If you own a patent and become aware that it is being infringed, what are your options? Usually three: 1) sue; 2) don’t sue and ignore the infringement; or 3) don’t sue, but try to agree to a license with the infringer, out of court. As between alternatives ## 1 and 3, negotiating rather than suing can make a great deal of sense, in light of the fact that most litigation ends in settlement anyways.
The negotiation route, though, has a major drawback: the patent owner must carefully and precisely craft the invitation to the infringer to negotiate; otherwise, the patent owner may unintentionally trigger the infringer’s ability to file a complaint for declaratory judgment for non‑infringement in a forum that the patent owner disfavors — usually, the infringer’s home district. The patent owner’s CEO could be left wondering why a strategy intended to avoid litigation expense has not only prompted a lawsuit but also one that requires the company to hire local counsel in, say, the District of Idaho.
Furthermore, a direct allegation of infringement is not necessary to support declaratory judgment jurisdiction, and the courts have not created clear rules as to what kind of verbal formula in a communication to an infringer will definitely avoid a declaratory judgment action. The Federal Circuit’s latest case on whether a declaratory judgment was properly filed, 3M Co. v. Avery Dennison Corp., adds some clarity, but determining whether a declaratory judgment complaint for non-infringement is ripe will still depend heavily on the facts, or, as an earlier Federal Circuit case put it, “there is no bright-line rule for distinguishing those cases that satisfy the actual case-or-controversy requirement from those that do not.”
In 3M v. Avery, 3M filed a complaint against Avery that sought a declaratory judgment of non‑infringement of certain patents owned by Avery. (The suit against Pasadena, California-based Avery was filed, naturally, in 3M’s home district, the District of Minnesota.) The district court dismissed the case for lack of subject matter jurisdiction, but the Federal Circuit reversed and remanded. In its analysis of whether a justiciable controversy — a “definite and concrete” dispute — existed between the parties on the declaratory judgment claims, the Federal Circuit noted that under its cases the declaratory judgment complaint, at a minimum, “must allege an affirmative act by the patentee relating to the enforcement of his patent rights.” A “charge” of infringement, an accusation, is an affirmative act sufficient to support jurisdiction over a declaratory judgment action. In contrast, a communication by which the patent owner “merely identif[ies] its patent and the other party’s product line” does not support jurisdiction. Between these two ends of the spectrum, one must engage in “a case-by-case analysis.”
The court in 3M found a case or controversy based on a charge of infringement: according to 3M’s version of the facts, the Chief Intellectual Property Counsel of Avery telephoned his counterpart at 3M and stated that certain of 3M’s products “may” infringe Avery’s “Heenan” patents and that “licenses are available.” The Court held that stating a product “may” infringe was enough to constitute an “effective” charge of infringement (although what was really said in the conversation between the two in-house counsel was disputed, so the Federal Circuit remanded for the district court to resolve the factual issue). Other facts, cited by Avery, did not weigh against jurisdiction, including the facts that it was telephone conversation rather than “a formal cease-and-desist letter”; that there was no deadline to respond to the charge; and that a year passed between when the accusation was made and the date 3M sued for a declaratory judgment, because the “relevant circumstances” surrounding the accusation had not changed during that year. The fact that the parties were direct competitors with a history of suing each other for patent infringement was “equivocal” as to the jurisdictional question.
The Federal Circuit concluded that, in this particular case, there was a substantial legal controversy because 3M sued “reasonably promptly after Avery, a direct competitor with a history of enforcing its patent rights against 3M, asserted its rights in the Heenan patents against 3M and accused a specific 3M product of infringement.”
The courts, as shown by 3M, and other recent cases, will find a case or controversy based on a communication that falls well short of what 3M called a “formal cease-and-desist letter.” If one represents the patent owner, how then does one calibrate the initial contact with the infringer to avoid a declaratory judgment? The cases are not clear. The court in 3M offered as a safe harbor a suitably vague letter that “merely” identifies the patent and the other party’s “product line,” i.e., not a specific product. In HP v. Acceleron, though, the Federal Circuit said that that kind of letter was not enough where the letter also imposed a deadline, and where the letter was not from a competitor, but rather a patent holding company in the business of licensing its patents.
Can the suitably vague letter state upfront that the recipient may want to take a license? Or will the court say that by mentioning a license, the letter has “effectively charged” the recipient with infringement? The answer to the latter question is arguably “yes,” since there is no point in mentioning a license unless the patent owner believes the recipient of the letter is practicing the patented invention without permission (i.e., infringing) — you don’t need a patent license to practice a technology not covered by the patent.
Even if a letter is carefully crafted to be suitably vague — e.g., “call us if you would like to talk about our patent and your product line x (not product — product line)” without so much as hinting at how those two subjects relate to each other — one would think the follow‑up conversation will quickly turn to the question of what the patent owner wants and will elicit the fact that the patent owner is seeking a license, which will create the danger of a declaratory judgment action.
The more realistic solution to avoiding a declaratory judgment action would seem to be to send with the suitably vague initial letter a draft non‑disclosure agreement for signature by the recipient, and to have any and all follow‑up discussions under that non‑disclosure agreement. In 3M, the court noted that one of the factual disputes as to the parties’ conversation was whether it took place pursuant to a confidentiality agreement, which, the court further noted, would preclude use of the alleged statements by Avery as a basis for a declaratory judgment action. Once involved in confidential discussions, the parties can enter into a standstill agreement if they wish, under which neither party can sue for a certain amount of time.
The overall point to keep in mind is the approach of talking before suing in the patent context can backfire on the unwary patent owner: the law on declaratory judgment is such that any communication made by the patent owner to initiate licensing discussions must be made deliberately and only after considering, under the current caselaw, whether a district judge will view that communication as creating a dispute between the parties.