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Federal Circuit considers DJ jurisdiction post-MedImmune: Is an offer of license now enough?
March 26, 2007
In a very interesting opinion, the Federal Circuit today addressed what is required to support jurisdiction for a declaratory judgment by a party under threat of a possible patent infringement lawsuit. This is the first substantive discussion of the issue since the Supreme Court's decision in MedImmune, where the Court held that a patent licensee need not breach the license in order to challenge the validity of the licensed patent. Based on the Supreme Court's decision, the Federal Circuit holds that, contrary to its earlier two-part test for declaratory judgment jurisdiction, an "objectively reasonable apprehension of suit" is no longer required. Instead, it is enough for a patentee to "assert[] rights under a patent based on certain identified ongoing or planned activity of another party," and for the other party to "conten[d] that it has the right to engage in the accused activity without a license." This could potentially mean that once license negotiations have begun, a declaratory judgment may be available for the party offered a license. More details of the case after the jump.In this case, STMicroelectronics ("ST") approached SanDisk about a possible patent cross-license. The relevant timeline of events is as follows:
  • April 16, 2004: ST sends a letter to SanDisk listing eight patents that "may be of interest" to SanDisk, and requesting a meeting to discuss a possible cross-license.
  • April 28, 2004: SanDisk responds that it needs time to review the patents and suggests possible meeting in June.
  • July 12, 2004: ST sends letter to SanDisk reiterating its earlier request for a cross-licensing meeting, and listing four more patents that "may also be of interest" to SanDisk.
  • July 21, 2004: SanDisk responds, stating that "both sides wish to continue . . . friendly discussions."
  • July 27, 2004: ST again suggests meeting, but separate from the parties' ongoing business discussions.
  • August 5, 2004: At a business meeting, SanDisk presents analysis of three of its patents and orally offers ST a license. ST declines to present analysis of its patents, preferring to have the meeting on patent licensing separately.
  • August 5, 2004: SanDisk sends a letter to ST objecting to ST's preferred separation between business and patent meetings.
  • August 11, 2004: ST replies, stating its understanding that the parties would be meeting later in August to discuss the possible cross-license, and that SanDisk should come prepared to present the analysis of the three SanDisk patents presented at the business meeting on August 5th, as well as any analysis of the need for ST to have a license to these patents, such as an infringement analysis of one or more ST products.
  • August 27, 2004: The licensing meeting is held. ST requests that the discussions be treated as "settlement discussions" under Federal Rule of Evidence 408. ST presents a slide show comparing SanDisk and ST's patent portfolios, revenue, and R&D expenses, including a list of SanDisk's "unlicensed activities." After this, ST technical experts give a 4-5 hours presentation, identifying specific claims of ST's patents that ST alleges are infringed by SanDisk. At the end of the meeting, ST gave SanDisk a packet of materials (approximately 300 pages in length) containing a synopsis of the infringement presentation, and ST's representative allegedly stated something similar to: "I know that this is material that would allow SanDisk to DJ [ST] on. We have had some internal discussions on whether I should be giving you a copy of these materials in light of that fact. But I have decided that I will go ahead and give you these materials." Also, ST's representative stated that "ST has absolutely no plan whatsoever to sue SanDisk."
  • September 1, 2004: ST sends copies of the slide presentation to SanDisk and requests copies of SanDisk's presentation.
  • September 8, 2004: SanDisk replies by email, attaching a copy of its presentation, and seeking a non-disclosure agreement.
  • September 15, 2004: SanDisk sends a confidential version of its cross-licensing offer, which expires on September 27.
  • September 16, 2004: ST destroys the confidential offer, and emails SanDisk for a non-confidential version. SanDisk refuses to send a non-confidential version.
  • September 27, 2004: SanDisk offers to sends another confidential offer or communicate its offer orally.
  • September 28, 2004: ST again requests a non-confidential version of SanDisk's offer.
  • September 29, 2004: SanDisk emails ST another confidential offer.
  • September 30, 2004 - October 14, 2004: The parties correspond via email and phone, unsuccessfully attempting to establish another meeting.
  • October 15, 2004: SanDisk files its declaratory judgment action.
After SanDisk filed suit, ST filed a motion to dismiss for lack of jurisdiction, arguing that SanDisk did not have an objectively reasonable apprehension of suit, even if it had a subjective belief it would be sued. The district court granted this motion, stating that SanDisk had presented no evidence that ST threatened litigation. This decision was based on the Federal Circuit's standard before MedImmune. Under that standard, in order to have declaratory judgment jurisdiction, there must be both (1) an objectively reasonable apprehension of suit, and (2) activity by the declaratory judgment plaintiff that would constitute infringement or concrete steps taken by the declaratory judgment plaintiff with the intent to conduct such activity. In today's case, the Federal Circuit threw out the first part of this test, the requirement that the declaratory judgment plaintiff must be under an "objectively reasonable apprehension of suit" before declaratory judgment jurisdiction under Article III exists. This result was compelled by footnote 11 in the Supreme Court's MedImmune opinion, which all but killed that portion of the Federal Circuit's test for jurisdiction. In place of the "reasonable apprehension of suit" test, the court now states that declaratory jurisdiction exists:
[W]here 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.
Concurring in the result, Judge Bryson agrees that this result is compelled by the Supreme Court's MedImmune decision, but expresses great concern about its potential breadth. Specifically, he states that:
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.

(emphasis added). Time will tell whether Judge Bryson's concerns are well-founded. In the interim, however, the recent expansion of declaratory judgment jurisdiction will likely have a noticeable effect not only on how patent license negotiations are conducted, but also how provisions in license agreements are phrased.

To read the full decision in SanDisk Corp. v. STMicroelectronics, Inc., click here.

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