C.D. Cal.: Patentee Must Make Affirmative Act For DJ Jurisdiction

Panavise Products, Inc. v. National Products, Inc., CV 08-1300 ABC (May 30, 2008)

Panavise was releasing a product that they feared could infringe National Products (NP) patent. Viewing the litigation history of the patent, Panavise saw that they had sued other unrelated parties in the past (6 suits involving 12 entities), and made public statements declaring that the patent was "essential" to the technological area. Also, during a trade show in which the product was displayed, Panavise learned that NP personnel were also in attendance.

Accordingly, Panavise filed for a DJ action. NP moved to dismiss, claiming that (a) they never communicated with Panavise regarding the patent, and (b) they never saw the product, or even learned of it, until the DJ action. The district court agreed with NP and dismissed the action:

[I]t is clear that no case or controversy can exist in a patent action for declaratory relief in the absence of an act by the defendant. For example, in Sandisk, the court stated 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 1380-1381 (emphasis added). That is exactly the situation here: Plaintiff merely learned that Defendant owns a patent and is concerned that its own device may infringe Defendant’s patent, but Defendant has taken no affirmative act in relation to Plaintiff’s device; indeed, Defendant did not know of Plaintiff’s device and has yet to see it. Sandisk further states that “Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in a position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do,” id. (emphasis added), thereby reinforcing the notion that no case or controversy can exist where the defendant has taken no position. It is undisputed that Defendant has taken no position with respect to Plaintiff and/or the 811 series device.

That Defendant has sued other unrelated persons for infringement of the ‘420 patent does not constitute action toward this plaintiff and the 811 series device, and therefore does not contribute to the existence of a case or controversy between these parties. Without Defendant even knowing about Plaintiff’s device, it is not apparent that the parties have “adverse legal interest[s]” and that the dispute is “definite and concrete.” Rather, Plaintiff is seeking what MedImmune forbids: “an opinion advising what the law would be upon a hypothetical state of facts.” MedImmune, 127 S.Ct. at 77. Indeed, the cases Plaintiff cites in support of its position all involve a defendant communicating with the plaintiff about plaintiff’s device. Plaintiff has directed the Court to no case in which a case or controversy was found in the absence of any act by the defendant directed toward the plaintiff and/or plaintiff’s device.

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Hat tip: Patent Appeal Tracer

CAFC: DJ Plaintiff Must Take "Significat, Concrete Steps To Conduct Infringing Activity" To Satisfy MedImmune Test

Cat Tech LLC v. TubeMaster, Inc. (2007-1443), May 28, 2008

TubeMaster developed a method of putting catalyst into reactor tubes using loading devices. Tube Master designed four different configurations for its devices, and has generated detailed computer drawings drawings for each of its configurations.

Cat Tech sued TubeMaster for patent infringement when one of TubeMaster's four configurations was commercially released ("configuration 3"). TubeMaster counterclaimed seeking a declaration that the accused configuration, along with the other configurations ("configurations 1, 2, and 4"), did not infringe. On summary judgment, the district court found that none of the configurations infringed.

On appeal, Cat Tech challenged the district court's authority to issue a declaratory judgment on all the configurations.

Since the SCOTUS decision in MedImmune, declaratory judgments must satisfy 2 prongs: (1) the party seeking DJ must, "under all the circumstances, show that there is a substantial controversy, between the parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment"; and (2) show that there had been "meaningful preparation" to conduct potentially infringing activity.

Here, the DJ was not challenged on the first prong, but on the second prong, namely, that TubeMaster's "other configurations" were not developed enough to quality as potentially infringing activity. While MedImmune did not directly address the second prong, the CAFC concluded that "the issue of whether there has been meaningful preparation to conduct potentially infringing activity remains an important element in the totality of circumstances which must be considered in determining whether a declaratory judgment is appropriate."

Thus, if a declaratory judgment plaintiff has not taken significant, concrete steps to conduct infringing activity, the dispute is neither "immediate" nor "real" and the requirements for justiciability have not been met.

Immediacy

TubeMaster has taken significant, concrete steps to conduct loading activity with configurations 1, 2 and 4. It has developed two basic loading device designs - one with circular plates and one with circular plates with tabs - and has developed four loading device configurations. TubeMaster has generated AutoCAD® drawings for each of its four configurations . . . Because TubeMaster’s loading device designs are customized based upon the dimensions of each customer’s reactor, it can take no further steps toward manufacturing its loading devices until it receives an order from a customer with the appropriate dimensions.

TubeMaster has already successfully manufactured and delivered a loading device using configuration 3 . . . It is prepared to produce loading devices using configurations 1, 2 and 4 as soon as it receives an order with the appropriate dimensions. Furthermore, it expects that it can produce devices using these configurations "within a normal delivery schedule" once it receives an order. Constitutionally mandated immediacy requirements have been satisfied because once the threat of liability to Cat Tech has been lifted, it appears likely that TubeMaster can expeditiously solicit and fill orders for loading devices using configurations 1, 2 and 4.

Reality

In the context of patent litigation, the reality requirement is often related to the extent to which the technology in question is "substantially fixed" as opposed to "fluid and indeterminate" at the time declaratory relief is sought . . . TubeMaster’s technology is "substantially fixed." TubeMaster’s four basic loading device designs are designed "to cover virtually all of the reactor configurations that might be encountered at customers’ facilities." Thus, TubeMaster does not expect to make substantial modifications to its loading device designs once production begins. The dispute with Cat Tech is "real," not hypothetical, because it appears likely that, once the cloud of liability for infringement is eliminated, the accused products can be produced without significant design change.

AFFIRMED

N.D. Cal.: Litigation History Alone is Proper Basis for DJ Jurisdiction

Monolithic Power Systems, Inc. v. O2 Micro Int'l, N.D. Cal. (07-2363 CW), Aug. 13, 2007

Monolithic (MPS) and O2 have had a long history of suing each other for patent infringement. In an earlier litigation, where O2 sued MPS for patent infringement, the Court dismissed with prejudice O2 Micro's claim against MPS, pursuant to a stipulated dismissal signed by the parties.


The stipulation, signed by the Court, provides:

O2 Micro covenants not to assert or reassert its ‘129 patent against named defendants for infringement by MPS full bridge inverter controllers (and products incorporating said controllers) made, used, imported, offered for sale or sold previously or currently having product designations [list of products accused of infringing O2's patents].

After the Court signed this stipulation, however, MPS designed and marketed new power inverter controller products, not previously accused of infringing the '129 patent. MPS did not believe that these products infringe. But, it believed that, because O2 takes a narrow view of the stipulated dismissal, the covenant not to sue does not cover these new products and, therefore, it is laboring under the shadow of threatened infringement litigation.

O2 argued that it had not even accused MPS's new products of infringing the '129 patent and that, therefore, MPS has no basis for filing the declaratory judgment action and the Court does not have subject matter jurisdiction over it.

The Court disagreed, noting that "[w]hether O2 Micro has publicly accused MPS's new products, which are not covered by the Stipulated Dismissal, is not dispositive to determining whether an actual controversy exists."

In the opinion, the Court concluded that the litigious history between O2 and MPS was sufficient to confer jurisdiction:

In Bridgelux, Inc. v. Cree, Inc., 2007 WL 2022024, at *9 (N.D. Cal.), the court did not, as O2 Micro suggests, find that there was no actual controversy merely because the defendants had never accused the plaintiff of infringing their patents. Rather, in concluding that, under all of the circumstances, there was no actual controversy, the court pointed out that the plaintiff provided no evidence that the defendants "had ever sued anyone" on their patents. Further, in SanDisk Corp., the Federal Circuit declined to hold that the patentee's statement that it had "absolutely no plan whatsoever to sue" the plaintiff eliminated the justiciable controversy created by patentee's actions; rather, the court concluded that the patentee "engaged in a course of conduct that shows a preparedness and willingness to enforce its patent rights" despite that statement. 480 F.3d at 1383.

O2 Micro has sued numerous parties, including MPS, accusing them of infringing the '129 patent. O2 Micro has accused MPS of infringing its '722 and '615 patents as well. Such suits indicate "an assertion of rights and a willingness to pursue litigation" regarding the patent-in-suit. Cingular Wireless v. Freedom Wireless, Inc., 2007 WL 1876377, at *3 (D. Ariz.). The Federal Circuit explains that "related litigation involving the same technology and the same parties is relevant in determining whether a justiciable declaratory judgment controversy exists on other related patents." Teva Pharms., 482 F.3d at 1344-45. And, in Cingular Wireless, the court concluded that "the assertion of rights, evidenced through a prior lawsuit between the same parties regarding the same technology, coupled with Defendant's knowledge of the relationship between Plaintiffs, and solidified through the express press release statement indicating an intent to sue alleged patent infringers, presents enough evidence to establish the case or controversy required for declaratory judgment jurisdiction." 2007 WL 1876377 at *9.

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Unleashed: CAFC Finds DJ Jurisdiction From Patentee's Conduct Prior to Suit

SanDisk Corp. v. STMicroelectronics (05-1300) March 26, 2007

SanDisk is in the flash memory storage market. ST has a sizable portfolio of patent related to flash memory storage products. In 2004, ST sent a letter to SanDisk, listing 8 patents that "may be of interest." SanDisk did not respond substantively. ST sent another letter to SanDisk, listing 4 additional patents that "may also be of interest."

After an initial exchange of letters, a licensing meeting was held, where technical experts from ST gave a demonstration (and a 300 page report) which illustrated how SanDisk's products infringed on ST's patents. Discussions on a cross-license continued, where, at one point, ST stated that "ST has absolutely no plan whatsoever to sue SanDisk."

When licensing negotiations stalled a few months later, SanDisk filed a declaratory judgment action in the N.D. Cal., alleging that ST's patents were invalid and not infringed. The district court dismissed the action, stating that SanDisk did not have an objectively reasonable apprehension of suit, even though it may have subjectively believed that ST would bring an infringement suit.

The CAFC reversed the district court under Medimmune, finding that the circumstances surrounding the licensing negotiations provided a sufficient risk of suit:

We hold ... 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.

Borrowing from the vernacular of Scalia, the court found that SanDisk did not have to "bet the farm" and risk a suit for infringement by formally terminating licensing negotiations:

These facts evince that the conditions of creating "a substantial controversy, between parties having adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment" were fulfilled ... SanDisk need not "bet the farm," so to speak, and risk a suit for infringement by cutting off licensing discussions.

Although the district court found that licensing negotiations had not been terminated, the CAFC noted that SanDisk had declined to participate in further negotiations, effectively bringing them to an end. Also, the court discounted ST's assurances that they would not bring suit, since ST's actions clearly indicated that a lawsuit was contemplated.

Rules of Evidence Note: During the licensing meeting, the parties agreed to treat the discussions as "settlement discussions" under Federal Rules of Evidence 408. The rule relates to evidence of efforts toward compromising a claim in litigation. However, the CAFC found that ST’s presentation was made outside the context of litigation, and there was nothing on the record to indicate that it could be properly considered an "offer" to settle a claim which was then in dispute. Thus, SanDisk could rely on the licensing discussions and infringement study to support its claim for declaratory judgment.

According to the CAFC, "[t]o avoid the risk of a declaratory judgment action, ST could have sought SanDisk’s agreement to the terms of a suitable confidentiality agreement. The record before us reflects that the parties did not enter into such an agreement."

Concurring Opinion: Judge Bryson sums up the practical consequences of this case:

In practical application, the new test will not be confined to cases with facts similar to this one. If a patentee offers a license for a fee, the offer typically will be accompanied by a suggestion that the other party’s conduct is within the scope of the patentee’s patent rights, or it will be apparent that the patentee believes that to be the case. Offers to license a patent are not requests for gratuitous contributions to the patentee; the rationale underlying a license offer is the patentee’s express or implied suggestion that the other party’s current or planned conduct falls within the scope of the patent.

Therefore, 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. Indeed, as the court makes clear, even a representation by the patentee that it does not propose to file suit against the prospective licensee will not suffice to avoid the risk that the patentee will face a declaratory judgment action.

And if there is any uncertainty on that score, all the prospective licensee has to do in order to dispel any doubt is to inquire of the patentee whether the patentee believes its activities are within the scope of the patent. If the patentee says "no," it will have made a damaging admission that will make it very hard ever to litigate the issue, and thus will effectively end its licensing efforts. If it says "yes" or equivocates, it will have satisfied the court’s test and will have set itself up for a declaratory judgment lawsuit.

VACATED AND REMANDED