IP ALERT: Federal Circuit Rules That a Licensing Letter Could Provide a Basis

    28 January 2010

    The recent Federal Circuit decision acknowledged that the U.S. Supreme Court’s MedImmune decision “lowered the bar” required to be able to bring a declaratory judgment case for a patent dispute. In Hewlett-Packard Co. v. Acceleron LLC, No. 09-1283, (Dec. 4, Fed. Cir. 2009), the appellate court held that a “licensing letter” from a patent holding company could be sufficient to find that there was an actual case or controversy with the letter’s recipient. As a result, patent owners who seek to initiate a discussion with potential licensors will have to be cautious or risk becoming a declaratory judgment defendant.

    In MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007), the Supreme Court addressed the issue of when there is an actual case or controversy that would support the exercise of jurisdiction for a declaratory judgment action in a patent dispute. According to the Court, a declaratory judgment plaintiff must show that the dispute is “definite and concrete, touching the legal relations of parties having adverse legal interests; and that it be real and substantial and admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.”

    The Hewlett-Packard decision applied the Supreme Court’s standard. In 2007, the CEO of Acceleron, a patent holding company, sent a letter to HP’s General Counsel. He wrote that the company had acquired a patent relating to blade servers and requested “an opportunity to discuss this patent with you.” He went on to ask that, in order to provide a “productive atmosphere”, the parties agree that all information exchanged would not be used for any litigation purposes. The letter also stated that if HP did not respond in two weeks, Acceleron would assume it had no interest in discussing the patent.

    A senior litigation counsel at HP responded, writing that he had been evaluating Acceleron’s and was interested in obtaining further information. HP stated that it was willing to agree not to file a declaratory judgment action for a period of 120 days if Acceleron would agree not to file any action against HP during the same time period.

    Four days later, Acceleron’s CEO replied that he did not believe that HP had any basis for filing a declaratory judgment action. He wrote that his first letter provided both parties with appropriate protections to create a productive atmosphere in which to discuss the patent. He concluded that if HP did not return a signed copy of that letter in two weeks, he would understand that HP was not interested in discussing the patent and that it did not have anything to say about the merits of the patent, or its relevance to HP’s blade server products.

    HP then filed a declaratory judgment action in the U.S. District Court for the District of Delaware. Acceleron moved to dismiss the case for lack of subject matter jurisdiction, arguing that there was no actual case or controversy between the parties. On March 11, 2009, the District Court granted Acceleron’s motion and it appealed.

    The Federal Circuit reversed, in an opinion written by Chief Judge Michel. In reaching its decision, the Court noted that “a communication from a patent owner to another party, merely identifying its patent and the other party’s product line, without more, cannot establish adverse legal interests between the parties, let alone the existence of a “definite and concrete” dispute. More is required to establish declaratory judgment jurisdiction.”

    The Court ruled that the facts of the HP case showed that the District Court erred in granting Acceleron’s motion to dismiss for lack of subject matter jurisdiction. Acceleron took the affirmative step of twice contacting HP, making an implied assertion of its rights under the ’021 patent against HP’s Blade Server products. The Federal Circuit also found it was significant that Acceleron was a patent holding company – a “licensing entity” that only profits when it enforces its patents.

    The Federal Circuit rejected Acceleron’s argument that there was no case or controversy because its letters to HP did not contain any threat of an infringement suit or a demand that HP take a license. “The purpose of a declaratory judgment action cannot be defeated simply by the stratagem of a correspondence that avoids the magic words such as ‘litigation’ or ‘infringement.’” Further, the Court found Acceleron’s argument that it had not conducted any infringement analysis of HP’s products when it sent the letters to be irrelevant. “[C]onduct that can be reasonably inferred as demonstrating intent to enforce a patent can create declaratory judgment jurisdiction.”

    Thus, the Court held that there was declaratory judgment jurisdiction arising from a “definite and concrete” dispute between HP and Acceleron, parties having adverse legal interests.

    Chief Judge Michel’s opinion recognized that the bar for finding the existence of an actual case or controversy in patent matters was, in fact, lowered: “Our decision in this case undoubtedly marks a shift from past declaratory judgment cases. However, MedImmune has altered the way in which the Declaratory Judgment Act applies to patent law cases, requiring that legal interests be evaluated in patent cases under the general criteria of the Act. Our jurisprudence must consequently also evolve . . . .” The upshot of MedImmune and Hewlett-Packard is that patent owners must either exercise extreme caution in trying to initiate discussions with potential licensees or risk becoming a declaratory judgment defendant.