Expert opinion of patent infringement, offered by a patent owner during licensing negotiations, proved to be key evidence in establishing an "actual controversy" sufficient to allow the alleged infringer to bring a declaratory judgment action in federal court, the Federal Circuit Court of Appeals said in a March 26 opinion.
The opinion is significant because it is the first by the Federal Circuit to discuss how it will determine the existence of a controversy sufficient to give it jurisdiction now that the U.S. Supreme Court, in its January decision MedImmune v. Genentech, rejected the circuit's former "reasonable apprehension" test.
Prior to MedImmune, the Federal Circuit applied a two-part test to decide whether it could issue a declaratory judgment. The first part looked to whether the patentee had created a reasonable apprehension in the plaintiff that it would face an infringement suit. If so, the court would then weigh whether the plaintiff's conduct amounted to infringing activity.
But with the Supreme Court's explicit rejection of that test in MedImmune, a case between parties to a signed licensing agreement, the Federal Circuit had to craft a new test for this case, which involved conduct that occurred prior to any licensing. It decided on a test that considers the patentee's assertion of rights in the face of another's conduct contrary to those rights.
"We hold only that where 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."
Applying that test, the Federal Circuit found that the patentee had made such an assertion of its rights – in large part through the statements of experts the patentee brought to licensing negotiations.
A Matter of Memory
The plaintiff, SanDisk, a manufacturer of flash-memory storage products, filed the declaratory judgment action in 2004 against STMicroelectronics, another flash-memory maker that owns what the court described as "a sizeable portfolio" of related patents.
Earlier that year, ST wrote to SanDisk asking to meet to discuss a cross-license agreement. The letter listed eight ST patents that it believed SanDisk would have interest in. SanDisk replied that it would review the patents and follow-up at a later time. Later, ST wrote again, reiterating the request and listing another four patents.
After a series of communications, SanDisk and ST met to discuss licensing on August 27, 2004. In addition to its IP vice president and two licensing attorneys, ST brought three technical experts it had retained to perform infringement analyses of SanDisk's products.
Over the course of the meeting, ST's experts gave a five-hour presentation in which they identified specific claims of SanDisk's infringement of each patent. Evidence indicated that the experts "liberally referred" to SanDisk's infringement.
At the end of the meeting, ST gave SanDisk a packet of materials containing, for each of the 14 patents, a copy of the patent, reverse-engineering reports for SanDisk products, and diagrams showing how elements of ST's patent claims covered SanDisk's products. The ST vice president added, "ST has absolutely no plan whatsoever to sue SanDisk."
For more than a month, ST and SanDisk continued to exchange letters and e-mails. SanDisk presented a confidential licensing offer, but ST insisted on receiving a non-confidential offer. On October 15, as the parties continued to go back and forth over this, SanDisk filed suit in federal court seeking a declaratory judgment of non-infringement.
ST moved to dismiss the suit for lack of jurisdiction, asserting that no actual controversy existed. The district court agreed, reasoning that SanDisk had no "objectively reasonable apprehension of suit," even though it may have believed subjectively that ST would file suit.
Experts' Statements Key
On appeal, the Federal Circuit applied its newly formulated "assertion of rights" test to conclude that the lawsuit should continue. In so doing, it emphasized the statements made by ST's infringement experts during the parties' licensing meeting.
"ST presented, as part of the 'license negotiations,' a thorough infringement analysis presented by seasoned litigation experts, detailing that one or more claims of its patents read on one or more of SanDisk’s identified products," the court noted.
"At that meeting, ST presented SanDisk with a detailed presentation which identified, on an element-by-element basis, the manner in which ST believed each of SanDisk's products infringed the specific claims of each of ST's patents. During discussions, the experts liberally referred to SanDisk's present, ongoing infringement of ST's patents and the need for SanDisk to license those patents."
Through the experts' presentations, coupled with the packet of materials ST presented afterwards, "ST communicated to SanDisk that it had made a studied and determined infringement determination and asserted the right to a royalty based on this determination."
At the same time, SanDisk maintained that it could continue to market its products without paying royalties to ST. Taken as a whole, these facts showed a substantial controversy between the parties, the court held.
"Under the facts alleged in this case, SanDisk has established an Article III case or controversy that gives rise to declaratory judgment jurisdiction. ST sought a right to a royalty under its patents based on specific, identified activity by SanDisk."
The case is SanDisk Corp. v. STMicroelectronics Inc., Case No. 05-1300 (Fed. Cir. March 26, 2007).