In JVC Kenwood Corp. v. Nero, Inc., Appeal No. 2014-1011, the Federal Circuit affirmed a summary judgment ruling of non-infringement on the basis that, absent specific evidence of direct infringement by the end users, a licensee cannot be held liable for indirect infringement.

JVC asserted that the users of Nero’s software-implemented systems and methods directly infringed six of its patents.  Based on the user’s direct infringement, JVC argued that Nero was liable for contributory or induced infringement. JVC failed to provide any evidence of specific direct infringement by any end user, but instead advanced a standards-compliance theory of infringement.  According to JVC, because the end use of Nero’s software complied with the DVD and Blu-ray standards to which JVC Patents were essential, the end users necessarily infringed the asserted patents.

In affirming the decision, the Federal Circuit agreed with the district court’s holding that JVC did not establish direct infringement, and thus Nero was not shown to be potentially liable for indirect infringement.  The Federal Circuit agreed with the district court that it was JVC’s burden to proffer at least plausible evidence of direct infringement, stating that “JVC cannot have it both ways—either the Patent is essential and licensed or JVC cannot rely on the standards to show infringement.”

The Federal Circuit also vacated the district court’s holding that the conditions for exhaustion, as set forth by the Supreme Court in Quanta Computer, Inc. v. LG Electronics, Inc., 553 U.S. 617 (2008), were met on JVC’s theory of infringement.  The Federal Circuit declined to rely “[o]n the sketchy record, contradictory arguments, and undeveloped facts” in this case to expand the theory of patent exhaustion.