Yesterday Arris filed a declaratory judgment action in D. Del. against Rockstar based on Rockstar asserting alleged standard essential patents (SEPs) against cable operators who purchased Arris equipment (recall our Jan. 21, 2014 post about Rockstar lawsuits with cable operators).  Among other things, Arris seeks a declaration of the essentiality of Rockstar patents, what standard setting organization (SSO) obligations attach thereto as well as an unfair competition claim seeking to declare the patents unenforceable based on Rockstar’s patent enforcement activities against Arris’ customers.  Further, Arris is a spin-off of Nortel — from whom Rockstar purchased the patents out of bankruptcy — and Arris asserts that Nortel had granted Arris a license under the patents.

Unfair Competition Claim.  The unfair competition claim is based on Delaware state law and premised on issues recently raised not only with SEPs, but with patent assertion entities asserting large patent portfolios, stating as follows (enumeration and break-out formatting added):

     149.  Defendants have engaged in unfair competition and interfered with ARRIS’s current and expected business relationships by, among other things,
[1] wrongfully accusing ARRIS’s customers of infringement,
[2] falsely representing that ARRIS’s customers are not licensed to the Asserted Patents,
[3] pressuring ARRIS’s customers to sign NDA agreements to hamper cooperation with ARRIS and to frustrate Defendants’ FRAND and DOCSIS royalty commitments,
[4] concealing the true owners of patents from the Nortel Patent Portfolio, and
[5] concealing the complete list of patents Defendants believe ARRIS’s customers are infringing.

Storage Wars.  Arris alleges that Rockstar “refused to identify for accused infringers … the full list of patents they are purportedly infringing” but “provided only what [Rockstar] deemed ‘exemplary’ patents” thus “le[aving] accused infringers with no way to meaningfully evaluate Rockstar’s infringement allegations … or to determine the actual value of the relevant patents within Rockstar’s portfolio.”  This seems similar to concerns that patent aggregating patent monetization entities may seek unfair royalties by leveraging the risk and uncertainty that some unidentified-but-valuable-patent might be lurking somewhere within their portfolio of thousands of patents (Rockstar is reported to have over 4,000 patents).

This brings to mind “Storage Wars”.  “Storage Wars” is a reality TV show in which abandoned contents within storage lockers are sold to purchasers who speculate on the contents’ value on the chance that there is more there than meets the eye.  Specifically, the locker door is opened so that prospective purchasers can see whatever is in plain sight from a limited view peering from outside the door.  They then purchase the contents without entering, touching or examining the contents to make a fully informed valuation–e.g., what’s under a blanket, what’s in boxes, what’s in something that appears to be a safe …  Whether or not this is a good analogy, hopefully you’ll appreciate a television show analogy for a case about cable operators.

NDAs.  Arris’ allegations include concerns that Rockstar required prospective licensees to enter non-disclosure agreements (NDAs) that “concealed the scope of Defendants’ assertions” and “has been orchestrated to subvert the FRAND and DOCSIS royalty free obligations.”  Recall from our Jan. 23, 2014 post that Ericsson’s use of NDAs in negotiating licenses for SEPs was one of the reasons cited by the Competition Commission of India to investigate Ericsson’s SEP licensing activity.

Misrepresenting Existing Licenses.  Arris’ allegation includes concern that Rockstar “falsely represent[ed] that ARRIS’s customers are not licensed to the Asserted Patents.”  Recall that a concern raised with Innovatio’s assertion of WiFi SEPs in demand letters to equipment end-users (e.g., coffee shops providing WiFi access) was that Innovatio did not tell the end-users that some WiFi equipment may be licensed based on rights granted to manufacturers or component suppliers of that equipment (see our Feb. 6, 2013 post).  The Innovatio case concerned silence as to whether the patents were licensed, which allegations were dismissed, but this case alleges “false[] representations that ARRIS’s customers are not licensed.”

If you are in Phoenix today for the AIPLA Mid-Winter Institute, please stop by the AIPLA’s Standards & Open Source Committee booth from 3:30pm to 4:30pm (Komatke Ballroom).  You can have invigorating conversations about FRAND, holdup versus holdout, whether it should be “SSO” or “SDO” and other plainly exciting issues notwithstanding whatever your family, friends and neighbors say when you try to force the topics on them.  Hope to see you here.

Ericsson announced a global cross-license settlement agreement with Samsung for patents relating to GSM, UMTS and LTE standards, which settlement includes two ITC investigations and litigation in E.D. Tex. that we have followed.  Reports estimate that, in addition to exchange of consideration such as cross-licenses, Samsung will make an upfront payment to Ericsson of $650 million along with on-going royalty payments over a period of years.

In an order dated January 16, 2014, the Competition Commission of India (“CCI”) ordered another investigation into Ericsson’s licensing of cellular patents that are subject to FRAND obligations, which investigation will parallel a similar investigation of Ericsson that CCI ordered on November 12, 2013 (discussed in our prior post).  The rationale for this new investigation, requested by Intex Technologies, is the same as that for the prior investigation requested by Micromax Informatics and we refer you to our prior post’s discussion thereof.

One difference concerns Ericsson’s refusal to disclose what licensing terms it gave to other licensee’s that the prospective licensee requested to assess whether the license offer to them is fair, reasonable and non-discriminatory.  In the Micromax investigation, the parties were in litigation and Ericsson refused to produce the other comparable licenses in a mediation of that dispute, leading CCI to state that “Refusal of OP [Ericsson] to share commercial terms of FRAND licenses with licensees similarly placed to the informant [Micromax], fortified accusations of the Informant, regarding discriminatory commercial terms imposed by the OP.”

In this new investigation, the rub comes from an NDA required by Ericsson to negotiate a license with requester Intex.  Intex asserts that Ericsonn’s NDA prevents them from consulting with vendors of components that implement the standard, allowed Ericsson to claim it could not produce license agreements with others given similar NDAs entered with them, and required adjudicating any disputes in another country.  CCI found that the NDA was problematic for several reasons, including allowing Ericsson to hide whether its licensing terms were discriminatory as compared to other licenses it granted on the same FRAND-obligated standard essential patents:

Charging of two different license fees per unit phone for use of the same technology prima faci is discriminatory and also reflects excessive pricing vis-à-vis high cost phones.  NDA thrust upon the consumers by OP [Ericsson] strengthens this doubt as after NDA, each of the user of SEPs is unable to know the terms of royalty of other users.  This is contrary to the spirit of ‘applying FRAND terms fairly and uniformly to similarly placed players.’  Transparency is hallmark of fairness.  Both forcing a party to execute NDA and imposing excessive and unfair royalty rates prima facie was abuse of dominance and violation of section 4 of the Act.  Imposing a jurisdiction clause debarring Informant [Intex] from getting disputes adjudicated in the country where both parties were in business and vesting jurisdiction in a foreign land prima facie was also an abuse of dominance.

Concerns about improper NDA requirements are not unique to this CCI investigation.  The recent cable operator lawsuit against Rockstar includes concerns about Rockstar requiring NDA terms in negotiating licenses under patents it acquired from Nortel, which patents include standard essential patents subject to standard-setting organization (SSO) obligations such as RAND, FRAND or  royalty-free licensing obligations.

As with the prior Ericsson investigation, CCI’s order makes clear that these are just initial observations, not final expressions of opinion, and the investigation should proceed without being swayed by the initial observations.

Last week, District of Nebraska judge Joseph F. Bataillon entered an order preliminarily enjoining the Nebraska Attorney General (AG) from enforcing a cease and desist order that would prevent or impede the law firm of Farney Daniels from representing patent assertion entity MPHJ Technology Investments, LLC (MPHJ) to license or litigate MPHJ’s U.S. patents with respect to companies in Nebraska.  Judge Bataillon agreed to “revisit the preliminary injunction” if the AG’s continued investigation uncovers evidence that “supports a claim of bad faith” in MPHJ’s enforcement activities against entities operating in Nebraska.

Background.  The case was initiated last summer when Activision TV, Inc. (Activision) filed a complaint for patent infringement against Pinnacle Bancorp, Inc. (Pinnacle), a bank with charters in Nebraska, accusing it of infringing Activision’s patents for digital signage systems.  Thereafter, the Nebraska Attorney General issued a cease and desist order to Farney Daniels, which represents Activision in the litigation, demanding that it “immediately cease and desist the initiation of any and all new patent infringement enforcement efforts within the State of Nebraska pending the outcome of [the AG’s] investigation” into whether the firm and its clients’ “infringement assertions are unsubstantiated and contain false, misleading, or deceptive statements” in violation of the Nebraska Consumer Protection Act and/or the Uniform Deceptive Trade Practices Act.

In response, Activision filed an amended complaint adding the Nebraska Attorney General, the Chief Deputy Attorney General and the Assistant Attorney General as defendants.  The amended complaint requests a declaratory judgment that neither Activision nor its counsel, Farney Daniels, violated Nebraska law in asserting Activision’s patent rights against alleged infringers.  Acitivision also asserts that the cease and desist order violates federal law (42 U.S.C. § 1983) as well as its rights under the First, Fifth and Fourteenth Amendments of the U.S. Constitution.  Specifically, Activision argues that the AG’s actions deprived Activision of its right to retain counsel of its choosing to enforce its federally-granted patent rights against accused infringers.

Activision’s Motion for Preliminary Injunction.  Concurrent with its amended complaint, Activision filed a motion for preliminary injunction requesting the court to enjoin the AG “from taking any steps to enforce the Cease and Desist Order issued to Farney Daniels on July 18, 2013 in any manner that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska.”  In response, the AG filed a brief opposing the preliminary injunction and moving to dismiss the amended complaint’s allegations against the AG for lack of subject matter jurisdiction and for failure to state a claim.  Activision thereafter filed a reply brief in support of its motion for preliminary injunction and opposing the motion to dismiss.

After a hearing, the court entered an order, later amended, granting Activision’s motion for preliminary injunction, and ordering that “[t]he law firm of Farney Daniels and the attorneys therein are free to represent their client Activision in this case and any other federal patent case directly or indirectly associated with this case and the Nebraska Attorney General’s cease and desist order is not applicable to those cases.”  The court granted the motion because, during the hearing, the AG “conceded that [the] court has complete and exclusive jurisdiction over patent cases” and that “the cease and desist order is not intended to keep Farney Daniels from representing Activision in this case or a case in any other jurisdiction.”  The AG also “agreed that counsel for Activision can pursue any of the prospective infringers that have already been identified and can file suit against any newly identified potential infringers.”  Finally, the AG agreed that the cease and desist order “only prohibits Farney Daniels law firm from sending out letters to potential new infringers.”

The court later issued a separate opinion resolving the only remaining question of “whether the State of Nebraska can order counsel for Activision TV, Inc. to cease and desist initiation of all new patent infringement enforcement efforts in Nebraska.”  The court concluded that the AG could not, and enjoined the AG from “taking any steps to enforce the cease and desist order issued to Farney Daniels . . . that would prevent or impede the Farney Daniels firm from representing Activision in connection with licensing and litigation of U.S. patents owned by Activision with respect to companies based in, or having operations in, Nebraska.”  However, the judge also ordered that the AG could move to dissolve the injunction if its investigation uncovered evidence of bad faith.

MPHJ’s Motion to Intervene and for a Preliminary Injunction.  MPHJ moved to intervene as a party plaintiff in Activision’s case against the AG.  In its motions papers, MPHJ argued that because the AG’s cease and desist order “was directed to Farney Daniels, and MPHJ is also a client of Farney Daniels, and further, because the Nebraska AG, in its Response to Activision’s Motion for a Preliminary Injunction repeatedly asserts that its [cease and desist] Order was also directed towards patent-related letters sent by Farney Daniels on behalf of MPHJ, MPHJ can satisfy the requirements” for intervention.  MPHJ also filed a proposed complaint in intervention asserting causes of action similar to those asserted by Activision against the AG as well as a motion for a preliminary injunction seeking similar relief to that sought by Activision against the AG.

Thereafter, the AG noticed an interlocutory appeal to the Eigth Circuit of the district court’s injunction barring it from enforcing the cease and desist order against Activision and also filed a motion to stay proceedings pending appeal as well as an opposition to MPHJ’s motion to intervene.

After MPHJ filed its reply in support of its motion to intervene and Activision filed its opposition to the AG’s motion to stay pending appeal, the court issued an order denying the AG’s motion to stay pending appeal as well as the motion to dismiss Activision’s complaint.  The court also granted MPHJ’s motion to intervene.

MPHJ then filed another motion for preliminary injunction, requesting that the court enjoin the AG from “taking any steps to enforce the Cease and Desist Order issued to Farney Daniels . . . that would prevent or impede the Farney Daniels firm from representing MPHJ or its exclusive licensee subsidiaries in connection with the preparation and transmission of patent inquiry, licensing and notice correspondence regarding patents owned by MPHJ to companies based in, or having operations in, Nebraska.”

The AG responded to MPHJ’s first motion for preliminary injunction and also responded to MPHJ’s second motion for preliminary injunction arguing that, while its cease and desist order was not directed at MPHJ, the AG had “formally withdrawn the Order in its entirety, effective immediately . . ..”  Therefore, according to the AG, MPHJ’s original motion for preliminary injunction was “rendered moot.”

The AG also moved to dismiss its appeal of the district court’s grant of Activision’s motion for preliminary injunction, which the Eighth Circuit granted.

Ruling on MPHJ’s Motion for Preliminary Injunction:  For the same reasons it granted Acitvision’s motion, the court entered an order granting MPHJ’s motion for preliminary injunction.  In the order, the court dismissed the AG’s argument of mootness, holding that “[m]aking a voluntary decision to stop the unconstitutional conduct does not create a moot issue.”

On the merits, the court relied upon its previous holding in granting Activision’s motoin for preliminary injunction that “the federal government has preempted to a great extent the area of patent law. Allowing the attorney general to interfere might be harmful to the patent process.”

The court therefore enjoined the AG “from taking any steps to enforce the cease and desist order issued to Farney Daniels on July 18, 2013, in any manner that would prevent or impede the Farney Daniels firm from representing MPHJ in connection with licensing and litigation of U.S. patents owned by MPHJ with respect to companies based in, or having operations in, Nebraska.”  “If, however, at some point during the investigation [the AG discovers] evidence [that] supports a claim of bad faith, the Attorney General is free to revisit this preliminary injunction with the court.”

Take a Way.  While this case does not involve alleged standard-essential patents, it highlights the interest of state regulators in licensing negotiations and patent infringement lawsuits in general.  As our prior post discussed, the Federal Trade Commision is investigating allegations similar to those of the AG.

We will continue to monitor this case for further developments.

Today, the U.S. Supreme Court issued its opinion in Medtronic, Inv. v. Mirowski Family Ventures, LLC, unanimously reversing the Federal Circuit’s decision below and resolving two issues that are commonly disputed in the lower courts.  First, the Court held that the Federal Circuit had subject-matter jurisdiction over an appeal of an action for a declaratory judgment for non-infringement.  Second, the court held that contrary to the Federal Circuit’s holding, the patentee bears the burden of persuasion on the issue of infringement when a licensee seeks a declaratory judgment against a patentee that its products do not infringe the licensed patent.

Background.  Mirowski and Medtronic have a license agreement that permits Medtronic to practice the technology covered by certain of Mirowski’s patents relating to implantable heart stimulators.  The license agreement contains procedures that permit Mirowski to identify products that it believes infringe the licensed patents, thereby subjecting Medtronic to royalty obligations for those products.  Pursuant to those procedures, Mirowski notified Medtronic of its belief that several Medtronic products infringed the licensed patents.

In response, Medtronic filed a lawsuit against Mirowski seeking a declaratory judgment that the products identified by Mirowski do not infringe the licensed patents.   The District Court concluded that Mirowski, as the party asserting infringement, had the burden of proving infringement and that Mirowski had not met that burden.

The Federal Circuit disagreed. It acknowledged that a patentee normally bears the burden of proof, but concluded that where the patentee is a declaratory judgment defendant and, like Mirowski, is foreclosed from asserting an infringement counterclaim by the continued existence of a licensing agreement, the party seeking the declaratory judgment, namely Medtronic, bears the burden of persuasion.  The Supreme Court granted certiorari and reversed.

Subject-Matter Jurisdiction.  The Court first rules that the Federal Circuit did not lack subject-matter jurisdiction over the appeal.  “Title 28 U. S. C. §1338(a) gives federal district courts exclusive jurisdiction over ‘any civil action arising under any Act of Congress relating to patents,’ and §1295(a)(1) gives the Federal Circuit appellate jurisdiction over any case where jurisdiction in the district court ‘was based, in whole or in part, on section 1338.’”  “The Declaratory Judgment Act does not ‘extend’ the federal courts’ ‘jurisdiction,’ . . . and federal courts determining declaratory judgment jurisdiction often look to the ‘character’ of the declaratory judgment defendant’s ‘threatened action,’ . . . whether the defendant’s hypothetical ‘coercive action’ ‘would necessarily present a federal question.'”

In this case, “if Medtronic had acted consistent with the understanding of its rights that it seeks to establish through the declaratory judgment suit (by ceasing to pay royalties), Mirowski could terminate the license and bring a suit for infringement.”  “That suit would arise under federal patent law because ‘patent law creates the cause of action.’”  “Thus, this declaratory judgment action, which avoids that hypothetical threatened action, also ‘arises under’ federal patent law.”

Burden to Show Infringement.  The Court also holds that “[w]hen a licensee seeks a declaratory judgment against a patentee that its products do not infringe the licensed patent, the patentee bears the burden of persuasion on the issue of infringement.”  “This conclusion is strongly supported by three settled legal propositions.”  First,” a patentee ordinarily bears the burden of proving infringement.”  Second, “the ‘operation of the Declaratory Judgment Act’ is only ‘procedural,’ . . . leaving ‘substantive rights unchanged.’”  Third, “‘the burden of proof’ is a ‘substantive’ aspect of a claim.”

The Court also held that “[p]ractical considerations lead to the same conclusion.” “Shifting the burden based on the form of the action could create post-litigation uncertainty about a patent’s scope.”  “It may also create unnecessary complexity by compelling a licensee to prove a negative.”  “Finally, burden shifting is difficult to reconcile with the Declaratory Judgment Act’s purpose of ameliorating the ‘dilemma’ posed by ‘putting’ one challenging a patent’s scope ‘to the choice between abandoning his rights or risking’ suit.”  “To the extent that the Federal Circuit’s burden shifting rule makes the declaratory judgment procedure disadvantageous, that rule recreates the dilemma that the Declaratory Judgment Act sought to avoid.”

 

Last Friday, several cable operators filed a Complaint against Rockstar in D. Del. alleging that Rockstar’s assertion against them of patents breached obligations owed to various standard setting organizations (“SSOs”) based on prior owner Nortel’s commitment to license patents on RAND, FRAND or royalty-free terms.  Our Jan. 2 and Nov. 1 posts discussed Rockstar’s purchase of Nortel’s patents from bankruptcy and recent Rockstar lawsuits against other cable operators as well as Google, Andriod device manufacturers and Cisco.

The Complaint accuses Rockstar–alleged to own over 4,000 patents acquired from Nortel–of “misuse and attempt[ing] to obtain exorbitant royalties” based on several acts:

Rockstar has misused and attempted to obtain exorbitant royalties from licensing the patents it purchased from Nortel by:
(a) refusing to identify to potential licensees the patents it seeks to enforce and instead broadly accusing companies of infringing the portfolio as a whole;
(b) requiring all potential licensees to sign non-disclosure agreements as a precondition to negotiating licensing agreements for the purpose of obtaining royalties in excess of its FRAND obligations;
(c) refusing to identify patents already licensed to vendors in an attempt to avoid exhaustion and extort multiple royalties; and
(d) once requests are made to license standard essential patents, transferring those patents to third parties in an attempt to obtain increased royalties and avoid its FRAND licensing obligations.

You may find here the Complaint with exhibits, which include Rockstar demand letters to the cable operators (but without the attached patents to reduce file size).

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.

Yesterday patent monetization entity MPHJ filed a Complaint in W.D. Tex. against the U.S. Federal Trade Commission (FTC) for threatening an enforcement action against MPHJ premised on MPHJ’s extensive letter campaign to accumulate license fees on its scanner patents by threatening small end-users with litigation that MPHJ allegedly did not actually intend to pursue.  We previously posted about MPHJ receiving attention from the Vermont Attorney General and those of other states based on that letter campaign.

MPHJ’s Complaint against the FTC is an interesting, long read of MPHJ’s side of the story: see Complaint and its Exhibits (patents not included to reduce file size).

For example, MPHJ explained why it mailed its licensing letters to end-users, rather than vendors.  The patent claims “relate to networked scanning systems that are connected and interfaced such that they permit the seamless transmission of a scanned document image into application software running on a destination computer.”  MPHJ asserts that it sent letters to end-users because no single equipment vendor supplied the entire claimed system or would be liable for direct infringement (MPHJ did not address liability for induced or contributory infringement).  For example, the vendor of an off-the-shelf scanner may not supply network equipment, a destination computer or other equipment/software separately purchased and combined by an end-user with the scanner to practice the claimed invention.

MPHJ gained attention because it sent a large volume of licensing letters to many small businesses–including home-businesses–that purchased and used off-the-shelf scanner equipment for its intended purpose with other conventional equipment.  Concern was raised that MPHJ might be seeking to extract unwarranted, nuisance licensing fees from many of those small businesses who did not have the resources, sophistication or motivation to engage in costly patent infringement negotiation or litigation.  Among other things, MPHJ explains that it did not intend to target really small businesses — those with less than 20 employees — but inadvertently mailed letters to some given erroneous public information about their size.

MPHJ also explained that its letter campaign was a required pre-requisite to filing suit.  MPHJ  asserts that what system a particular entity uses is not publicly available.  MPHJ sent letters to those it thought likely infringed — without actually asserting they did infringe — and simply sought a response and information on whether the recipient infringed the patents as part of MPHJ’s required Rule 11 diligence.  Given the small number of responses, MPHJ escalated follow-up letters by sending draft Complaints because that tended to spur recipients to respond.  MPHJ supports its letters seeking information by citing to the Federal Circuit’s decision in Hoffman-La Roche v. Invamed that approved a complaint filed without full knowledge of non-public portions of a system where the patent owner (1) could not reverse engineer that information and (2) first drew-the-foul by unsuccessfully seeking that information from the putative infringer before filing suit.

And MPHJ raises other issues, such as First Amendment Constitutional right to access to courts (including pre-litigation activity) and whether the FTC has been acting outside its statutory mandate.  An interesting case we will keep an eye on.

 

InterDigital has moved to terminate the pending ITC investigation against LG (Inv. No. 337-TA-800) given the ITC’s recent noninfringement determination against Nokia and ZTE based on the same patents (see our Dec. 23 post).  InterDigital seeks to avoid litigating the infringement case anew against LG while simultaneously appealing the ITC’s noninfringement determination with respect to remaining respondents Nokia and ZTE (as discussed in our Jan. 3 post, InterDigital settled its dispute with Huawei earlier this year).

Recall that LG was initially dismissed from the ITC investigation in July 2012, after arguing that InterDigital’s infringement claims were arbitrable under a 2006 license agreement.  InterDigital successfully appealed the ALJ’s decision, and the Federal Circuit remanded LG back to the ITC.  In the meantime, InterDigital had continued litigating its claims against remaining Respondents Nokia, Huawei, and ZTE, who have since been ruled not to infringe the InterDigital patents (see our Dec. 23 post).  InterDigital is appealing that ruling to the Federal Circuit and argues the current investigation against LG (which is essentially just beginning due to the earlier dismissal) should be terminated, while reserving the right to assert the same claims in a subsequent investigation following the outcome of the appeal.