By Jason Rantanen
Arris Group, Inc. v. British Telecommunications PLC (Fed. Cir. 2011) Download 10-1292
Panel: Rader, Newman, Dyk (author)
Arris Group manufactures cable telephony and data products for cable system operators, such as its customer Cable One, to use in Voice over Internet Protecol (VoIP) telephone services. In 2007, British Telecommunications (BT) sent a letter to Cable One accusing it of infringing various system and method patents held by BT and requesting that the parties begin licensing negotiations. During those negotiations, BT provided Cable One with a 118-page presentation showing how selected claim elements were met by Cable One's services. That presentation identified Arris's products as embodying numerous elements and performing numerous method steps of the asserted claims; however, the presentation did not assert that Arris directly or indirectly infringed BT's patents. Nearly two years of negotiations (which were expanded to include Arris) followed, but no license agreement was consummated.
In 2009, Arris filed a declaratory judgment action seeking a declaration that it does not infringe the BT patents and that the patents are invalid, as well as an injunction preventing BT from instituting infringement proceedings against Arris or its customers. The district court dismissed the action for lack of subject matter jurisdiction, finding that there was no case or controversy between the parties. Arris appealed.
An Economic Injury is Insufficient to Establish a Case or Controversy
The CAFC first rejected Arris's contention that there is an Article III case or controversy simply because Arris has suffered an economic injury as a result of BT's infringement threats. "[I]n patent cases before the Supreme Court's decision in MedImmune, the regional circuits and our court held that economic injury is not alone sufficient to confer standing. MedImmune did not abandon this rule." Slip Op. at 8-9. Rather, there must be an "adverse legal interest," which "requires a dispute as to a legal right – for example, an underlying legal cause of action that the declaratory defendant could have brought or threatened to bring." Slip Op. at 9 (emphasis added).
But an Implicit Contributory Infringement Threat is Sufficient
The CAFC did conclude, however, that a case or controversy existed based on BT's implicit assertion that Arris was contributing to the infringement of BT's patents. "When the holder of a patent with system claims accuses a customer of direct infringement based on the customer's making, using, or selling of an allegedly infringing system in which a supplier's product functions as a material component, there may be an implicit assertion that the supplier has indirectly infringed the patent." Slip Op. at 11. Here, the court found that BT's assertion of direct infringement against Cable One, which "made it clear that Cable One's use of Arris's CMTSs and E-MTAs was central to BT's infringement contentions," Slip Op. at 14, established an Article III case or controversy regarding whether Arris was contributorily infringing BT's patent.
The "central" nature of Arris's products, itself not an element of contributory infringement, nevertheless drove the court's conclusion. Although the court did step through the various elements of contributory infringement, it did so in only a single paragraph, and even that analysis relied heavily on the significant degree to which BT's infringement presentation to Cable One focused on Arris's products. See Slip Op. at 16-17. The court also found the inclusion of Arris in BT's licensing and infringement negotiations to be a relevant factor. Thus, while a discussion of the actual elements of contributory infringement will doubtless be important to future declaratory plaintiffs relying on an indirect infringement theory, the actual outcome may be driven more by the underlying relationship between the patent holder and its infringement allegations to the declaratory plaintiff than by a formal analysis of contributory infringement.
AFAIK, the UCC does not include a warranty of non infringement for contributory infringement, and most vendors worth their salt do not include such warranties or guarantees in their contracts.
Has something changed? Or is this a case that the big customer can dictate any terms it chooses?
there are 2 grounds under which a supplier has standing to commence a DJ action when a patentee accuses customers of direct infringement: a)the supplier is obligated to indemnify the customers from infringement liability; and b)there is a direct controversy between the patentee and supplier with regard to the supplier’s alleged liability for induced or contributory infringement (see slip op at 10). here, Arris could have gained standing on both grounds as Cable One had demanded indemnification from Arris against BT’s assertions of infringement (see slip op at 4). however, since the CAFC established that there was a direct controversy between Arris and BT, they did not address this basis.
as a general rule, it is not clear to me that a detailed analysis of elements of contributory infringement is necessary to establish standing; the important points are whether there is a dispute that is “definite and concrete, touching the legal relations of parties having adverse legal interests” and whether the dispute is “real and substantial” (see slip op at 7). here, not only did BT specifically cite Arris products in their claim charts, but BT and Arris had direct discussions related to the BT infringement allegations. for example, after BT presented its infringement allegations before Arris, BT requested that Arris send “formal rebuttal information” to BT; and further discussions were subsequently conducted between BT and Arris (see slip op at 17-18). the CAFC held that “the nature and extent of any communication between the declaratory plaintiff and patentee are certainly relevant factors to consider when evaluating whether there is an Article III case or controversy between the parties” (see slip op at 17). here, the CAFC concluded that the back and forth discussions between BT and Arris with regard to the infringement allegations were sufficient to establish an Article III case or controversy between BT and Arris.
First.
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