Microsoft v. DataTern: Declaratory Judgment Jurisdiction and End User Lawsuits

By Jason Rantanen

Microsoft Corporation v. Datatern, Inc. (Fed. Cir. 2014) 13-1184.Opinion.4-1-2014.1
Panel: Rader (dissenting-in-part), Prost, Moore (author)

This case relates to one of the most common criticisms of the patent system raised today: infringement suits and threats of enforcement made against end users. If yesterday’s order in In re Toyota represented the Federal Circuit’s first venture in this area, Microsoft v. DataTern is the followup expedition.

DataTern sued several Microsoft and SAP customers, alleging that they infringed Patents No. 5,937,402 and 6,101,502 based on the customers’ use of Microsoft and SAP products.  DataTern’s claim charts extensively referred to the functionality of the Microsoft and SAP products and in most cases cited to Microsoft and SAP documentation for each claim limitation.  The exception was the ’402 patent claim charts: they cited to non-Microsoft documentation for some claim limitations.

Based on this activity, Microsoft and SAP filed declaratory judgment actions against DataTern.  The district court rejected DataTern’s motion to dismiss for lack of subject matter jurisdiction and granted summary judgment of noninfringement to Microsoft and SAP.  DataTern appealed.

On appeal, the Federal Circuit agreed that the district court possessed subject matter jurisdiction over Microsoft and SAP’s declaratory judgment action in three of the four scenarios in play.  On the fourth scenario (Microsoft and the ’402 patent), the majority concluded that the district court lacked jurisdiction while Judge Rader would have found jurisdiction across the board.  (As a reminder, subject matter jurisdiction in declaratory judgment actions asks “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.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007).)

In reaching this conclusion, the majority rejected two important arguments raised by Microsoft/SAP: (1) that suing customers can provide a basis for subject matter jurisdiction by supplier for direct infringement and (2) that suing customers necessarily creates jurisdiction for induced or contributory infringement:

To the extent that Appellees argue that they have a right to bring the declaratory judgment action solely because their customers have been sued for direct infringement, they are incorrect. DataTern has accused customers using Appellees’ software packages of infringing the asserted method claims, but there are no arguments that there is a case or controversy between DataTern and Appellees on direct infringement.

To the extent that Appellees argue that DataTern’s suits against its customers automatically give rise to a case or controversy regarding induced infringement, we do not agree. To prove inducement of infringement, unlike direct infringement, the patentee must show that the accused inducer took an affirmative act to encourage infringement with the knowledge that the induced acts constitute patent infringement. Global–Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011). Absent the knowledge and affirmative act of encouragement, no party could be charged with inducement.

Slip Op. at 7-8.  However, the court did hold that declaratory judgment jurisdiction could be based on an inducement of infringement or contributory infringement claim.  Here, DataTern’s charts were sufficient to raise this issue for Microsoft and the ’502 patent and SAP and both patents.

The claim charts provided to the SAP customers allege direct infringement of the ’402 and ’502 patents based on SAP’s customers’ use of BusinessObjects. Moreover, these claim charts cite to SAP-provided user guides and documentation for each claim element. In other words, DataTern’s claim charts show that SAP provides its customers with the necessary components to infringe the ’402 and ’502 patents as well as the instruction manuals for using the components in an infringing manner. Providing instructions to use a product in an infringing manner is evidence of the required mental state for inducing infringement.

Id. at 9 (comment: of course, knowledge (or at least willful blindness) that the acts infringe is also required under Global-Tech v. SEB, but there doesn’t seem to be a dispute about that here).

But, the claim charts were insufficient for Microsoft and the ’402 patent:

The ’402 patent claim charts as they relate to Microsoft’s customers, however, are substantively different. They cite exclusively to third-party—not Microsoft provided— documentation for several key claim limitations. While these claim charts allege the customers’ direct infringement of the ’402 patent based on its use of Microsoft’s ADO.NET, they do not impliedly assert that Microsoft induced that infringement. Nothing in the record suggests that Microsoft encouraged the acts accused of direct infringement, and simply selling a product capable of being used in an infringing manner is not sufficient to create a substantial controversy regarding inducement.

Slip Op. at 10.

Judge Rader dissented, expressing concern that the majority’s opinion gave patent holders whose enforcement strategy involved suing end users who could not afford to litigate a roadmap for avoiding triggering declaratory judgment jurisdiction for manufacturers.  This, Judge Rader contends, is a problem:

Of course, DataTern and other potential patent litigants would like to find a way to keep Microsoft or other major corporations on the sidelines while seeking numerous settlements with their customers who cannot afford the cost of a major lawsuit. Thus, this decision takes on special importance because it shows DataTern and its successors a way to achieve that lucrative objective.

The roadmap comes about because all a patent holder needs to do to avoid triggering declaratory judgment jurisdiction is to make sure to cite to non-manufacturer documentation for several “key” claim limitations.

The court determines in this case that jurisdiction is not available over Microsoft’s action on the ’402 patent because DataTern “cite[d] exclusively to third party—not Microsoft-provided—documentation for several key claim limitations” in its charts. Majority Op. at 10. For this reason alone, the court denies Microsoft declaratory judgment jurisdiction to resolve these issues in a single focused lawsuit. This lone detail, within the control of the patent owner, should not defeat an otherwise valid declaratory judgment action. The practical effect of this holding creates a roadmap to allow DataTern and its successors to keep Microsoft on the sidelines while running up wins against customers, who are often smaller and less-equipped to defend themselves.

Slip Op. at 25.

Comment: One way that this opinion may be limited by future courts is to focus on the “several key claim limitations.”  It may be that transparent attempts to avoid creating jurisdiction by token references to non-manufacturer documentation will not suffice.

39 thoughts on “Microsoft v. DataTern: Declaratory Judgment Jurisdiction and End User Lawsuits

  1. ‘This case relates to one of the most common criticisms of the patent system raised today: infringement suits and threats of enforcement made against end users’

    Sure, criticism by thieves.

    Just because they call it “reform” doesn’t mean it is.

    link to npr.org
    link to npr.org

    “patent reform”…America Invents Act, vers 1.0, 2.0, 3.0…

    “This is not a patent reform bill” Senator Maria Cantwell (D-WA) complained,
    despite other democrats praising the overhaul. “This is a big
    corporation patent giveaway that tramples on the right of small
    inventors.”

    Senator Cantwell is right. All these bills do is legalize theft. Just because they call it “reform” doesn’t mean it is. The paid puppets of banks, huge multinationals, and China continue to brain wash and bankrupt America.

    They should have called these bills the America STOPS Inventing Act or ASIA, because that’s where they’re sending all our jobs. The present bill (vers 1, 2, 3, etc) is nothing less than another giveaway for huge multinationals and China and an off shoring job killing nightmare for America. Even the leading patent expert in China has stated these bills will help them steal our inventions.

    Patent reform is a fraud on America. These bills will not do what they claim they will. What they will do is help large multinational corporations maintain their monopolies by robbing and destroying their small entity and startup competitors (so it will do exactly what they paid for) and with them the jobs they would have created. They have already damaged the US patent system so that property rights are teetering on lawlessness. These bills will only make it harder and more expensive for small firms to get and enforce their patents. Without patents we cant get funded. In this way large firms are able to play king of the hill and keep their small competitors from reaching the top as they have. Yet small entities create the lion’s share of new jobs. According to recent studies by the Kauffman Foundation and economists at the U.S. Census Bureau, “startups aren’t everything when it comes to job growth. They’re the only thing.” Meanwhile, the large multinationals ship more and more jobs overseas. These bills are a wholesale destroyer of US jobs.

    Small entities and inventors have been given far too little voice on this bill when one considers that they rely far more heavily on the patent system than do large firms who can control their markets by their size alone. The smaller the firm, the more they rely on patents -especially startups and individual inventors. Congress and Obama tinkering with patent law while gagging inventors is like a surgeon operating before examining the patient.

    Those wishing to help fight big business giveaways and set America on a course for sustainable prosperity, not large corporation lobbied poverty, should contact us as below and join the fight as we are building a network of inventors and other stakeholders to lobby Congress to restore property rights for all patent owners -large and small.

    for a different/opposing view on patent reform, please see…
    link to truereform.piausa.org
    link to piausa.wordpress.com
    link to washingtonexaminer.com
    link to hoover.org

    1. Further, patents grant the inventor the rights to exclude all others from making, using and selling the invention. Naturally, denying an inventor to exclude ‘users’ from ‘using’ would be a denial of their property rights. Is it really that difficult to understand? It is if you’re a large infringers or one of their paid puppets.

  2. Here is the incredible junk being infringed by the customers:

    . A method for enabling an object oriented user application to access a relational database having one or more physical tables segmented into rows and columns, comprising:

    defining a logical table comprising a subset of columns from at least one of the one or more physical tables;

    designating one column of the logical table as a logical primary key column;

    forming a normalized relational schema object representing the logical table;

    generating, responsive to the normalized relational schema object, one or more object classes associated with the normalized relational schema object; and

    employing an object of an object class including the one or more object classes associated with the normalized relational schema object and a respective corresponding logical primary key value to access data in the at least one of the physical tables in the relational database.

    Got that?

    Defining a table — abstract garbage.
    Designating a table — more abstract garbage.
    Forming a virtual “object” “representing” a table — more abstract garbage.
    Generating “classes” — more abstract garbage.
    “Employing” a member of the class — more abstract garbage.

    It’s junk from top to bottom: just a naked attempt to protect information itself (in this case, the information being the abstract “relationships” between virtual objects).

    Get the bottom-feeders out of the system. As software for allowing people to more easily program their computing devices becomes more available, the problems with patents on this junk are going to become increasingly apparent to even the kool-aid drinkers who habitually fluff this kind of nonsense.

    1. LOL – because programming computing devices wants to be freeeee!

      Who gives a CRP about law and facts?

      /eyeroll

      1. Who gives a CRP about law

        Right, the law that says you can patent “relationships” between virtual objects in a table. Probably the same law dug up from the same rock by the same bottom-feeders who believe that a method of transfering “movie data” over the Intertubes is patentable over an old method merely because “the movie hasn’t seen by the user’s mommy, who lives in a house with a purple garage.”

        You also gotta love the fact that the claims refer to a “physical” table. Maybe the Examiner thought they meant a table with four legs? That would explain a lot.

        But keep fluffin’ this junk, Tr0llb0y. It’s what you do best.

  3. Haven’t read the case, but it does not appear that either MS nor SAP were guilty of direct or contributory infringement by selling the products. MS or SAP were only guilty, if at all, of inducement.

    Now, if this is correct, most manufacturers will not indemnify for inducement. Neither does the UCC provide a warranty.

    1. Read the case. The patent was on a method, and neither MS not SAP infringed directly on sale of its software. There was no allegation that the software had no substantial non infringing uses. That left inducement.

      SAP’s manuals and MS’s website instructed on infringing use. Thus they could have been sued for infringement by inducement.

      Jurisdiction.

      I am not entirely sure why MS website instructions were not sufficient for inducement of the ’402. Apparently MS did not instruct on key elements.

      Anon, note the used on “key” as distinguishing elements old in the art. Now what could that possibly mean? Is the court on some slippery slope to acknowledging reality?

      1. …or perhaps the slop is in the other direction Ned, as key may mean something as simple as identifying a complete absence of an item in the claim from the allegedly infringing matter.

        You are kicking a non sequitur cloud of dust on the all elements required for infringement concept.

  4. It’s not as clear as it could be from your write-up, Jason, that only Microsoft’s customers were named in the ’402 patent lawsuit. Page 5: “DataTern never approached Appellees regarding a license, never accused Appellees of infringement, and indicated that it did not intend to sue Microsoft.”

    Jason: One thing to keep in mind, though, is the type of product that was involved here. Microsoft’s customers were using a product called ADO.NET, which from what I understand is a set of components designed to be used by programmers. (wiki entry for ADO.Net: link to en.wikipedia.org.

    “A set of components to be used by programmers …” Right. Might as well be a computer. Or a nice calculator.

    It’s difficult to imagine any seller indemnifying its customers arising from the customer’s specific programming of the computer according to the customer’s (not the seller’s) instructions. I don’t think a sane seller would do that.

    We’re not talking about MS Word here.

    But we certainly could be, Jason. Would anyone be surprised to find a patent on a particular method of using a word processing program? If so, I would suggest that person look around at the type of junk that is routinely patented these days.

    I think the Federal Circuit got it right here. I also think that Microsoft and other companies who provide programmable and/or configurable computers/programs should not indemnify their customers from patent lawsuits based on specific customer’s activities that are not taught by the seller. Will this cause such sellers to lose a few customers? Probably.

    But more importantly it will give those customers an intimate view of our broken patent system.

    How many patent lawsuits were filed in March, by the way?

  5. How is it that Microsoft isn’t automatically pulled into the case under their warranty against infringement and, one would hope, an appropriate clause on how that would be implemented? I have personally seen Microsoft pulled into a case before that way. Is this a case where Microsoft had a product where the shrinkwrap license waived that warranty? Or is the issue that Microsoft wants to run a separate direct case, and wants to avoid defending hundreds of cases at once, even if they do all get consolidated eventually? I could see a waiver clause written to incorporate that tactic.

    Just curious.

    1. Paul – Microsoft took the position that it had no duty to defend or indemnify its customers here. It did argue, however, that because it had received indemnification *demands* from its customers there was a sufficient basis for SJ jurisdiction. The court did not agree with that argument:

      [H]ere there is no evidence of such an obligation [to indemnify its customers] and Appellees concede that no such obligation exists. Instead, Appellees seek to broaden our precedent quite substantially by arguing that a customer request to indemnify ought to give rise to standing, without regard, it appears, to the merit of the customer request. This cannot be. Thus, we decline Appellees’ request to hold that their customers’ indemnification requests, which they concede are not valid, alone can create standing and thus a basis for jurisdiction over Appellees’ declaratory judgment actions in the Southern District of New York.

      Slip Op. at 7.

      1. Jason,

        Doesn’t paul’s question go deeper to the point as to “how could” Microsoft take a position of “no duty to defend or indemnify its customers “…?

        Some of the other discussions on this point also seem to stress some de facto connection (e.g. UCC) that cannot be dismissed by mere proclamation.

        1. Surely (and being far too lazy to go look) the Microsoft shrinkwrap addresses the warranty against infringement. My first thought would have been they would have made the waiver part of the click-wrap, to keep them out of hundreds of lawsuits. But once Microsoft sees how the reality plays out, hundreds of disparate suits to deal with at once, you’d think they’d want a two-prong approach: first, find some basis to go after the NPE separately (and hence the arguments in the current case), and then second, write a waiver of infringement that says they can avoid liability as long as they are separately engaging the NPE. Assuming there is even an issue with having a click-wrap waiver. I’m not a software expert, and don’t know if that issue has been addressed.

          1. paul,

            You might have an estoppel problem with trying to take two different sides of the fence at the same time.

            (picture someone forcibly dropped onto a high, sharply picketed, fence with one leg on each side)

        2. I’m not a UCC and shrinkwrap license expert, so I can’t speak to that point without a substantial amount of additional research. One thing to keep in mind, though, is the type of product that was involved here. Microsoft’s customers were using a product called ADO.NET, which from what I understand is a set of components designed to be used by programmers. (wiki entry for ADO.Net: link to en.wikipedia.org. We’re not talking about MS Word here.

            1. Two thoughts:
              1) Since the product here is a set of components that are used by programmers to construct other programs, it seems likely that Microsoft doesn’t provide any general indemnification based on what the customer’s programmers do with those components.

              2) Since these transactions here look like business-to-business transactions rather than merchant-to-consumer transactions, Microsoft would be largely free to modify the terms of any implied warranties.

              Again, I’m not an expert in commercial transactions law, so I’m largely just speculating here.

            2. I find it hard to believe that MS is supplying a generic set of “bricks”, and then the users are demanding indemnification, and MS would care. Not unless the MS product almost certainly reads on the claims, per the patent owner.

              I don’t see MS trying to intervene in copyright suits wherein someone illegally downloads a movie, watches it in their Windows Media Player, then demands MS indemnify them.

              Seems more likely that the claims are on point to the product, and MS wants to deal with this and can’t.

            3. Here’s my reasoning:

              The question I was responding to was “how could” Microsoft take a position of “no duty to defend or indemnify its customers” …? While it may or may not make sense from a business perspective, Microsoft only *has* to defend the customers if it has a legal obligation to do so. The suggestion was that this legal obligation could arise in one of two ways: (1) through an implied warranty under the UCC or (2) via an express warranty negotiated as part of the transaction.

              On the UCC point, because the transaction here is not a merchant-to-consumer transaction, my understanding is that Microsoft is pretty much free to negotiate whatever terms it wants. (If it were a merchant-to-consumer transaction, it would be limited by some states’ laws that restrict express disclaimers of implied warranties.) So the result would be that the terms of the contract would control.

              If all we’re talking about here, then, are the terms of the contract, the question is whether Microsoft would be likely to agree to an express warranty and indemnification provision that would cover the customers here. Given the type of product involved, it seems to me that Microsoft would prefer to avoid agreeing to such terms if it doesn’t have direct control over what is actually done with the product and the product can be used in both an infringing and non-infringing way. The type of product involved here appears to fall into that category.

              At least, that’s the reasoning that I’m using.

              On your reference to strict liability, I’m not clear on your point.

            4. As I understand it, ADO.NET is not a generic set of “bricks,” but is rather a specific set of components that’s a way to connect to datasets. From the opinion, it also sounds like it can be used in both infringing and non-infringing ways. For the ’502 patent, the claim charts cited Microsoft documentation that instructed programmers to use the software in an infringing way; for the ’402 patent, they cited third-party documentation for the infringing way. From what I understand, however, there’s not a great deal of modification that has to be done to make use of ADO.NET.

            5. But if MS products are not infringing, directly, inducing, or contributory, then why would they care?

              Obviously, follow the money. What are the drivers that cause the choice of action, that would be interesting to see. I would think it has to be customer pressure about indemnity, or at least a threat of future customers being driven away from this product, or possibly future products. “MS doesn’t stand behind what they sell!” Be interesting to hear the internal discussion. Especially when the court pointed out no clear basis for indemnity.

              It may be that MS is fine with having the ’402 out of the discussion, if they can point their customers to what the judge said and get off whatever hook they may feel they are on. Or not. Who knows.

  6. Another thread in which the Nazomi case will provide a sticking point for Ned Heller.

    Ned, have you resolved your inability to understand the Nazomi case yet?

      1. No Ned – I am asking you to understand the case.

        Since your refuse to listen to me (including when I show you directly from Black’s Law dictionary that you are wrong on Alappat), you need to understand the case first yourself and then we can talk.

        Your insistence on intentional ignorance is part of the merry-go-round problem.

        I have led you to water – and yet you complain that you are dying of thirst.

        1. anon, Nazomi is somehow important to you, and you refer to the lessons of Nazomi as if everyone knew what you were talking about.

          Trust me, they do not.

          1. Ned, You have explicitly stated that you cannot figure out that case (there is no “they” involved in our conversation – no need for a ‘public appeal’ type of rhetorical ploy).

            Why can you not?

            Supposedly, you know a thing or two about this art field. Why are you having such difficulty?

            You need to look at your assumptions. Something is amiss there.

            (note that I am not asking you what you are finding difficult about it – we both know that that answer is your refusal to accept the fact that software is equivalent to firmware and is equivalent to hardware)

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