Licensing Your Patents—The Dangers of Declaratory Judgment Actions

Licensing Your Patents—The Dangers of Declaratory Judgment Actions

It is the great hope of most patent holders to sit back and collect royalty checks, hopefully with as little expense and difficulty as possible. Enforcing patents is difficult, time consuming, and expensive, so many patent holders hope to convince infringers to pay them for the use of their inventions without going to court. Thus, they begin writing letters in the hopes that if the infringers only understood the patent and how they infringe it, they would be willing to pay royalties or stop what they are doing.

Life is not that simple. Before you put pen to paper or start making any public statements about your patents and your competitors, you should be aware of a type of lawsuit known as the “Declaratory Judgment” lawsuit. We discussed this type of case briefly in an earlier post that focused on techniques for invalidating patents. This is the flip side of that discussion. You have to be careful what you say to a target licensee (or the industry at large) because if you do not, you may find yourself a defendant in one of these cases.

In the patent context, declaratory judgment lawsuits are intended to stop patent holders who threaten infringement litigation to scare off their competitors. Instead of being forced to risk an infringement suit or cease making the offending product, threatened parties can have the matter put to rest by a court. In order to file a declaratory judgment case, there must be an actual “case or controversy” between the parties. In other words, you cannot simply go to court to invalidate any old patent or to get a declaration that your products do not infringe it.

In the past, you could not file a declaratory judgment lawsuit against unless the patent holder did something that created a “reasonable apprehension” that you would be sued for patent infringement. However, following the Supreme Court’s 2007 decision in a case called Mediummune, that type of threatening conduct is no longer required.  The standard for whether a “case or controversy” exists is now more liberal and permissive, making declaratory judgment lawsuits easier to file than in the past. It has also become more difficult to determine whether any particular course of action will be problematic. The Federal Circuit Court of Appeals described the standard by stating 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 and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.” SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed. Cir. 2007).

What this means is that now you have to be careful about offering licenses or engaging in any other conduct that could be construed as an implicit accusation of patent infringement. Of course, this puts patent holders in a bind because they cannot hope to license their patents without at least contacting companies who may be interested, and those companies are usually infringers.

So what can you do? There are no silver bullets. The cases do not offer definitive solutions, but here are some guideposts:

1. Avoid accusing a potential target of being an “infringer” or asserting that their products are “covered” by your patents. It is preferable to make the target aware of the patent and its availability without including such accusations.

2. Do not provide detailed analyses of how a target’s products relate to your patent claims.

3. Offer to keep licensing communications with the target confidential.

4. Do not threaten the target’s customers with infringement suits, because such threats could imply that the target is liable for “indirect” patent infringement, such as inducing patent infringement or contributory patent infringement.

5. Watch what you say in your press releases and public filings about the scope of your patents and how they relate to the industry at large. In one case, the court found that such statements constituted an accusation of infringement against an entire industry.

When dealing with sophisticated targets, it may be necessary at some point to get into analyses of their products if you hope to induce them to license your patent. Without some threat of litigation at least looming in the background, some targets may not take you seriously. So if you are going to embark on a serious licensing program, you should be prepared for the possibility of litigation. If, instead, you want to avoid litigation at all costs, then be sure to provide assurances that you will not file suit and enter into a confidentiality agreement with the target, keeping in mind that it may harm your ability to file suit later should you decide to do so.

Whether any given conduct will trigger declaratory judgment jurisdiction is very fact specific, and the courts will often look at the entire course of dealing between two parties. Thus, it is difficult to provide bright line rules. However, if you are going to embark on a licensing campaign or otherwise attempt to exploit your patents, you should be aware of the risk of declaratory judgment suits and tailor your approach accordingly.

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