On New Year’s Eve, Magistrate Judge Stephen Crocker of the W.D. Wis. ruled that a patent pool’s demand letter listing hundreds of standard-essential-patents was not enough for the patent owner to provide its recipients with actual notice of alleged acts of patent infringement under the patent statute. Ruling on Defendants’ Motion for JMOL regarding pre-suit damages in the ongoing Toshiba v. Imation litigation (Case No. 09-cv-305-SLC), Magistrate Judge Crocker’s December 31 order concluded that a demand letter from a patent pool entity authorized to license a portfolio of nearly two thousand DVD-standard essential patents on behalf of Toshiba and others failed to provide defendants with notice of a specific charge of patent infringement that would allow Toshiba to pursue pre-suit damages.
Here is the backstory. Toshiba brought suit in May 2009, alleging that certain recordable DVD discs sold under the brand names Imation and Memorex infringed two of its patents. A third patent was added by Toshiba in September 2009.
Toshiba did not mark its products with patent numbers, and as such was required to rely on providing infringers with “actual notice” under Section 287(a) in order to get pre-suit damages. Toshiba asserted that actual notice was provided by pre-suit letters mailed to defendants in 2003 by the DVD6C Licensing Agency — the authorized licensing agent for Toshiba and six other member entities involved in industry-wide DVD technology standards. Collectively, the DVD6C members own hundreds of patents alleged to be essential to the industry standard DVD specifications. The 2003 DVD6C demand letters offered each defendant a portfolio license that would cover hundreds of patents deemed essential to practicing the DVD industry standards. The letter to Imation further included a DVD Patent License Agreement and a list of over 1,800 allegedly essential patents (broken into subcategories for various products), of which 360 patents or groups of patents were listed as essential to DVD-RAM, DVD-RW, and DVD-R discs like those at issue in the litigation.
At trial, the jury found Toshiba had met its burden to show defendants were on notice of the alleged infringement and that defendants possessed the requisite intent to induce infringement. Despite the jury’s finding, Judge Crocker granted JMOL on both issues in favor of defendants.
Actual Notice under Section 287. In their JMOL motions, defendants argued that the DVD6C demand letters listing hundreds of alleged standard essential patents were insufficient to provide actual notice under Section 287. The Federal Circuit has ruled that actual notice under Section 287 requires the affirmative communication of a specific charge of infringement by a specific accused product or device and mere notice of a patent’s existence is insufficient to constitute actual notice. Defendants argued there was no actual notice, because the only notification of infringement came from the DVD6C Licensing Agency, rather than Toshiba, and the letters sent by DVD6C lacked the requisite specificity as to which products were alleged to infringe which patents.
Agreeing with defendants, the court ruled that, although the letter both communicated that a license was required to manufacture and sell industry-standard-compliant products and identified the patents deemed essential to that standard for specific categories of products, the letter failed to make a specific charge of infringement by a specific accused product. The court ruled that the defendants knowledge is not relevant to notice, which focuses only on the actions of the patentee. Relying on the Federal Circuit’s Lans decision, the court discussed several purposes of the notice provision:
[B]esides alerting the alleged infringer to avoid further infringement, the notice requirement also “permitted the alleged infringer to contact the patentee about an amicable and early resolution of the potential dispute,” either by design changes, negotiations for licenses or early resolution of rights in a declaratory judgment proceeding.
The court stated that notice may not be sufficient if not provided directly by the patent owner, but by merely “someone closely associated with the patentee” because that could cause ambiguity as to whom the accused infringer should negotiate for license and complicate court proceedings by needing to assess the relationship between the entity giving notice and the patent owner. The Federal Circuit’s Philips decision provided an exception for notice provided by a patent owner’s affiliate where the notice letter enclosed a copy of the patent which identified the actual patentee and the affiliate “had the ultimate responsibility for licensing and enforcement of [the] patent. However, that exception did not apply in this case where the licensing pool DVD6C that sent the letters was only authorized to license the patent pool in total, not individual patents such as the Toshiba patents at issue in this case, and was not authorized to sue on the individual patents at issue. Thus, the notice letter was not deemed to be from the patent owner Toshiba as required under the Section 287(a).
Even if the notice letter were deemed to be from Toshiba, the court ruled that the letter did not provide the requisite notice under Section 287. Distinguishing “notice” under Section 287 from mere knowledge of a patent, the court found that the letter lacked sufficient specificity because it is not the demand letter recipient’s burden to determine which products infringe one or more of the hundreds of identified patents:
How could the recipient of a letter as scattershot as that sent by DVD6C meaningfully attempt to resolve disputes early or to design around any possible infringement without knowing which of their products are accused of infringing which patents? … Given the large number of patents involved, DVD6C at least should have identified which patents were relevant to which disc format.
A key problem was that the letter assumed that all DVD products practicing the standard infringed the patents even though the standard has optional provisions that may not be practiced by standard-compliant devices or standard-compliant devices may not meet limitations of specific asserted patent claims:
Even if 360 patents were deemed to be a manageable number to review–a debatable proposition–it still is too great a stretch to say that the DVD6DC letters made a specific charge of infringement by a specific accused product or device. For one thing, the letters did not identify any particular recordable media product or device manufactured or sold by any of the defendants that allegedly infringed specific patents. Instead, the letters were premised on the assumption that any recordable disc that was manufactured or sold as compliant with the DVD specification for the various formats necessarily infringed one or more patents in the licensing pool. This assumption was not valid: as the Federal Circuit found in this case, “even the DVD standards recognize that users may record to DVDs without finalization,” and Toshiba conceded that unfinalized DVDs do not infringe. Thus, with respect to the ‘751 patent (and possibliy others), it was possible for a recordable disc to comply with the DVD specifications and not infringe any of the listed patents.
Further, DVD6C did not deem all 360 patents to be essential to all three of the recordable disc formats. The ‘751 patent, for example, was deemed to be essential only to the DVD-RAM format. Rather, the list of patents identified by DVD6C as being “essential” included any patent that was essential for “at least one” of the recordable formats. Yet, instead of specifying which of the 360 or so patents identified as being essential to recordable media applied to which of the three formats identified, the DVD6C letters combined the three recordable disc formats into a single category. Thus, for a defendant to have determined whether it might be infringing a listed patent, it would have faced the Augean task of examining its discs in each of the three formats and then comparing them to each of the hundreds of patents identified as essential to determine whether a certain type of disc infringed a certain patent on DVD6C’s list.
The court relied on Judge Crabb’s decision in Netgear that found no adequate notice from an 802.11 WiFi patent pool where “the extensive 802.11 standard had many sections that permitted wireless devices to function in several ways and still comply with the standard, and not every patent in the license pool covered every section of the standard, but the plaintiffs’ licensing agent nonetheless ‘refused to tell defendant which sections or functions were at issue.'” Even though in this case negotiations went on for a year, “[n]othing in § 287(a) suggests that defective notice can be ‘cured’ by allowing the defendant lots of time to conduct the analysis that the patent holder should have conducted in the first place.”
Knowledge of Infringement. Although the Court ruled that the demand letter did not put defendants on actual notice under Section 287, the Court noted that evidence of such communications was properly presented to the jury as relevant to the defendants’ knowledge of the patents-at-issue for the purposes of indirect infringement. At trial, the jury found defendants possessed the requisite intent to induce infringement before the suit was filed.
In their JMOL on induced infringement, Defendants argued that, as with actual notice, evidence of the DVD6C demand letters was insufficient to show that they knew or were willfully blind to the fact that end users would infringe the asserted patents. The Court agreed, distinguishing knowledge that the patent existed from knowledge that the products-at-issued infringed:
Neither Toshiba nor DVD6C ever advised defendants of the scope or the claims of any of the patents, and neither Toshiba nor DVD6C ever alerted defendants that defendants were inducing infringement by encouraging recording or finalization. What they told defendants was that they–Toshiba and DVD6C–collectively owned a portfolio of patents “essential” to practicing the DVD standards and that defendants would need to license, either from the pool or its individual members, these patents in order to practice the standards. This evidence, without more, falls short of showing that, after receiving the DVD6C letters, defendants knew that they would induce infringement of the [patents-at-issue] if they encouraged end users to record on or finalize the discs.
The Court further found no evidence to support a reasonable inference of willfull blindness, reasoning that the only deliberate action taken by defendants was the decision not to review the 360 patents identified as applying to DVD discs in order to attempt to discern whether and how each of their products might infringe.
In sum, Magistrate Judge Crocker’s rulings (which he explicitly provided “so as to tee up these disputes for the parties’ imminent appeal”) set a high bar for demand letters asserting entire patent portfolios against potential infringers, holding that merely identifying a list of patents as essential to standards practiced by an accused product may not provide the alleged infringer with actual notice or even knowledge of particular acts of infringement for purposes of indirect infringement.