Claim Charts Sent to End Users May Confer Declaratory Judgment Standing on Supplier: Federal Circuit | Practical Law

Claim Charts Sent to End Users May Confer Declaratory Judgment Standing on Supplier: Federal Circuit | Practical Law

In Microsoft Corp. v. DataTern, Inc., the US Court of Appeals for the Federal Circuit held that a patentee's identification of software suppliers as indirect infringers in infringement claim charts the patentee sent to the suppliers' customers in other litigation may confer declaratory judgment standing on the suppliers in an action against the patentee.  The Federal Circuit also reversed-in-part the district court's summary judgment of non-infringement as too broad because it covered products the patentee did not accuse of infringement.

Claim Charts Sent to End Users May Confer Declaratory Judgment Standing on Supplier: Federal Circuit

by Practical Law Intellectual Property & Technology
Published on 07 Apr 2014 • USA (National/Federal)
In Microsoft Corp. v. DataTern, Inc., the US Court of Appeals for the Federal Circuit held that a patentee's identification of software suppliers as indirect infringers in infringement claim charts the patentee sent to the suppliers' customers in other litigation may confer declaratory judgment standing on the suppliers in an action against the patentee. The Federal Circuit also reversed-in-part the district court's summary judgment of non-infringement as too broad because it covered products the patentee did not accuse of infringement.
On April 4, 2014, in Microsoft Corp. v. DataTern, Inc., the US Court of Appeals for the Federal Circuit affirmed-in-part and reversed-in-part the US District Court for the Southern District of New York's denial of a motion to dismiss for lack of declaratory judgment jurisdiction and summary judgment of non-infringement. In relevant part, the Federal Circuit held that:
  • The district court had declaratory judgment jurisdiction over Microsoft Corp.'s and SAP AG and SAP America, Inc.'s (SAP) non-infringement and invalidity claims where DataTern Inc. had cited Microsoft and SAP software user guides and other documents in claim charts as support for its direct infringement claims against Microsoft's and SAP's customers in other litigation.
  • The district court did not have declaratory judgment jurisdiction over Microsoft's non-infringement and invalidity claims regarding a patent for which DataTern did not cite Microsoft documents in the claim charts.
  • The district court's summary judgment of non-infringement was too broad in that it covered SAP products DataTern did not accuse of infringement.
(No. 2013-1184, (Fed. Cir. 2014).)

Background

DataTern holds US Patent Nos. 5,937,402 ('402 patent) and 6,101,502 ('502 patent). DataTern filed suit against several of Microsoft's and SAP's software customers alleging they had directly infringed certain claims of these patents based in part on the customers' use of Microsoft's ADO.NET and SAP's BusinessObjects software. In particular, in connection with these suits DataTern sent the customers infringement claim charts that cited Microsoft and SAP software user guides and other documents in support of its infringement claims concerning the '502 patent. DataTern also cited SAP documents in its '402 patent claim charts, but did not cite Microsoft documents. Instead, it cited the use of third-party software for certain claim limitations.
Several customers requested indemnification from Microsoft and SAP. Microsoft and SAP did not agree to indemnify these customers but instead filed non-infringement and invalidity declaratory judgment actions against DataTern in the US District Court for the Southern District of New York. DataTern moved to dismiss for lack of subject matter jurisdiction and filed infringement counterclaims. The district court denied DataTern's motion to dismiss. Following claim construction, DataTern conceded non-infringement, and the court entered summary judgment.

Outcome

Declaratory Judgment Jurisdiction

The Federal Circuit began its analysis by stating that for declaratory judgment jurisdiction to exist, there must be a substantial controversy of sufficient immediacy in view of the totality of the circumstances. Specifically, there must be allegations by the patentee or other record evidence that establishes at least a reasonable potential that a claim could be brought (here, a potential inducement of infringement claim by DataTern against Microsoft and SAP).
The court rejected Microsoft's and SAP's argument that they had declaratory judgment standing based solely on DataTern's filing infringement suits against their customers. The court instead considered the totality of the circumstances and relied heavily on DataTern's claim charts from the customer suits to determine whether there was a reasonable potential for an induced infringement claim by DataTern against Microsoft and SAP.
For the '502 patent claim charts that cited Microsoft and SAP software for key claim limitations (and therefore implicated Microsoft and SAP as indirect infringers), the Federal Circuit held that the district court had jurisdiction over Microsoft's and SAP's declaratory judgment claims. However, the Federal Circuit held that the district court lacked jurisdiction over Microsoft's claims concerning the '402 patent because:
  • DataTern's claim charts did not identify any Microsoft software functionality that could induce or contribute to infringement of the '402 patent but instead identified third-party software for key claim limitations.
  • DataTern's post-suit conduct, such as its conditional infringement counterclaim, did not create declaratory judgment jurisdiction.
  • There was no "protracted negotiation process" between the parties before suit.
  • Though DataTern's aggressive enforcement strategy might generally support declaratory judgment jurisdiction, it did not here because DataTern had a pattern of suing customers, not suppliers like Microsoft.

Scope of Non-infringement

The Federal Circuit also reversed-in-part the district court's summary judgment of non-infringement as to SAP, finding the district court's judgment too broad. Because declaratory judgment jurisdiction must be determined on a product-by-product basis, and DataTern's claim charts only asserted indirect infringement based on SAP's customers' use of its BusinessObjects software, the district court's judgment of non-infringement of "all SAP products 'that were or could have been accused of infringing'" the patent was impermissibly broad.

The Dissent

Chief Judge Rader dissented-in-part from the majority's dismissal of Microsoft's declaratory judgment action concerning the '402 patent. Judge Rader explained that the majority's decision, based primarily on the contents of DataTern's claim charts, effectively places declaratory judgment jurisdiction within the control of the patentee and creates a “roadmap” for patentees to avoid declaratory judgment jurisdiction by referencing only third-party software information in claim charts sent to end users.
Update: On May 5, 2014, the Federal Circuit issued an order vacating the original opinion and issued a new opinion without Chief Judge Rader's dissent on the basis of recusal (Microsoft Corp. v. DataTern, Inc., Nos. 2013–1184, 2013–1185, (Fed. Cir. 2014)).

Practical Implications

The Federal Circuit's decision is important to product suppliers in that it will help enable them to challenge patents asserted against their customers in a declaratory judgment action if a patentee identifies supplier products, particularly software, as a basis of its infringement claims against the customers. Patentees, on the other hand, will need to consider the potential exposure to a declaratory judgment action if they identify a supplier product as a basis of their infringement claims against end user customers.