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A Supplier Has Standing to Bring a DJ Action When the Patentee’s Actions Imply That the Supplier Contributorily Infringes

10-1292
May 19, 2011

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Last Month at the Federal Circuit - June 2011

Judges: Rader, Newman, Dyk (author)

[Appealed from: N.D. Ga., Judge Pannell]

In Arris Group, Inc. v. British Telecommunications, PLC, No. 10-1292 (Fed. Cir. May 19, 2011), the Federal Circuit reversed the district court’s dismissal of a DJ case for lack of subject matter jurisdiction and found that an Article III case or controversy existed based on the DJ plaintiff’s potential liability for contributory infringement. 

Arris Group, Inc. (“Arris”) sued British Telecommunications, PLC (“BT”) in the U.S. District Court for the Northern District of Georgia seeking a DJ that four of BT’s patents—U.S. Patent Nos. 5,142,532; 5,526,350; 6,538,989; and 6,665,264 (collectively “the patents-in-suit”)—are invalid and not infringed by Arris.  The patents-in-suit claim systems and methods related to cable networks for carrying out Voice over Internet Protocol (“VoIP”) telephone services.  Arris develops and manufactures VoIP telephony equipment that is used by cable system operators, including Cable One.  Specifically, Cable One’s network employs devices from Arris known as Embedded Multimedia Terminal Adapters (“E-MTAs”) and Cable Modem Termination Systems (“CMTSs”).

In 2007, BT sent a letter to Cable One accusing it of infringing various claims of the patents-in-suit by operating its VoIP network and later sent a 118-page presentation comparing the claims to Cable One’s accused systems.  The presentation repeatedly identified Arris’s E-MTAs and CMTSs used in Cable One’s network as embodying numerous elements and performing numerous method steps of the asserted claims.  Cable One then sent a letter to Arris notifying Arris of BT’s allegations and demanding that Arris defend and indemnify Cable One.  A few months later, BT presented the same presentation to Cable One and Arris again outlining its infringement contentions.  On three occasions, Arris contended that its products used in Cable One’s networks did not infringe.  Later, pursuant to the terms of a nondisclosure agreement, BT sent Arris and Cable One a licensing proposal, which would have granted a license only to Cable One.  A few months later, on March 31, 2009, Arris filed this DJ action.

Arris’s complaint sought (1) a declaration that Arris does not infringe the patents-in-suit, (2) an injunction preventing BT from suing Arris or its customers for infringement, and (3) a declaration that the patents-in-suit are invalid.  The district court found that there was no Article III case or controversy between Arris and BT, and dismissed the case for lack of subject matter jurisdiction.  Because BT had never only discussed Cable One’s, and not Arris’s, alleged infringement of the patents-in-suit during their discussions, the district court found that BT had only directed its actions toward Cable One and, thus, there was no “real and immediate injury for Article III jurisdiction.”  Arris appealed.

The Federal Circuit, however, agreed with Arris and found that an Article III case or controversy involving Arris and BT was presented by these facts.  First, the Court noted that the Supreme Court broadened the Federal Circuit’s standard for DJ standing in MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007).  “Under the Court’s new standard, an Article III case or controversy exists when ‘the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests,’ . . . such that the dispute is ‘real and substantial’ and ‘admi[ts] 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.’”  Slip op. at 7 (alteration in original) (quoting MedImmune, 549 U.S. at 127).  The Federal Circuit next disposed with two of Arris’s arguments in favor of DJ standing:  (1) the Court rejected Arris’s argument that it has standing because it suffered economic injury, which is not sufficient alone to meet the “adverse legal interest” requirement of MedImmune; and (2) the Court declined to address whether Arris’s potential exposure to an indemnification claim from Cable One under Georgia law, in the absence of an express indemnification agreement, was a sufficient basis for Arris to have DJ standing.

Turning to the merits of the Court’s legal analysis, the Federal Circuit held that there may be an implicit assertion of indirect infringement against a supplier when a patentee accuses a customer of direct infringement by making, using, or selling an allegedly infringing method or performing an allegedly infringing method.  BT argued that it had never accused Arris of infringement, either directly or indirectly.  But the Court found that, “[w]hile the presentation did not expressly accuse Arris of contributory infringement, BT explicitly and repeatedly singled out Arris’ products used in Cable One’s network to support its infringement arguments.”  Id. at 13-14.  In fact, BT’s 118-page presentation indentified Arris’s E-MTAs or CMTSs used in Cable One’s network “as satisfying at least one essential element or method step for every asserted claim,” which “implies that Arris’ products are being used as a ‘material part’ of the allegedly infringing invention.”  Id. at 16.  In addition, the Court found that Arris’s direct and substantial involvement in BT’s infringement and licensing negotiations “shows that Arris was within BT’s primary intended audience.”  Id. at 17. 

The Court rejected BT’s argument, which was consistent with the district court’s decision, that the lack of an explicit accusation of infringement by Arris precludes a finding of an Article III case or controversy.  Rather, the Court noted that it has repeatedly held that “a specific threat of infringement litigation by the patentee is not required to establish jurisdiction.”  Id. at 18-19 (quoting ABB Inc. v. Cooper Indus., LLC, No. 2010-1227, 2011 WL 553603, at *2 (Fed. Cir. Feb. 17, 2011)).  Additionally, the Court rejected BT’s argument that its 118-page presentation should not be construed as implicitly accusing Arris of infringement, because a disclaimer in its presentation stated that “[n]othing in this assertion is meant to accuse any particular supplier [of] equipment of patent infringement.”  Id. at 19 (second alteration in original) (citation omitted).  The Court found this was “at best a transparent attempt to defeat Arris’ standing.”  Id. at 20.  Finally, the Court rejected BT’s argument that Arris lacked standing because BT had agreed not to sue Arris, where BT had refused to grant Arris an express covenant not to sue when asked by the Court. 

Accordingly, the Court found that BT’s infringement accusations against Cable One carried the implied assertion that Arris was committing contributory infringement and thus created an Article III case or controversy between Arris and BT.  The Court reversed the district court’s dismissal of the case for lack of subject matter jurisdiction and remanded the case to the district court for further proceedings.

 

Summary authored by Daniel A. Lev, Ph.D., Esq.