On May 28, 2013, District Judge Shira A. Scheindlin decided motions to dismiss declaratory judgment actions that U.S. Patent No. 5,828,402 (“the ’402 patent”), owned by defendant Wi-LAN, is invalid and/or unenforceable. Wi- LAN licensed “V-Chip” technology covered by the ’402 patent, which allows consumers to place content-based restrictions on their television programs, to plaintiff Hon Hai. In 2011, Wi-LAN sent a notice of breach to Hon Hai in which they demanded royalty payments for certain products allegedly covered under the license. Hon Hai responded that the products did not practice the ’402 patent, and that the ’402 patent was invalid and unenforceable. Wi-LAN filed a breach of contract action in Florida state court. The Florida state action was removed to the Southern District of Florida, but then remanded back to the state court during the pendency of the instant motions.

The court was not convinced by Wi-LAN’s argument that the Florida action removed the threat of a patent infringement. The court also held that the remand to the Florida state court moots Wi-LAN’s motion to stay in favor of the first-filed federal action because absentation in favor of a pending state court case is not appropriate where the action involves entirely federal subject matter.

The court also noted that the Federal Circuit holding from In re Bill of Lading Transmission and Processing Systems Patent Litigation, that notice pleadings apply to claims of direct infringement, is expressly limited to those types of claims, and does not apply to the instant action. 681 F.3d 1323, 1331 (Fed. Cir. 2012). The court went on to interpreted the plausibility standard from Bell Atlantic Corporation v. Twombly and found that declaratory judgment actions are not “claims” under Rule 8(a)(2) but rather affirmative defenses to the underlying claims of patent infringement. 556 U.S. 544, 662, 678-679 (2009).

Finally, the court dismissed Hon-Hai’s claim that Wi-LAN was committing patent misuse by interpreting the ’402 patent license to force Hon Hai to pay royalties for non-covered products. The court noted that Hon Hai’s misuse claim was subject to the exemption in 35 U.S.C. § 271 (d)(5) regarding “tying claims,” and found that Hon Hai had failed to state a claim for patent misuse because it failed to plead that Wi-LAN had market power over the non-patented products.

Case: Hon Hai Precision Indus. Co. v. Wi-Lan, Inc., No. 12 Civ. 7900 (SAS), 2013 BL 139539 (S.D.N.Y. May 28, 2013)