In the US an aggressive stance vis-a-vis an alleged infringer of a patent can evidence the intent to enforce patents which may, in turn, give rise to declaratory judgment jurisdiction, allowing the infringer to sue first. In Asia Vital Components Co Ltd v Asetek Danmark A/S, the Federal Circuit recently held that a court may have declaratory judgment jurisdiction even where the patent owner was not aware of the infringing products and thus did not make any specific allegations with regard to those products, provided that the patent owner’s overall conduct can be reasonably interpreted as demonstrating intent to enforce its patents.
A poorly drafted letter to a company that is thought to be infringing a patent may expose the owner of the patent to legal action. In the UK the alleged infringer may sue on the basis of the laws against groundless threats. In the US the danger is that a communication from the patent owner, whether an offer to license or a request to stop infringing, may allow the alleged infringer to bring a declaratory judgment action for invalidity and non-infringement of the patent. Further, as a claimant, the alleged infringer may be able to forum shop and file the lawsuit in a federal court which it perceives as less favourable to the owner of the patent.
US courts are not able to give advisory opinions. A court will only hear a case if an actual controversy existed between the parties at the time of the declaratory judgment complaint. From the perspective of a patent owner the question is then how much can be said without giving rise to a "controversy" that triggers declaratory judgment jurisdiction.
Whether an actual controversy exists is judged by an objective standard that cannot be met by a purely subjective or speculative fear of future harm. An affirmative act by the patent owner is required. The courts will consider all the surrounding circumstances to assess whether the controversy is substantial and of sufficient immediacy and reality to warrant a declaratory judgment action.
Could such a controversy exist even where the patent owner has no knowledge of the infringing product? This is the question the Federal Circuit recently considered in Asia Vital Components Co., Ltd. v. Asetek Danmark A/S.
The answer, it turns out, is yes, provided that the patent owner’s overall conduct can be reasonably interpreted as demonstrating intent to enforce its patent.
The facts of the case
Beginning in 2012 Asetek, a company that specializes in cooling systems for data centres, servers, and high performance PCs, brought a number of patent infringement lawsuits against its competitors. It also sent a letter to AVC, a Taiwanese corporation, alleging that the company’s Liqmax 120s product infringed two of Asetek's patents. Asetek was mistaken, but when AVC responded that it did not manufacture the product, Asetek did not back off. Instead, it requested a meeting "to discuss various related matters… of importance concerning future cooperation" between the two companies.
After a series of communications, AVC offered Asetek a licence at a royalty rate of 16%, or at a reduced rate if AVC would provide preferential pricing on components. There was no specific discussion of AVC products potentially infringing the asserted patents.
On 30 September 2014, AVC filed a complaint against Asetek seeking a declaration that AVC's K7 and K9 products did not infringe the two patents at issue and that those patents were invalid.
Asetek responded that it never accused the K7 and K9 products of infringement and did not even know they existed. The district court agreed and dismissed the complaint for lack of subject-matter jurisdiction.
The legal framework
In the US the Declaratory Judgement Act provides that "[i]n a case of actual controversy within its jurisdiction... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration." 28 USC 2201(a). An "actual controversy" exists where the alleged facts, under all the circumstances, show that there is a substantial controversy between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment. See MedImmune Inc. v. Genentech, Inc., 549 US 118 (2007).
The Federal Circuit held that the totality of the circumstances indicated that an actual controversy existed between the two companies at the time AVC filed its complaint and thus the district court had jurisdiction.
"The question of jurisdiction does not turn on Asetek's knowledge of the specific AVC products or whether Asetek specifically alleged that the K7 and K9 products infringed the asserted patents; instead the question is whether under all the circumstances, Asetek's actions 'can be reasonably inferred as demonstrating intent to enforce a patent... We conclude that Asetek's conduct demonstrates just that.'"
The court noted in particular that instead of responding to AVC when it had made a mistake with respect to the Liqmax 120s product, Asetek made threats against AVC's customers and sent an email to AVC which:
2) stated that it "does not license" its patents generally and more specifically that it would not license them to AVC due to previous conflict between the companies,
3) accused AVC of "likely selling other infringing products in the United States",
4) warned AVC that Asetek "enforced its IP" and noted its other pending litigation against competitors, and
5) emphasized that it has been allowed a patent in the European Union with claims similar to the asserted patents and also has similar claims pending in China.
Thus, taken as a whole, Asetek’s conduct vis-à-vis AVC was sufficient to demonstrate intent to enforce the patents and triggered declaratory judgment jurisdiction, even where the company was not aware of and thus had not made any specific allegations with regard to the potentially infringing products.
While aggressive conduct by the patent owner may expose it to the risk of being sued, from the perspective of the alleged infringer, the declaratory judgment action has lost some of its appeal. This is because the America Invents Act, the sweeping patent law reform that was signed into law in 2011, bars an accused infringer from filing a petition with the United States Patent and Trademark Office for Inter Partes Review or post-grant review if it has already launched a declaratory judgment action alleging invalidity of the same patent. 35 USC § 315(a)(1).
Inter Partes Review, a proceeding created by the America Invents Act, allows an alleged infringer to challenge the patent faster (decision is issued within 12 months), at a lower cost (because of limited discovery), and with greater chance of success (because of the lower burden of proof) than the declaratory judgment. Declaratory judgment actions have not, however, become obsolete.
First, the grounds for filing Inter Partes Review proceedings are limited to obviousness and lack of novelty and only on the basis of prior art consisting of patents or printed publications. 35 USC Sec. 311(b). Thus, a patent infringer that is relying on public use prior to the priority date or alleging that the patent is invalid because it claims unpatentable subject matter would not be able to take advantage of the Inter Partes Review proceeding.
Second, the declaratory judgement action still has the advantage of allowing the alleged infringer to shop for the most favourable forum.
Third, it is possible for the alleged infringer to pursue both the declaratory judgment and the Inter Partes Review routes simultaneously. Discussion of such strategies, however, is beyond the scope of this article.
Ultimately, while the calculus for the alleged infringer has become more complex, the decision in Asia Vital Components Co., Ltd. v. Asetek Danmark A/S serves as a reminder to any patent owner corresponding with infringers and potential licensees to choose its words wisely, lest it hand a valuable tool to those wishing to challenge the patent.