Federal Circuit Finds Declaratory Judgment Possible During Licensing Negotiations

In SanDisk Corp. v. STMicroelectronics Inc., 82 USPQ2d 1173 (Fed. Cir. 2007), STMicroelectronics sent a letter to SanDisk regarding possible cross-licensing.  The letter explicitly discussed a license and did not make an explicit reference to contemplated litigation.  The letter instead listed twelve patents that “may be of interest.”  SanDisk responded that both STMicroelectronics and SanDisk would continue “friendly discussions” relating to the technology, and SanDisk and STMicroelectronics met multiple times to discuss the licensing offer and issues.  During an August 27, 2004 meeting, the STMicroelectronics indicated that the meeting was characterized as settlement discussions under Federal Rules of Evidence 108 such that any discussions therein would not be considered evidence.  Significantly, no confidentiality clause was included in the discussions.

In the August 27, 2004 meeting, STMicroelectronics gave a package to SanDisk detailing the products covered by STMicroelectronics’ patents, with detailed claims analysis.  STMicroelectronics’ counsel acknowledged that the package was sufficiently detailed as to be sufficient to start a Declaratory Judgment.  While delivering the package, STMicroelectronics’ counsel stated that no suit was contemplated.  In response, SanDisk responded that no suit was going to be filed “on Monday,” and that further meetings “might be appropriate.”

STMicroelectronics followed up with a confidential copy of the potential cross license.  SanDisk did not reply to the letters substantively, but instead requested non-confidential versions be provided.  STMicroelectronics followed up with another confidential copy of the potential cross license.  While business representatives were trying to arrange additional meetings, SanDisk filed a Declaratory Judgment in the Northern District of California.  No formal termination of the licensing meetings was ever given.

The District Court dismissed for lack of subject matter jurisdiction since SanDisk could not have had an objective reasonable apprehension of suit.  On appeal, the Federal Circuit reversed, citing the Supreme Court’s recent decision in MedImmune, Inc. v. Genentech Inc., 549 U.S. ___; 81 USPQ2d 1225 (2007).  The Federal Circuit set forth a new rule:

In the context of conduct prior to the existence of a license, declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee. But Article III 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. (82 USPQ2d 1173, 1179-1180)

Under facts, STMicroelectronics requested a royalty for patents, mapped potential infringing products to the patent claims, and delivered materials that were acknowledged to form the basis of a declaratory judgment.  Further, the Federal Circuit found that the parties had clear positions on a concrete issue: SanDisk’s believed its right to use products without royalty; and STMicroelectronics believed it had a right to royalties for those products.  As such, consistent with the Supreme Court’s decision in MedImmune, SanDisk did not need to “bet the farm” by formally terminating licensing negotiations prior to bringing Declaratory Judgment.

While the Federal Circuit noted that there were multiple statements that STMicroelectronics was not going to bring suit, STMicroelectronics’ actions plainly indicated preparations were made for some form of enforcement.  As such, based upon the totality of the circumstances, STMicroelectronics’ actions and the existence of clear and contrary positions of the parties were sufficient to satisfy both the case and controversy requirement of Article III of the constitution and the requirements of the Declaratory Judgment Act, 28 U.S.C. § 2201(a).  As such, the Federal Circuit reversed the District Court’s decision.

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