Are you a Canadian software vendor with customers in the USA? Let’s say your US end-user customer is sued for patent infringement in the US based on use of your software, but the lawsuit avoids naming your company. In other words, your customers are sued, but you are not.
Ok, so you avoided a lawsuit. However, for business reasons you may want to be “in the ring” to assist your end-user customers to defend the infringement claims. One of the defences to infringement is to challenge the validity of the patent in question. But if your company is not named, how do you raise that defence? In order to seek a “declaratory judgment” that the patent is invalid, you need something called “standing” - a right to make your case in court. If you are defending an infringement allegation (if you are named in the lawsuit), you have that standing as a defendant. But if not, you have to ask the court for standing… sound complicated?
This is what happened to Microsoft, when its end-users were sued for patent infringement by Datatern. Datatern, not wanting to lock horns with Microsoft (for obvious reasons) just named the software end-users in the patent infringement lawsuit. In Microsoft Corporation v. Datatern, Inc. (Fed. Cir. 2014), Microsoft sought standing to have the patents declared invalid.
The Federal Circuit Court of Appeals in the US said that Microsoft does not have the “right to bring the declaratory judgment action solely because their customers have been sued for direct infringement”. To bring an invalidity declaratory judgment action against DataTern, Microsoft needed something more. The court indicated that:
- Microsoft would need to show a controversy between Microsoft and the patent holder as to Microsoft’s liability for:
- induced infringement, or
- contributory infringement,
based on the alleged acts of direct infringement by the end-user customers; or
- Microsoft would have standing if it had a contractual obligation to indemnify its customers against the infringement claim. In this case, there was no indemnity obligation.
The use of Microsoft-provided documentation by Datatern in the patent infringement lawsuit was enough to establish standing for Microsoft, since this implied that Microsoft encouraged (or “induced”) the infringing use. However, this only applied to some of the patents in question.
Wherever Datatern used third-party (non-Microsoft) documentation to evidence the alleged infringement, Microsoft was too far removed from the controversy and there was no implied assertion that Microsoft induced the infringement. Microsoft could not establish the necessary controversy between it and Datatern, the patent holder. In connection with that particular patent, Microsoft lacked standing and its declaratory judgment action to challenge the validity of the patent could not proceed.
Remember this is a US case, but Canadian software vendors should review these patent infringement issues with counsel (including the costs and benefits of IP infringement indemnity clauses) to ensure that their end-user license agreements manage the risks in light of this decision.
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