Patent Law

Barred

By Gary Odom and Jordan Kuhn

It used to take a kick in the pants to file a declaratory judgment (DJ) action. Then the January 2007 Supreme Court MedImmune ruling lowered the bar, followed by the spring chicken CAFC Sandisk decision. Untested was how low the bar was. HP tested it, and found that "a lowered bar does not mean no bar at all." At least in district court. At the CAFC, which uttered the foregoing quote, paying lip service means a lowered bar is really no bar at all. Especially if the patent holder isn't in the business of something more than patents.

Hewlett-Packard v. Acceleron (CAFC 2009-1283) precedential

The president of Acceleron, "a patent holding company" (what company with patents isn't?!), wrote a letter to an HP VP, calling his "attention to the referenced patent," 6,948,021, expressing a like to "an opportunity to discuss this patent with you." A bit of back-and-forth correspondence, with Acceleron on its best behavior, not accusing infringement, resulted in HP filing a DJ action. Acceleron got the action dismissed, upon which HP appealed.

A court has subject matter jurisdiction under the Declaratory Judgment Act only if "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 patent cases, declaratory judgment jurisdiction exists "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." SanDisk, 480 F.3d at 1381.

Intentionally or not, MedImmune may have lowered the bar for determining declaratory judgment jurisdiction in all patent cases; certainly it did so in the licensor-licensee context. See, e.g., Micron Tech., Inc. v. Mosaid Techs., Inc., 518 F.3d 897, 902 (Fed. Cir. 2008) ("[T]he now more lenient legal standard facilitates or enhances the availability of declaratory judgment jurisdiction in patent cases."). But a lowered bar does not mean no bar at all. Indeed, a declaratory judgment plaintiff must show that the dispute is "definite and concrete, touching the legal relations of parties having adverse legal interests; and that it be real and substantial and admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts." MedImmune, 549 U.S. at 127 (internal quotation marks and brackets omitted). Thus, a communication from a patent owner to another party, merely identifying its patent and the other party's product line, without more, cannot establish adverse legal interests between the parties, let alone the existence of a "definite and concrete" dispute. More is required to establish declaratory judgment jurisdiction.

Judge Markey eloquently described the dilemma facing a potential infringement defendant as

the sad and saddening scenario that led to enactment of the Declaratory Judgment Act. In the patent version of that scenario, a patent owner engages in a danse macabre, brandishing a Damoclean threat with a sheathed sword. Guerrilla-like, the patent owner attempts extra-judicial patent enforcement with scare-the-customer-and-run tactics that infect the competitive environment of the business community with uncertainty and insecurity. Before the Act, competitors victimized by that tactic were rendered helpless and immobile so long as the patent owner refused to grasp the nettle and sue. After the Act, those competitors were no longer restricted to an in terrorem choice between the incurrence of a growing potential liability for patent infringement and abandonment of their enterprises; they could clear the air by suing for a judgment that would settle the conflict of interests.

Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 734-35 (Fed. Cir. 1988) (citations omitted). The purpose of a declaratory judgment action cannot be defeated simply by the stratagem of a correspondence that avoids the magic words such as "litigation" or "infringement." Of course, if "a party has actually been charged with infringement of the patent, there is, necessarily, a case or controversy adequate to support [declaratory judgment] jurisdiction." Cardinal Chem. Co. v. Morton Int'l, 508 U.S. 83, 96 (1993). 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.

The CAFC manages to declare an "objective" standard based upon subjective interpretation, namely, inferring intent. DJ justification becomes as stark as obviousness and pornography: you only know it when you see it.

"The test [for declaratory judgment jurisdiction in patent cases], however stated, is objective . . . ." Arrowhead, 846 F.2d at 736 (emphasis added). "Indeed, it is the objective words and actions of the patentee that are controlling." BP Chems. v. Union Carbide Corp., 4 F.3d 975, 979 (Fed. Cir. 1993). Thus, conduct that can be reasonably inferred as demonstrating intent to enforce a patent can create declaratory judgment jurisdiction.

Acceleron being "solely a licensing entity, and without enforcement it receives no benefits from its patents," weighed heavily on the CAFC's mind. As if companies otherwise can receive benefits from its patents without enforcement.

This court has explained that "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." SanDisk, 480 F.3d at 1381. The facts of this case, when viewed objectively and in totality, show that Acceleron took the affirmative step of twice contacting HP directly, making an implied assertion of its rights under the '021 patent against HP's Blade Server products, and HP disagreed. Therefore, we hold that there is declaratory judgment jurisdiction arising from a "definite and concrete" dispute between HP and Acceleron, parties having adverse legal interests.

Reversed and remanded.

The beating of patent holders by the courts will continue until morale improves by large corporations who cry that they feel threatened. In short, if you have a patent, sue first and act nice later. Much later. Because large corporations don't settle until they feel threatened. And they don't feel threatened, really, until it looks like a patent holder will prevail. That bit about feeling threatened by a letter or two - just a polite fiction that the courts play along with. Because kissing the ass of large corporations is what the government does best. If you don't believe it, check out who got the bailouts and tax breaks when the chips went down, and who got left standing in the unemployment line without any help.

Full post as published by The Patent Prospector on December 05, 2009 (boomark / email).