Patent Owner's Allegation of Copying, Demand for Customer Information, and Threat Not to Tolerate a Delayed Response Empowers Infringer to Attack Patent Validity in Court

Authored by Amanda Joy Dittmar, D. Brian Kacedon, and John C. Paul

When a party is concerned about possible infringement of another's patent rights, it may want to have a court decide whether that patent is valid or infringed rather than potentially incurring liability while waiting to see if the patent owner will sue. Federal statute permits such actions, but only when there is an "actual controversy" between the parties. Historically, this required a threat of suit by the patent owner. But in a 2007 case, MedImmune, Inc. v. Genentech, Inc., the Supreme Court of the United States held there was no such bright-line rule. Rather, courts should look at all the circumstances and decide whether there was a real dispute between the parties rather than just a hypothetical dispute. A recent case, Triteq Lock & Security LLC v. HMC Holdings LLC, No. 11 C 843 (N.D. Ill. July 5, 2011^)1,provides guidance on this issue.

The Triteq Decision

Triteq purchased and resold locking pistol boxes from HMC. But in early 2010, Triteq decided to begin manufacturing its own boxes.

During a litigation between Triteq and entities related to HMC, Triteq sent a letter to the Chief Financial Officer of HMC, questioning whether his response to certain subpoenas was complete. In responding, the CFO also noted that he wanted to provide Triteq "with formal notice on two other unrelated matters that require immediate attention." Specifically, the CFO said that Triteq was using certain HMC logos without permission, and also said:

"Secondarily, it would appear that Tri-Teq is selling a RouTeq safe that is a direct copy of an HMC patented pistol box. US Patent No. US D461,955 S. http://www.triteqlock.com/products3.html. Tri-Teq does not have authorization to manufacture [sic] from HMC, nor has Tri-Teq paid for the delivery of a small batch of said boxes from HMC. First, Tri-Teq must either pay for the units delivered, or return them in their original condition. Second, Tri-Teq must cease from ony [sic] further sale and advertisement of said box. Furthermore, it is requested that Triteq hand over all records of any sales of this Box since January 15, 2006, the customers' names and contact details, dollar amounts and any open orders, as well as who may may [sic] contracted for its manufacture. Failure to promptly respond to this very serious breach of our patent rights will not be tolerated. A response within 7 days from receipt of this letter is required."

Triteq responded to this letter by suing HMC and asking the court to declare that HMC's patent was invalid. HMC asked the court to dismiss the case, arguing that the court had no jurisdiction because there was no actual controversy and that Triteq was using the declaratory judgment action to gain leverage in the pending litigation between Triteq and the entities related to HMC.

In considering HMC's request, the court noted that the MedImmune case requires a court to take into account the circumstances as a whole in determining if a justiciable controversy exists. Declaratory judgment jurisdiction generally does not arise just because a party learns of the existence of a patent owned by another or perceives that there is a risk of infringement, "without some affirmative act by the patentee." But jurisdiction may be met "where the patentee takes a position that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do." In other words, "when a patent holder claims rights under a patent based on certain identified activity of another party, and that party asserts that it has the rights to engage in that activity without a license from the patent holder, jurisdiction lies."

Given the circumstances in this case, the court held there was an actual controversy between the parties because the letter from HMC's CFO to Triteq put Triteq in the position of either pursuing arguably illegal behavior by continuing to sell its pistol boxes, or abandoning those sales. The court highlighted several aspects of the letter to support its holding. First, the CFO of HMC told Triteq that it appeared Triteq's pistol box was a "direct copy" of HMC's pistol box and provided a specific patent number that he contends applies to that box. The CFO also requested the names and contact information of Triteq's customers. Finally, the CFO "required" a response within seven days and warned that a "breach of our patent rights will not be tolerated." According to the court, these assertions were sufficient to give the court jurisdiction over Triteq's claims.

The court disagreed with HMC's argument that these assertions were an "equivocal" statement and not an accusation of infringement. The court reasoned that, given the request for customer information, it would have been reasonable for Triteq to be concerned that HMC may approach its customers and suggest that its product infringed HMC's patent. The court also thought it was reasonable for Triteq to fear that a patent infringement suit was imminent.

HMC also argued that the court should decline the declaratory action because it was an attempt to gain leverage in the pending suit between Triteq and the entities related to HMC. The court disagreed, however, finding no evidence that Triteq brought the declaratory judgment action in an effort to improve its position in the other, unrelated suit.

Therefore, the court denied HMC's motion to dismiss for lack of subject-matter jurisdiction.

Strategy and Conclusion

The courts continue to provide guidance on what kind of statements and actions can empower patent validity attacks. A letter from a patent owner may create an actual controversy between the parties and empower the recipient to attack the validity of that patent when it makes strong assertions that the accused product is a "direct copy" of a product covered by a specific patent, makes demands sales and customer contact information, and states that a failure to respond within a certain period of time will not be tolerated.

Endnotes
¹The Triteq decision: http://scholar.google.com/scholar_case?case=1981952266181762006&hl=en&as_sdt=2&as_vis=1&oi=scholarr.

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