14 October 2008

Could the MedImmune Decision Justify Microsoft's Refusal to Specifically List its Patents Believed to be Infringed by Linux?

Microsoft has in the past claimed that various open source software infringes no fewer than 235 patents Microsoft owns, including 42 patents Microsoft claims are infringed by the Linux kernel; 65 that are allegedly infringed by various Linux graphical user interface solutions; and 45 by the Open Office suite of productivity software. (See "Microsoft Takes on the Free World"). Microsoft has, moreover, steadfastly refused to specify in detail which patents are exactly infringed by which software technologies, drawing the ire of open source software proponents who claim that Microsoft is simply spreading fear, uncertainty and doubt (FUD) among businesses who would otherwise consider using free open source software solutions in lieu of Microsoft's proprietary packages like Windows and Office. (See, e.g., "Microsoft's Claims About Linux Patent Infringement Are Old News And Old FUD").

The United States Supreme Court may have provided Microsoft with a facially neutral justification for its behavior with the decision of MedImmune, Inc. v. Genentech, Inc. (US S. Ct. 2007). In that case, the Supreme Court held that a licensee under a patent license need not breach or terminate the license in order to challenge the licensed patent's enforceability or infringement in court. Prior to this decision, US law had specified that a licensee could not enjoy the benefits of a patent license while at the same time seek to invalidiate the patents at issue or seek a ruling that its products are not infringing such patents.

In so ruling, the Court rejected the "reasonable apprehension from suit" test which lower US courts had consistently applied as a threshold test for determining whether a party can seek a declaration from a court of patent invalidity or noninfringement. Under US law prior to the MedImmune decision, securing non-infringement or invalidity declarations concerning patents owned by a party who is not currently threatening legal infringement actions was not easy. Parties had to show that the patent owner's actions created a "reasonable apprehension" of an "imminent" lawsuit before a court would entertain such actions.

MedImmune changed this requirement, and in so doing, radically altered the balance of negotiating leverage between patent owners and existing or potential patent licensees. Patent owners who seek to secure royalty-bearing patent licenses now must be even more careful to approach a potential licensee in a non-threatening, non-adversarial way, so as to avoid setting up conditions conducive to a patent invalidity/noninfringement declaratory lawsuit brought by the potential licensee. Subsequent lower US court decisions following MedImmune are illustrative.

In SanDisk Corp. v. STMicroelectronics, Inc. (Fed. Cir. 2007), STMicroelectronics initiated contact with SanDisk, explaining that STMicro has certain flash memory-related patents of which SanDisk may "have an interest", and inviting SanDisk to enter into licensing negotiations. STMicro revealed in detail all of the patents it claimed read on SanDisk's products. Many weeks of what SanDisk's Chief IP Counsel described as "friendly discussions" culminated in a confidential written patent license offer from STMicro to SanDisk. SanDisk responded by filing a lawsuit in federal court seeking a declaration that SanDisk is not infringing STMicro's patents and/or that such patents are invalid. The district court dismissed SanDisk's lawsuit, noting that at no time did STMicro ever threaten SanDisk with patent infringement litigation. On appeal, the Federal Circuit reversed the dismissal order based on the Supreme Court's MedImmune decision, holding 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, the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights.

These cases can be used to explain Microsoft's refusal to specify the patents it claims are infringed. Any concrete licensing discussions concerning specific patents could expose Microsoft to numerous declaratory judgment lawsuits of the SanDisk kind, in multiple courts throughout the United States. Microsoft is no doubt treading lightly so as to avoid inviting a multiplicity of such lawsuits.

In fact, the MedImmune and follow-on decisions should cause any party licensing patents, either standalone or associated with software or other technologies, to take care to minimize the threat or effect of declaratory judgments from its licensees or potential customers. Some suggestions in this regard include:

- in license agreements, the licensor should seek provisions which allow the licensor to terminate the agreement in the event that the licensee initiates litigation challenging the validity of the patents at issue (so that the licensee cannot enjoy the benefits of the license while the licensee is at the same time challenging the patents being licensed under it);

- licensors should specify a choice of forum and law where all challenge suits must be brought (so that if a declaration suit is brought, the licensor can at least litigate that claim in a forum of its choice);

- licensors should seek contractual admissions under which the licensee admits the validity and/or its infringement of the patents at issue (a court may disregard such admissions but they may nevertheless have some evidentiary value);

- in pre-license negotiations, the licensor should seek to have the potential licensee sign a confidentiality agreement that would prevent the licensee from using pre-license discussions as a basis for a declaration lawsuit (an approach the SanDisk court itself suggests); and

- pre-license discussions should be postured in as non-adversarial and as non-threating way as much as possible, emphasizing the "complete solution", "added value" and "complete security" the patent package offers to the potential customer – ie, perhaps something like the current Microsoft approach to Linux customers.

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