Arris Group v. British Telecommunications (CAFC 2010-1292) precedential; Judges Rader, Newman, Dyk (author)

Legal circle jerk of infringement allegations and negotiations inspired Arris to file a DJ in North Georgia. The district court dismissed because "there was no Article III case or controversy between Arris and BT, because throughout the parties' meetings and conversations, BT "only discussed Cable One's infringement and did not discuss any infringement by Arris." Arris, slip op. at 3; see also id. at 2, 4, 6-7."

On to appeal, with a ruling that could have been phoned-in, considering the 2007 Supreme Court MedImmune decision..

We review the district court's dismissal for lack of subject matter jurisdiction de novo. Air Measurement Techs. Inc. v. Akin Gump Strauss Hauer & Feld, LLP, 504 F.3d 1262, 1267 (Fed. Cir. 2007). A party has standing to bring an action under the Declaratory Judgment Act if an "actual controversy" exists, 28 U.S.C. § 2201(a), which "is the same as an Article III case or controversy." Teva Pharm. USA, Inc. v. Novartis Pharm. Corp., 482 F.3d 1330, 1338 (Fed. Cir. 2007) (citing Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 239-41 (1937)). The burden is on the party claiming declaratory judgment jurisdiction to establish that an Article III case or controversy existed at the time the claim for declaratory relief was filed. King Pharm., Inc. v. Eon Labs, Inc., 616 F.3d 1267, 1282 (Fed. Cir. 2010); Benitec Austl., Ltd. v. Nucleonics, Inc., 495 F.3d 1340, 1344 (Fed. Cir. 2007).

This case again presents a question of standing to bring a declaratory judgment action for a determination of non-infringement and invalidity. In MedImmune, Inc. v. Genentech, Inc., the Supreme Court rejected our prior, more stringent standard for declaratory judgment standing insofar as it required a "reasonable apprehension of imminent suit." 549 U.S. 118, 132 n.11 (2007); see also ABB Inc. v. Cooper Indus., LLC, No. 2010-1227, 2011 WL 553603, at *2 (Fed. Cir. Feb. 17, 2011) (recognizing MedImmune's rejection of the reasonable apprehension test); Teva Pharm., 482 F.3d at 1338-39 (same); SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1378-79 (Fed. Cir. 2007) (same). Under the Court's new standard, an Article III case or controversy exists when "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, 549 U.S. at 127 (internal quotation marks and citation omitted). The dispute must be "definite and concrete, touching the legal relations of parties having adverse legal interests," such that the dispute is "real and substantial" and "admi[ts] 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." Id. (internal quotation marks and citation omitted).

For DJ standing, money ("economic injury") doesn't talk, but conflict ("adverse legal interests") does.

Arris contends that it has standing and that there is an Article III case or controversy simply because it has suffered economic injury as a result of infringement threats made by BT against Arris' customer Cable One. This, says Arris, creates a risk that Cable One will cease purchasing Arris' CMTS and E-MTA products for its VoIP operations. While economic injury may confer standing in cases challenging government action, we have not held that economic injury alone is sufficient to confer standing in patent cases seeking a declaratory judgment. Indeed, in patent cases before the Supreme Court's decision in MedImmune, the regional circuits and our court held that economic injury is not alone sufficient to confer standing.

MedImmune did not abandon this rule. To the contrary, MedImmune adopted an "adverse legal interest" requirement. See MedImmune, 549 U.S. at 126-27 (requiring the dispute to "touch[ ] the legal relations of parties having adverse legal interests" and summarizing the question of declaratory judgment jurisdiction as "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") (emphases added). An "adverse legal interest" requires a dispute as to a legal right--for example, an underlying legal cause of action that the declaratory defendant could have brought or threatened to bring.⁴ In the absence of a controversy as to a legal right, a mere adverse economic interest is insufficient to create declaratory judgment jurisdiction. Although economic injury alone is insufficient to create standing, we nonetheless conclude that Arris has standing based on other well-established standards.

⁴A controversy as to a legal right may also arise in some cases where the declaratory defendant has no cause of action. See Caraco Pharm. Labs., Ltd. v. Forest Labs., Inc., 527 F.3d 1278, 1291-94 (Fed. Cir. 2008) (finding a controversy as to a legal right where, despite patentee's covenant not to sue, the Hatch-Waxman Act's framework deprived generic drug maker of the legal right to market its drug absent a judicial finding that the listed patent was invalid or not infringed); see also Teva Pharm. USA, Inc. v. Eisai Co., Ltd., 620 F.3d 1341, 1346-48 (Fed. Cir. 2010) (same).

The unsubtle irony is that economic injury creates adverse legal interests. The courts have their little fun that legal trumps mercantile, but the chips on the table remind to always follow the money.

We have recognized that, where a patent holder accuses customers of direct infringement based on the sale or use of a supplier's equipment, the supplier has standing to commence a declaratory judgment action if (a) the supplier is obligated to indemnify its customers from infringement liability, or (b) there is a controversy between the patentee and the supplier as to the supplier's liability for induced or contributory infringement based on the alleged acts of direct infringement by its customers. Though there was no express indemnification agreement here, Arris contends it risks being held liable to Cable One for indemnification under Georgia's Uniform Commercial Code ("UCC"). See Ga. Code § 11-2-312(3); see also WS Packaging Grp., Inc. v. Global Commerce Grp., LLC, 505 F. Supp. 2d 561, 566 (E.D. Wis. 2007) (holding that, under Wisconsin's UCC, Wis. Stat. § 402.312(3), a customer without an indemnity contract may nonetheless seek indemnification from a seller if sued for infringement
based on its use of the seller's product). We need not reach the indemnification issue, for we conclude that, applying the standard articulated by the Supreme Court in MedImmune, there is an actual controversy between Arris and BT concerning Arris' liability for, at least, contributory infringement.

When the holder of a patent with system claims accuses a customer of direct infringement based on the customer's making, using, or selling of an allegedly infringing system in which a supplier's product functions as a material component, there may be an implicit assertion that the supplier has indirectly infringed the patent. Likewise, when the holder of a patent with method claims accuses the supplier's customers of direct infringement based on their use of the supplier's product in the performance of the claimed method, an implicit assertion of indirect infringement by a supplier may arise.

Pursuant to § 271(c) of the Patent Act, an act of contributory infringement may include either the sale of a "component of a patented machine, manufacture, combination or composition" (including a component used in a claimed system), or the sale of a "material or apparatus for use in practicing a patented process." 35 U.S.C. § 271(c). This covers both contributory infringement of system claims and method claims. To hold a component supplier liable for contributory infringement, a patent holder must show, inter alia, that (a) the supplier's product was used to commit acts of direct infringement; (b) the product's use constituted "a material part of the invention"; (c) the supplier knew its product was "especially made or especially adapted for use in an infringement" of the patent; and (d) the product is "not a staple article or commodity of commerce suitable for substantial noninfringing use." Id.; Wordtech Sys., Inc. v. Integrated Networks Solutions, Inc., 609 F.3d 1308, 1316-17 (Fed. Cir. 2010).

BT tried to dance away the DJ by sweet lyrics.

As we have repeatedly held, "a specific threat of infringement litigation by the patentee is not required to establish jurisdiction, and a 'declaratory judgment action cannot be defeated simply by the stratagem of a correspondence that avoids magic words such as "litigation" or "infringement."'" ABB Inc., 2011 WL 553603, at *2 (quoting Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed. Cir. 2009) (holding that actual controversy as to infringement existed where patent owner sent plaintiff two letters seeking "to discuss" the patent)). Here, even in the absence of an express accusation against Arris, we think the circumstances indicate there is a dispute between Arris and BT concerning Arris' liability for contributory infringement that is sufficient to constitute an Article III case or controversy.

BT launched into legal comedy, arguing that a DJ is justified only if an infringer admits infringement. The barrel of monkeys at defendant-appellee counsel must have been delirious.

BT surprisingly appears to contend that Arris' burden as the declaratory judgment plaintiff includes the burden of presenting evidence that Arris' actions indirectly infringe the patents-in-suit. Ironically, BT overlooks the fact that the very purpose for an accused infringer to bring a declaratory judgment action is to seek a judicial determination that a coercive claim by the patent holder would not succeed on the merits. While a declaratory plaintiff indeed has the burden of "demonstrating [that] an actual case or controversy" exists, King Pharm., 616 F.3d at 1282, that burden does not extend to showing that the defendant holds meritorious positions on the issues in controversy. As we have stated, "[i]t [would be] incongruous to require that one seeking a declaration of noninfringement prove its process or product is the 'same as' or 'identical' to the patented process or product." Arrowhead, 846 F.2d at 738. "To require declaratory judgment plaintiffs to allege or show that their products or processes are infringements . . . would limit the judgments they seek to declarations of invalidity or unenforceability." Id. at 738 n.10. The Declaratory Judgment Act is not so limited.

Reversed and remanded.

Well-written opinion by Judge Dyk.