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December 5, 2009

Barred

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.

Posted by Patent Hawk at December 5, 2009 1:01 AM | Declaratory Judgment

Comments

Reading the opinion negates the negative attitude portrayed by the Hawk. The "all elements" reasoning is sound and the decision appears reasonable.

The patent holders here are not as innocent as the Hawk portends. Perhaps the lens color of the glasses that sit upon his beak prevents clear vision here.

Posted by: Noise above Law at December 5, 2009 8:43 AM

Noise above Law,

Thanks for writing. Yes, of course the reasoning is sound and the decision appears reasonable. That is the lawyerly craft of portraying form above substance.

But please tell me, using the proclaimed reasonable "objective" standard, under what non-litigious circumstance a patent holder could alert a possible infringer/licensee of a patent without risking triggering a DJ. Because I can't think of one. As far as I can figure, it's sue or be sued.

In other words, there is reading the lines, and then there is reading between the lines. I try not to stop at the former. I prefer the latter after doing the former.

In this case, Acceleron expressly tried to preclude litigation as a context, so as to be candid. “In order to provide a productive atmosphere in which we can do so, we ask that you agree that all information exchanged between the parties will not be used for any litigation purposes whatsoever, including but not limited to any claim that Acceleron has asserted any rights against any of your ongoing or planned activities, or otherwise created any actual case or controversy regarding the enclosed patent.”

Posted by: Patent Hawk at December 5, 2009 10:50 AM

"under what non-litigious circumstance a patent holder could alert a possible infringer/licensee of a patent without risking triggering a DJ. "

You could just send them a letter stating:

Hey guys check out this cool patent I just got!

Claim 1 is:

blah blah blah.

Isn't that the coolest thing evar?

Posted by: 6000 at December 5, 2009 6:14 PM

Even when 6 is in the right camp, he is there quite by accident, and without the slightest shred of decorum.

Simply amazing.


Hawk, the reading between the lines that you profess to do is where you are injecting your own subjectiveness into the picture. It is abundantly clear that in reading the lines (and in reading between the lines), that Acceleron was engaging in exactly the behaviour typified by Judge Markey. Do you really think Acceleron's approach of shortened time periods, demand for no suit, and unwillingness to work with Hewlett-Packard were indications of merely an alert? You must have missed a paragraph or two in your reading. I hate to say this, but even 6's inane babble is closer to the mark than your attempt on this.

Posted by: Noise above Law at December 5, 2009 10:25 PM

Interesting stuff, hawkie

So what did you do for yourself ?

Filed all the lawsuits against MShit and others before even talking to any of them ?
Sounds like a good idea

I myself remember that back in 2003 when my patent app was just published along with couple of conference papers I was writing a lot of letters to all the industry big names informing them about the invention (just like an idiot 6000 says)and kindly suggesting, that whether they want it or not, but at some point they'll have to use it in their products if they want to stay competitive...
Needless to say, I got no answers (actually I got just one official answer, a negative one, from a large company in France with international stakes in this business. This was very nice of them, I appreciate their honesty of putting rejection on paper and just for this they will never be sued)
All others obtained as much info about me as they could, purchased intellius background reports, learned about my mortgage, my property taxes, my probable income, my relatives etc . etc. and concluded that I'm not worthy of talking to...

Fast forward 6 years...

Patent is issued, it is cited by other patents and the related conference papers are cited numerous times by many other sources.

What happens if I write to them now ?
I assume some large corps are starting to use the "thing" in their products cause it is very very useful and there is no adequate replacement
But without going through discovery there is absolutely no way I can be 100% sure - the "thing" can be hidden inside chips, or, in the very best case, inside a bunch of compiled code to which I presently have no access

In fact, I may never know the truth without uncovering some facts only proper discovery process (with depositions etc.) can uncover

Your suggestions ?

Posted by: angry dude at December 7, 2009 10:22 AM

Here's the deal: the patent holder has its chance to file first. Making the bar too high for a recipient of a "license offer letter" is tantamount to giving the patent holder the second or third chances to file as well.

What this should mean for patent holder is simple, either:
1. File first.
2. Don't send letters frivolously.

If you don't have any intent on suing or being brought into a suit, DON'T SEND THE LETTER!

Posted by: Mike at December 7, 2009 10:24 AM

Absolutely, the courts, motivated by a desire to keep the litigation filing fees rolling in, seriously want to squelch pre-filing settlements, or even discussions.

Nobody ever scored a license or avoided a DJ suit by sending a friendly "hey, have a look at my cool patent" letter. Just fighting the jurisdiction of a premature DJ suit is more than most small entities can afford. And if you think a solo or small entity can afford to enforce a patent, ha. They can barely afford to get one.

So, what's the point of the patent? They help generate start-up money and sell stock, they help generate an aura of inventiveness, they hang on the wall. And they become an absolute nightmare if they suck you into a court fight, by, for instance, suggesting to the big guys that they are stepping on your toes.

Posted by: Down boy, down at December 8, 2009 9:41 AM

To paraphrase then,

"Don't even think of stepping into the King's realm of patents you little punks, or I'll squash you and put you down boy, down."

Bullocks - Little guys more than anyone need the power of patents.

Also - put the anti patent "oh oh litigation" cup of Kool aid down - look at the actual numbers of patents that are litigated.

Posted by: Noise above Law at December 8, 2009 10:12 AM

"Also - put the anti patent "oh oh litigation" cup of Kool aid down - look at the actual numbers of patents that are litigated."

Right, NAL, the fraction is minuscule. But look at the actual numbers of patents that make any money, which is also minuscule, and then ask yourself: of the patents making money, what fraction is litigated? And then limit that question even further to just hot areas of electronics, software, telecommunications, and pharmaceuticals.

The point is obvious: if your patent is among the very few that is making any money in a field other than cleaning sewers or rectal transplants, and if you are too small to foot an infringement suit, the patent is going to be infringed. If the infringer is MS or Noika, you're screwed. Go on home; it's Chinatown.

Sure, a friendly letter to your local infringer is going to solve all your problems for the cost of a postage stamp. But on what planet?

Posted by: Down boy, down at December 9, 2009 9:12 AM

"...and if you are too small to foot an infringement suit, the patent is going to be infringed."

And that's exactly why little guys will sell their patents to NPE's. The little guy IS rewarded for his innovation and the big bad players do not have carte blanche to steal IP.

Thus the monopolistic giants spread fear and misunderstanding about "trolls".

Posted by: Noise above Law at December 9, 2009 9:35 AM

"Thus the monopolistic giants spread fear and misunderstanding about 'trolls'."

Point well taken NAL.

Posted by: EG at December 9, 2009 12:26 PM

I fear trolls :(

They might jump out and get me in the subway and carry me off to their magical land where abstract ideas, business methods, and software of all forms are all perfectly patentable.

Posted by: 6000 at December 9, 2009 12:31 PM

"Also - put the anti patent "oh oh litigation" cup of Kool aid down - look at the actual numbers of patents that are litigated."
+ = + = + = + =
"Right, NAL, the fraction is minuscule. But look at the actual numbers of patents that make any money, which is also minuscule . . . "
+ = + = + = + =
I have a question for "Down boy, down", as well as the rest of the participants here.

Regarding "actual numbers of patents that make any money" Are there any objective studies on this subject? Are there any reliable statistics or analysis?

Thanks for any suggestion.

Posted by: Steve Roberts at December 9, 2009 11:58 PM

Steve,

I am not aware of any such studies. An organization that might be able to help would be Ocean Tomo, as they are in the business of patent auctions.

Posted by: Noise above Law at December 10, 2009 5:16 AM