Federal Circuit Provides Guidance on Claim Selection Procedures and Federal Jurisdiction Over Patent License Disputes

Transcription

1 Federal Circuit Provides Guidance on Claim Selection Procedures and Federal Jurisdiction Over Patent License Disputes SUMMARY Last week, the United States Court of Appeals for the Federal Circuit issued two noteworthy decisions addressing commonly arising procedural issues in patent litigation. In the first, In re Katz, the Federal Circuit upheld a district court judge s decision to limit the number of claims asserted by the patent holder. The court held that because the claim selection procedure devised by the district court allowed the patentee the opportunity to identify additional claims raising unique infringement or invalidity issues which the patentee failed to do the procedure did not violate due process rights. In the second, ABB v. Cooper Industries, the Federal Circuit clarified that a declaratory judgment action with respect to the scope of a patent license agreement is subject to federal court jurisdiction, even if the only issue presented is construction of a license under state law. IN RE KATZ CLAIM SELECTION PROCEDURE A. BACKGROUND In large infringement cases, patentees may assert dozens, and in some case hundreds or even thousands, of separate patent claims. In response to such potentially unmanageable actions, district courts since the late 1990s increasingly have restricted the number of claims patentees are permitted to assert as cases move forward through discovery, claim construction, dispositive motions and trial. Courts have employed two primary methods for doing so: (1) imposing a limit on the total number of claims a patentee may bring in a single infringement action; or (2) imposing a limit on the number of claims that may be asserted for each patent in suit. As this practice has grown more prevalent, some commentators have questioned whether certain claim management practices may violate patent holders due process rights. New York Washington, D.C. Los Angeles Palo Alto London Paris Frankfurt Tokyo Hong Kong Beijing Melbourne Sydney

2 The cases consolidated in In re Katz Interactive Call Processing Litigation involved one such situation. Between 2005 and 2006, Plaintiff-Appellant Ronald A. Katz Technology Licensing ( Katz ) filed 25 separate actions in different districts. Katz asserted 1,975 distinct claims from 31 patents against 165 defendants. The Judicial Panel on Multidistrict Litigation consolidated these actions in the Central District of California. After requests by several of the defendants to reduce the number of claims at issue, the district court limited Katz to a maximum of 64 total claims against all defendants across all actions and 16 claims per group of related defendants. The court s order included a proviso whereby Katz was permitted to add new claims provided they raise[d] issues of infringement/validity that were not duplicative of previously selected claims. Instead of selecting additional claims and seeking to show that those claims raised non-duplicative issues, Katz moved to sever and stay the excluded claims, asserting that the Court s numerical limitations violated his due process rights. The court denied Katz s motion and ultimately granted summary judgment of invalidity or non-infringement in favor of defendants on all of the selected claims. Katz appealed. B. THE FEDERAL CIRCUIT S OPINION In its opinion issued February 18, 2011, the Federal Circuit rejected Katz s due process argument and upheld the district court s claim selection procedure. In short, the court ruled that the procedures employed by the district court provided Katz with sufficient protection with respect to the unasserted claims. In analyzing Katz s argument, the Federal Circuit emphasized Katz s failure to make any effort to show how the unselected claims raised distinct legal issues. The court noted that Katz did not file a motion to add additional claims, nor did Katz ever identify additional claims that presented unique issues of infringement or validity. Likewise, Katz argued that the defendants should have had to bear the burden of showing that the issues were duplicative with respect to all claims. The court disagreed and held that defendants efforts at the claim selection stage established that many of Katz s claims shared a common genealogy, thereby making a convincing showing that many of the claims are duplicative, was sufficient. The court concluded that [u]nder the circumstances of this case... the district court acted reasonably in concluding that it would be more efficient to require Katz to point out those unselected claims that raised separate issues of infringement and invalidity rather than requiring the defendants to prove that all of the unselected claims were duplicative. 1 Stressing the need for district courts to have flexibility in addressing complex cases, the appellate court rejected Katz s all or nothing argument that any limitation on claims was improper. Instead, the Federal Circuit reiterated that [i]n complex cases, and particularly in multidistrict litigation cases, the district court 1 Id. at The court noted, however, that it was conceivable that a claim selection order could come too early in the discovery process, denying the plaintiff the opportunity to determine whether particular claims might raise separate issues of infringement or invalidity in light of the defendants accused products and proposed defenses. Id. at 14 n

3 needs to have broad discretion to administer the proceeding. On the other hand, the Federal Circuit cautioned that if the district court had refused to permit Katz to add specified claims raising new issues that decision would be subject to review and reversal. 2 C. IMPLICATIONS Although based on a relatively extreme fact pattern, the Katz opinion is likely to provide a road map for district court case management orders imposing limits on the number of asserted claims in patent cases. The decision makes clear that an arbitrary limit on the number of asserted claims that does not allow for the assertion of all claims raising unique issues is unlikely to pass muster, and suggests that limitations on claims should not come too early in an action. Moreover, although holding that it is permissible to require a plaintiff to show that additional claims are non-duplicative, the decision suggests that at least a threshold showing from defendants may be required before the burden shifts. For defendants seeking to limit the number of claims they are facing, the decision indicates that a motion to limit claims may be well received when similar claims raising substantially the same legal issues are asserted. Thus, defendants may seek to have district courts impose reasonable numerical limits on claims brought when numerous similar claims are asserted from the same patents or patents sharing genealogy. ABB v. COOPER INDUSTRIES FEDERAL JURISDICTION OVER PATENT LICENSE DISPUTES In ABB Inc. v. Cooper Industries, LLC, the Federal Circuit clarified that federal courts have jurisdiction over declaratory judgment actions concerning the scope or coverage of patent licenses as disputes arising under the patent laws. In 2005, ABB entered a licensing agreement with Cooper in which it was granted a non-exclusive license to manufacture BIOTEMP, a vegetable-based fluid that Cooper claimed infringed its patent. ABB subsequently entered into an agreement with Dow Chemicals to manufacture BIOTEMP for ABB. In 2009, Cooper sent letters to both ABB and Dow Chemicals contending that the license agreement between ABB and Cooper did not permit a third party to manufacture BIOTEMP. ABB filed a declaratory judgment action in the U.S. District Court for the Southern District of Texas seeking a declaration that its agreement with Dow Chemicals was permitted under the patent license. The district court dismissed the case for lack of subject matter jurisdiction, finding that ABB s claim turned entirely on issues of state law contract interpretation. The Federal Circuit reversed. The court emphasized that in declaratory judgment actions, the character of the threatened action, and not the defense determines whether there is federal jurisdiction. 3 From this principle, the court reasoned that because an action seeking a declaratory judgment that a patent license 2 3 Id. at 14. ABB Inc. v. Cooper Indus., LLC, No (Feb. 17, 2011), slip op at

4 covers certain activity implies a threatened infringement action, the declaratory judgment action is properly brought in federal court. While noting prior uncertainty in the law on this issue, the court held that this remained the case even in an action where the sole issue is the state law interpretation of a patent license. 4 Thus, the opinion makes clear that disputes regarding patent license coverage are properly brought in federal court. On the other hand, as the Federal Circuit noted, some disputes regarding patent licenses such as breach actions for unpaid royalties will not arise under the patent laws where there is no question of an implied defense to infringement. 5 * * * Copyright Sullivan & Cromwell LLP The Federal Circuit noted that the Supreme Court had left this issue open in Textron Lycoming Reciprocating Engine Div., AVCO Corp. v. Auto Workers, 523 U.S. 653, (1998), in which the Court said it was not clear whether a declaratory-judgment complaint raising a nonfederal defense to an anticipated federal claim [ ] would confer [subject matter] jurisdiction. Id. at 10 (quoting Textron, 523 U.S. at 659). Id. at

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