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.