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Are patent holding companies subject to different DJ jurisdiction standards than others?

December 14, 2009
Post by Blog Staff

According to the Federal Circuit, the answer to this question appears to be "yes." The court reversed a district court's dismissal of a declaratory judgment action against a patent holding company (or non-practicing entity (NPE), sometimes pejoratively referred to as a patent troll). The DJ action was predicated on three letters, the first from the NPE to the DJ plaintiff, the second in reply, and the third from the NPE in reply to the second. The court held there was a sufficient "implied assertion of its rights" under the patent to support DJ jurisdiction.

Of particular note are some statements the court made regarding different rules when NPEs contact potential licensees for their patents. These include:

[T]he receipt of such correspondence from a non-competitor patent holding company . . . may invoke a different reaction than would a meet-and-discuss inquiry by a competitor, presumably with intellectual property of its own to place on the bargaining table. Under the totality of the circumstances, therefore, it was not unreasonable for [the DJ plaintiff] to interpret [the NPE's] letters as implicitly asserting its rights under the patent.

. . .

[The NPE] is solely a licensing entity, and without enforcement it receives no benefits from its patents. This adds significance to the fact that [the NPE] refused [the DJ plaintiff's] request for a mutual standstill . . . .

Even the court observed it was changing the rules, noting "our decision in this case undoubtedly marks a shift from past declaratory judgment cases." Based on this decision, it appears very difficult for a NPE to even contact a potential licensee without exposing itself to the potential for a declaratory judgment action.

Acceleron acquired a patent relating to server technology on May 31, 2007. On September 14, 2007, Acceleron wrote to the general counsel of Hewlett-Packard regarding the patent. The letter stated:

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.

Litigation counsel for HP responded on October 1, 2007, and sought a 120 day "standstill" period, where neither party would file suit against the other, in order to facilitate discussion. On October 5, 2007, Acceleron responded, stating:

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.

On October 14, 2007, HP filed suit, seeking a declaratory judgment of noninfringement. Acceleron moved to dismiss for lack of jurisdiction, and the district court granted the motion. While the district court noted Acceleron's failure to "specifically request a confidentiality agreement" or to agree to the "120-day stand-still period" weighed in favor of jurisdiction, the remaining circumstances, including lack of "a statement of infringement, identification of specific claims, claim charts, prior pleadings or litigation history, or the identification of other licensees" sufficiently weighed against jurisdiction to result in dismissal. HP appealed.

The Federal Circuit reversed. HP argued identifying a specific patent and product line is sufficient to confer declaratory judgment jurisdiction. The court was not willing to go this far, and stated "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."

Acceleron argued there could be no jurisdiction because it never asserted infringement or demanded a license. The court rejected this as well, stating that simply avoiding "magic words" cannot defeat jurisdiction, particularly given that after MedImmune, a competent lawyer would likely avoid such statements.

Acceleron also asserted it should be able to contact another party to, for example, suggest incorporation of the patented technology into its products or to try to sell the patent. While the court agreed those circumstances may exist, the court doubted "in those situations, the patent owners would assert a patent as 'relevant' to the other party’s specific product line, impose such a short deadline for a response, and insist the other party not file suit." Further, the court noted Acceleron was an NPE, and a company receiving "such correspondence from a non-competitor patent holding company . . . may invoke a different reaction than would a meet-and-discuss inquiry by a competitor, presumably with intellectual property of its own to place on the bargaining table." Based on all these factors, the court held it was "not unreasonable" for HP to interpret the letters as implicitly asserting the patent.

The Federal Circuit was unsympathetic to Acceleron's statements that at the time HP filed suit, it could not have filed suit for infringement as it had not yet performed sufficient investigation to make such a determination. The court held this was irrelevant, stating (and citing pre-MedImmune cases) the test for declaratory judgment jurisdiction in patent cases is objective. Thus, the relevant determination is what the recipient of Acceleron's letters would reasonably infer from their contents. Therefore, "conduct that can be reasonably inferred as demonstrating intent to enforce a patent can create declaratory judgment jurisdiction," even when there is no subjective intent to assert the patent at that time. Finally, the court pointed to two related facts: the fact that Acceleron is an NPE and that it refused HP's request for a mutual standstill. These two factors further confirmed this inference of intent to enforce the patent.

In sum, the court held that Acceleron's letters, when viewed in the context of the totality of the circumstances and objectively, could have been perceived by HP as an assertion of the patent against HP's Blade Server products, and HP disagreed that the patent covered the products. This was sufficient to confer declaratory judgment jurisdiction.

The court acknowledged this was a departure from its previous precedent, stating "our decision in this case undoubtedly marks a shift from past declaratory judgment cases." Indeed, it seems that parties attempting to open licensing negotiations will have a difficult time not exposing themselves to a potential declaratory judgment action even with the most generic of communications.

To read the full decision in Hewlett-Packard Co. v. Acceleron LLC, click here.


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