The Software IP Report

Customer Suits Alone Do Not Confer Declaratory Judgment Jurisdiction

DataTern, Inc. sued Microsoft’s and SAP’s customers alleging infringement of U.S. Patent Nos. 5,937,402 and 6,101,502.  Microsoft and SAP then brought actions against DataTern seeking declaratory judgments of non-infringement.  The Federal Circuit affirmed the district court’s finding that it had jurisdiction over all claims except Microsoft’s claims against the ‘402 patent, because DataTern’s claim charts for Microsoft products under the ‘402 patent were based solely on third party, and not Microsoft, materials.  Microsoft Corp. v. DataTern, Inc., No, 2013-1185 (Fed. Cir. April 4, 2014).

DataTern had sent Microsoft and SAP customer claim charts “alleging infringement based on the customers’ use of Microsoft’s ADO.NET and SAP’s BusinessObjects software.”  The claim charts used SAP and Microsoft documentation, except that “the ’402 patent claim charts cite only to third-party-provided (i.e., not Microsoft-provided) ADO.NET documentation for several claim limitations.”  In denying DataTern’s motion to dismiss after Microsoft and SAP brought suit, the district court

found that the following facts weighed in favor of jurisdiction over the declaratory judgment actions: (1) the claim charts in the customer lawsuits; (2) the indemnification demands from Appellees’ customers; (3) DataTern’s conditional counterclaims; (4) DataTern’s reference to Appellees’ “infringement” in its proposed scheduling order; and (5) DataTern’s refusal to grant Appellees a covenant not to sue.

The Federal Circuit, in an opinion by Judge Moore, agreed with the district court that the claim charts gave rise to declaratory judgment jurisdiction.  In Arris Group, Inc. v. British Telecommunications PLC, 639 F.3d 1368 (Fed. Cir. 2011), the court held that

where a patent holder accuses customers of direct infringement based on the sale or use of a supplier’s equipment, the supplier has standing to commence a declaratory judgment action if . . . there is a controversy between the patentee and the supplier as to the supplier’s liability for induced or contributory infringement based on the alleged acts of direct infringement by its customers.”

Arris did not say that merely suing a customer, or the customer’s claim for indemnification, would give rise to declaratory judgment jurisdiction over patent claims.  Here, Microsoft and SAP denied the customer indemnification claims.  Microsoft and SAP could not then turn around and argue that the indemnification claims gave rise to declaratory judgment jurisdiction.

Further, DataTern’s customer suits did not automatically confer declaratory judgment jurisdiction over induced infringement claims.  Inducement requires a showing of intent.  Declaratory judgment jurisdiction requires a showing that a claim could have been brought.  The claim charts based on SAP’s and Microsoft’s documentation met this requirement, which is why the court affirmed jurisdiction over all of SAP’s claims, but only over Microsoft’s claims based on the ‘502 patent.

The court went on to review the district court’s claim constructions and to affirm the district court’s summary judgment of non-infringement.

Chief Judge Rader dissented from “the majority’s dismissal of Microsoft’s action against DataTern on the ’402 patent.”  The standard for declaratory judgment jurisdiction was flexible, and allowing Microsoft’s claim to go forward would have furthered judicial efficiency.