent. One can make very reasonable arguments agains the patenting of business methods (which are best left to another day).

    e. damages – trimmed.

    That I have not seen in the case law, although I’m willing to be proven wrong.

    I think there’s more, but you get the drift. Moreover, patent applications are now published regardless of whether granted, granted for 20 years from filing (vs 17 years from grant), etc.

    That’s not anti-patent; that’s pro-public interest. I would think that such changes innure to the benefit of the patent system.

  21. Does a “patent troll” become a “practicing entity” for declaratory judgment and injunctive relief purposes if they make a “straw product” that practices the claimed invention and is on sale?

    In most cases, I can see how that would be easy and inexpensive to do. The most significant question is whether they can do that without infringing lots and lots of of patents owned by the potential licensee(s).

  22. Yes, Red Monkey, what we have now for triggering DJ jurisdiction may not be the best world for keeping potential licensing negotiations out of court. Ever since SCOTUS issued MedImmune, and especially after the fairly “low bar” standard for DJs that the Federal Circuit has followed since SanDisk, a patentee can approach a prospective licensee at great risk of being greeted with a subsequent DJ action. While Chief Judge Michel says a “bar” exists, it’s still hard figure out when that fairly “low bar” can’t be jumped over by a DJ claimant. In particular, judging the validity of DJ actions based on a “totality of circumstances” doesn’t help at all, but unfortunately, SCOTUS (which has no since of reality when it comes to patent law) has encouraged this with their “fuzzy” standard in MedImmune. May be “reasonable apprehension” was too high a bar, but what SCOTUS and now the Federal Circuit has put in its place makes patent licensing negotiations outside the courtroom almost impossible to do.

  23. Dear critique,

    The question, is such a letter binding?, would vary with the contract law of the state(s) involved.

  24. If the whole reason for the inability to negotiate is a race for venue, then could a patentee (troll, NPE, whatever) include language like:

    We would prefer to discuss and negotiate any impact of this patent. In order to address the issues amicably and improve the atmosphere for negotiation, we agree to give you two weeks notice prior to any filing of suit. If, after negotiation, we cannot reach agreement, we agree to give you a reasonable amount of time (two weeks?) to file a Declaratory Judgment request in the venue of your choice. If you choose not to file within this period, we will then reserve the right to file an infringement case.

  25. Malcolm Mooney said:
    A troll, on the other hand, receives nothing from the patent and must suck a producing entity’s blood in order to profit.
    That’s why we call them trolls.

    And Lionel said:
    “[I am] Somewhat in line with MM,…

    Without getting into the merits of the matter, I say this –

    Anybody who is in line with what Malcolm said is as big an asswhole as Malcolm.

    If the shoe fits…

  26. I wonder if the [unreasonable] request to respond in only two weeks was a factor? What large company can do infringement and validity studies AND make internal decisions in two weeks?

  27. If parties can only rely on litigation to commercialize a patent, the system is broke. Plain and simple.

    Well, it’s certainly not the case at all that parties have to litigate to commercialize a patent, so by that metric, at least, the system is not broke.

    We’ve gone from overly pro-patent to overly anti-patent

    Anti-patent? Really? How many patents did the PTO issue in 2004 to 2008 compared to, say, 1999 to 2003?

  28. @Willton- We’ve gone from overly pro-patent to overly anti-patent. In recent years, we’ve seen the following anti-patent changes:

    a. doctrine of equivalence- trimmed.

    b. Permanent injunctions – harder to get

    c. Nonobviousness – tougher standard (wipes out most of the frivilous patents the anti-patent camp complains about).

    d. Bilski – Might wipe out an entire block of patents, regardless of level of innovation.

    e. damages – trimmed.

    I think there’s more, but you get the drift. Moreover, patent applications are now published regardless of whether granted, granted for 20 years from filing (vs 17 years from grant), etc.

    I’ve already had a number of changes of patent law to address abuses. We likely need some more reform regarding how damages are calculated, but the most urgent reform needed now is to fix the DJ mess created by MedImmune and the Fed Circuit cases. The law should promote IP transaction by allowing parties to reasonably discuss patents without either side by threatened (by either a DJ action or Willful infringement). The laws of DJ actions and Willful should be adjusted to encourage good faith communications between parties. If parties can only rely on litigation to commercialize a patent, the system is broke. Plain and simple.

  29. The definition of Troll CAN be applied to such an entity [a University].

    No, because the quintessential troll has no other reason for existing except to accumulate patents and suck blood from deep-pocketed companies who provide actual products and services.

    I’ll grant you there are various shades of trollishness, but Universities, at their worst, are a very pale shade of grey.

  30. “Not even close.”

    That’s my point Malcolm. The definition of Troll CAN be applied to such an entity.

    This is NOT to say that it is not in a University’s interest to assert its patents. If you don’t think that the university system is not aware of the potential for patent income, you are either delusional or simply blithely ignorant.

  31. The question of where to draw the line is not answered by the fence, but the fence does provide evidence to be used in the determination.

    As does patent marking, or any notice of the patent.

  32. Mooney–

    I don’t like your fence analogy.

    A better analogy would be to compare a yard WITHOUT a fence to a patent. It is property you hold.

    The fence would be like a published notice of the patent in an appropriate trade journal, or marking on an article.

    I have the right to exclude people from my property whether or not it is surrounded by a fence. The fence gives them notice that it is privately held and that my trespass may occasion consequences, a notice superior to that offered in the absence of any fence.

    The relevant question is: how reasonably likely is it that those consequences will be occasioned, and what is the locus and standard for reasonableness?

    The question of where to draw the line is not answered by the fence, but the fence does provide evidence to be used in the determination.

  33. NAL The term encompasses Universities

    Last time I checked, university employees actually invent nearly all of the patents owned by universities AND asserting patents is not the sole or primary reason for the existence of the university. Not even close.

  34. So now that the troll can no longer approach his prey safely, he has to file a complaint first, approach his prey to negotiate, and then if negotiations break down or the service period comes close to ending, he serves the complaint.

    In effect, the CAFC position drives the troll to enter a race to the courthouse which only the troll can win, since it is the troll who holds the starting gun.

    Is this supposed to be an improvement?

  35. Acceleron is right: A patent owner should have some mechanism for contacting another party to discuss patent rights without raising declaratory judgment jurisdiction.

    I have two questions.

    1) How about just send a copy of the patent to the CEO or in-house counsel of a company by registered mail without any accompanying text? Maybe sign it “T.R. Ollie, Inc. — A Patent Licensing Company.” Then wait a couple weeks for a phone call.

    2) Why should a patent owner have some mechanism for contacting another party to discuss patent rights without raising declaratory judgment jurisdiction? Either the patent is valid or it isn’t. If you believe it’s valid and you are contacting a big company you are likely looking to collect some serious change. So step up to the plate. I suspect that the real problem here is the mere existence of DJ actions for the purpose invalidating patents, and not the words or acts which communicate the sufficent threat of litigation.

  36. The type of behavior characterized by “troll” is NOT limited to those entities without actual products. The term encompasses Universities, think tanks and even large companies with products (just not products with the patented features).

    “so please just give it up now”

    Property is property – deal with it.

  37. Talk of “troll” is a bogeyman, meant to scare the illiterate and unknowledgable.

    No, it’s shorthand to refer to a business entity whose sole or primary reason for existing is to accumulate patents to assert against deep-pocketed companies with actual products.

    You wish to discourage use of the term in order to protect your own interests in the continued existence and vitality of patent trolls. But you’ll never succeed at doing that so please just give it up now.

  38. makro wrote: “Why are patents being hammered so hard by the Federal Circuit?”

    Because they have been abused for a long time by entities such as Acceleron. Push-back from the CAFC was a long-time coming.

  39. …and in Malcolm’s world, fences are a “bad thing”., since they impede the equal sharing of everything by everybody (communism).

    In the real world, fences are not only NOT a “bad thing”, fences can be a very good thing, for a variety of reasons.

    Just like owning property.

  40. Shoot, threaten to shoot, sue, threaten to sue, whatever. My point stands. The patent effects the exclusion of others, without its owner taking additional steps, in much the same way that a fence effects the exclusion of others without the property owner taking additional steps.

  41. This problem would not exist if those receiving letters from NPE’s didn’t immediately worry about being sued in the Eastern District of Texas and the need to beat the NPE to a different venue.

  42. Upon further analysis, Malcolm’s position and Beware the Troll rhetoric is as empty as the statement “fine, don’t take a license…”

    No one believes that it is fine not to take a license. That’s why there are courts to seek redress from this type of injustice.

    Let’s understand this as a basic proposition: Property is property. It can be bought and sold. IP is no different in this regard.

    It is up to the individual owner to do with her property as she sees fit. Talk of “troll” is a bogeyman, meant to scare the illiterate and unknowledgable. Those who traffic in inflated scare tactics and resort to obvious strawmen like shooting trespassers simply have nothing better to do with their time than push their agendas.

    And before you jump up and down, you might just see my views on this particular case at the Hawk’s site:
    link to patenthawk.com

    There is no need for strawmen or bogeymen here.

  43. “I can easily imagine cases where the practicing patentee would offer a license to an infringing competitor yet decline to enforce the patent if the offer is refused.

    A patentee could offer a license knowing that if the license is refused that the cost of a suit is greater than the cost of allowing the infringement to continue.”

    Certainly, and assuming information symmetry, the infringer will almost certainly not take a license.

    Since there’s (practically) always information assymetry, the infringer might feel the need to take the license in order to avoid being sued for patent infringement. Which is enforcement or threat thereof.

    Indeed, the prudent business move in this case is for the inventor/practicing entity to sell the patent to an NPE, deriving value from enforcement by proxy (alternatively, the NPE is standing in the shoes of the PE).

  44. Either don’t put them on notice (which means they can likely say “no thanks” and probably not incur any willfulness) or you put them on notice (which means they can DJ right away). The days of trying to walk a tight rope are over.

  45. By the same “logic,” the fence around your yard is worthless unless you threaten to shoot everyone that comes within ten feet of it.

    Your analogy is inapposite for several reasons. A more accurate one would be ‘by the same logic, the property line around your home is worthless unless you enjoy at least some of the benefits of a well-defined property right, such as suing for trespass and offering a clean title to a buyer based on the well-defined property line.’ In which case, yes, I would agree with that.

  46. MM wrote, regarding “without enforcement, there is no exclusion.”

    “By the same “logic,” the fence around your yard is worthless unless you threaten to shoot everyone that comes within ten feet of it.”

    Wrong. Enforcement, or threat thereof, includes trespassing as both a common law tort and statutory prohibition. The fence communicates your property line and your lack of permission to enter.

    Deadly force is verboten to prevent trespassing alone.

  47. So the patent is worse than valueless without enforcement? “Beat you to market” is a strategy best used without disclosure in a patent application.

    I agree with you in general, but I can easily imagine cases where the practicing patentee would offer a license to an infringing competitor yet decline to enforce the patent if the offer is refused.

    A patentee could offer a license knowing that if the license is refused that the cost of a suit is greater than the cost of allowing the infringement to continue.

    Or consider a patentee with a single product covered by its patent. The market takes a downturn and the patentee, though solvent, is not flush with cash. The patentee discovers that a competitor is infringing its patent. The patentee offers a license to the competitor because it can’t afford to sue and needs the money. The competitor refuses the offer, and the patentee is left with no real choice but to compete on its merits in the market.

    What I don’t think is that these kinds of cases are so common as to make the rate of enforcement for practicing entities meaningfully lower than that for nonpracticing entities. I’m willing to be proven wrong with empirical data, though.

  48. The shift in Declaratory Judgements will make it much, much more difficult (if not impossible) to market or commercialize patents without risking a DJ, greatly decreasing their value.

    Nice job Federal Circuit! Have you thought this one through?

    Because of these recent changes, more small inventors/businesses are selling their patents to NPEs since they have NO OTHER WAY TO COMMERCIALIZE THEIR PATENTS. This is feeding more anti-patent rhetoric. I spoken to one Chief IP counsel who indicated they are no longer sending any offers to license out to other parties.

    The old DJ standard was one extreme (patentees could outright harass businesses and their customers) without any recourse. Now, the pendulum has swung the other way resulting in another extreme.

    The purpose of the DJ action is to allow someone to resolve a controversy. What’s the standard now? Is paying an issue fee an “affirmative act” if the other party made plans to make the future infringing product?

    Acceleron is right: A patent owner should have some mechanism for contacting another party to discuss patent rights without raising declaratory judgment jurisdiction.

    Other other party has reexaminations, can respond forcefully, can ignore (if reaonably confident). If concerned about the patent, negotiate a license.

    Why are patents being hammered so hard by the Federal Circuit?

  49. JD and others: Without enforcement, there is no exclusion.

    By the same “logic,” the fence around your yard is worthless unless you threaten to shoot everyone that comes within ten feet of it.

    On the other hand, that is probably exactly how some teabagger troll types treat their property.

  50. Such a patent holder may want the other party to simply stop producing goods that it believes infrintge. Or they may be interested in a cross-license.

    Your examples still requires the threat of enforcement. In the first, the threat is ‘stop or we will make you stop via an injunction.’ In the second it’s ‘agree not to sue us and we will agree not to sue you,’ with the implication that otherwise there may be a lawsuit or at least a counterclaim.

    So both practicing entities and nonpracticing entities derive value from the threat of enforcement. If an entity really, truly would never enforce a patent, not even to extract a crosslicense or make a counterclaim, then why not get a statutory invention registration?

    One possible justification for a different standard is the actual rate of enforcement: which kind of entity resorts to a lawsuit more often when licensing negotiations break down? But even if enforcement rates were markedly different it’s not clear to me that it’s appropriate to disadvantage a party based on the actions of others, even if they fall into the same class.

  51. Lionel Hutz wrote:
    “Such a patent holder may want the other party to simply stop producing goods that it believes infrintge. Or they may be interested in a cross-license.”

    That’s enforcement.

    MM wrote: “The producing entity’s patent benefits the producing entity by its mere existence, as knowledge of the patent’s existence dissuades competitors from copying the producing entity’s patent.”

    That’s threat of enforcement, which only exists because of enforcement.


    James Daily wrote:
    …”making the point that a holding company has no alternate revenue stream from the sale of goods and services. Thus, where a practicing entity might say “fine, don’t take a license, we’ll beat you in the market” a holding company must (according to the court) necessarily say “okay, we’ll sue for infringement.”"

    So the patent is worse than valueless without enforcement? “Beat you to market” is a strategy best used without disclosure in a patent application.

    Regarding the alternative revenue stream…opportunity cost being what it is, whether you own a widget-stamping factory in Des Moines is completely irrelevant (unless you are talking about defensive uses of patents — which again is threat of enforcement).

  52. Without enforcement, there is no exclusion.

    I had the same thought. I would hope that the court was simply conflating ‘patents’ with ‘patented technology’ and making the point that a holding company has no alternate revenue stream from the sale of goods and services. Thus, where a practicing entity might say “fine, don’t take a license, we’ll beat you in the market” a holding company must (according to the court) necessarily say “okay, we’ll sue for infringement.”

    Of course, it’s still a fairly absolute statement. Has there ever been a successful holding company that never sued or threatened to sue in order to get licensing fees? Do practicing entities whose offers to license are rebuffed typically refrain from suit? It seems like it’s possible for the empirical evidence to contradict the court’s assumption that holding companies rely on enforcement more than practicing entities, or at least that they do so to such a degree that warrants a distinction when determining DJ jurisdiction.

    Of course, one could take the extreme position that, since a licensing agreement is really just an agreement not to sue in exchange for money, all licensing negotiations are really just settlement negotiations, and the threat of litigation is implicit. Thus, all holding companies that license their patents are actually threatening to sue. But at that point all negotiations would create DJ jurisdiction, which seems absurd to me, but maybe not to others.

    The court’s opinion raises other questions, too. What about a holding company that has an exclusive licensee (e.g., a university or a producing corporation’s separate IP holding company)? What if a holding company makes and sells a token amount of product? What if it’s more than a token amount but doesn’t have a substantial share of the market? It seems like this opinion will either catch more entities that intended or will be easily distinguished by actual ‘patent trolls’ it was clearly intended to affect.

    broje makes some good points, too.

  53. anon,

    Somewhqat in line with MM, a company actually producing goods may just be interested in protecting its market space. Such a patent holder may want the other party to simply stop producing goods that it believes infrintge. Or they may be interested in a cross-license.

    A licensing entity only makes money from licensing its portfolio.

    I would say a letter from a licensing company is more of a threat than one from a company that actually makes goods.

  54. Will the same apply to a producing entity attempting to enter negotiations about licensing one of their patents that has claims that do not protect one of their products? In that case, it would seem that that producing entity stands in the shoes of a purely licensing entity.

    Or would it not apply if the moving party makes a product that may or may not infringe that patent, and that directly competes with the patentee’s product, even though the patentee’s product does not have the claimed feature set?

  55. So, how does a producing entity (i.e., not solely a licensing entity) derive benefits from its patents without enforcement? Patent law 101 – a patent is merely a right to exclude, not a right to produce.

    Yes, that’s the point. The producing entity’s patent benefits the producing entity by its mere existence, as knowledge of the patent’s existence dissuades competitors from copying the producing entity’s patent. A troll, on the other hand, receives nothing from the patent and must suck a producing entity’s blood in order to profit.

    That’s why we call them trolls.

  56. “the Federal Circuit also suggested that the “totality of the circumstances” analysis should included the fact that Acceleron is “solely a licensing entity.” That fact apparently creates a greater shadow of litigation because “without enforcement [Acceleron] receives no benefits from its patents.”

    So, how does a producing entity (i.e., not solely a licensing entity) derive benefits from its patents without enforcement? Patent law 101 – a patent is merely a right to exclude, not a right to produce.

    Without enforcement, there is no exclusion.

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