DataTern is the assignee of US Pat. Nos. 5,937,402 ("'402 patent") and 6,101,502 ("'502 patent"). DataTern sued several Microsoft and SAP customers alleging infringement of the ‘402 patent and the ‘502 patent based on the use of Microsoft's ADO.NET and SAP's Business Objects software. DataTern used claim charts that extensively refer to Microsoft and SAP functionality. The claim charts for the '502 patent referenced Microsoft and SAP exclusively for key limitations, as did the '402 claim chart for SAP. However, the '402 claim chart for Microsoft referenced third-party documentation for key limitations.
Microsoft and SAP filed declaratory judgment actions against DataTern and were granted summary judgment of non-infringement. The district court also rejected DataTern's motion to dismiss for lack of subject matter jurisdiction.
On appeal, the Federal Circuit largely agreed with the district court's finding of subject matter jurisdiction. The Federal Circuit held that declaratory judgment was appropriate for SAP on both patents, but only correct on the '502 patent for Microsoft. The Court reversed the district court regarding the '402 patent because of the use of third party documentation. The Court held that Microsoft did not establish actual controversy. Furthermore, without a valid indemnification agreement to create standing, Microsoft and SAP did not have an automatic right for a declaratory judgment action solely because their customers have been sued for direct infringement. Accordingly, the court affirmed in part and reversed in part.
However, Chief Judge Rader dissented in part as he believed the reversal for the '402 patent and Microsoft created a precedential roadmap for non-practicing entities to avoid declaratory judgment actions. Chief Judge Rader noted that future use of third party documentation on claim charts may sideline major corporations from protecting small clients, whom are unable to afford major lawsuits.