Triggering Declaratory Judgment Actions

Posted on December 5, 2009 by Rajiv Sarathy

Whenever a patent holder sends a communication to a potential defendant before filing an infringement action, the patent holder risks a declaratory judgment (DJ) action.  A common question is what language must be in the communication?  Must the communication threaten an infringement lawsuit?  The Federal Circuit's decision yesterday in Hewlett-Packard v. Acceleron says no and provides an example of a sequence of communications between the parties.

Accleron wrote to Hewlett-Packard (HP):

I am writing to call your attention to the referenced patent. . . . This patent was recently acquired by Acceleron, and relates to Blade Servers.

We would like an opportunity to discuss this patent with you. 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.

Should you wish to engage in discussions regarding this patent with us, please return an executed copy of this letter to me in the enclosed stamped, self-addressed envelope. When we receive your acknowledgement, we will send you a package of information relating to this patent. I will look for your response by September 28, 2007, and if I do not hear from you by that time, I will assume you have no interest in discussing this patent.

A couple of weeks later, HP replied:

I have been evaluating the patent you sent and am interested to learn any further information you have so that I am able to conduct a complete and accurate assessment. HP shares your interest in creating a productive atmosphere for us to discuss the ’021 patent. Accordingly, in response to your request that HP not file a declaratory judgment action, HP would be willing to agree not to file such an action for a period of 120 days if Acceleron similarly will agree not to file an action against HP during the same 120 day period. If such a mutual standstill agreement is acceptable, please let me know and I will send you an agreement to that effect directly.

A few days later, Acceleron wrote back:

I do not believe that HP has any basis for filing a declaratory judgment action, and I think that my letter provides both parties appropriate protections to create a productive atmosphere in which to discuss the ’021 patent.

So, if you are interested in discussing this patent with us, please send me a signed copy of my previous letter to you by no later than October 19, 2007. If I do not receive [one] by then, I will understand that you are not interested in discussing this patent, and you do not have anything to say about the merits of this patent, or its relevance to your Blade Server products.

HP responded by filing a declaratory judgment action.  The district court found that the litigation was "too speculative" to support a declaratory judgment.  HP appealed to the Federal Circuit.

According to the Federal Circuit, "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" sufficient to support DJ jurisdiction. However, a "strategem of correspondence that avoids the magic words such as 'litigation' or 'infringement'" cannot avoid a DJ action. 

The Federal Circuit found these facts persuasive:

  • Acceleron identified its patent and indicated that the patent is "relevant" to HP's product
  • Acceleron imposed deadlines for responding to its letters
  • Acceleron failed to propose a confidentiality agreement
  • Acceleron failed to accept HP's proposed standstill agreement

The Federal Circuit stated that "conduct that can be reasonably inferred as demonstrating intent to enforce a patent can create declaratory judgment jurisdiction."  Moreover, the Federal Circuit seems to have considered Acceleron's status as "solely a licensing entity" that "receives no [other] benefits from its patents."  

The Federal Circuit reversed and remanded the action.

[Edit: More analysis at Patently O.  12/7/2009.]
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Smugmug takes a slug at patents

Posted on May 27, 2009 by Rajiv Sarathy

If you share your digital photos online like many people, you may have used a service such as Smugmug.  Smugmug's recently filed complaint caught my eye because of my interest in photography.  Smugmug has filed a declaratory judgment action in the Northern District of California, where its offices are located, against Illinois-based Virtual Photo Store (VPS). 

According to Smugmug's complaint, VPS's attorneys sent a letter to Smugmug putting it on notice of at least one of VPS's patents. Smugmug requests the court to declare that Smugmug does not infringe any valid claim of the following three VPS patents:

  • Patent No. 6,321,231 directed to an asset (e.g., photograph) "data management and order delivery system";
  • Patent No. 6,332,146 directed to "storing and printing digital images"; and
  • Patent no. 7,487,155 directed to "routing and distributing digital images."

It will be interesting to see how this case progresses. The identified patents are not very old and there are several online photo sharing sites that will probably be watching closely.

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Will the District Court of D.C. Get Busier?

Posted on May 19, 2009 by Rajiv Sarathy

A company that is threatened by a potential patent infringement lawsuit can file a declaratory judgment action in a federal district court that has jurisdiction. Generally, the threatened company can seek to have the action heard by a court that may be more friendly towards the company than the patent holder. For a court to hear the action, the patent holder must have some minimal contacts in that court's area of jurisdiction. 

Many foreign entities will generally not have the minimal contacts needed. For example, the Federal Circuit Court of Appeals decided in Autogenomics v. Oxford Gene Technology that the foreign patent holder did not have sufficient contacts in California and so the threatened company must file its action in the Federal District Court for the District of Columbia.

The USPTO publishes a report that identifies where the first-named inventor of each patent resides. When the inventor resides outside the United States, it is a reasonable indicator that the patent is owned by a foreign entity. In 2008, 50.3% of the patents fell in this category whereas in 1977, only 35.5% of patents did. This makes sense because an increasing amount of R&D and manufacturing funds are spent overseas. (When I completed my MBA in the early '90s, we were trying to make sense of the service-based economy.)

If the trend in patent ownership continues, the District Court of DC court may see an increasing number of declaratory judgment actions in patent cases.

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