A recent decision from the Federal Circuit makes it even more difficult for patent holders seeking to open talks with a potential infringer to avoid becoming the target of a declaratory judgment action. Such is the takeaway from the December 4, 2009 decision of the Federal Circuit in Hewlett-Packard Company vs. Acceleron, LLC.
The background to the Acceleron case is a familiar one to patent litigators: Acceleron, a patent holding company, acquired a patent and several months later sent a letter to Hewlett-Packard about it, noting that the patent related to blade servers. As “demand” letters go, it was relatively mild, asking HP for “an opportunity to discuss this patent with you.” It also included a request: that HP agree that all of the information the parties were to exchange “will not be used for any litigation purposes whatsoever, including but not limited to any claim that Acceleron has assserted any rights against any of your ongoing or planned activities, or otherwise created any actual case or controversy regarding the enclosed patent.”
Acceleron asked HP to respond by two weeks from the date of the letter, stating that if HP had not done so by then, Acceleron would “assume you have no interest in discussing this patent.”
HP's response indicated its interest in learning more about the patent, and proposed that the parties agree to a 120-day “mutual standstill,” during which time neither company would sue the other. Acceleron demurred, contending that HP did not have “any basis for filing a declaratory judgment action,” and extending for another two weeks the time for HP to return a signed copy of the original Acceleron letter, agreeing to the discussion terms proposed therein.
Shortly thereafter, HP filed a declaratory judgment suit in Delaware, where Acceleron was incorporated, rather than in the Eastern District of Texas, where Acceleron maintained its principal place of business. Acceleron moved to dismiss for lack of subject matter jurisdiction, and the District Court granted the motion, reasoning that at the time HP filed the suit, litigation was “too speculative a prospect to support declaratory judgment jurisdiction.” HP appealed, and the Federal Circuit reversed.
The Federal Circuit reviewed the District Court's grant of Acceleron's motion to dismiss de novo, and its underlying findings of fact for clear error. It noted that while the Supreme Court's 2007 ruling in Medimmune may have "lowered the bar for determining declaratory judgment jurisdiction" in patent lawsuits, "a lowered bar does not mean no bar at all."
The court quoted Medimmune when it explained that a declaratory judgment plaintiff needs to show a "definite and concrete" dispute that touches the "legal relations of parties having adverse legal interests.' The court noted that the plaintiff also needs to show that the dispute is "real and substantial and admit of specific relief." In particular, "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."
That last sentence would appear to offer the recipe for patent holders interested in communicating with potential infringers without attracting a declaratory judgment lawsuit: first, identify your patent; second, identify the other party's product line. While of course the conventions of social discourse will require that there be more to initial contact letters than just these two points, the Acceleron case shows that not too much more in the way of back-and-forth can generate a dispute that is "real and substantial" enough to survive a jurisdictional challenge.
While Acceleron argued that it had not threatened to sue HP in any of its correspondence, the Federal Circuit looked to how Acceleron's letters could be interpreted and disagreed, noting that "[t]he 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.'" In particular, the Federal Circuit pointed to Acceleron's assertion of its patent as "relevant" to HP's blade servers; its imposition of a short response deadline; its request that HP not use the information exchanged in any lawsuit; and its status as a non-competitor patent holding company, all as support for a finding of jurisdiction.
The court found further support in Acceleron's refusal of HP's request to enter into a mutual standstill, a refusal that derived added significance in the court's eyes from the fact that "Acceleron is solely a licensing entity, and without enforcement it derives no benefits from its patents."
It was thus the "totality of the circumstances" that the Federal Circuit said made it "not unreasonable for HP to interpret Acceleron's letters as implicitly asserting its rights" under the patent. In sum, "conduct that can be reasonably inferred as demonstrating intent to enforce a patent can create declaratory judgment jurisdiction."
If anything, this case -- which the Federal Circuit acknowledges "marks a shift from past declaratory judgment cases" -- highlights how little it takes before declaratory judgment jurisdiction can attach to discussions between a patent holder and a potential target defendant. While Acceleron appears to have taken some pains to avoid making things appear as though litigation were a possibility, the Federal Circuit seems to be telling courts to go beyond the surface and to look to "conduct that can be reasonably inferred" when evaluating whether an "intent to enforce a patent" exists.
Patent holders, then, must now look not only to what their words say when they bring their patents to the attention of possible infringers, but also to how those words may be interpreted by some unknown court. For licensing entitites in particular, it is likely that almost any discussion of litigation whatsoever risks providing the potential target with ammunition enough to support declaratory judgment jurisdiction. Companies on the receiving end of patent notice letters, of course, will now find it easier than ever to invoke declaratory judgment jurisdiction.
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