CASRIP Newsletter - Autumn 2007, Volume 14, Issue 4
Reasonable Apprehension of Suit Test No Longer Valid: SanDisk Corp. v. STMicroelectronics, Inc.
By Melati Amundson
In SanDisk Corp. v. STMicroelectronics (“ST”), the United States Court of Appeals for the Federal Circuit held there was sufficient case or controversy to reverse the district courts dismissal of SanDisk’s declaratory judgment action. On March 26, 2007, in the Federal Circuit’s first post-MedImmune decision regarding declaratory judgment actions, it acknowledged that the Supreme Court’s holding in MedImmune undermined the “reasonable apprehension of suit test” the Federal Circuit had previously used in suits involving patent licensing negotiations. The court vacated and remanded the case for further proceedings.
II. Procedural Background
SanDisk owns several patents related to flash memory storage. STM, although not in the flash memory storage market, also has patents related to flash memory storage products. On April 16, 2004, an ST vice president sent a letter to San Disk’s CEO requesting a meeting to discuss a cross-license agreement. In that letter ST listed eight patents that they said “may be of interest” to SanDisk. After an exchange of letters, on August 27, 2004, a licensing meeting was held where ST presented a slide show “followed by a four- to five-hour presentation by ST's technical experts, during which they identified and discussed the specific claims of each patent and alleged that they were infringed by SanDisk.” At the conclusion of the meeting, SanDisk was told that “ST has absolutely no plan whatsoever to sue.”
SanDisk filed a lawsuit for a declaratory judgment of noninfringement and invalidity of the fourteen ST patents that had been discussed in the cross licensing negotiations. This was followed by a motion by ST to dismiss SanDisk’s declaratory judgment claims for lack of subject matter jurisdiction by arguing that there was no actual controversy at the time of SanDisk’s complaint. The district court granted the motion to dismiss reasoning that "SanDisk has presented no evidence that ST threatened it with litigation at any time during the parties' negotiations, nor has SanDisk shown other conduct by ST rising to a level sufficient to indicate an intent on the part of ST to initiate an infringement action." SanDisk then appealed the dismissal to the Federal Circuit, which reinstated the declaratory judgment claims.
III. Case or Controversy
In determining whether there was a case or controversy within the meaning of the Declaratory Judgment Act, 28 U.S.C. §2201(a), the Federal Circuit considered the recent Supreme Court decision MedImmune, Inc. v. Genentech, Inc. Prior to MedImmune, the Federal Circuit had applied a two-part test in determining patent disputes. However, in MedImmune, the Supreme Court said that the “reasonable apprehension of suit” aspect of the court’s two-part test conflicted with a prior court holding. After reviewing the Supreme Court’s opinion in MedImmune, the Federal Circuit held:
We need not define the outer boundaries of declaratory judgment jurisdiction, which will depend on the application of the principles of declaratory judgment jurisdiction to the facts and circumstances of each case. We hold only that 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 Federal Circuit then applied the new legal principle to the facts of SanDisk and found that SanDisk had established an Article III case or controversy that gave rise to declaratory judgment jurisdiction. Through its patents, ST sought to obtain a royalty right based on identified activity by SanDisk. By presenting a detailed infringement analysis as part of its license negotiations, ST’s experts repeatedly referred to SanDisk’s ongoing infringement and need for SanDisk to obtain a license for ST’s patents.
ST communicated to SanDisk that it had made a studied and determined infringement determination and asserted the right to a royalty based on this determination. SanDisk, on the other hand, maintained that it could proceed in its conduct without the payment of royalties to ST. These facts evince that the conditions of creating "a substantial controversy, between parties having adverse legal interest, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment" were fulfilled.
IV. Future of Declaratory Judgment
Without the reasonable apprehension test, it seems that patentees must be especially careful when approaching patent licensing negotiations. As Judge Bryson points out in a concurring opinion, there had been a safe haven for patentees to offer licenses without opening themselves up to litigation unless there was a “reasonable apprehension of suit.” Now, however, “it would appear that under the court’s standard virtually any invitation to take a paid license relating to the prospective licensee’s activities would give rise to an Article III case or controversy if the prospective licensee elects to assert that its conduct does not fall within the scope of the patent.”
The court suggested that by obtaining a suitable confidentiality agreement, ST could have avoided the risk of a declaratory judgment action. However, as Judge Bryson recognizes, a party who wants to at least keep the option of bringing a declaratory judgment, would have no incentive to enter into such an agreement.
While the Federal Circuit correctly followed the Supreme Court’s opinion in MedImmune, SanDisk has significantly expanded the options for potential infringers to file declaratory judgment actions and has left patentees to cautiously approach licensing negotiations.
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