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Archived updates for Friday, August 17, 2007

Lengthy and Detailed Enforcement Discussions "Not Unfit for Judicial Resolution" by DJ Action

In Sony Electronics v. Guardian Media Technologies (August 3, 2007) the Federal Circuit held that an actual controversy had arisen between Sony and Guardian within the meaning of the Declaratory Judgment Act for what appear to be fairly typical communications between patent counsel in order to clarify the scope of an infringement claim.

On September 24, 1999, an attorney acting on behalf of Peter S. Vogel sent Sony a "Notice of Patent Infringement" letter. On October 4, 1999, Sony informed Vogel’s attorney by letter that it was investigating the matter and asked Vogel’s attorney to provide "claim charts specifically describing why . . . Vogel’s patents are relevant to the Sony products identified in [the September 24] letter." On October 28, 1999, Vogel’s attorney provided the requested claim charts, accompanied by a letter containing the subject line: "Claim Charts indicating Sony product infringement of U.S. patents 4,930,158 & 4,930,160 and corresponding foreign patents." Sony responded by letter on May 8, 2000, stating that it had completed its investigation and that it had "some serious questions about the validity" of the ’158 and ’160 patents. Vogel never responded.

Over four years later, on August 31, 2004, an attorney representing Guardian sent a letter to Sony Home Electronics Network Co.2 requesting a meeting to discuss the possibility of Sony taking licenses. The letter stated that Guardian was offering discounts to early licensees, as well as the option of a "paid up license" for the life of the patents in exchange for a lump sum payment. According to the letter, any license agreement would "likely include [compensation for] products sold since 1999 since that was when the United States Government mandated parental control functionality in televisions with a screen size of 13 inches or larger." It further mentioned that an unspecified court had awarded a royalty rate of $1.15 per unit "for a single U.S. Patent on corresponding technology." On October 26, 2004, Guardian sent another letter to Sony Home Electronics Network Co. requesting a response to its August 31, 2004 letter.

On December 3, 2004, Guardian sent a third letter stating that Sony’s failure to respond was "unacceptable." It further stated that Guardian "require[d] that Sony explain in detail why it does not need a license to GUARDIAN’s patents." Guardian requested a response by December 24, 2004, and restated its offer of a discounted license if Sony acted quickly. A further letter on April 12, 2005 described the basis for Guardian’s position that the prior art identified by Sony did not disclose each of the elements of the asserted claims of the ’158 and ’160 patents. Included with the letter were detailed charts, which compared, on a limitation-by-limitation basis, a number of the claims of the ’158 and ’160 patents to representative Sony products.3 The accompanying letter stated that the infringement analyses in Guardian’s claim charts were "applicable to all other Sony products that incorporate V-chip functionality."

On June 21, 2005, the parties met in person. Specific details regarding this meeting are not apparent from the record. On July 7, 2005, Guardian sent a letter claiming that Sony’s "royalty obligations far exceed $31,050,000." The letter went on to offer Sony a "fully paid-up license" for $9 million, which would "include each of Guardian’s patents, and [would] cover every V-chip enabled product that Sony has sold and will sell for the life of each of the Guardian patents." The letter stated that the offer would expire on August 31, 2005. Sony did not respond to this letter. On August 24, 2005, Guardian wrote again, requesting a response.

According to the opinion by Circuit Judge Prost:

Prior to Sony filing its complaint, the parties had taken adverse positions regarding whether Sony’s sale of products possessing parental rating control technology infringed any valid claims of the ’158 and ’160 patents. On the one side, Guardian communicated to Sony its position that certain identified Sony products infringed the ’158 and ’160 patents. For example, Guardian provided Sony with detailed infringement analyses, which compared, on a limitation-by-limitation basis, a number of the claims of the ’158 and ’160 patents to specific Sony products. Guardian further alleged that its infringement analyses applied to all other Sony products possessing “V-chip functionality,” i.e., parental rating control technology, and asserted that it was thus entitled to royalties exceeding $31 million. Guardian also communicated its position that the prior art identified by Sony did not disclose every element of the asserted claims. In short, Guardian’s position was that the ’158 and ’160 patents were valid and infringed by Sony and that Guardian was therefore entitled to past and future royalties based on that infringement. On the other side, Sony maintained that the asserted claims of the ’158 and ’160 patents were invalid in view of certain identified prior art references.

Nothing about this dispute makes it unfit for judicial resolution. Sony does not request “an opinion advising what the law would be upon a hypothetical state of facts.” Id. at 241. Indeed, Guardian has explicitly identified the patents it believes that Sony infringes, the relevant claims of those patents, and the relevant Sony products that it alleges infringe those patents. Sony has identified the specific prior art references that it believes render the asserted claims invalid. In the words of the Supreme Court, the parties’ dispute “is manifestly susceptible of judicial determination. It calls, not for an advisory opinion upon a hypothetical basis, but for an adjudication of present right upon established facts.” Id. at 242. In so holding, we reject Guardian’s suggestion that there can be no jurisdiction in the courts because it was at all times willing to negotiate a “business resolution” to the dispute. In SanDisk, we recognized that a patentee’s apparent continued willingness to engage in licensing negotiations does not prevent a plaintiff from maintaining a declaratory judgment suit. 480 F.3d at 1382. Accordingly, even if the parties’ interactions in this case could be characterized as “negotiations,” Sony was within its rights to terminate them when it determined that further negotiations would be unproductive. Id. Although Guardian may have wanted to negotiate with Sony, Sony was not required to negotiate with Guardian.

In short, because Guardian asserts that it is owed royalties based on specific past and ongoing activities by Sony, and because Sony contends that it has a right to
engage in those activities without a license, there is an actual controversy between the parties within the meaning of the Declaratory Judgment Act. See id. at 1381 (“[At least] where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.”). The district court, therefore, erred in dismissing Sony’s complaint for lack of subject matter jurisdiction.

. . . Here, unlike in EMC, there is no affirmative evidence to suggest that appellants filed this suit in order to obtain a more favorable bargaining position in any ongoing license negotiations. In addition, while this litigation may have had the effect of weakening Guardian’s bargaining position relative to third parties, we do not think it appropriate to infer that appellants, therefore, filed this suit as an intimidation tactic to gain leverage in any future negotiations with Guardian. Similarly, we do not think it appropriate under the circumstances of this case to draw any inference from appellants’ decisions to file these lawsuits simultaneously. Even if these suits have had the effect of placing appellants in a more favorable negotiating position, that effect is not a sufficient reason to decline to hear the suit.

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