Patent Court’s Ruling Creates New Risks for Patent Holders, Boon for License Buyers

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Manufacturing News, Source : The Manufacturer US
Zone : Design and innovation
Published : 03 Jul 2007 17:33

Patent holders who want to license their patents to earn royalties will find it trickier to avoid declaratory judgment actions under the top patent’s court recent ruling. But prospective licensees have a potential boon, says Michael J. Pomianek, a shareholder with Wolf, Greenfield & Sacks, P.C. in Boston.

“SanDisk v. STMicroelectronics drastically alters the risk landscape for patent holders. It is no longer sufficient to avoid explicit threats to sue as a negotiation tactic, nor is the patent holder secure during good-faith business negotiations,” Pomianek says. “The patent holder lost out, despite the fact that licensing negotiations were ongoing and the patent holder said it no plans to sue.”

For potential licensees, ruling provides a powerful new strategic tool to level the negotiating playing field and increase bargaining strength, he added.

In SanDisk the US Court of Appeals for the Federal Circuit made it easier for parties receiving patent-license offers to file declaratory-judgment actions. Declaratory judgments let alleged infringers—the potential licensees—get a binding decision whether selling a particular product infringes any patent claims and whether the patent claims are valid and enforceable.

The top patent court’s ruling comes on the heels of the US Supreme Court’s decision in MedImmune v. Genentech, which held that a party licensing a patent may file a declaratory-judgment action without first discontinuing royalty payments.

Previously, patent holders could feel secure if they did not threaten to sue when making offers to others to enter into or consider licenses. When licensing negotiations were in progress, opponents could not file a declaratory judgment suit. Patent holders had advantage of being able to bring a suit for patent infringement at any time.

The SanDisk decision effectively eliminates the previous “reasonable apprehension of suit” test and replaces it with a new two-part test, he says. There can be a declaratory judgment jurisdiction if: (1) a patent holder asserts rights under a patent based on the allegedly infringing activity or planned activity of the challenger, and (2) the challenger contends it has the right to engage in such activity without a license – a situation implicit in nearly all licensing transactions. No specific threat of a lawsuit by the patent holder is required. All that is required is a difference of opinion between the patent holder and challenger as to whether a license is needed.

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