LEXSEE

CautionAs of: Dec 03, 2010

MEDIMMUNE, INC., Petitioner v. GENENTECH, INC., et al.

No. 05-608

SUPREME COURT OF THE UNITED STATES

549 U.S. 118; 127 S. Ct. 764; 166 L. Ed. 2d 604; 2007 U.S. LEXIS 1003; 75 U.S.L.W.4034; 81 U.S.P.Q.2D (BNA) 1225; 2007-1 Trade Cas. (CCH) P75,543; 20 Fla. L.

Weekly Fed. S 27

October 4, 2006, ArguedJanuary 9, 2007, Decided

NOTICE:

The LEXIS pagination of this document is subject tochange pending release of the final published version.

PRIOR HISTORY: ON WRIT OF CERTIORARI TOTHE UNITED STATES COURT OF APPEALS FORTHE FEDERAL CIRCUIT.MedImmune, Inc. v. Genentech, Inc., 427 F.3d 958, 2005U.S. App. LEXIS 22370 (Fed. Cir., 2005)

DISPOSITION: Reversed and remanded.

CASE SUMMARY:

PROCEDURAL POSTURE: Petitioner licensee of apatent related to pharmaceutical ingredients sought adeclaration that respondent licensors improperlydemanded royalties for a drug manufactured by thelicensee because the patent was invalid, unenforceable, ornot infringed. Upon the grant of a writ of certiorari, thelicensee appealed the judgment of the U.S. Court ofAppeals for the Federal Circuit which affirmed adismissal of the action for lack of jurisdiction.

OVERVIEW: The licensors contended that the licenseepaid the royalties demanded by the licensors and thus

there was no constitutional case or controversy to supportfederal jurisdiction under the Declaratory Judgment Act,28 U.S.C.S. § 2201. The licensee argued that it paid theroyalties under protest to avoid the serious potentialconsequences of the licensors' threatened infringementaction, and that the licensee was not required to actuallysuffer those consequences as a precursor to seekingjudicial relief. The U.S. Supreme Court held that thelicensee was not required, insofar as U.S. Const. art. IIIwas concerned, to break or terminate its licenseagreement before seeking a declaratory judgment infederal court that the underlying patent was invalid,unenforceable, or not infringed. The licensee'sself-avoidance of imminent injury by paying the royaltieswas coerced by the threatened enforcement action of thelicensors, and the coercive nature of the exaction ofroyalties preserved the licensee's right to recover theroyalties paid or to challenge the legality of the licensors'demand for royalties.

OUTCOME: The judgment affirming the dismissal ofthe licensee's declaratory judgment action for lack ofjurisdiction was reversed, and the case was remanded forfurther proceedings.

CORE TERMS: patent, royalty, declaratory judgment,licensee, license agreement, license, invalid, invalidity,contract claim, injunction, coercion,

Page 1

declaratory-judgment, hypothetical, patent infringement,contractual obligations, infringement, counterclaim,infringed, affirmative defense, contractual, infringe,imminent, coercive, treble damages, cause of action,patentee, royalty payments, declaratory relief, declaratoryjudgment, actual controversy

LexisNexis(R) Headnotes

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General Overview[HN1]See 28 U.S.C.S. § 2201(a).

Civil Procedure > Declaratory Judgment Actions >General OverviewConstitutional Law > The Judiciary > Case orControversy > General Overview[HN2]An appropriate action for declaratory relief can bea case or controversy under U.S. Const. art. III. Thephrase "case of actual controversy" in the federalDeclaratory Judgment Act, 28 U.S.C.S. § 2201, refers tothe type of cases and controversies that are justiciableunder U.S. Const. art. III.

Civil Procedure > Declaratory Judgment Actions >General OverviewConstitutional Law > The Judiciary > Case orControversy > General Overview[HN3]In determining whether a declaratory-judgmentaction satisfies the case-or-controversy requirement, U.S.Supreme Court decisions require that the dispute bedefinite and concrete, touching the legal relations ofparties having adverse legal interests, and that it be realand substantial and admit of specific relief through adecree of a conclusive character, as distinguished from anopinion advising what the law would be upon ahypothetical state of facts. Basically, the question in eachcase is whether the facts alleged, under all thecircumstances, show that there is a substantialcontroversy, between parties having adverse legalinterests, of sufficient immediacy and reality to warrantthe issuance of a declaratory judgment.

Constitutional Law > The Judiciary > Case orControversy > General Overview[HN4]The requirements of a case or controversy are met

where payment of a claim is demanded as of right andwhere payment is made, but where the involuntary orcoercive nature of the exaction preserves the right torecover the sums paid or to challenge the legality of theclaim.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > Discretion[HN5]The Declaratory Judgment Act, 28 U.S.C.S. §2201, provides that a court may declare the rights andother legal relations of any interested party, 28 U.S.C.S. §2201(a), not that it must do so. This text is understood toconfer on federal courts unique and substantial discretionin deciding whether to declare the rights of litigants.

Constitutional Law > The Judiciary > Case orControversy > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN6]A patent licensee is not required, insofar as U.S.Const. art. III is concerned, to break or terminate itslicense agreement before seeking a declaratory judgmentin federal court that the underlying patent is invalid,unenforceable, or not infringed.

DECISION:

[***604] Federal Constitution's Article IIIrequirement of case or controversy, reflected inDeclaratory Judgment Act (28 U.S.C.S. § 2201), held notto require patent licensee to breach license agreementbefore seeking declaratory judgment that patent wasinvalid, unenforceable, or not infringed.

SUMMARY:

After a patent application purportedly had maturedinto patent, an assignee of the patent sent to alicensee--with which the assignee, when the applicationwas pending, had entered into an agreement that allowedthe licensee to make, use, and sell products covered bythe patent and required the licensee to pay the assigneeroyalties on the sales--a letter asserting that (1) a drugmanufactured by the licensee was covered by the patent;and (2) thus, under the patent license agreement, thelicensee owed the assignee royalties on the drug sales.

The licensee thought that it owed no royalties, as thelicensee believed that the patent was invalid and

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unenforceable and that in any event the drug did notinfringe the patent. However, because the licenseeconsidered the letter to be a clear threat to enforce thepatent, terminate the license agreement, and sue forpatent infringement if the licensee did not pay--wheresuch a suit could have resulted in the licensee's beingordered to pay treble damages and attorneys' fees andbeing enjoined from selling the drug, which allegedlyaccounted for more than 80 percent of the licensee's salesrevenue--the licensee paid the royalties under protest andfiled an action for declaratory and other relief.

The United States District Court for the CentralDistrict of California dismissed the declaratory judgmentclaims for lack of subject-matter jurisdiction [***605]because, under United States Court of Appeals for theFederal Circuit precedent, a patent licensee in goodstanding could not establish a case or controversy underthe Federal Constitution's Article III with regard to thepatent's validity, enforceability, or scope (2004 U.S. Dist.LEXIS 28680). The Court of Appeals, relying on its ownprecedent, affirmed the District Court's judgment (427 F.3d 958, 2005 U.S. App. LEXIS 22370).

On certiorari, the United States Supreme Courtreversed and remanded. In an opinion by Scalia, J.,joined by Roberts, Ch. J., and Stevens, Kennedy, Souter,Ginsburg, Breyer, and Alito, JJ., it was held that ArticleIII's case-or controversy limitation, reflected in § 2201's"actual controversy" requirement, did not require thelicensee to breach the license agreement before seeking adeclaratory judgment that the patent was invalid,unenforceable, or not infringed, as:

o A rule requiring a plaintiff to risk treble damagesand the loss of 80 percent of its business before seeking adeclaration of its actively contested legal rights found nosupport in Article III.

o The licensee's promise, in the licensing agreement,to pay royalties on patents that had not been held invaliddid not amount to a promise not to seek a holding of theirinvalidity.

o It was hard to see how the common-law rule that aparty to a contract could not at the same time challengeits validity and continue to reap its benefits had anyapplication to the instant case, for (1) the licensee had notrepudiated or impugned the contract; and (2) even if thecommon-law rule precluded the licensee's suit, then theconsequence would have been that the assignee won on

the merits, not that the contract dispute disappeared.

Thomas, J., dissenting, expressed the view that therewas no Article III jurisdiction over the licensee's claim,because a patent licensee in good standing was requiredto breach its license prior to challenging the validity ofthe underlying patent pursuant to § 2201, as (1) theSupreme Court consistently had held that parties did nothave standing to obtain rulings on matters that remainedhypothetical or conjectural; (2) the court also had heldthat the declaratory judgment procedure could not beused to obtain advanced rulings on matters that would beaddressed in a future case of actual controversy; and (3)the licensee in question had sought a declaratoryjudgment for precisely that purpose.

LAWYERS' EDITION HEADNOTES:

[***LEdHN1]

DECLARATORY JUDGMENTS §8

FEDERAL JURISDICTION -- DECLARATORYJUDGMENT -- PATENT DISPUTE -- ACTUALCONTROVERSY

Headnote:[1A][1B][1C]

The Federal Constitution's Article III limitation offederal courts' jurisdiction to cases or controversies,reflected in the Declaratory Judgment Act's (28 U.S.C.S.§ 2201) "actual controversy" requirement, did not requirea patent licensee to breach the license agreement beforeseeking a declaratory judgment that the patent wasinvalid, unenforceable, or not infringed, as:

o A rule requiring a plaintiff to destroy a largebuilding, bet the farm, [***606] or--as was alleged to bethe situation in the instant case--risk treble damages andthe loss of 80 percent of the plaintiff's business beforeseeking a declaration of its actively contested legal rightsfound no support in Article III.

o The licensee's promise, in the licensing agreement,to pay royalties on patents that had not been held invaliddid not amount to a promise not to seek a holding of theirinvalidity.

o It was hard to see how the common-law rule that aparty to a contract could not at the same time challengeits validity and continue to reap its benefits had anyapplication to the instant case, for (1) the licensee was

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asserting that the contract, properly interpreted, (a) didnot prevent the licensee from challenging the patents, and(b) did not require the payment of royalties because thepatents did not cover the licensee's products and wereinvalid; and (2) even if the common-law rule precludedthe licensee's suit, then the consequence would have beenthat the assignee won on the merits, not that the contractdispute disappeared.

(Scalia, J., joined by Roberts, Ch. J., and Stevens,Kennedy, Souter, Ginsburg, Breyer, and Alito, JJ.)

[***LEdHN2]

APPEAL §1028

MOTION TO DISMISS -- FACTUALALLEGATIONS

Headnote:[2]

On certiorari to decide whether the FederalConstitution's Article III limitation of federal courts'jurisdiction to cases or controversies, reflected in theDeclaratory Judgment Act's (28 U.S.C.S. § 2201) "actualcontroversy" requirement, required a patent licensee tobreach the license agreement before seeking a declaratoryjudgment that the patent was invalid, unenforceable, ornot infringed, the United States Supreme Court took factsfrom the allegations in the licensee's amended complaintand the unopposed declarations that the licensee hadsubmitted in response to the motion to dismiss, becausethe declaratory-judgment claims in the instant case hadbeen disposed of at the motion-to-dismiss stage. (Scalia,J., joined by Roberts, Ch. J., and Stevens, Kennedy,Souter, Ginsburg, Breyer, and Alito, JJ.)

[***LEdHN3]

PLEADING §161

PATENT LICENSEE -- ALLEGATION OFCONTRACTUAL DISPUTE

Headnote:[3A][3B][3C]

In a case involving the issue whether the FederalConstitution's Article III limitation of federal courts'jurisdiction to cases or controversies, reflected in theDeclaratory Judgment Act's (28 U.S.C.S. § 2201) "actualcontroversy" requirement, required a patent licensee tobreach the license agreement before seeking a declaratory

judgment that the patent was invalid, unenforceable, ornot infringed, the dispute, rather than involving only afreestanding claim of patent invalidity, involved a claimthat, both because of patent invalidity and because ofnoninfringement, no royalties were owing under thelicense agreement, as the licensee had alleged acontractual dispute, for:

o An assertion by the patent holder--that there wasno dispute that a drug manufactured and sold by thelicensee infringed the patent, thereby making royaltiespayable--did not comport with the allegations of thelicensee's amended complaint, which (1) requested adeclaratory judgment on contractual rights andobligations; and (2) stated that the licensee disputed itsobligation to make payments under the license agreementbecause the sale of [***607] the drug did not infringeany valid claim of the patent.

o As to the patent holder's assertion that while therewas a dispute over patent validity, the contract called forroyalties on an infringing product regardless of whetherthe underlying patent was valid, (1) the licenseecontended that it had no obligation under the license topay royalties on an invalid patent; and (2) that contentionwas not frivolous.

(Scalia, J., joined by Roberts, Ch. J., and Stevens,Kennedy, Souter, Ginsburg, Breyer, and Alito, JJ.)

[***LEdHN4]

APPEAL §1087.7

CERTIORARI -- QUESTION PRESENTED

Headnote:[4A][4B]

In a case involving the issue whether the FederalConstitution's Article III limitation of federal courts'jurisdiction to cases or controversies, reflected in theDeclaratory Judgment Act's (28 U.S.C.S. § 2201) "actualcontroversy" requirement, required a patent licensee tobreach the license agreement before seeking a declaratoryjudgment that the patent was invalid, unenforceable, ornot infringed, the question on which the United StatesSupreme Court had granted certiorari reached thelicensee's contract claim, as:

o The question specifically referred to the "licenseagreement" and to the contention that the patent was "notinfringed."

549 U.S. 118, *; 127 S. Ct. 764, **;166 L. Ed. 2d 604, ***606; 2007 U.S. LEXIS 1003

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o The unmistakable meaning was that royalties werenot owing under the contract.

(Scalia, J., joined by Roberts, Ch. J., and Stevens,Kennedy, Souter, Ginsburg, Breyer, and Alito, JJ.)

[***LEdHN5]

DECLARATORY JUDGMENTS §8

DECLARATORY JUDGMENT -- ACTUALCONTROVERSY -- CONTRACT CLAIM

Headnote:[5A][5B]

For purposes of deciding whether the FederalConstitution's Article III limitation of federal courts'jurisdiction to cases or controversies, reflected in theDeclaratory Judgment Act's (28 U.S.C.S. § 2201) "actualcontroversy" requirement, required a patent licensee tobreach the license agreement before seeking a declaratoryjudgment that the patent was invalid, unenforceable, ornot infringed, the contention that the licensee's contractclaim was weak went to the merits of the contract claim,not to its existence or the courts' jurisdiction over it.Also, the alleged lack of specificity in the complaint wasnot a jurisdictional matter. (Scalia, J., joined by Roberts,Ch. J., and Stevens, Kennedy, Souter, Ginsburg, Breyer,and Alito, JJ.)

[***LEdHN6]

APPEAL §1085APPEAL §1088APPEAL §1111

CERTIORARI -- RAISING CONTRACT CLAIM --ARGUMENT -- OPENING BRIEF

Headnote:[6A][6B]

On certiorari to decide whether the FederalConstitution's Article III limitation of federal courts'jurisdiction to cases or controversies, reflected in theDeclaratory Judgment Act's (28 U.S.C.S. § 2201) "actualcontroversy" requirement, required a patent licensee tobreach the license agreement before seeking a declaratoryjudgment that the patent was invalid, unenforceable, ornot infringed, the licensee had raised and preserved acontract claim, as:

o The record revealed that the licensee had raised thecontract point before the Federal Court of Appeals below,for the fact that the licensee had limited its contract

argument to a few pages of its appellate brief did notsuggest a waiver; it merely reflected counsel's soundassessment that the argument would have been futile,[***608] given that (1) the Court of Appeals' precedentprecluded jurisdiction over the contract claims, and (2)the panel below had no authority to overrule theprecedent.

o The licensee had alleged in the United StatesSupreme Court a contract claim in the licensee's openingbrief and at oral argument.

(Scalia, J., joined by Roberts, Ch. J., and Stevens,Kennedy, Souter, Ginsburg, Breyer, and Alito, JJ.)

[***LEdHN7]

COURTS §236

FEDERAL JURISDICTION -- CASE ORCONTROVERSY -- THREATENED ACTION BYGOVERNMENT

Headnote:[7]

For purposes of the Federal Constitution's Article IIIlimitation of federal courts' jurisdiction to cases orcontroversies, where threatened action by governmentwas concerned, the United States Supreme Court did notrequire a plaintiff to expose himself to liability beforebringing suit to challenge the basis for the threat, such asthe constitutionality of a law threatened to be enforced, asthe plaintiff's own action or inaction in failing to violatethe law eliminated the imminent threat of prosecution butdid not eliminate Article III jurisdiction. (Scalia, J.,joined by Roberts, Ch. J., and Stevens, Kennedy, Souter,Ginsburg, Breyer, and Alito, JJ.)

[***LEdHN8]

APPEAL §1704DECLARATORY JUDGMENTS §3

DECLARATORY JUDGMENT --DISCRETIONARY DISMISSAL -- REMAND

Headnote:[8]

On certiorari to decide whether the FederalConstitution's Article III limitation of federal courts'jurisdiction to cases or controversies, reflected in theDeclaratory Judgment Act's (28 U.S.C.S. § 2201) "actualcontroversy" requirement, required a patent licensee to

549 U.S. 118, *; 127 S. Ct. 764, **;166 L. Ed. 2d 604, ***LEdHN4; 2007 U.S. LEXIS 1003

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breach the license agreement before seeking a declaratoryjudgment that the patent was invalid, unenforceable, ornot infringed--where § 2201's provision that a court"may," not must, declare the rights and other legalrelations of any interested party had long been understoodto confer on federal courts unique and substantialdiscretion in deciding whether to declare the rights oflitigants--the United States Supreme Court left for thelower courts' consideration on remand the equitable,prudential, and policy arguments in favor of discretionarydismissal and any merits-based arguments for denial ofdeclaratory relief, as:

o The Supreme Court had found it more consistentwith § 2201 to vest District Courts with discretion in thefirst instance, because facts bearing on the usefulness ofthe declaratory judgment remedy, and the fitness of thecase for resolution, were peculiarly within their grasp.

o The District Court involved in the instant case hadgiven no consideration to discretionary dismissal, sincethe District Court had considered itself bound to dismissby precedent from the Federal Court of Appeals involvedin the instant case.

o The issue of discretionary dismissal had beenirrelevant to the Court of Appeals for the same reason.

o The patent holder had raised the issue for the firsttime before the Supreme Court.

(Scalia, J., joined by Roberts, Ch. J., and Stevens,Kennedy, Souter, Ginsburg, Breyer, and Alito, JJ.)

SYLLABUS

[***609] After the parties entered into a patentlicense agreement covering, inter alia, respondents'then-pending patent application, the application maturedinto the "Cabilly II" patent. Respondent Genentech, Inc.,sent petitioner a letter stating that Synagis, a drugpetitioner manufactured, was covered by the Cabilly IIpatent and that petitioner owed royalties under theagreement. Although petitioner believed no royaltieswere due because the patent was invalid andunenforceable and because Synagis did not infringe thepatent's claims, petitioner considered the letter a clearthreat to enforce the patent, terminate the licenseagreement, and bring a patent infringement action ifpetitioner did not pay. Because such an action couldhave resulted in petitioner's being ordered to pay treble

damages and attorney's fees and enjoined from sellingSynagis, which accounts [***610] for more than 80percent of its sales revenue, petitioner paid the royaltiesunder protest and filed this action for declaratory andother relief. The District Court dismissed thedeclaratory-judgment claims for lack of subject-matterjurisdiction because, under Federal Circuit precedent, apatent licensee in good standing cannot establish anArticle III case or controversy with regard to the patent'svalidity, enforceability, or scope. The Federal Circuitaffirmed.

Held:

1. Contrary to respondents' assertion that only afreestanding patent invalidity claim is at issue, the recordestablishes that petitioner has raised and preserved thecontract claim that, because of patent invalidity,unenforceability, and noninfringement, no royalties areowing.

2. The Federal Circuit erred in affirming thedismissal of this action for lack of subject-matterjurisdiction. The standards for determining whether aparticular declaratory-judgment action satisfies thecase-or-controversy requirement--i.e., "whether the factsalleged, under all the circumstances, show that there is asubstantial controversy, between parties having adverselegal interests, of sufficient immediacy and reality towarrant" relief, Maryland Casualty Co. v. Pacific Coal &Oil Co., 312 U.S. 270, 273, 61 S. Ct. 510, 85 L. Ed. 826--are satisfied here even though petitioner did not refuseto make royalty payments under the license agreement.Where threatened government action is concerned, aplaintiff is not required to expose himself to liabilitybefore bringing suit to challenge the basis for the threat.His own action (or inaction) in failing to violate the laweliminates the imminent threat of prosecution, butnonetheless does not eliminate Article III jurisdictionbecause the threat-eliminating behavior was effectivelycoerced. Similarly, where the plaintiff's self-avoidance ofimminent injury is coerced by the threatened enforcementaction of a private party rather than the government,lower federal and state courts have long acceptedjurisdiction. In its only decision in point, this Court heldthat a licensee's failure to cease its royalty payments didnot render nonjusticiable a dispute over the patent'svalidity. Altvater v. Freeman, 319 U.S. 359, 364, 63 S.Ct. 1115, 87 L. Ed. 1450, 1943 Dec. Comm'r Pat. 833Though Altvater involved an injunction, it acknowledged

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that the licensees had the option of stopping payments indefiance of the injunction, but that the consequence ofdoing so would be to risk "actual [and] treble damages ininfringement suits" by the patentees, a consequence alsothreatened in this case. Id., at 365, 63 S. Ct. 1115, 87 L.Ed. 1450. Respondents' assertion that the parties in effectsettled this dispute when they entered into their licenseagreement is mistaken. Their appeal to the common-lawrule that a party to a contract cannot both challenge itsvalidity and continue to reap its benefits is alsounpersuasive. Lastly, because it was raised for the firsttime here, this Court does not decide respondents' requestto affirm the dismissal of the declaratory-judgmentclaims on discretionary grounds. That question and anymerits-based arguments for denial of declaratory reliefare left for the lower courts on remand.

427 F.3d 958, reversed and remanded.

COUNSEL: John G. Kester argued the cause forpetitioner.

Deanne E. Maynard argued the cause for the UnitedStates, as amicus curiae, by special leave of court.

Maureen E. Mahoney argued the cause for respondents.

JUDGES: Scalia, J., delivered the opinion of the Court,in which Roberts, C. J., and Stevens, Kennedy, Souter,Ginsburg, [***611] Breyer, and Alito, JJ., joined.Thomas, J., filed a dissenting opinion, post, p. 137.

OPINION BY: SCALIA

OPINION

[*120] [**767] Justice Scalia delivered the opinionof the Court.

[***LEdHR1A] [1A] We must decide whetherArticle III's limitation of federal courts' jurisdiction to"Cases" and "Controversies," reflected in the "actualcontroversy" requirement of the Declaratory JudgmentAct, 28 U.S.C. § 2201(a), requires a patent licensee[*121] to terminate or be in breach of its licenseagreement before it can seek a declaratory judgment thatthe underlying patent is invalid, unenforceable, or notinfringed.

I

[***LEdHR2] [2] Because thedeclaratory-judgment claims in this case were disposed ofat the motion-to-dismiss stage, we take the followingfacts from the allegations in petitioner's amendedcomplaint and the unopposed declarations that petitionersubmitted in response to the motion to dismiss.Petitioner MedImmune, Inc., manufactures Synagis, adrug used to prevent respiratory tract disease in infantsand young children. In 1997, petitioner entered into apatent license agreement with respondent Genentech, Inc.[**768] (which acted on behalf of itself as patentassignee and on behalf of the coassignee, respondent Cityof Hope). The license covered an existing patent relatingto the production of "chimeric antibodies" and athen-pending patent application relating to "thecoexpression of immunoglobulin chains in recombinanthost cells." Petitioner agreed to pay royalties on sales of"Licensed Products," and respondents granted petitionerthe right to make, use, and sell them. The agreementdefined "Licensed Products" as a specified antibody, "themanufacture, use or sale of which . . . would, if notlicensed under th[e] Agreement, infringe one or moreclaims of either or both of [the covered patents,] whichhave neither expired nor been held invalid by a court orother body of competent jurisdiction from which noappeal has been or may be taken." App. 399. The licenseagreement gave petitioner the right to terminate upon sixmonths' written notice.

In December 2001, the "coexpression" applicationcovered by the 1997 license agreement matured into the"Cabilly II" patent. Soon thereafter, respondentGenentech delivered petitioner a letter expressing itsbelief that Synagis was covered by the Cabilly II patentand its expectation that petitioner would pay royaltiesbeginning March 1, 2002. Petitioner did not thinkroyalties were owing, believing that the [*122] CabillyII patent was invalid and unenforceable,1 and that itsclaims were in any event not infringed by Synagis.Nevertheless, petitioner considered the letter to be a clearthreat to enforce the Cabilly II patent, terminate the 1997license agreement, and sue for patent infringement ifpetitioner did not make royalty payments as demanded.If respondents were to prevail in a patent infringementaction, petitioner could be ordered to pay treble damagesand attorney's fees, and could be enjoined [***612] fromselling Synagis, a product that has accounted for morethan 80 percent of its revenue from sales since 1999.Unwilling to risk such serious consequences, petitionerpaid the demanded royalties "under protest and with

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reservation of all of [its] rights." Id., at 426. Thisdeclaratory-judgment action followed.

1 Hereinafter, invalidity and unenforceabilitywill be referred to simply as invalidity, withsimilar abbreviation of positive (validity andenforceability) and adjectival (valid and invalid,enforceable and unenforceable) forms.

Petitioner sought the declaratory relief discussed indetail in Part II below. Petitioner also requested damagesand an injunction with respect to other federal and stateclaims not relevant here. The District Court grantedrespondents' motion to dismiss the declaratory-judgmentclaims for lack of subject-matter jurisdiction, relying onthe decision of the United States Court of Appeals for theFederal Circuit in Gen-Probe Inc. v. Vysis, Inc., 359 F.3d1376 (2004). Gen-Probe had held that a patent licenseein good standing cannot establish an Article III case orcontroversy with regard to validity, enforceability, orscope of the patent because the license agreement"obliterate[s] any reasonable apprehension" that thelicensee will be sued for infringement. Id., at 1381. TheFederal Circuit affirmed the District Court, also relyingon Gen-Probe. 427 F.3d 958 (2005). We grantedcertiorari. 546 U.S. 1169, 546 U.S. 1169, 126 S. Ct.1329, 164 L. Ed. 2d 46 (2006).

[*123] II

[***LEdHR3A] [3A] [***LEdHR4A] [4A] At theoutset, we address a disagreement concerning the natureof the dispute at issue here--whether it involves only afreestanding claim of patent invalidity or rather a claimthat, both because of [**769] patent invalidity andbecause of noninfringement, no royalties are owing underthe license agreement.2 That probably makes nodifference to the ultimate issue of subject-matterjurisdiction, but it is well to be clear about the nature ofthe case before us.

2 [***LEdHR4B] [4B] The dissent contendsthat the question on which we granted certioraridoes not reach the contract claim. Post, at140-141, 166 L. Ed. 2d, at 623 (opinion ofThomas, J.). We think otherwise. The questionspecifically refers to the "license agreement" andto the contention that the patent is "not infringed."Pet. for Cert. (i). The unmistakable meaning isthat royalties are not owing under the contract.

[***LEdHR3B] [3B] [***LEdHR5A] [5A]Respondents contend that petitioner "is not seeking aninterpretation of its present contractual obligations."Brief for Respondent Genentech 37; see also Brief forRespondent City of Hope 48-49. They claim this for tworeasons: (1) because there is no dispute that Synagisinfringes the Cabilly II patent, thereby making royaltiespayable; and (2) because while there is a dispute overpatent validity, the contract calls for royalties on aninfringing product whether or not the underlying patent isvalid. See Brief for Respondent Genentech 7, 37. Thefirst point simply does not comport with the allegationsof petitioner's amended complaint. The very first countrequested a "DECLARATORY JUDGMENT ONCONTRACTUAL RIGHTS AND OBLIGATIONS," andstated that petitioner "disputes its obligation to makepayments under the 1997 License Agreement because[petitioner's] sale of its Synagis® product does notinfringe any valid claim of the [Cabilly II] Patent." App.136. These contentions were repeated throughout thecomplaint. [*124] Id., at 104, 105, 108, 147.3 And thephrase "does not infringe any valid claim" (emphasis[***613] added) cannot be thought to be no more than achallenge to the patent's validity, since elsewhere theamended complaint states with unmistakable clarity that"the patent is . . . not infringed by [petitioner's] Synagis®product and that [petitioner] owes no payments underlicense agreements with [respondents]." Id., at 104.4

3 [***LEdHR5B] [5B] In addition to agreeingwith respondents that (despite the face of thecomplaint) this case does not involve a contractclaim, post, at 140-141, 166 L. Ed. 2d, at 623, thedissent evidently thinks the contract claim isweak. That, however, goes to the merits of theclaim, not to its existence or the courts'jurisdiction over it. Nor is the alleged "lack ofspecificity in the complaint," post, at 140, 166 L.Ed. 2d, at 623, a jurisdictional matter.4 The dissent observes that the District Courtassumed that Synagis was "'covered by thepatents at issue.'" Post, at 141, 166 L. Ed. 2d, at623 (quoting App. 349-350). But the quotedstatement is taken from the District Court'sseparate opinion granting summary judgment onpetitioner's antitrust claims. For purposes of thatearlier ruling, whether Synagis infringed thepatent was irrelevant, and there was no harm inaccepting respondents' contention on the point.This tells us nothing, however, about petitioner's

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contract claim or the District Court's laterjurisdictional holding with respect to it.

[***LEdHR3C] [3C] As to the second point,petitioner assuredly did contend that it had no obligationunder the license to pay royalties on an invalid patent.Id., at 104, 136, 147. Nor is that contention frivolous.True, the license requires petitioner to pay royalties untila patent claim has been held invalid by a competent body,and the Cabilly II patent has not. But the license at issuein Lear, Inc. v. Adkins, 395 U.S. 653, 673, 89 S. Ct. 1902,23 L. Ed. 2d 610 (1969), similarly provided that"royalties are to be paid until such time as the 'patent . . .is held invalid,'" and we rejected the argument that arepudiating licensee must comply with its contract andpay royalties until its claim is vindicated in court. Weexpress no opinion on whether a nonrepudiating [**770]licensee is similarly relieved of its contract obligationduring a successful challenge to a patent's validity--thatis, on the applicability of licensee estoppel under thesecircumstances. Cf. Studiengesellschaft Kohle, m. b. H. v.Shell Oil Co., 112 F.3d 1561, 1568 (CA Fed. 1997) ("[A]licensee . . . cannot [*125] invoke the protection of theLear doctrine until it (i) actually ceases payment ofroyalties, and (ii) provides notice to the licensor that thereason for ceasing payment of royalties is because it hasdeemed the relevant claims to be invalid"). All we needdetermine is whether petitioner has alleged a contractualdispute. It has done so.

[***LEdHR6A] [6A] Respondents further arguethat petitioner waived its contract claim by failing toargue it below. Brief for Respondent Genentech 10-11;Tr. of Oral Arg. 30-31. The record reveals, however, thatpetitioner raised the contract point before the FederalCircuit. See Brief for Plaintiff-Appellant MedImmune,Inc., in Nos. 04-1300, 04-1384 (CA Fed.), p 38 ("Here,MedImmune is seeking to define its rights andobligations under its contract with Genentech--preciselythe type of action the Declaratory Judgment Actcontemplates"). That petitioner limited its contractargument to a few pages of its appellate brief does notsuggest a waiver; it merely reflects counsel's soundassessment that the argument would be futile. TheFederal Circuit's Gen-Probe precedent precludedjurisdiction over petitioner's contract claims, and thepanel below had no authority to overrule Gen-Probe.5

Having determined that petitioner has raised andpreserved a [***614] contract claim,6 we turn to thejurisdictional question.

5 Respondents obviously agree. They said in theDistrict Court: "The facts of this case are, forpurposes of this motion, identical to the facts inGen-Probe. . . . Like Gen-Probe, MedImmunefiled an action seeking a declaratory judgmentthat: (a) it owes nothing under its licenseagreement with Genentech because its sales ofSynagis® allegedly do not infringe any validclaim of the [Cabilly II] patent; (b) the [Cabilly II]patent is invalid; (c) the [Cabilly II] patent isunenforceable; and (d) Synagis® does notinfringe the [Cabilly II] patent." App. in Nos.04-1300, 04-1384 (CA Fed.), p A2829 (recordcitations omitted).6 [***LEdHR6B] [6B] The dissent asserts thatpetitioner did not allege a contract claim in itsopening brief or at oral argument. Post, at 141,166 L. Ed. 2d, at 623. This is demonstrably false.See, e.g., Brief for Petitioner 8 (the Cabilly IIpatent was "not infringed by Synagis®, so thatroyalties were not due under the license"); id., at12 (Summary of Argument: "[The purpose] ofthe Declaratory Judgment Act . . . was to allowcontracting parties to resolve their disputes incourt without breach and without riskingeconomic destruction and multiplying damages. . .. The holding [below] . . . would . . . disrupt thelaw of licenses and contracts throughout theeconomy, essentially undoing the achievement ofthe reformers of 1934"); Tr. of Oral Arg. 15("We're saying this is a contract dispute"); id., at16 ("[T]he purpose of [the Declaratory JudgmentAct] is so that contracts can be resolved withoutbreach"); id., at 57 ("The contract claim is clear inthe record. It's at page 136 of the joint appendix.I don't think more needs to be said about it").

The dissent also asserts that the validity ofthe contract claim "hinges entirely upon adetermination of the patent's validity," since "'thelicense requires [MedImmune] to pay royaltiesuntil a patent claim has been held invalid by acompetent body,'" post, at 141, 166 L. Ed. 2d, at623, quoting supra, at 124, 166 L. Ed. 2d, at 613.This would be true only if the license requiredroyalties on all products under the sun, and notjust those that practice the patent. Of course itdoes not

[*126] III

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The Declaratory Judgment Act provides that,[HN1]"[i]n a case of actual controversy within itsjurisdiction . . . any court of the United States . . . maydeclare the rights and other legal relations of anyinterested party seeking such declaration, whether or notfurther relief is or could be sought." [**771] 28 U.S.C. §2201(a). There was a time when this Court harboreddoubts about the compatibility of declaratory-judgmentactions with Article III's case-or-controversyrequirement. See Willing v. Chicago Auditorium Ass'n,277 U.S. 274, 289, 48 S. Ct. 507, 72 L. Ed. 880 (1928);Liberty Warehouse Co. v. Grannis, 273 U.S. 70, 47 S. Ct.282, 71 L. Ed. 541 (1927); see also Gordon v. UnitedStates, 117 U.S. 697, 702, 76 L. Ed. 1347 (1864) (the lastopinion of Taney, C. J., published posthumously) ("Theaward of execution is . . . an essential part of everyjudgment passed by a court exercising judicial power").We dispelled those doubts, however, in Nashville, C. &St. L. R. Co. v. Wallace, 288 U.S. 249, 53 S. Ct. 345, 77L. Ed. 730 (1933), holding (in a case involving adeclaratory judgment rendered in state court) that[HN2]an appropriate action for declaratory relief can be acase or controversy under Article III. The federalDeclaratory Judgment Act was signed into law thefollowing year, and we upheld its constitutionality inAetna Life Ins. Co. v. Haworth, 300 U.S. 227, 57 S. Ct.461, 81 L. Ed. 617 (1937). Our opinion [*127]explained that the phrase "case of actual controversy" inthe Act refers to the type of "Cases" and "Controversies"that are justiciable under Article III. Id., at 240, 57 S. Ct.461, 81 L. Ed. 617.

Aetna and the cases following it do not draw thebrightest of lines between those declaratory-judgmentactions that satisfy the case-or-controversy requirementand those that do not. [HN3]Our decisions have requiredthat the dispute be "definite and concrete, touching thelegal relations of parties having adverse legal [***615]interests"; and that it be "real and substantial" and"admi[t] of specific relief through a decree of aconclusive character, as distinguished from an opinionadvising what the law would be upon a hypothetical stateof facts." Id., at 240-241, 57 S. Ct. 461, 81 L. Ed. 617.In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312U.S. 270, 273, 61 S. Ct. 510, 85 L. Ed. 826 (1941), wesummarized as follows: "Basically, the question in eachcase is whether the facts alleged, under all thecircumstances, show that there is a substantialcontroversy, between parties having adverse legalinterests, of sufficient immediacy and reality to warrant

the issuance of a declaratory judgment."7

7 The dissent asserts, post, at 137, 166 L. Ed. 2d,at 621, that "the declaratory judgment procedurecannot be used to obtain advanced rulings onmatters that would be addressed in a future caseof actual controversy." As our precedingdiscussion shows, that is not so. If the dissent'spoint is simply that a defense cannot be raised bymeans of a declaratory-judgment action wherethere is no "actual controversy" or where it wouldbe "premature," phrasing that argument as thedissent has done begs the question: whether thisis an actual, ripe controversy.

Coffman v. Breeze Corps., 323 U.S. 316,323-324, 65 S. Ct. 298, 89 L. Ed. 264, 1945 Dec.Comm'r Pat. 576 (1945), cited post, at 139, 166 L.Ed. 2d, at 622, does not support the dissent's view(which is why none of the parties cited it). There,a patent owner sued to enjoin his licensee frompaying accrued royalties to the Government underthe Royalty Adjustment Act of 1942, and soughtto attack the constitutionality of the Act. TheCourt held the request for declaratory judgmentand injunction nonjusticiable because the patentowner asserted no right to recover the royaltiesand there was no indication that the licenseewould even raise the Act as a defense to suit forthe royalties. The other case the dissent cites forthe point, Calderon v. Ashmus, 523 U.S. 740, 749,118 S. Ct. 1694, 140 L. Ed. 2d 970 (1998), simplyholds that a litigant may not use adeclaratory-judgment action to obtain piecemealadjudication of defenses that would not finallyand conclusively resolve the underlyingcontroversy. That is, of course, not the case here.

[*128] There is no dispute that these standardswould have been satisfied if petitioner had taken the finalstep of refusing to make royalty payments under the 1997[**772] license agreement. Respondents claim a right toroyalties under the licensing agreement. Petitionerasserts that no royalties are owing because the Cabilly IIpatent is invalid and not infringed; and alleges (withoutcontradiction) a threat by respondents to enjoin sales ifroyalties are not forthcoming. The factual and legaldimensions of the dispute are well defined and, but forpetitioner's continuing to make royalty payments, nothingabout the dispute would render it unfit for judicial

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resolution. Assuming (without deciding) thatrespondents here could not claim an anticipatory breachand repudiate the license, the continuation of royaltypayments makes what would otherwise be an imminentthreat at least remote, if not nonexistent. As long as thosepayments are made, there is no risk that respondents willseek to enjoin petitioner's sales. Petitioner's own acts, inother words, eliminate the imminent threat of harm.8 Thequestion before us is whether this causes the dispute nolonger to be a [***616] case or controversy within themeaning of Article III.

8 The justiciability problem that arises, when theparty seeking declaratory relief is himselfpreventing the complained-of injury fromoccurring, can be described in terms of standing(whether plaintiff is threatened with "imminent"injury in fact "'fairly . . . trace[able] to thechallenged action of the defendant,'" Lujan v.Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L. Ed. 2d 351 (1992)), or in termsof ripeness (whether there is sufficient "hardshipto the parties [in] withholding courtconsideration" until there is enforcement action,Abbott Laboratories v. Gardner, 387 U.S. 136,149, 87 S. Ct. 1507, 18 L. Ed. 2d 681 (1967)). Asrespondents acknowledge, standing and ripenessboil down to the same question in this case. Brieffor Respondent Genentech 24; Brief forRespondent City of Hope 30-31.

[***LEdHR7] [7] Our analysis must begin with therecognition that, where threatened action by governmentis concerned, we do not [*129] require a plaintiff toexpose himself to liability before bringing suit tochallenge the basis for the threat--for example, theconstitutionality of a law threatened to be enforced. Theplaintiff's own action (or inaction) in failing to violate thelaw eliminates the imminent threat of prosecution, butnonetheless does not eliminate Article III jurisdiction.For example, in Terrace v. Thompson, 263 U.S. 197, 44S. Ct. 15, 68 L. Ed. 255 (1923), the State threatened theplaintiff with forfeiture of his farm, fines, and penalties ifhe entered into a lease with an alien in violation of theState's anti-alien land law. Given this genuine threat ofenforcement, we did not require, as a prerequisite totesting the validity of the law in a suit for injunction, thatthe plaintiff bet the farm, so to speak, by taking theviolative action. Id., at 216, 44 S. Ct. 15, 68 L. Ed. 255.See also, e.g., Village of Euclid v. Ambler Realty Co., 272

U.S. 365, 47 S. Ct. 114, 71 L. Ed. 303, 4 Ohio Law Abs.816 (1926); Ex parte Young, 209 U.S. 123, 28 S. Ct. 441,52 L. Ed. 714 (1908). Likewise, in Steffel v. Thompson,415 U.S. 452, 94 S. Ct. 1209, 39 L. Ed. 2d 505 (1974),we did not require the plaintiff to proceed to distributehandbills and risk actual prosecution before he could seeka declaratory judgment regarding the constitutionality ofa state statute prohibiting such distribution. Id., at458-460, 94 S. Ct. 1209, 39 L. Ed. 2d 505. Asthen-Justice Rehnquist put it in his concurrence, "thedeclaratory judgment procedure is an alternative topursuit of the arguably illegal activity." Id., at 480, 94 S.Ct. 1209, 39 L. Ed. 2d 505. In each of these cases, theplaintiff had eliminated the imminent threat of harm bysimply not doing what he claimed the right to do (enterinto a lease, or distribute handbills at the shoppingcenter). That did not preclude subject-matter jurisdictionbecause the threat-eliminating behavior was effectivelycoerced. See [**773] Terrace, supra, at 215-216, 44 S.Ct. 15, 68 L. Ed. 255; Steffel, supra, at 459, 94 S. Ct.1209, 39 L. Ed. 2d 505. The dilemma posed by thatcoercion--putting the challenger to the choice betweenabandoning his rights or risking prosecution--is "adilemma that it was the very purpose of the DeclaratoryJudgment Act to ameliorate." Abbott Laboratories v.Gardner, 387 U.S. 136, 152, 87 S. Ct. 1507, 18 L. Ed. 2d681 (1967).

[*130] Supreme Court jurisprudence is more rareregarding application of the Declaratory Judgment Act tosituations in which the plaintiff's self-avoidance ofimminent injury is coerced by threatened enforcementaction of a private party rather than the government.Lower federal courts, however (and state courtsinterpreting declaratory judgment acts requiring "actualcontroversy"), have long accepted jurisdiction in suchcases. See, e.g., Keener Oil & Gas Co. v. ConsolidatedGas Utils. Corp., 190 F.2d 985, 989 (CA10 1951);American Machine & Metals, Inc. v. De BothezatImpeller Co., 166 F.2d 535 (CA2 1948); Hess v. CountryClub Park, 213 Cal. 613, 614, 2 P.2d 782, 783 (1931),Washington-Detroit Theatre Co. v. Moore, 249 Mich.673, 675, [***617] 229 N. W. 618, 618-619 (1930); seealso Advisory Committee's Note on Fed. Rule Civ. Proc.57, 28 U.S.C. App., p 790.9

9 The dissent claims the cited cases do not "relyon the coercion inherent in making contractualpayments." Post, at 145, n 3, 166 L. Ed. 2d, at626. That is true; they relied on (to put the matter

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as the dissent puts it) the coercion inherent incomplying with other claimed contractualobligations. The dissent fails to explain why acontractual obligation of payment is magicallydifferent. It obviously is not. In our view, ofcourse, the relevant coercion is not compliancewith the claimed contractual obligation, but ratherthe consequences of failure to do so.

The only Supreme Court decision in point is,fortuitously, close on its facts to the case before us.Altvater v. Freeman, 319 U.S. 359, 63 S. Ct. 1115, 87 L.Ed. 1450, 1943 Dec. Comm'r Pat. 833 (1943), held that alicensee's failure to cease its payment of royalties did notrender nonjusticiable a dispute over the validity of thepatent. In that litigation, several patentees had sued theirlicensees to enforce territorial restrictions in the license.The licensees filed a counterclaim for declaratoryjudgment that the underlying patents were invalid, in themeantime paying "under protest" royalties required by aninjunction the patentees had obtained in an earlier case.The patentees argued that "so long as [licensees] continueto pay royalties, there is only an academic, not a realcontroversy, between the parties." Id., at 364, 63 S. Ct.1115, 87 L. Ed. 1450. We [*131] rejected that argumentand held that the declaratory-judgment claim presented ajusticiable case or controversy: "The fact that royaltieswere being paid did not make this a 'difference or disputeof a hypothetical or abstract character.'" Ibid. (quotingAetna, 300 U.S., at 240, 57 S. Ct. 461, 81 L. Ed. 617).The royalties "were being paid under protest and underthe compulsion of an injunction decree," and "[u]nlessthe injunction decree were modified, the only othercourse [of action] was to defy it, and to risk not onlyactual but treble damages in infringement suits." 319U.S., at 365, Id., at 364, 63 S. Ct. 1115, 87 L. Ed. 1450.We concluded that [HN4]"the requirements of [a] case orcontroversy are met where payment of a claim isdemanded as of right and where payment is made, butwhere the involuntary or coercive nature of the exactionpreserves the right to recover the sums paid or tochallenge the legality of the claim." Ibid.10

10 The dissent incorrectly asserts that Altvaterrequired actual infringement, quoting wildly outof context (and twice, for emphasis) Altvater'sstatement that "'[t]o hold a patent valid if it is notinfringed is to decide a hypothetical case.'" Post,at 139, 143, 166 L. Ed. 2d, at 622, 625 (quoting319 U.S., at 363, 63 S. Ct. 1115, 87 L. Ed. 1450).

In the passage from which the quotation wasplucked, the Altvater Court was distinguishing theCourt's earlier decision in Electrical FittingsCorp. v. Thomas & Betts Co., 307 U.S. 241, 59 S.Ct. 860, 83 L. Ed. 1263, 1939 Dec. Comm'r Pat.889 (1939), which involved an affirmativedefense of patent invalidity that had become mootin light of a finding of no infringement. Here isthe full quotation:

"The District Court [in ElectricalFittings] adjudged a claim of apatent valid although it dismissedthe bill for failure to proveinfringement. We held that thefinding of validity was immaterialto the disposition of the cause andthat the winning party mightappeal to obtain a reformation ofthe decree. To hold a patent validif it is not infringed is to decide ahypothetical case. But thesituation in the present case isquite different. We have here notonly bill and answer but acounterclaim. Though the decisionof non-infringement disposes ofthe bill and answer, it does notdispose of the counterclaim whichraises the question of validity."Altvater, supra, at 363, 63 S. Ct.1115, 87 L. Ed. 1450 (footnoteomitted).

As the full quotation makes clear, the snippetquoted by the dissent has nothing to do withwhether infringement must be actual or merelythreatened. Indeed, it makes clear that inappropriate cases to hold a noninfringed patentvalid is not to decide a hypothetical case.

Though the dissent acknowledges the centrallesson of Altvater, post, at 144, 166 L. Ed. 2d, at625--that payment of royalties under "coercive"circumstances does not eliminate jurisdiction--itattempts to limit that rationale to the particularfacts of Altvater. But none of Altvater's "uniquefacts," post, at 144, 166 L. Ed. 2d, at 625,suggests that a different test applies to the royalty

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payments here. Other than a conclusory assertionthat the payments here were "voluntarily made,"post, at 146, 166 L. Ed. 2d, at 625, the dissentnever explains why the threat of treble damagesand the loss of 80 percent of petitioner's businessdoes not fall within Altvater's coercion rationale.

[**774] [*132] The Federal Circuit's Gen-Probedecision distinguished Altvater on the [***618] groundthat it involved the compulsion of an injunction. ButAltvater cannot be so readily dismissed. Never mind thatthe injunction had been privately obtained and wasultimately within the control of the patentees, who couldpermit its modification. More fundamentally, andcontrary to the Federal Circuit's conclusion, Altvater didnot say that the coercion dispositive of the case wasgovernmental, but suggested just the opposite. Theopinion acknowledged that the licensees had the option ofstopping payments in defiance of the injunction, butexplained that the consequence of doing so would be torisk "actual [and] treble damages in infringement suits"by the patentees. 319 U.S., at 365, 63 S. Ct. 1115, 87 L.Ed. 1450. It significantly did not mention the threat ofprosecution for contempt, or any other sort ofgovernmental sanction. Moreover, it cited approvingly atreatise which said that an "actual or threatened seriousinjury to business or employment" by a private party canbe as coercive as other forms of coercion supportingrestitution actions at common law; and that "[t]o imperil aman's livelihood, his business enterprises, or hissolvency, [was] ordinarily quite as coercive" as, forexample, "detaining his property." F. Woodward, TheLaw of Quasi Contracts § 218 (1913), cited in Altvater,supra, at 365, 63 S. Ct. 1115, 87 L. Ed. 1450.11

11 Even if Altvater could be distinguished as an"injunction" case, it would still contradict theFederal Circuit's "reasonable apprehension ofsuit" test (or, in its evolved form, the "reasonableapprehension of imminent suit" test, Teva Pharms.USA, Inc. v. Pfizer Inc., 395 F.3d 1324, 1333(2005)). A licensee who pays royalties undercompulsion of an injunction has no moreapprehension of imminent harm than a licenseewho pays royalties for fear of treble damages andan injunction fatal to his business. Thereasonable-apprehension-of-suit test also conflictswith our decisions in Maryland Casualty Co. v.Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L. Ed. 826 (1941), where jurisdiction

obtained even though the collision-victimdefendant could not have sued thedeclaratory-judgment plaintiff-insurer withoutfirst obtaining a judgment against the insured; andAetna Life Ins. Co. v. Haworth, 300 U.S. 227,239, 57 S. Ct. 461, 81 L. Ed. 617 (1937), wherejurisdiction obtained even though the very reasonthe insurer sought declaratory relief was that theinsured had given no indication that he would filesuit. It is also in tension with Cardinal ChemicalCo. v. Morton Int'l, Inc., 508 U.S. 83, 98, 113 S.Ct. 1967, 124 L. Ed. 2d 1 (1993), which held thatappellate affirmance of a judgment ofnoninfringement, eliminating any apprehension ofsuit, does not moot a declaratory judgmentcounterclaim of patent invalidity.

[***LEdHR1B] [1B] [**775] [*133] Jurisdictionover the present case is not contradicted by Willing v.Chicago Auditorium Ass'n., 277 U.S. 274, 48 S. Ct. 507,72 L. Ed. 880. There a ground lessee wanted to demolishan antiquated auditorium and replace it with a moderncommercial building. The lessee believed it had the rightto do this without the lessors' consent, but was unwillingto drop the wrecking ball first and test its belief later.Because there was no declaratory judgment act at thetime under federal or applicable state law, the lessee filedan action to remove a "cloud" on its lease. This Courtheld that an Article III case or controversy had not arisenbecause "[n]o defendant ha[d] wronged the plaintiff or[***619] ha[d] threatened to do so." Id., at 288, 290, 48S. Ct. 507, 72 L. Ed. 880. It was true that one of thecolessors had disagreed with the lessee's interpretation ofthe lease, but that happened in an "informal, friendly,private conversation," id., at 286, 48 S. Ct. 507, 72 L. Ed.880, a year before the lawsuit was filed; and the lesseenever even bothered to approach the other colessors. TheCourt went on to remark that "[w]hat the plaintiff seeks issimply a declaratory judgment," and "[t]o grant that reliefis beyond the power conferred upon the federaljudiciary." Id., at 289, 48 S. Ct. 507, 72 L. Ed. 880. HadWilling been decided after the enactment (and ourupholding) of the Declaratory Judgment Act, and had thelegal disagreement [*134] between the parties been aslively as this one, we are confident a different resultwould have obtained. The rule that a plaintiff mustdestroy a large building, bet the farm, or (as here) risktreble damages and the loss of 80 percent of its businessbefore seeking a declaration of its actively contested legalrights finds no support in Article III.12

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12 The dissent objects to our supposed"extension of Steffel [v. Thompson] . . . to apply tovoluntarily accepted contractual obligationsbetween private parties." Post, at 145, 166 L. Ed.2d, at 626. The criticism is misdirected in severalrespects. The coercion principle upon which werely today did not originate with Steffel v.Thompson, 415 U.S. 452, 94 S. Ct. 1209, 39 L.Ed. 2d 505 (1974), see supra, at 128-129, 166 L.Ed. 2d, at 616, and we have no opportunity toextend it to private litigation, because Altvater v.Freeman, 319 U.S. 359, 63 S. Ct. 1115, 87 L. Ed.1450, 1943 Dec. Comm'r Pat. 833 (1943), alreadydid so, see supra, at 132, 166 L. Ed. 2d, at 617.Moreover, even if today's decision could bedescribed as an "extension of Steffel" to privatelitigation, the dissent identifies no principledreason why that extension is not appropriate.Article III does not favor litigants challengingthreatened government enforcement action overlitigants challenging threatened privateenforcement action. Indeed, the latter is perhapsthe easier category of cases, for it presents none ofthe difficult issues of federalism and comity withwhich we wrestled in Steffel. See 415 U.S., at460-475, 94 S. Ct. 1209, 39 L. Ed. 2d 505.

The dissent accuses the Court of misapplyingSteffel's rationale. Post, at 146, 166 L. Ed. 2d, at626. It contends that Steffel would apply hereonly if respondents had threatened petitioner witha patent infringement suit in the absence of alicense agreement, because only then wouldpetitioner be put to the choice of selling itsproduct or facing suit. Post, at 145-146, 166 L.Ed. 2d, at 626. Here, the dissent argues, thelicense payments are "voluntarily made." Post, at146, 166 L. Ed. 2d, at 627. If one uses the word"voluntarily" so loosely, it could be applied withequal justification (or lack thereof) to the Steffelplaintiff's "voluntary" refusal to distributehandbills. We find the threat of treble damagesand loss of 80 percent of petitioner's businessevery bit as coercive as the modest penalties formisdemeanor trespass threatened in Steffel. Onlyby ignoring the consequences of the threatenedaction in this case can the dissent claim thattoday's opinion "contains no limiting principlewhatsoever," post, at 146, 166 L. Ed. 2d, at 627.

Respondents assert that the parties in effect settledthis dispute when they entered into the 1997 licenseagreement. When a licensee enters such an agreement,they contend, it essentially purchases an insurance policy,immunizing it from suits [**776] for infringement solong as it continues to pay royalties and does notchallenge the covered patents. Permitting it [*135] tochallenge the validity of the patent without terminating orbreaking the agreement alters the deal, allowing thelicensee to continue enjoying its immunity while bringinga suit, the elimination of which was part of the patentee'squid pro quo. Of course even if it were valid, thisargument would have no force with regard to petitioner'sclaim that the agreement does not call for royaltiesbecause their product does not infringe the patent. Buteven as to the patent invalidity claim, the point seems tous mistaken. To begin with, it is not clear where theprohibition against [***620] challenging the validity ofthe patents is to be found. It can hardly be implied fromthe mere promise to pay royalties on patents "which haveneither expired nor been held invalid by a court or otherbody of competent jurisdiction from which no appeal hasbeen or may be taken," App. 399. Promising to payroyalties on patents that have not been held invalid doesnot amount to a promise not to seek a holding of theirinvalidity.

Respondents appeal to the common-law rule that aparty to a contract cannot at one and the same timechallenge its validity and continue to reap its benefits,citing Commodity Credit Corp. v. Rosenberg Bros. &Co., 243 F.2d 504, 512 (CA9 1957), and Kingman & Co.v. Stoddard, 85 F. 740, 745 (CA7 1898).Lear, theycontend, did not suspend that rule for patent licensingagreements, since the plaintiff in that case had alreadyrepudiated the contract. Even if Lear's repudiation of thedoctrine of licensee estoppel was so limited (a point onwhich, as we have said earlier, we do not opine), it ishard to see how the common-law rule has any applicationhere. Petitioner is not repudiating or impugning thecontract while continuing to reap its benefits. Rather, it isasserting that the contract, properly interpreted, does notprevent it from challenging the patents, and does notrequire the payment of royalties because the patents donot cover its products and are invalid. Of course even ifrespondents were correct that the licensing agreement orthe common-law rule precludes this suit, the consequencewould be that [*136] respondents win this case on themerits--not that the very genuine contract disputedisappears, so that Article III jurisdiction is somehow

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defeated. In short, Article III jurisdiction has nothing todo with this "insurance-policy" contention.

[***LEdHR8] [8] Lastly, respondents urge us toaffirm the dismissal of the declaratory-judgment claimson discretionary grounds. [HN5]The DeclaratoryJudgment Act provides that a court "may declare therights and other legal relations of any interested party,"28 U.S.C. § 2201(a) (emphasis added), not that it must doso. This text has long been understood "to confer onfederal courts unique and substantial discretion indeciding whether to declare the rights of litigants."Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S. Ct.2137, 132 L. Ed. 2d 214 (1995); see also CardinalChemical Co. v. Morton Int'l, Inc., 508 U.S. 83, 95, n. 17,113 S. Ct. 1967, 124 L. Ed. 2d 1 (1993); Brillhart v.Excess Ins. Co. of America, 316 U.S. 491, 494-496, 62 S.Ct. 1173, 86 L. Ed. 1620 (1942). We have found it "moreconsistent with the statute," however, "to vest districtcourts with discretion in the first instance, because factsbearing on the usefulness of the declaratory judgmentremedy, and the fitness of the case for resolution, arepeculiarly within their grasp." Wilton, supra, at 289, 115S. Ct. 2137, 132 L. Ed. 2d 214. The District Court heregave no consideration to discretionary dismissal, since,despite its "serious misgivings" about the FederalCircuit's rule, it considered [**777] itself bound todismiss by Gen-Probe. App. to Pet. for Cert. 31a.Discretionary dismissal was irrelevant to the FederalCircuit for the same reason. Respondents have raised theissue for the first time before this Court, exchangingcompeting accusations of inequitable conduct withpetitioner. See, e.g., Brief for Respondent Genentech42-44; Reply Brief for Petitioner 17, and n 15. Underthese circumstances, it would be [***621] imprudent forus to decide whether the District Court should, or must,decline to issue the requested declaratory relief. Weleave the equitable, prudential, and policy arguments infavor of such a discretionary dismissal for the lowercourts' consideration on remand. Similarly available[*137] for consideration on remand are any merits-basedarguments for denial of declaratory relief.

* * *

[***LEdHR1C] [1C] We hold that [HN6]petitionerwas not required, insofar as Article III is concerned, tobreak or terminate its 1997 license agreement beforeseeking a declaratory judgment in federal court that the

underlying patent is invalid, unenforceable, or notinfringed. The Court of Appeals erred in affirming thedismissal of this action for lack of subject-matterjurisdiction.

The judgment of the Court of Appeals is reversed,and the cause is remanded for proceedings consistentwith this opinion.

It is so ordered.

DISSENT BY: THOMAS

DISSENT

Justice Thomas, dissenting.

We granted certiorari in this case to determinewhether a patent licensee in good standing must breachits license prior to challenging the validity of theunderlying patent pursuant to the Declaratory JudgmentAct, 28 U.S.C. § 2201. 546 U.S. 1169, 126 S. Ct. 1329,164 L. Ed. 2d 46 (2006). The answer to that question isyes. We have consistently held that parties do not havestanding to obtain rulings on matters that remainhypothetical or conjectural. We have also held that thedeclaratory judgment procedure cannot be used to obtainadvanced rulings on matters that would be addressed in afuture case of actual controversy. MedImmune hassought a declaratory judgment for precisely that purpose,and I would therefore affirm the Court of Appeals'holding that there is no Article III jurisdiction overMedImmune's claim. The Court reaches the oppositeresult by extending the holding of Steffel v. Thompson,415 U.S. 452, 94 S. Ct. 1209, 39 L. Ed. 2d 505 (1974), toprivate contractual obligations. I respectfully dissent.

I

Article III of the Constitution limits the judicialpower to the adjudication of "Cases" or "Controversies."§ 2. We [*138] have held that the DeclaratoryJudgment Act extends "to controversies which are such inthe constitutional sense." Aetna Life Ins. Co. v. Haworth,300 U.S. 227, 240, 57 S. Ct. 461, 81 L. Ed. 617 (1937).In the context of declaratory judgment actions, thisCourt's cases have provided a uniform framework forassessing whether an Article III case or controversyexists. In the constitutional sense, a "Controversy" is"distinguished from a difference or dispute of ahypothetical or abstract character; from one that is

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academic or moot." Ibid. (citing United States v. AlaskaS. S. Co., 253 U.S. 113, 116, 40 S. Ct. 448, 64 L. Ed. 808(1920)). "The controversy must be definite and concrete,touching the legal relations of parties having adverselegal interests." 300 U.S., at 240-241, 57 S. Ct. 461, 81L. Ed. 617. Finally, "[i]t must be a real and substantialcontroversy . . ., as distinguished from an opinionadvising what the law would be upon a hypothetical stateof facts." [***622] Id., at 241, 57 S. Ct. 461, 81 L. Ed.617.

[**778] The Declaratory Judgment Act did not (andcould not) alter the constitutional definition of "case orcontroversy" or relax Article III's command that an actualcase or controversy exist before federal courts mayadjudicate a question. See Maryland Casualty Co. v.Pacific Coal & Oil Co., 312 U.S. 270, 272-273, 61 S. Ct.510, 85 L. Ed. 826 (1941). Thus, this Court has held that"the operation of the Declaratory Judgment Act isprocedural only." Aetna Life Ins., 300 U.S., at 240, 57 S.Ct. 461, 81 L. Ed. 617. In other words, the Act merelyprovides a different procedure for bringing an actual caseor controversy before a federal court. The Court appliedthat principle in Aetna Life Ins., where an insurancecompany brought a declaratory judgment action againstan insured who claimed he had become disabled, hadformally presented his claims, and had refused to makeany more insurance payments. Id., at 242, 57 S. Ct. 461,81 L. Ed. 617. In the course of deciding that it couldentertain the insurer's declaratory judgment action, theCourt specifically noted that, had the insured filed histraditional cause of action first, "there would have beenno question that the controversy was of a justiciablenature . . . ." Id., at 243, 57 S. Ct. 461, 81 L. Ed. 617.Accordingly, the Act merely [*139] provided a differentprocedural tool that allowed the insurance company tobring an otherwise justiciable controversy before afederal court.

We have also held that no controversy exists when adeclaratory judgment plaintiff attempts to obtain apremature ruling on potential defenses that wouldtypically be adjudicated in a later actual controversy. InCoffman v. Breeze Corps., 323 U.S. 316, 65 S. Ct. 298,89 L. Ed. 264, 1945 Dec. Comm'r Pat. 576 (1945), apatent owner brought a declaratory judgment actionagainst his licensees seeking to have the RoyaltyAdjustment Act of 1942 declared unconstitutional and toenjoin his licensees from paying accrued royalties to theGovernment. This Court held that no case or controversy

existed because the validity of the Royalty AdjustmentAct would properly arise only as a defense in a suit by thepatent holder against the licensees to recover royalties.Id., at 323-324, 65 S. Ct. 298, 89 L. Ed. 264.Accordingly, the complaint at issue was "but a request foran advisory opinion as to the validity of a defense to asuit for recovery of the royalties." Id., at 324, 65 S. Ct.298, 89 L. Ed. 264. And the Court noted that "[t]hedeclaratory judgment procedure . . . may not be made themedium for securing an advisory opinion in a controversywhich has not arisen." Ibid.; see also Calderon v.Ashmus, 523 U.S. 740, 747, 118 S. Ct. 1694, 140 L. Ed.2d 970 (1998) (holding that a prisoner may not use adeclaratory judgment action to determine the validity of adefense that a State might raise in a future habeasproceeding).

These principles apply with equal force in the patentlicensing context. In Altvater v. Freeman, 319 U.S. 359,365-366, 63 S. Ct. 1115, 87 L. Ed. 1450, 1943 Dec.Comm'r Pat. 833 (1943), the Court, quite unremarkably,held that a "licensee" had standing to bring a declaratoryjudgment counterclaim asserting the affirmative defenseof patent invalidity in response to a patent infringementsuit. But not to be mistaken, the Altvater Court expresslystated that "[t]o hold a patent valid if it is not infringed isto decide a hypothetical case." Id., at 363, 63 S. Ct. 1115,87 L. [***623] Ed. 1450. So too, in Cardinal ChemicalCo. v. Morton Int'l, Inc., 508 U.S. 83, 86, 113 S. Ct.1967, 124 L. Ed. 2d 1 (1993), the affirmative defense ofpatent invalidity was raised as a counterclaim [*140] toa patent infringement suit. Although we held that afinding of noninfringement on appeal did not moot acounterclaim alleging invalidity, id., at 102-103, 86, 113S. Ct. 1967, 124 L. Ed. 2d 1, we stated that our holdingwas limited to the jurisdiction of an appellate court andreiterated that "[i]n the trial court, of course, a party[**779] seeking a declaratory judgment has the burdenof establishing the existence of an actual case orcontroversy," id., at 95, 86, 113 S. Ct. 1967, 124 L. Ed.2d 1.

II

Against the foregoing background, the case before usis not a justiciable case or controversy under Article III.

A

As a threshold matter, I disagree with the Court'scharacterization of this case as including a "contractual

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dispute." Ante, at 125, 166 L. Ed. 2d, at 613. Tosubstantiate this characterization, the Court points to athree-paragraph count in MedImmune's complaintentitled "'DECLARATORY JUDGMENT ONCONTRACTUAL RIGHTS AND OBLIGATIONS'" and toMedImmune's broad allegations that "'its Synagis®product does not infringe any valid claim of the [CabillyII] Patent.'" Ante, at 123, 166 L. Ed. 2d, at 612.Nowhere in its complaint did MedImmune state why"sale[s] of its Synagis® product d[o] not infringe anyvalid claim of the [Cabilly II] Patent." App. 136.1 Giventhe lack of specificity in the complaint, it is hardlysurprising that the Court never explains what thesupposed contract dispute is actually about. A fairreading of the amended complaint (and a review of thelitigation thus far) shows that MedImmune's "contractcount" simply posits that because the patent is invalid andunenforceable (as alleged in counts II and III),MedImmune is not bound by its contractual [*141]obligations. As the Court admits, "the license requires[MedImmune] to pay royalties until a patent claim hasbeen held invalid by a competent body . . . ." Ante, at124, 166 L. Ed. 2d, at 613 (emphasis in original). Thus,even assuming the existence of a cognizable contractclaim, the validity of that claim hinges entirely upon adetermination of the patent's validity, independent of anycontractual question. As such, MedImmune's "contractclaim" simply repackages its patent invalidity claim.

1 In addition, the fact that MedImmune did notidentify anywhere in the record which provisionof the contract was at issue suggests that there isno contractual provision to "be construed beforeor after breach." Advisory Committee's Notes onFed. Rule Civ. Proc. 57, 28 U.S.C. App., pp790-791.

Probably for this reason, MedImmune has notpursued a contract claim at any level of the litigation.The District Court stated that the product that was thesubject of the license, Synagis, was "covered by thepatents at issue," App. 349-350, and MedImmune hasnever challenged that characterization. The FederalCircuit decided this case on the sole ground that alicensee in good standing may not bring a declaratoryjudgment action to challenge the validity of theunderlying patent without some threat or apprehension ofa patent infringement suit. See 427 F.3d 958, 965 (2005).The question [***624] MedImmune presented in itspetition for certiorari, which we accepted without

alteration, says nothing about a contract claim. Neitherdoes MedImmune's opening brief allege a contractualdispute. Even at oral argument, it was not MedImmune,but an amicus, that alleged there was a contract dispute atissue in this case. Tr. of Oral Arg. 21-22.

In short, MedImmune did not "rais[e] and preserv[e]a contract claim." Ante, at 125, 166 L. Ed. 2d, at613-614. In reaching a contrary conclusion, the Courtstates that its identification of a contract claim "probablymakes no difference to the ultimate" outcome of thiscase. Ante, at 123, 166 L. Ed. 2d, at 612. This may verywell be true, if only because of the broad scope of theCourt's holding.

[**780] B

The facts before us present no case or controversyunder Article III. When MedImmune filed thisdeclaratory judgment [*142] action challenging thevalidity of the Cabilly II patent, it was under no threat ofbeing sued by Genentech for patent infringement. Thiswas so because MedImmune was a licensee in goodstanding that had made all necessary royalty payments.Thus, by voluntarily entering into and abiding by alicense agreement with Genentech, MedImmune removedany threat of suit. See ante, at 128, 166 L. Ed. 2d, at 615(stating the threat of suit was "remote, if notnonexistent"). MedImmune's actions in entering into andcontinuing to comply with the license agreementdeprived Genentech of any cause of action againstMedImmune. Additionally, MedImmune had no cause ofaction against Genentech. Patent invalidity is anaffirmative defense to patent infringement, not afreestanding cause of action. See 35 U.S.C. §§282(2)-(3). Therefore, here, the Declaratory JudgmentAct must be something more than an alternativeprocedure for bringing an otherwise actual case orcontroversy before a federal court. But see Aetna LifeIns., 300 U.S., at 240, 57 S. Ct. 461, 81 L. Ed. 617("[T]he operation of the Declaratory Judgment Act isprocedural only").

Because neither Genentech nor MedImmune had acause of action, MedImmune's prayer for declaratoryrelief can be reasonably understood only as seeking anadvisory opinion about an affirmative defense it mightuse in some future litigation. MedImmune wants toknow whether, if it decides to breach its licenseagreement with Genentech, and if Genentech sues it forpatent infringement, it will have a successful affirmative

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defense. Presumably, upon a favorable determination,MedImmune would then stop making royalty payments,knowing in advance that the federal courts stand behindits decision. Yet as demonstrated above, the DeclaratoryJudgment Act does not allow federal courts to giveadvisory rulings on the potential success of an affirmativedefense before a cause of action has even accrued.Calderon, 523 U.S., at 747, 118 S. Ct. 1694, 140 L. Ed.2d 970 (dismissing a suit that "attempt[ed] to [*143]gain a litigation advantage by obtaining an advance rulingon an affirmative defense"); see also Coffman, 323 U.S.,at 324, 65 S. Ct. 298, 89 L. Ed. 264 (rejecting use of theDeclaratory Judgment Act as a "medium for securing anadvisory opinion in a controversy which has not arisen").MedImmune has therefore asked the courts to render "anopinion advising what the law would be upon ahypothetical state of facts." Aetna [***625] Life Ins.,supra, at 241, 57 S. Ct. 461, 81 L. Ed. 617; see alsoPublic Serv. Comm'n of Utah v. Wycoff Co., 344 U.S.237, 244, 73 S. Ct. 236, 97 L. Ed. 291 (1952) ("Thedisagreement must not be nebulous or contingent butmust have taken on fixed and final shape . . ."). A federalcourt cannot, consistent with Article III, provideMedImmune with such an opinion.

Finally, as this Court has plainly stated in the contextof a counterclaim declaratory judgment actionchallenging the validity of a patent, "[t]o hold a patentvalid if it is not infringed is to decide a hypotheticalcase." Altvater, 319 U.S., at 363, 63 S. Ct. 1115, 87 L.Ed. 1450. Of course, MedImmune presents exactly thatcase. Based on a clear reading of our precedent, I wouldhold that this case presents no actual case or controversy.

III

To reach today's result, the Court misreads ourprecedent and expands the concept of coercion fromSteffel, 415 U.S. 452, 94 S. Ct. 1209, 39 L. Ed. 2d 505, toreach voluntarily accepted contractual obligationsbetween private parties.

[**781] A

The Court inappropriately relies on Altvater, whichis inapplicable to this case for three reasons. First, inAltvater, the affirmative defense of patent invalidity arosein a declaratory judgment motion filed as a counterclaimto a patent infringement suit. See 319 U.S., at 360, 63 S.Ct. 1115, 87 L. Ed. 1450. Second, the opinion in Altvaterproceeds on the understanding that no license existed.

Both the District Court and the Court of Appeals hadalready held that the underlying license had beenterminated prior to the filing of the case. Id., at 365, 63S. Ct. 1115, 87 L. Ed. 1450 ("Royalties [*144] werebeing demanded and royalties were being paid. But theywere being paid . . . under the compulsion of aninjunction decree"). Third, and related, though theone-time licensee continued to pay royalties, it did sounder the compulsion of an injunction that had beenentered in a prior case. Ibid. Altvater simply held thatunder the unique facts of that case, the Court of Appealserred in considering the declaratory judgmentcounterclaim moot because the "involuntary or coercivenature of the exaction preserve[d] the right to recover thesums paid or to challenge the legality of the claim." Ibid.

Cardinal Chemical Co., 508 U.S. 83, 113 S. Ct.1967, 124 L. Ed. 2d 1, is similarly inapt here. In thatcase, as in Altvater, the defendant raised the affirmativedefense of patent invalidity in a counterclaim to a patentinfringement suit. 508 U.S., at 86, 113 S. Ct. 1967, 124L. Ed. 2d 1. We specifically held that a finding ofnoninfringement on appeal did not moot a counterclaimalleging invalidity. Id., at 102-103, 113 S. Ct. 1967, 124L. Ed. 2d 1. But we stressed:

"[T]he issue before us, therefore[,]concern[s] the jurisdiction of anintermediate appellate court--not thejurisdiction of a . . . trial court . . . . In thetrial court, of course, a party seeking adeclaratory judgment has the burden ofestablishing the existence of an actual caseor controversy." Id., at 95, 113 S. Ct.1967, 124 L. Ed. 2d 1.

We went on to offer a hypothetical that showed aparty could seek a declaratory judgment "[i]n patentlitigation . . . even if the patentee has [***626] not filedan infringement action." Ibid. However, thathypothetical involved a patent holder that threatened aninfringement suit against a competitor (not a licensee)that continued to sell the allegedly infringing product andfaced growing liability. In doing so, we hypothesized asituation that paralleled the facts in Aetna Life Ins.: Thepatentee had a cause of action against an alleged infringerand could have brought suit at any moment, and thedeclaratory judgment procedure simply offered thealleged [*145] infringer a different method of bringing

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an otherwise justiciable case or controversy into court.2

2 Additionally, Lear, Inc. v. Adkins, 395 U.S.653, 89 S. Ct. 1902, 23 L. Ed. 2d 610 (1969), haslittle to do with this case. It addressed thepropriety and extent of the common-law doctrineof licensee estoppel, and the licensee in Lear hadceased making payments under the licenseagreement--a fact that makes the case singularlyinapposite here. Id., at 659-660, 89 S. Ct. 1902,23 L. Ed. 2d 610. Lear did not involve theDeclaratory Judgment Act because the case wasbrought as a breach-of-contract action for failureto pay royalties.

B

The Court's more serious error is its extension ofSteffel, supra, to apply to voluntarily accepted contractualobligations between private parties. No court has evertaken such a broad view of Steffel.

In Steffel, the Court held that in certain limitedcircumstances, a party's anticipatory cause of actionqualified as a case or controversy under Article III.Based expressly on the coercive nature of governmentalpower, the Court found that "it is [**782] not necessarythat petitioner first expose himself to actual arrest orprosecution to be entitled to challenge a statute that heclaims deters the exercise of his constitutional rights."Id., at 459, 94 S. Ct. 1209, 39 L. Ed. 2d 505 (emphasisadded). Limited, as it is, to governmental power,particularly the power of arrest and prosecution, Steffelsays nothing about coercion in the context of privatecontractual obligations. It is therefore not surprising that,until today, this Court has never applied Steffel and itstheory of coercion to private contractual obligations;indeed, no court has ever done so.3

3 Admitting that such decisions are "rare," ante,at 130, 166 L. Ed. 2d, at 616, the Court cites casespredating Steffel that hold that a court mayconstrue contractual provisions prior to breach.Those cases do not rely on the coercion inherentin making contractual payments. See, e.g.,Keener Oil & Gas Co. v. Consolidated Gas Util.Corp., 190 F.2d 985, 989 (CA10 1951).

The majority not only extends Steffel to cases that donot involve governmental coercion, but also extendsSteffel's rationale. If "coercion" were understood as the

Court used [*146] that term in Steffel, it would applyonly if Genentech had threatened MedImmune with apatent infringement suit in the absence of a licenseagreement. At that point, MedImmune would have had achoice, as did the declaratory plaintiff in Steffel, either tocease the otherwise protected activity (here, sellingSynagis) or to continue in that activity and face the threatof a lawsuit. But MedImmune faced no such choice.Here, MedImmune could continue selling its productwithout threat of suit because it had eliminated any riskof suit by entering into a license agreement. By holdingthat the voluntary choice to enter an agreement to avoidsome other coerced choice is itself coerced, the Courtgoes far beyond Steffel.

The majority explains that the "coercive nature of theexaction preserves the right . . . to challenge the legalityof the claim." Ante, at 131, [***627] 166 L. Ed. 2d, at617 (internal quotation marks omitted). The coercivenature of what "exaction"? The answer has to be thevoluntarily made license payments because there was nothreat of suit here. By holding that contractualobligations are sufficiently coercive to allow a party tobring a declaratory judgment action, the majority hasgiven every patent licensee a cause of action and a freepass around Article III's requirements for challenging thevalidity of licensed patents. But the reasoning of today'sopinion applies not just to patent validity suits. Indeed,today's opinion contains no limiting principle whatsoever,casting aside Justice Stewart's understanding that Steffel'suse would "be exceedingly rare." 415 U.S., at 476, 94 S.Ct. 1209, 39 L. Ed. 2d 505 (concurring opinion).

For the foregoing reasons, I respectfully dissent.

REFERENCESU.S.C.S., Constitution, Art. III; 28 U.S.C.S. § 2201

Chisum on Patents § 21.02 (Matthew Bender)

Moore's Federal Practice §§ 57.04, 57.05 (MatthewBender 3d ed.)

Patent Litigation: Procedure & Tactics § 1.03 (MatthewBender)

L Ed Digest, Declaratory Judgments § 8

L Ed Index, Patents

Requirements of Article III of Federal Constitution as

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affecting standing to challenge particular conduct asviolative of federal law. 70 L. Ed. 2d 941.

What circumstances render civil case, or issues arisingtherein, moot so as to preclude Supreme Court'sconsideration of their merits. 44 L. Ed. 2d 745.

Supreme Court's view as to what is a "case orcontroversy" within the meaning of Article III of theFederal Constitution or an "actual controversy" within themeaning of the Declaratory Judgment Act (28 U.S.C.S. §2201). 40 L. Ed. 2d 783.

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LEXSEE

CautionAs of: Dec 03, 2010

SANDISK CORPORATION, Plaintiff-Appellant, v. STMICROELECTRONICS,INC., Defendant-Appellee, and STMICROELECTRONICS NV, Defendant.

05-1300

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

480 F.3d 1372; 2007 U.S. App. LEXIS 7029; 82 U.S.P.Q.2D (BNA) 1173

March 26, 2007, Decided

SUBSEQUENT HISTORY: Rehearing denied by,Rehearing, en banc, denied by Sandisk Corp. v.STMicroelectronics, Inc., 2007 U.S. App. LEXIS 14506(Fed. Cir., June 8, 2007)

PRIOR HISTORY: [**1] Appealed from: UnitedStates District Court for the Northern District ofCalifornia. Judge Jeremy Fogel.Sandisk Corp. v. Stmicroelectronics, 2005 U.S. Dist.LEXIS 44870 (N.D. Cal., Jan. 20, 2005)

DISPOSITION: VACATED and REMANDED.

CASE SUMMARY:

PROCEDURAL POSTURE: Plaintiff, owner of severalpatents related to flash memory storage products,appealed from a decision of the U.S. District Court forthe Northern District of California granting the motion ofdefendant, owner of a portfolio of patents related to flashmemory storage products, to dismiss plaintiff's secondthrough twenty-ninth claims, relating to declaratoryjudgment of noninfringement and invalidity, for failure topresent an actual controversy.

OVERVIEW: The first question was whether the factsalleged in the case showed there was a case orcontroversy within the meaning of 28 U.S.C.S. § 2201(a)of the Declaratory Judgment Act. The court found that

plaintiff had established a U.S. Const. art. III case orcontroversy that gave rise to declaratory judgmentjurisdiction. Among other facts leading to this conclusionwere defendant's communication to plaintiff that it hadmade a studied and determined infringementdetermination and asserted the right to a royalty based onthis determination, and plaintiff's position that it couldproceed in its conduct without the payment of royalties todefendant. Next, the court declined to hold that thestatement of defendant's vice president for intellectualproperty and licensing, that defendant would not sueplaintiff, eliminated the justiciable controversy created bydefendant's actions because defendant had engaged in acourse of conduct that showed a preparedness andwillingness to enforce its patent rights despite herstatement. Finally, given the change reflected inMedImmune and the court's holding in the instant case,the court discerned little basis for the refusal to hear thecase.

OUTCOME: The dismissal was vacated, and the casewas remanded for further proceedings.

CORE TERMS: patent, declaratory judgment,infringement, license, licensing, patentee, declaratoryjudgment, negotiation, actual controversy, apprehension,insured, presentation, royalty, settlement, licensee,e-mail, noninfringement, invalidity, trademark,declaration, infringed, ongoing, memory, holder, flash,

Page 1

moot, patent rights, intellectual property, imminentthreat, file suit

LexisNexis(R) Headnotes

Patent Law > Jurisdiction & Review > Standards ofReview > Clearly Erroneous ReviewPatent Law > Jurisdiction & Review > Standards ofReview > De Novo ReviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > General Overview[HN1]For purposes of U.S. Const. art. III, the U.S. Courtof Appeals for the Federal Circuit reviews a dismissal ofa patent claim for lack of an actual controversy upon aparticular set of facts as a question of law subject toplenary appellate review. It reviews the underlyingfactual findings for clear error.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General Overview[HN2]See 28 U.S.C.S. § 2201(a).

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewConstitutional Law > The Judiciary > Case orControversy > General Overview[HN3]The actual controversy requirement of theDeclaratory Judgment Act, 28 U.S.C.S. § 2201, is rootedin U.S. Const. art. III, which provides for federaljurisdiction over only cases and controversies. Thus,jurisdiction extends only to matters that are U.S. Const.art. III cases or controversies.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewConstitutional Law > The Judiciary > Case orControversy > General Overview[HN4]Where threatened action by government isconcerned, the U.S. Supreme Court does not require aplaintiff to expose himself to liability before bringing suitto challenge the basis for the threat--for example, theconstitutionality of a law threatened to be enforced. Theplaintiff's own action (or inaction) in failing to violate thelaw eliminates the imminent threat of prosecution, butnonetheless does not eliminate U.S. Const. art. IIIjurisdiction. The question in each case is whether the

facts alleged, under all the circumstances, show that thereis a substantial controversy, between parties havingadverse legal interests, of sufficient immediacy andreality to warrant the issuance of a declaratory judgment.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewConstitutional Law > The Judiciary > Case orControversy > General OverviewConstitutional Law > The Judiciary > Case orControversy > Advisory Opinions[HN5]U.S. Const. art. III requires that the dispute at issuebe definite and concrete, touching the legal relations ofparties having adverse legal interests; and that it be realand substantial and admit of specific relief through adecree of a conclusive character, as distinguished from anopinion advising what the law would be upon ahypothetical state of facts. When faced with a genuinethreat of enforcement that the government will penalize acertain private action, U.S. Const. art. III does notrequire, as a prerequisite to testing the validity of the lawin a suit for injunction, that the plaintiff bet the farm, soto speak, by taking the violative action. The declaratoryjudgment procedure is an alternative to pursuit of thearguably illegal activity. Although a declaratoryjudgment plaintiff may eliminate an imminent threat ofharm by simply not doing what he claimed the right todo, that does not preclude subject-matter jurisdictionwhere the threat-eliminating behavior was effectivelycoerced. The dilemma posed by that coercion--putting thechallenger to the choice between abandoning his rights orrisking prosecution--is a dilemma that it was the verypurpose of the Declaratory Judgment Act, 28 U.S.C.S. §2201, to ameliorate.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewConstitutional Law > The Judiciary > Case orControversy > General Overview[HN6]The requirements of a case or controversy are metwhere payment of a claim is demanded as of right andwhere payment is made, but where the involuntary orcoercive nature of the exaction preserves the right torecover the sums paid or to challenge the legality of theclaim. The rule that a plaintiff must destroy a largebuilding, bet the farm, or risk treble damages and the lossof 80 percent of its business, before seeking a declarationof its actively contested legal rights finds no support inU.S. Const. art. III.

480 F.3d 1372, *; 2007 U.S. App. LEXIS 7029, **1;82 U.S.P.Q.2D (BNA) 1173; 2007 U.S. LEXIS 1003

Page 2

Constitutional Law > The Judiciary > Case orControversy > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN7]In the context of conduct prior to the existence of alicense, declaratory judgment jurisdiction generally willnot arise merely on the basis that a party learns of theexistence of a patent owned by another or even perceivessuch a patent to pose a risk of infringement, without someaffirmative act by the patentee. But U.S. Const. art. IIIjurisdiction may be met where the patentee takes aposition that puts the declaratory judgment plaintiff in theposition of either pursuing arguably illegal behavior orabandoning that which he claims a right to do.

Constitutional Law > The Judiciary > Case orControversy > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN8]Where a patentee asserts rights under a patentbased on certain identified ongoing or planned activity ofanother party, and where that party contends that it hasthe right to engage in the accused activity without license,a U.S. Const. art. III case or controversy will arise andthe party need not risk a suit for infringement byengaging in the identified activity before seeking adeclaration of its legal rights.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > Discretion[HN9]Although a district court is given the discretion, indeclaratory judgment actions, to dismiss the case, thereare boundaries to that discretion. When there is an actualcontroversy and a declaratory judgment would settle thelegal relations in dispute and afford relief fromuncertainty or insecurity, in the usual circumstance thedeclaratory judgment is not subject to dismissal.Furthermore, the exercise of discretion must be supportedby a sound basis for refusing to adjudicate an actualcontroversy.

COUNSEL: Michael A. Ladra, Wilson Sonsini Goodrich& Rosati, of Palo Alto, California, argued forplaintiff-appellant. With him on the brief were James C.Yoon and Julie M. Holloway.

Edward V. Anderson, Sidley Austin Brown & Wood,LLP, of San Francisco, California, argued fordefendant-appellee. With him on the brief were Russell

L. Johnson, Georgia K. Van Zanten, Philip W. Woo,Matthew L. McCarthy, Peter Suen; and Kathi A. Cover,of Washington, DC.

JUDGES: Before BRYSON, LINN, and DYK, CircuitJudges. Opinion for the court filed by Circuit JudgeLINN. Opinion concurring in the result filed by CircuitJudge BRYSON.

OPINION BY: LINN

OPINION

[*1374] LINN, Circuit Judge.

SanDisk Corporation ("SanDisk") appeals from adecision of the U.S. District Court for the NorthernDistrict of California granting STMicroelectronics'("ST's") motion to dismiss SanDisk's second throughtwenty-ninth claims relating to declaratory judgment ofnoninfringement and invalidity for failure to present anactual controversy. See SanDisk Corp. v.STMicroelectronics, Inc., No. 04-CV-04379, 2005 U.S.Dist. LEXIS 44870 (N. D. Cal. Jan. 20, 2005). [**2]Because the district court erred in dismissing thedeclaratory judgment claims for lack of subject matterjurisdiction, we vacate the judgment and remand the caseto the district court.

I. BACKGROUND

SanDisk is in the flash memory storage market andowns several patents related to flash memory storageproducts. ST, traditionally in the market ofsemiconductor integrated circuits, more recently enteredthe flash memory market and has a sizeable portfolio ofpatents related to flash memory storage products. OnApril 16, 2004, ST's vice president of intellectualproperty and licensing, Lisa Jorgenson ("Jorgenson"),sent a letter to SanDisk's chief executive officerrequesting a meeting to discuss a cross-licenseagreement. The letter listed eight patents owned by STthat Jorgenson believed "may be of interest" to SanDisk.SanDisk, 2005 U.S. Dist. LEXIS 44870 at *3; Letter fromJorgenson to SanDisk (Apr. 16, 2004). On April 28,2004, SanDisk responded that it would need time toreview the listed patents and would be in touch in severalweeks to discuss the possibility of meeting in June.

On July 12, 2004, having heard nothing further fromSanDisk, Jorgenson sent a letter to SanDisk [**3]

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reiterating her request to meet in July to discuss across-license agreement and listing four additional STpatents that "may also be of interest" to SanDisk.SanDisk, 2005 U.S. Dist. LEXIS 44870 at *4; Letter fromJorgenson to SanDisk (July 12, 2004). On July 21, 2004,SanDisk's chief intellectual property counsel and seniordirector, E. Earle Thompson ("Thompson"), responded toST's letter by informing Jorgenson of his "understandingthat both sides wish to continue . . . friendly discussions"such as those between the business representatives inMay and June. SanDisk, 2005 U.S. Dist. LEXIS 44870 at*4; Letter from Thompson to Jorgenson (July 21, 2004).The discussions of May and June that Thompson referredto were discussions among managers and vice presidentsof SanDisk and ST at business meetings held on May 18,2004, and June 9, 2004, to explore the possibility of ST'sselling flash memory products to SanDisk. The businessmeetings were unrelated to any patents. Thompson alsorequested that Jorgenson join the next business meetingon August 5, 2005. On July 27, 2004, Jorgenson replied,again urging a meeting with Thompson, noting that it was"best to separate the business discussions from the patentlicense [**4] discussions." SanDisk, 2005 U.S. Dist.LEXIS 44870 at *5; Letter from Jorgenson to Thompson(July 27, 2004).

On August 5, 2004, when the businessrepresentatives next met, SanDisk presented an analysisof three of its patents and orally offered ST a license. STdeclined to present an analysis of any of its patents,stating instead that any patent and licensing issues shouldbe discussed in a separate meeting with Jorgenson. Laterthat same day, Thompson wrote a letter to Jorgensonobjecting to separating business and intellectual propertyissues and stating that "[i]t has been SanDisk's hope anddesire to enter into a mutually beneficial discussionwithout the rattling of sabers." SanDisk, 2005 U.S. Dist.LEXIS 44870 at *6-7; Letter from Thompson toJorgenson (Aug. 5, 2004). [*1375] On August 11, 2004,Jorgenson replied, stating that it was her understandingthat the parties were going to have a licensing/intellectualproperty meeting later that month "to discuss thepossibility for a patent cross-license." Letter fromJorgenson to Thompson (Aug. 11, 2004). She said thatSanDisk should come to that meeting prepared to presentan analysis of the three SanDisk patents it identifiedduring the August 5th business meeting, [**5] as well as"any infringement analyses of an ST device or need forST to have a license to these patents." Id. She also saidthat ST would be prepared at that meeting to discuss the

twelve patents identified in her prior letters. In closing,Jorgenson said that ST was "look[ing] forward to openand frank discussions with SanDisk concerning fair andreasonable terms for a broad cross-license agreement." Id.

On August 27, 2004, the licensing meeting was held.Jorgenson, two ST licensing attorneys, and threetechnical experts retained by ST to perform theinfringement analyses of SanDisk's products, attended onbehalf of ST. Thompson and an engineer attended onbehalf of SanDisk. At the meeting, Jorgenson requestedthat the parties' discussions be treated as "settlementdiscussions" under Federal Rule of Evidence 408. 1

SanDisk, 2005 U.S. Dist. LEXIS 44870 at *8. ST thenpresented a slide show which compared statisticsregarding SanDisk's and ST's patent portfolios, revenue,and research and development expenses, and listedSanDisk's various "unlicensed activities." Id. This slideshow was followed by a four- to five-hour presentationby ST's technical [**6] experts, during which theyidentified and discussed the specific claims of each patentand alleged that they were infringed by SanDisk.According to Thompson, the presentation by ST'stechnical experts included "mapp[ing] the elements ofeach of the allegedly infringed claims to the aspects ofthe accused SanDisk products alleged to practice theelements." Id. Thompson declares that "the expertsliberally referred to SanDisk's (alleged) infringement of[ST's] products." 2005 U.S. Dist. LEXIS 44870 at *9.SanDisk's engineer then made a presentation, describingseveral of SanDisk's patents and analyzing how asemiconductor chip product sold by ST infringes. Id.,2005 U.S. Dist. LEXIS 44870 at *9.

1 To avoid the risk of a declaratory judgmentaction, ST could have sought SanDisk'sagreement to the terms of a suitableconfidentiality agreement. The record before usreflects that the parties did not enter into such anagreement. Rather, ST sought to condition itsopen licensing discussions and the infringementstudy on adherence to Federal Rule of Evidence408. That rule expressly relates to evidence ofefforts toward compromising or attempting tocompromise a claim in litigation and does notprevent SanDisk from relying on the licensingdiscussions and infringement study to support itsclaims. See Fed. R. Evid. 408. Furthermore, ST'spresentation was made outside the context oflitigation, and there is nothing on the record to

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indicate that it could be properly considered an"offer" to settle a claim which was then in dispute.See, e.g., Deere & Co. v. Int'l Harvester Co., 710F.2d 1551, 1556-57 (Fed. Cir. 1983).

[**7] At the end of the meeting, Jorgenson handedThompson a packet of materials containing, for each ofST's fourteen patents under discussion, a copy of thepatent, reverse engineering reports for certain ofSanDisk's products, and diagrams showing how elementsof ST's patent claims cover SanDisk's products.According to SanDisk, Jorgenson indicated (in words tothis effect):

I know that this is material that wouldallow SanDisk to DJ [ST] on. We havehad some internal discussions on whether Ishould be giving you a copy of thesematerials in light of that fact. But I havedecided that I will go ahead and give youthese materials.

[*1376] Id. Jorgenson further told Thompson that "SThas absolutely no plan whatsoever to sue SanDisk." Id.Thompson responded to Jorgenson that "SanDisk is notgoing to sue you on Monday" and that another meetingmight be appropriate. Id.

On September 1, 2004, Jorgenson wrote toThompson, enclosing copies of ST's general slidepresentation from the August meeting and also enclosinga hard copy booklet containing each of the engineeringreports "for each claim on all products where STdemonstrated coverage by the 14 ST patents to-date [**8][sic]." Id.; Letter from Jorgenson to Thompson (Sept. 1,2004). Jorgenson requested that SanDisk provide ST witha copy of SanDisk's presentation and information aboutthe three SanDisk patents presented. On September 8,2004, Thompson replied by e-mail, confirming receipt ofthe package from ST, attaching a copy of SanDisk'spresentation, indicating it was his "personal feeling . . .that we have got to trust one another during thesenegotiations," and seeking a non-disclosure agreement.SanDisk, 2005 U.S. Dist. LEXIS 44870 at *12; E-mailfrom Thompson to Jorgenson (Sept. 8, 2004). Thompsonalso wrote "I still owe you the rates quoted." Id.

On September 15, 2004, Thompson againcorresponded with Jorgenson, this time by letter,enclosing a confidential version of SanDisk's cross

licensing offer, which noted that the offer would expireon September 27, 2004. SanDisk, 2005 U.S. Dist. LEXIS44870 at *12-13; Letter from Thompson to Jorgenson(Sept. 15, 2004). Jorgenson destroyed this confidentialoffer and did not retain a copy, and, on September 16,2004, sent Thompson an e-mail requesting that anon-confidential version be sent for ST's consideration.SanDisk, 2005 U.S. Dist. LEXIS 44870 at *12; E-mailfrom Jorgenson to Thompson [**9] (Sept. 16, 2004).SanDisk refused to send a non-confidential version.Instead, on September 27, 2004, Thompson offered tosend another confidential version, or to communicate theoffer orally. E-mail from Thompson to Jorgenson (Sept.27, 2004). Thompson also indicated that SanDisk did notneed additional information regarding ST's patentsbecause SanDisk was "quite comfortable with itsposition" and that it was "time to let our businesspeopletalk and see if a peaceful resolution is possible." Id. OnSeptember 28, 2004, Jorgenson repeated her request for awritten non-confidential version of SanDisk's licensingoffer. SanDisk, 2005 U.S. Dist. LEXIS 44870 at *13;E-mail from Jorgenson to Thompson (Sept. 28, 2004).The following day, Thompson e-mailed Jorgensonanother confidential version of SanDisk's offer. SanDisk,2005 U.S. Dist. LEXIS 44870 at *13-14.

On October 15, 2004, after several further e-mailsand phone calls between the business representativestrying to establish another meeting, SanDisk filed theinstant lawsuit. SanDisk alleged infringement of one ofits patents and sought a declaratory judgment ofnoninfringement and invalidity of the fourteen ST patentsthat had been discussed during the cross [**10] licensingnegotiations. On December 3, 2004, ST filed a motion todismiss SanDisk's declaratory judgment claims for lackof subject matter jurisdiction, maintaining that there wasno actual controversy at the time SanDisk filed itscomplaint.

The district court granted ST's motion to dismiss,holding that no actual controversy existed for purposes ofthe Declaratory Judgment Act because SanDisk did nothave an objectively reasonable apprehension of suit, eventhough it may have subjectively believed that ST wouldbring an infringement suit. See id., 2005 U.S. Dist.LEXIS 44870 at *22-23. The district court reasoned that"SanDisk has presented no evidence that ST threatened itwith litigation at any time during the parties' negotiations,nor has SanDisk shown other conduct by ST rising[*1377] to a level sufficient to indicate an intent on the

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part of ST to initiate an infringement action." Id. Thedistrict court found that the studied and determinedinfringement analyses that ST presented to SanDisk didnot constitute the requisite "express charges [ofinfringement] carrying with them the threat ofenforcement." 2005 U.S. Dist. LEXIS 44870 at *29. Thedistrict court also found that the totality of thecircumstances [**11] did not evince an actualcontroversy because ST told SanDisk that it did notintend to sue SanDisk for infringement. 2005 U.S. Dist.LEXIS 44870 at *31-32. In a footnote, the court indicatedthat, as an alternative basis for its ruling, even if it didhave jurisdiction, it would exercise its discretion anddecline to hear the case. 2005 U.S. Dist. LEXIS 44870 at*33 n.30.

SanDisk appealed the dismissal to this court. Wehave jurisdiction pursuant to 28 U.S.C. § 1295(a)(1)(2000).

II. DISCUSSION

A. Standard of Review

[HN1]For purposes of Article III, this court reviewsa dismissal of a patent claim for lack of an actualcontroversy upon a particular set of facts as a question oflaw subject to plenary appellate review. ArrowheadIndus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735(Fed. Cir. 1988). This court reviews the underlyingfactual findings for clear error. Gen-Probe Inc. v. Vysis,Inc., 359 F.3d 1376, 1379 (Fed. Cir. 2004).

B. Analysis

SanDisk argues that the district court erred as amatter of law by requiring an express accusation of patentinfringement coupled with an explicit threat of judicialenforcement to support declaratory [**12] judgmentjurisdiction, and that, under the correct legal standardarticulated by this court in Arrowhead, 846 F.2d at 736,the facts of this case illustrate that SanDisk'sapprehension of an infringement suit was objectivelyreasonable. SanDisk asserts that the infringement analysispresented by ST and its experts at the August 27, 2004licensing meeting constituted an allegation ofinfringement and that the totality of the circumstancesshows that ST's conduct gave rise to an actual case orcontroversy. SanDisk further points out that negotiationsregarding licensing had ceased by the time SanDisk filedits claims for declaratory judgment.

ST counters that the district court applied the correctlegal standard and argues that SanDisk ignores the line ofcases that have followed and interpreted Arrowhead. STasserts that the cases following Arrowhead reveal that thebare mention of infringement, particularly during licensenegotiations, is not sufficient to meet the standard setforth in Arrowhead. ST asserts that its conduct at theAugust 27, 2004 licensing meeting was to strengthen itsposition during licensing negotiations and that, under thetotality [**13] of the circumstances, SanDisk has notshown that ST's conduct gave rise to declaratoryjudgment jurisdiction. Moreover, ST argues that thedistrict court did not abuse its discretion when itconcluded, as an alternative basis for its ruling, that itwould exercise discretion to decline to decide SanDisk'sclaims.

1. Case or Controversy

The first question we address is whether the factsalleged in this case show that there is a case orcontroversy within the meaning of the DeclaratoryJudgment Act, 28 U.S.C. § 2201(a).

The Declaratory Judgment Act provides, in relevantpart, that

[HN2][i]n a case of actual controversywithin its jurisdiction . . . any court of theUnited States, upon the filing of anappropriate [*1378] pleading, maydeclare the rights and other legal relationsof any interested party seeking suchdeclaration, whether or not further relief isor could be sought.

28 U.S.C. § 2201(a). [HN3]The "actual controversy"requirement of the Declaratory Judgment Act is rooted inArticle III of the Constitution, which provides for federaljurisdiction over only "cases and controversies." Thus,our jurisdiction extends only to matters [**14] that areArticle III cases or controversies.

The Supreme Court, in the context of a patent licensedispute, recently examined Article III's case orcontroversy requirement as it relates to the DeclaratoryJudgment Act. See MedImmune, Inc. v. Genentech, Inc.,127 S. Ct. 764, 166 L. Ed. 2d 604 (2007). In MedImmune,the Supreme Court considered "whether Article III'slimitation of federal courts' jurisdiction to 'Cases' and'Controversies,' reflected in the 'actual controversy'

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requirement of the Declaratory Judgment Act, 28 U.S.C.§ 2201(a), requires a patent licensee to terminate or be inbreach of its license agreement before it can seek adeclaratory judgment that the underlying patent is invalid,unenforceable, or not infringed." Id. at 767.

The Supreme Court began its analysis

with the recognition that, [HN4]wherethreatened action by government isconcerned, [the Court] do[es] not require aplaintiff to expose himself to liabilitybefore bringing suit to challenge the basisfor the threat--for example, theconstitutionality of a law threatened to beenforced. The plaintiff's own action (orinaction) in failing [**15] to violate thelaw eliminates the imminent threat ofprosecution, but nonetheless does noteliminate Article III jurisdiction.

Id. at 772. The Supreme Court quoted its earlier decisionin Maryland Casualty Co. v. Pacific Coal & Oil Co., 312U.S. 270, 273, 61 S. Ct. 510, 85 L. Ed. 826 (1941), wherethe Court stated that "the question in each case is whetherthe facts alleged, under all the circumstances, show thatthere is a substantial controversy, between parties havingadverse legal interests, of sufficient immediacy andreality to warrant the issuance of a declaratory judgment."MedImmune, 127 S. Ct. at 771. The Supreme Courtemphasized that [HN5]Article III requires that the disputeat issue be "'definite and concrete, touching the legalrelations of parties having adverse legal interests'; andthat it be 'real and substantial' and 'admi[t] of specificrelief through a decree of a conclusive character, asdistinguished from an opinion advising what the lawwould be upon a hypothetical state of facts.'" Id. (quotingAetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41, 57S. Ct. 461, 81 L. Ed. 617 (1937)). The Supreme Courtstated that, [**16] when faced with a genuine threat ofenforcement that the government will penalize a certainprivate action, Article III "d[oes] not require, as aprerequisite to testing the validity of the law in a suit forinjunction, that the plaintiff bet the farm, so to speak, bytaking the violative action." Id. at 772 (citations omitted).As the Supreme Court noted, "the declaratory judgmentprocedure is an alternative to pursuit of the arguablyillegal activity." Id. (quotation marks omitted). TheSupreme Court clarified that, although a declaratoryjudgment plaintiff may eliminate an "imminent threat of

harm by simply not doing what he claimed the right todo[,] . . . [t]hat did not preclude subject-matterjurisdiction [where] the threat-eliminating behavior waseffectively coerced." Id. "The dilemma posed by thatcoercion--putting the challenger to the choice betweenabandoning his rights or risking prosecution--is adilemma that it was the very purpose of the Declaratory[*1379] Judgment Act to ameliorate." Id. at 773 (internalquotation marks omitted).

The Supreme Court then applied these principles tothe facts of the case and remarked that [HN6]"therequirements of [a] case [**17] or controversy are metwhere payment of a claim is demanded as of right andwhere payment is made, but where the involuntary orcoercive nature of the exaction preserves the right torecover the sums paid or to challenge the legality of theclaim." Id. (internal quotation marks omitted). TheSupreme Court held that "[t]he rule that a plaintiff mustdestroy a large building, bet the farm, or (as here) risktreble damages and the loss of 80 percent of its business,before seeking a declaration of its actively contested legalrights finds no support in Article III." Id. at 775.

With regard to patent disputes, prior to MedImmune,this court articulated a two-part test that first considerswhether conduct by the patentee creates a reasonableapprehension on the part of the declaratory judgmentplaintiff that it will face an infringement suit, and secondexamines whether conduct by the declaratory judgmentplaintiff amounts to infringing activity or demonstratesconcrete steps taken with the intent to conduct suchactivity. See Arrowhead, 846 F.2d at 736. The SupremeCourt, in MedImmune, addressed the "reasonableapprehension of suit" aspect of this court's [**18]two-part test and concluded that it conflicts with AetnaLife Insurance and Maryland Casualty, and is in tensionwith Cardinal Chemical Co. v. Morton International,Inc., 508 U.S. 83, 98, 113 S. Ct. 1967, 124 L. Ed. 2d 1(1993). See MedImmune, 127 S. Ct. at 774 n.11.

In Aetna Life Insurance, an insurer sought adeclaratory judgment that the insured was not relieved ofhis duty to continue to pay insurance premiums and that,since the insured had stopped making the payments, theinsurance policy had lapsed. In that case, the SupremeCourt first upheld the constitutionality of the federalDeclaratory Judgment Act. 300 U.S. at 240-41. TheSupreme Court then held that, although the insured partygave no indication that he would file suit, id. at 239, the

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case nevertheless presented a controversy under ArticleIII because the parties had taken adverse positions withregard to their obligations, each side presenting aconcrete claim of a specific right--the insured claimingthat he had become disabled and therefore was relievedof making insurance premium payments and the insurerclaiming that the insured was not disabled and that [**19]the failure to make payments caused the policy to lapse,id. at 244. Similarly, in Maryland Casualty, thedeclaratory judgment plaintiff, an insurance companywhich had agreed to indemnify and defend the insuredagainst actions brought by third parties against theinsured, sought a declaration that it had no duty to defendor to indemnify the insured. 312 U.S. at 272. In that case,the insured could not have sued the declaratory judgmentplaintiff without first obtaining a judgment against thethird party and the underlying action against the thirdparty "[a]pparently . . . ha[d] not proceeded to judgment."Id. at 271. Nevertheless, the Supreme Court held that "[i]tis clear that there is an actual controversy betweenpetitioner and the insured" since the insured was in theprocess of seeking a judgment and had a statutory right toproceed against the declaratory judgment plaintiff if suchjudgment were obtained and not satisfied. Id. at 274.Finally, in Cardinal Chemical, the Supreme Court heldthat this court's affirmance of a judgment ofnoninfringement does not necessarily moot a declaratoryjudgment [**20] [*1380] counterclaim of patentinvalidity. 508 U.S. at 98. The Supreme Court's rationalefor holding that the declaratory judgment action canproceed consistent with Article III was that a contraryresult would create the potential for relitigation oruncertainty with regard to the validity of patents andwould be contrary to Blonder-Tongue Laboratories, Inc.v. University of Illinois Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L. Ed. 2d 788 (1971).

The Supreme Court's opinion in MedImmunerepresents a rejection of our reasonable apprehension ofsuit test. 2 The Court first noted that "the continuation ofroyalty payments makes what would otherwise be animminent threat at least remote, if not nonexistent. . . .Petitioner's own acts, in other words, eliminate theimminent threat of harm." MedImmune, 127 S. Ct. at 772.The Court nonetheless concluded that declaratoryjudgment jurisdiction existed relying in particular on itsearlier decision in Altvater v. Freeman, 319 U.S. 359, 63S. Ct. 1115, 87 L. Ed. 1450, 1943 Dec. Comm'r Pat. 833(1943). There, the patentee brought suit to enjoin patentinfringement, and the accused infringer filed declaratory

judgment counterclaims of invalidity. [**21] The districtcourt found that there was no infringement and that thepatent was invalid. Id. at 362. The appellate courtaffirmed the finding of noninfringement but vacated thefinding of invalidity as moot. Id. The Supreme Court heldthat the declaratory judgment counterclaims were notmooted by the finding of noninfringement. Id. at 365-66.In finding declaratory judgment jurisdiction inMedImmune, the Court specifically addressed andrejected our reasonable apprehension test:

[e]ven if Altvater could be distinguishedas an "injunction" case, it would stillcontradict the Federal Circuit's"reasonable apprehension of suit" test (or,in its evolved form, the "reasonableapprehension of imminent suit" test, TevaPharm. USA, Inc. v. Pfizer, Inc., 395 F.3d1324, 1333 (2005)). A licensee who paysroyalties under compulsion of aninjunction has no more apprehension ofimminent harm than a licensee who paysroyalties for fear of treble damages and aninjunction fatal to his business. Thereasonable-apprehension-of-suit test alsoconflicts with our decisions in MarylandCasualty Co. v. Pacific Coal & Oil Co.,312 U.S. 270, 273, 61 S. Ct. 510, 85 L.Ed. 826 (1941), [**22] where jurisdictionobtained even though the collision-victimdefendant could not have sued thedeclaratory-judgment plaintiff-insurerwithout first obtaining a judgment againstthe insured; and Aetna Life Ins. Co. v.Haworth, 300 U.S. 227, 239, 57 S. Ct.461, 81 L. Ed. 617 (1937), wherejurisdiction obtained even though the veryreason the insurer sought declaratory reliefwas that the insured had given noindication that he would file suit. It is alsoin tension with Cardinal Chemical Co. v.Morton Int'l, Inc., 508 U.S. 83, 98, 113 S.Ct. 1967, 124 L. Ed. 2d 1 (1993), whichheld that appellate affirmance of ajudgment of noninfringement, eliminatingany apprehension of suit, does not moot adeclaratory judgment counterclaim ofpatent invalidity.

MedImmune, 127 S. Ct. at 774 n.11.

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2 In this case, we address only the first prong ofthis court's two-part test. There is no dispute thatthe second prong is met. We therefore leave toanother day the effect of MedImmune, if any, onthe second prong.

The Supreme Court in MedImmune addresseddeclaratory judgment jurisdiction in the context of asigned license. [HN7]In the context of conduct prior[**23] to the existence of a license, declaratory [*1381]judgment jurisdiction generally will not arise merely onthe basis that a party learns of the existence of a patentowned by another or even perceives such a patent to posea risk of infringement, without some affirmative act bythe patentee. But Article III jurisdiction may be metwhere the patentee takes a position that puts thedeclaratory judgment plaintiff in the position of eitherpursuing arguably illegal behavior or abandoning thatwhich he claims a right to do. We need not define theouter boundaries of declaratory judgment jurisdiction,which will depend on the application of the principles ofdeclaratory judgment jurisdiction to the facts andcircumstances of each case. We hold only that[HN8]where a patentee asserts rights under a patent basedon certain identified ongoing or planned activity ofanother party, and where that party contends that it hasthe right to engage in the accused activity without license,an Article III case or controversy will arise and the partyneed not risk a suit for infringement by engaging in theidentified activity before seeking a declaration of its legalrights. See id. Contra Cygnus Therapeutic Sys. v. ALZACorp., 92 F.3d 1153 (Fed. Cir. 1996) [**24] (holdingthat declaratory judgment jurisdiction was not supportedwhere the "patentee does nothing more than exercise itslawful commercial prerogatives and, in so doing, puts acompetitor in the position of having to choose betweenabandoning a particular business venture or bringingmatters to a head by engaging in arguably infringingactivity").

Our holding is consistent with decisions of othercourts in various cases unrelated to patent licensing. See,e.g., Bancroft & Masters, Inc. v. Augusta Nat'l Inc., 223F.3d 1082, 1085 (9th Cir. 2000) (finding declaratoryjudgment jurisdiction based on trademark owner's ceaseand desist letter despite the fact that trademark owneroffered to waive all trademark infringement and relatedclaims); GNB Battery Tech., Inc. v. Gould, Inc., 65 F.3d615, 620 (7th Cir. 1995) (finding declaratory judgmentjurisdiction where declaratory judgment plaintiff filed

action in anticipation of potential action by the defendantbased on new legislation although the defendant had notindicated whether or when it may act); Kunkel v. Cont'lCas. Co., 866 F.2d 1269, 1274 (10th Cir. 1989)(affirming exercise of [**25] declaratory judgmentjurisdiction over suit seeking declaratory judgment fordetermination of value of insurance coverage eventhough existence of coverage remained dependent uponthe outcome of a collateral action and noting that "[t]hecontingent nature of the right or obligation in controversywill not bar a litigant from seeking declaratory reliefwhen the circumstances reveal a need for presentadjudication"); see also IMS Health, Inc. v. Vality Tech.Inc., 59 F. Supp. 2d 454 (E.D. Pa. 1999) (holding thatrequirements for declaratory judgment jurisdiction weresatisfied where copyright holder had not indicated it wasgoing to file suit but had taken positions and madedemands such that the declaratory judgment plaintiffjustifiably believed that copyright holder might take suchaction in the future and noting that "[i]t is quite possiblefor two parties to simultaneously consider nonlitigioussettlement of a dispute, while at the same timemaintaining an awareness that either settlement isimprobable or that litigation is equally likely"); N. ShoreGas Co. v. Salomon, Inc., 896 F. Supp. 786, 789-90(N.D. Ill. 1995) (finding declaratory judgment [**26]jurisdiction where plaintiff, "rather than wait an indefinitetime to be sued," filed suit after the settlementdiscussions came to an impasse); J. Lyons & Co. Ltd. v.Republic of Tea, Inc., 892 F. Supp. 486 (S.D.N.Y. 1995)(dismissing trademark holder's later-filed infringementaction in favor of previously filed declaratory judgmentactions [*1382] where declaratory judgment plaintiffshad received cease and desist letters and no settlementappeared agreeable, despite the fact that trademark holderdid not give actual notice of litigation); Kmart Corp. v.Key Indus., Inc., 877 F. Supp. 1048, 1055 (E.D. Mich.1994) (holding that ongoing settlement negotiations didnot require dismissal of declaratory judgment actionwhere the evidence indicated that the trademark holderwould accept no settlement short of total capitulation);Agridyne Tech., Inc. v. W.R. Grace & Co., 863 F. Supp.1522 (D. Utah 1994) (refusing to dismiss declaratoryjudgment action where plaintiff justifiably believed thatfurther settlement negotiations would be fruitless).

Under the facts alleged in this case, SanDisk hasestablished an Article III case or controversy that [**27]gives rise to declaratory judgment jurisdiction. ST soughta right to a royalty under its patents based on specific,

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identified activity by SanDisk. For example, at theAugust 27, 2004 licensing meeting, ST presented, as partof the "license negotiations," a thorough infringementanalysis presented by seasoned litigation experts,detailing that one or more claims of its patents read onone or more of SanDisk's identified products. At thatmeeting, ST presented SanDisk with a detailedpresentation which identified, on an element-by-elementbasis, the manner in which ST believed each of SanDisk'sproducts infringed the specific claims of each of ST'spatents. During discussions, the experts liberally referredto SanDisk's present, ongoing infringement of ST'spatents and the need for SanDisk to license those patents.ST also gave SanDisk a packet of materials, over 300pages in length, containing, for each of ST's fourteenpatents under discussion, a copy of the patent, reverseengineering reports for certain of SanDisk's products, anddiagrams showing a detailed infringement analysis ofSanDisk's products. ST communicated to SanDisk that ithad made a studied and determined infringement [**28]determination and asserted the right to a royalty based onthis determination. SanDisk, on the other hand,maintained that it could proceed in its conduct withoutthe payment of royalties to ST. These facts evince thatthe conditions of creating "a substantial controversy,between parties having adverse legal interest, ofsufficient immediacy and reality to warrant the issuanceof a declaratory judgment" were fulfilled. Md. Cas., 312U.S. at 273. SanDisk need not "bet the farm," so to speak,and risk a suit for infringement by cutting off licensingdiscussions 3 and continuing in the identified activitybefore seeking a declaration of its legal rights. SeeMedImmune, 127 S. Ct. at 774 n.11. Contra PhillipsPlastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57F.3d 1051 (Fed. Cir. 1995) ("When there are proposed orongoing license negotiations, a litigation controversynormally does not arise until the negotiations have brokendown.").

3 Although the district court found that licensingnegotiations had not been terminated, we note thatSanDisk in fact declined to participate in furthernegotiations, effectively bringing them to an end.Regardless, however, a party to licensingnegotiations is of course within its rights toterminate negotiations when it appears that theywill be unproductive.

[**29] 2. Promise Not to Sue

We next address whether Jorgenson's direct andunequivocal statement that "ST has absolutely no planwhatsoever to sue SanDisk" eliminates any actualcontroversy and renders SanDisk's declaratory judgmentclaims moot.

We decline to hold that Jorgenson's statement thatST would not sue SanDisk [*1383] eliminates thejusticiable controversy created by ST's actions, becauseST has engaged in a course of conduct that shows apreparedness and willingness to enforce its patent rightsdespite Jorgenson's statement. Having approachedSanDisk, having made a studied and considereddetermination of infringement by SanDisk, havingcommunicated that determination to SanDisk, and thensaying that it does not intend to sue, ST is engaging in thekinds of "extra-judicial patent enforcement withscare-the-customer-and-run tactics" that the DeclaratoryJudgment Act was intended to obviate. Arrowhead, 846F.2d at 735. ST's statement that it does not intend to suedoes not moot the actual controversy created by its acts.See Md. Cas., 312 U.S. at 273 (jurisdiction obtained eventhough the defendant could not have sued the declaratoryjudgment plaintiff). [**30]

3. District Court's Discretion

[HN9]Although the district court is given thediscretion, in declaratory judgment actions, to dismiss thecase, there are boundaries to that discretion. See Wilton v.Seven Falls Co., 515 U.S. 277, 289, 115 S. Ct. 2137, 132L. Ed. 2d 214 (1995). "When there is an actualcontroversy and a declaratory judgment would settle thelegal relations in dispute and afford relief fromuncertainty or insecurity, in the usual circumstance thedeclaratory judgment is not subject to dismissal."Genentech v. Eli Lilly & Co., 998 F.2d 931, 937 (Fed.Cir. 1993). Furthermore, the exercise of discretion mustbe supported by a sound basis for refusing to adjudicatean actual controversy. See Elecs. for Imaging, Inc. v.Coyle, 394 F.3d 1341, 1345 (Fed. Cir. 2005); Capo, Inc.v. Dioptics Med. Prod., Inc., 387 F.3d 1352, 1357 (Fed.Cir. 2004).

In this case, the district court noted, withoutexplanation in a footnote, that "[a]s an alternative basisfor its ruling, the Court concludes that even if it hadsubject matter jurisdiction over the instant claims, itwould exercise its discretion and decline to decide them."SanDisk , 2005 U.S. Dist. LEXIS 44870 at *33 n.30.[**31] That decision, however, was made in the context

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of our "reasonable apprehension" precedent without thebenefit of the Supreme Court's views in MedImmune.Given the change reflected in MedImmune and ourholding in this case, we discern little basis for the districtcourt's refusal to hear the case and expect that in theabsence of additional facts, the case will be entertainedon the merits on remand.

CONCLUSION

For the above reasons, we conclude that thedismissal was improperly granted. The dismissal isvacated, and the case is remanded for further proceedingsconsistent with this opinion.

VACATED and REMANDED

COSTS

Costs are awarded to SanDisk.

CONCUR BY: BRYSON

CONCUR

BRYSON, Circuit Judge, concurring in the result.

Under our law, as things stood before the SupremeCourt's decision in MedImmune, the district court's orderin this case was correct. ST, the patentee, had offered alicense to SanDisk, but had not threatened suit and hadsought to continue licensing negotiations. Although SThad made a detailed showing as to why it believedSanDisk's products were within the scope of its patentrights, there is nothing exceptional in that. [**32] In thetypical case, we would expect competent patent counselwho offers a license to another party to be prepared todemonstrate why [*1384] such a license is required. Bythe time the suit was brought, ST had done nothing togive SanDisk cause to be in reasonable apprehension ofsuit, and in fact ST had expressly stated that it did notintend to sue SanDisk. In short, ST was simply availingitself of the safe haven our cases had created for patenteesto offer licenses without opening themselves up toexpensive litigation. See, e.g., Phillips Plastics Corp. v.Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051, 1054(Fed. Cir. 1995); Shell Oil Co. v. Amoco Corp., 970 F.2d885, 888 (Fed. Cir. 1992).

The decision in MedImmune dealt with a narrowissue: whether a declaratory judgment action can bebrought by a patent licensee without terminating the

licensing agreement. Footnote 11 of the MedImmuneopinion, however, went further and criticized this court's"reasonable apprehension of suit" test for declaratoryjudgment jurisdiction. I agree with the court that thefootnote calls our case law into question and wouldappear to make declaratory judgments more [**33]readily available to parties who are approached bypatentees seeking to license their patents. In particular,the reasoning of the MedImmune footnote seems torequire us to hold that the district court in this case hadjurisdiction to entertain SanDisk's declaratory judgmentaction. For that reason I concur in the judgment of thecourt in this case reversing the jurisdictional dismissal ofthe complaint.

I think it is important, however, to point out theimplications of the footnote in MedImmune as appliedhere, because the implications are broader than one mightsuppose from reading the court's opinion in this case.While noting that it is not necessary to define the outerboundaries of declaratory judgment jurisdiction, the courtholds that "where a patentee asserts rights under a patentbased on certain identified ongoing or planned activity ofanother party, and where that party contends that it hasthe right to engage in the accused activity withoutlicense," the party may bring a declaratory judgmentaction. Applying that principle, the court concludes thatin this case, where "ST sought a right to a royalty underits patents based on specific, identified activity by [**34]SanDisk," an Article III case or controversy has arisen.

In practical application, the new test will not beconfined to cases with facts similar to this one. If apatentee offers a license for a fee, the offer typically willbe accompanied by a suggestion that the other party'sconduct is within the scope of the patentee's patent rights,or it will be apparent that the patentee believes that to bethe case. Offers to license a patent are not requests forgratuitous contributions to the patentee; the rationaleunderlying a license offer is the patentee's express orimplied suggestion that the other party's current orplanned conduct falls within the scope of the patent.Therefore, it would appear that under the court's standardvirtually any invitation to take a paid license relating tothe prospective licensee's activities would give rise to anArticle III case or controversy if the prospective licenseeelects to assert that its conduct does not fall within thescope of the patent. Indeed, as the court makes clear,even a representation by the patentee that it does notpropose to file suit against the prospective licensee will

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not suffice to avoid the risk that the patentee will face[**35] a declaratory judgment action. And if there is anyuncertainty on that score, all the prospective licensee hasto do in order to dispel any doubt is to inquire of thepatentee whether the patentee believes its activities arewithin the scope of the patent. If the patentee says "no," itwill have made a damaging admission that will make itvery hard ever to litigate the issue, and thus [*1385] willeffectively end its licensing efforts. If it says "yes" orequivocates, it will have satisfied the court's test and willhave set itself up for a declaratory judgment lawsuit.

For these reasons, I see nothing about the particularfacts surrounding this licensing negotiation in this casethat triggers SanDisk's right to bring a declaratoryjudgment action under the new standard. The courtemphasizes that ST made a "detailed presentation [toSanDisk] which identified, on an element-by-elementbasis, the manner in which ST believed each of SanDisk'sproducts infringed the specific claims of each of ST'spatents." The court summarizes ST's presentation bystating that "ST communicated to SanDisk that it hadmade a studied and determined infringementdetermination and asserted a right to a royalty [**36]based on this determination" and that SanDisk"maintained that it could proceed in its conduct withoutthe payment of royalties to ST." Those facts, the courtconcludes, evinced a sufficient controversy to entitleSanDisk to institute its declaratory judgment suit.

But what is the significance of those facts? Thecourt's legal test does not suggest that the case wouldcome out differently if ST had been less forthcomingabout why it believed SanDisk should take a license, oreven if ST had simply contacted SanDisk, providedcopies of its patents, and suggested that SanDisk considertaking a license. I doubt the court would hold that therewas no controversy in that setting, as long as SanDiskwas prepared to assert that it believed its products werenot within the scope of ST's valid patent rights. IfSanDisk's lawyers had any question about whether thiscourt would permit them to seek a declaratory judgmentunder those circumstances, they could readily resolve thatquestion by sending a "put up or shut up" response toST's licensing offer--asking ST to state expressly whetherit regarded SanDisk's products to be within the scope ofST's patents and to identify with particularity [**37] howSanDisk's products read on particular claims of thosepatents. Any response by ST would either end itslicensing efforts or expose it to a declaratory judgment

action. 1

1 The court suggests that ST could have avoidedthe risk of a declaratory judgment action byobtaining a suitable confidentiality agreement.The problem with that suggestion is that it wouldnormally work only when it was not needed--onlya party that was not interested in bringing adeclaratory judgment action would enter into suchan agreement. A party that contemplates bringinga declaratory judgment action or at least keepingthat option open would have no incentive to enterinto such an agreement.

In sum, the rule adopted by the court in this case willeffect a sweeping change in our law regarding declaratoryjudgment jurisdiction. Despite the references in thecourt's opinion to the particular facts of this case, I see nopractical stopping point short of allowing declaratoryjudgment actions in virtually any case in which therecipient of an invitation to take a patent license elects todispute the need for a license and then to sue the patentee.Although I have reservations about the [**38] wisdom ofembarking on such a course, I agree with the court that afair reading of footnote 11 of the Supreme Court'sopinion in MedImmune compels that result, and Itherefore concur in the judgment reversing the districtcourt's dismissal order in this case. 2

2 Although I agree that the judgment must bereversed, I take issue with the scope of the remandinsofar as it applies to the district court's exerciseof its discretion to decline to entertain this actionas a discretionary matter. I would allow thedistrict court to reconsider that issue based on allthe circumstances, not just "additional facts" notpreviously before the district court, as the terms ofthis court's remand seem to require. Thus, forexample, the fact that the parties are engaged in aparallel infringement action in another districtcourt is an important factor in the district court'sdecision on whether to allow SanDisk'sdeclaratory suit to proceed at this time. SeeIntermedics Infusaid, Inc. v. Regents of Univ. ofMinn., 804 F.2d 129 (Fed. Cir. 1986) (pendingaction in another jurisdiction is sufficient groundon which to stay declaratory suit). The districtcourt should be free on remand to consider thatfactor in determining how to exercise itsdiscretion, even though the pendency of that

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parallel action is not an "additional fact" that wasnot before the court at the time of its earlierdecision.

[**39]

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LEXSEE

CautionAs of: Dec 03, 2010

HEWLETT-PACKARD COMPANY, Plaintiff-Appellant, v. ACCELERON LLC,Defendant-Appellee.

2009-1283

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

587 F.3d 1358; 2009 U.S. App. LEXIS 26359

December 4, 2009, Decided

PRIOR HISTORY: [**1]Appeal from United States District Court for the

District of Delaware in case no. 07-CV-650, Judge Sue L.Robinson.Hewlett-Packard Co. v. Acceleron, LLC, 601 F. Supp. 2d581, 2009 U.S. Dist. LEXIS 18543 (D. Del., 2009)

DISPOSITION: REVERSED AND REMANDED.

CASE SUMMARY:

PROCEDURAL POSTURE: Plaintiff sued defendantpatent owner in the U.S. District Court for the District ofDelaware, seeking declaratory judgment ofnon-infringement and invalidity of the patent. The districtcourt granted the patent owner's motion to dismiss forlack of declaratory judgment jurisdiction. Plaintiffappealed.

OVERVIEW: The district court held that, under thetotality of the circumstances, at the time plaintiff filed thesuit, the litigation was too speculative a prospect tosupport declaratory judgment jurisdiction. The patentowner argued on appeal that it never asserted its rightsunder the patent because its correspondence with plaintiffdid not contain language threatening to sue forinfringement or demand a license. The court disagreed.Under the totality of the circumstances, it was not

unreasonable for plaintiff to interpret the patent owner'sletters as implicitly asserting its rights under the patent.The test for declaratory judgment jurisdiction in patentcases, however stated, was objective. The facts of thiscase, when viewed objectively and in totality, showedthat the patent owner took the affirmative step of twicecontacting plaintiff directly, making an implied assertionof its rights under the patent against plaintiff's products,and plaintiff disagreed. Therefore, the court held thatthere was declaratory judgment jurisdiction arising froma "definite and concrete" dispute between parties havingadverse legal interests.

OUTCOME: The dismissal of the district court wasreversed and the action was remanded.

CORE TERMS: patent, declaratory judgment,declaratory judgment, infringement, legal interests, patentcases, correspondence, standstill, totality, deadline,product line, subject matter jurisdiction, non-competitor,productive, atmosphere, competitor, patentee, definite,concrete, scenario, ongoing, file suit, confidentialityagreement, identification, threatening, relevance,enclosed, squarely, planned, observe

LexisNexis(R) Headnotes

Page 1

Civil Procedure > Pleading & Practice > Defenses,Demurrers & Objections > Motions to DismissCivil Procedure > Appeals > Standards of Review >Clearly Erroneous ReviewCivil Procedure > Appeals > Standards of Review > DeNovo Review[HN1]An appellate court reviews a grant or denial of amotion to dismiss for lack of subject matter jurisdictionde novo. It reviews underlying factual findings for clearerror.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN2]A court has subject matter jurisdiction under theDeclaratory Judgment Act only if the facts alleged, underall the circumstances, show that there is a substantialcontroversy, between parties having adverse legalinterests, of sufficient immediacy and reality to warrantthe issuance of a declaratory judgment. In patent cases,declaratory judgment jurisdiction exists where a patenteeasserts rights under a patent based on certain identifiedongoing or planned activity of another party, and wherethat party contends that it has the right to engage in theaccused activity without license.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN3]Intentionally or not, MedImmune may havelowered the bar for determining declaratory judgmentjurisdiction in all patent cases; certainly it did so in thelicensor-licensee context. But a lowered bar does notmean no bar at all. Indeed, a declaratory judgmentplaintiff must show that the dispute is definite andconcrete, touching the legal relations of parties havingadverse legal interests; and that it be real and substantialand admit of specific relief through a decree of aconclusive character, as distinguished from an opinionadvising what the law would be upon a hypothetical stateof facts. Thus, a communication from a patent owner toanother party, merely identifying its patent and the otherparty's product line, without more, cannot establishadverse legal interests between the parties, let alone theexistence of a "definite and concrete" dispute. More isrequired to establish declaratory judgment jurisdiction.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN4]The purpose of a declaratory judgment actioncannot be defeated simply by the stratagem of acorrespondence that avoids the magic words such as"litigation" or "infringement." Of course, if a party hasactually been charged with infringement of the patent,there is, necessarily, a case or controversy adequate tosupport declaratory judgment jurisdiction.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > FactorsPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN5]The test for declaratory judgment jurisdiction inpatent cases, however stated, is objective. Indeed, it is theobjective words and actions of the patentee that arecontrolling. Thus, conduct that can be reasonably inferredas demonstrating intent to enforce a patent can createdeclaratory judgment jurisdiction.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN6]Declaratory judgment jurisdiction generally willnot arise merely on the basis that a party learns of theexistence of a patent owned by another or even perceivessuch a patent to pose a risk of infringement, without someaffirmative act by the patentee.

Civil Procedure > Declaratory Judgment Actions >Federal Judgments > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > Declaratory Judgment Actions[HN7]MedImmune has altered the way in which theDeclaratory Judgment Act applies to patent law cases,requiring that legal interests be evaluated in patent casesunder the general criteria of the Act. The U.S. Court ofAppeals for the Federal Circuit's jurisprudence mustconsequently also evolve.

COUNSEL: Charlene M. Morrow, Fenwick & WestLLP, of Mountain View, California, argued forplaintiff-appellant. With her on the brief were Erin C.Jones; Lauren E. Whittemore and Darryl M. Woo and

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Heather N. Mewes, of San Francisco, California.

Jason W. Cook, Alston & Bird LLP, of Dallas, Texas,argued for defendant-appellee. With him on the briefwere Patrick J. Flinn and George D. Medlock, Jr., ofAtlanta, Georgia, and Sarah C. Hsia, of New York, NewYork.

JUDGES: Before MICHEL, Chief Judge, NEWMAN,and MOORE, Circuit Judges.

OPINION BY: MICHEL

OPINION

[*1360] MICHEL, Chief Judge.

Hewlett-Packard Company ("HP") sued AcceleronLLC ("Acceleron"), the owner of U.S. Patent No.6,948,021 ("'021 patent"), in the United States DistrictCourt for the District of Delaware, seeking declaratoryjudgment of non-infringement and invalidity of the '021patent. The district court granted Acceleron's motion todismiss for lack of declaratory judgment jurisdiction. Forthe reasons set forth below, we reverse.

I. BACKGROUND

Acceleron is a patent holding company. It isincorporated in Delaware and headquartered in Tyler,[**2] Texas. Acceleron acquired the '021 patent on May31, 2007. On September 14, 2007, Thomas B. Ramey, III,President of Acceleron, wrote to Michael J. Holston, HP's"Executive Vice-President, General Counsel/Secretary,"regarding "U.S. Patent No. 6,948,021 to Derrico et al. . .." The letter reads:

I am writing to call your attention to thereferenced patent. . . . This patent wasrecently acquired by Acceleron, andrelates to Blade Servers.

We would like an opportunity todiscuss this patent with you. In order toprovide a productive atmosphere in whichwe can do so, we ask that you agree thatall information exchanged between theparties will not be used for any litigationpurposes whatsoever, including but notlimited to any claim that Acceleron hasasserted any rights against any of your

ongoing or planned activities, or otherwisecreated any actual case or controversyregarding the enclosed patent.

Should you wish to engage indiscussions regarding this patent with us,please return an executed copy of thisletter to me in the enclosed stamped,self-addressed envelope. When we receiveyour acknowledgement, we will send youa package of information relating to thispatent. I will look [**3] for your responseby September 28, 2007, and if I do nothear from you by that time, I will assumeyou have no interest in discussing thispatent.

On October 1, 2007, a senior litigation counsel at HPresponded, writing:

I have been evaluating the patent yousent and am interested to learn any furtherinformation you have so that I am able toconduct a complete and accurateassessment. HP shares your interest increating a productive atmosphere for us todiscuss the '021 patent. Accordingly, inresponse to your request that HP not file adeclaratory judgment action, HP would bewilling to agree not to file such an actionfor a period of 120 days if Acceleronsimilarly will agree not to file an actionagainst HP during the same 120 dayperiod. If such a mutual standstillagreement is acceptable, please let meknow and I will send you an agreement tothat effect directly.

Four days later, Mr. Ramey replied:

I do not believe that HP has any basis forfiling a declaratory judgment action,[*1361] and I think that my letterprovides both parties appropriateprotections to create a productiveatmosphere in which to discuss the '021patent.

So, if you are interested in discussing

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this patent with us, [**4] please send me asigned copy of my previous letter to youby no later than October 19, 2007. If I donot receive [one] by then, I willunderstand that you are not interested indiscussing this patent, and you do not haveanything to say about the merits of thispatent, or its relevance to your BladeServer products.

On October 17, 2007, HP filed this declaratoryjudgment suit in the United States District Court for theDistrict of Delaware. Acceleron moved to dismiss thecase for lack of subject matter jurisdiction. On March 11,2009, the district court granted Acceleron's motion.Hewlett-Packard Co. v. Acceleron, LLC, 601 F. Supp. 2d581 (D. Del. 2009). The court observes that, on one hand,Acceleron's "failure to specifically request aconfidentiality agreement and to accept [HP's] 120-daystand-still proposal weigh[ed] the scale in favor offinding jurisdiction." Id. at 589. On the other hand,however, other circumstances in this case, including thelack of "a statement of infringement, identification ofspecific claims, claim charts, prior pleadings or litigationhistory, or the identification of other licensees" in Mr.Ramey's letters to HP, weighed against findingdeclaratory [**5] judgment jurisdiction. Id. After takingAcceleron's business model as a non-competitor patentholding company into consideration, the court held that,under the totality of the circumstances, at the time HPfiled the suit, the litigation was "too speculative aprospect to support declaratory judgment jurisdiction."Id.

HP timely appealed. We have jurisdiction pursuantto 28 U.S.C. § 1295(a)(1).

II. DISCUSSION

A. Standard of review

[HN1]This court reviews a grant or denial of amotion to dismiss for lack of subject matter jurisdictionde novo. SanDisk Corp. v. STMicroelectronics, Inc., 480F.3d 1372, 1377 (Fed. Cir. 2007). It reviews underlyingfactual findings for clear error. Id.

B. Analysis

[HN2]A court has subject matter jurisdiction under

the Declaratory Judgment Act only if "the facts alleged,under all the circumstances, show that there is asubstantial controversy, between parties having adverselegal interests, of sufficient immediacy and reality towarrant the issuance of a declaratory judgment."MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127,127 S. Ct. 764, 166 L. Ed. 2d 604 (2007). In patent cases,declaratory judgment jurisdiction exists "where apatentee asserts rights under a patent based on certainidentified [**6] ongoing or planned activity of anotherparty, and where that party contends that it has the rightto engage in the accused activity without license."SanDisk, 480 F.3d at 1381.

HP asserts that its declaratory judgment claims fallsquarely within the standard set by SanDisk. Accordingto HP, the fact that Acceleron wrote to HP, specificallyidentifying the '021 patent and HP's product line, i.e., anongoing activity, is all that is required under SanDisk forthe court to find declaratory judgment jurisdiction. Wesee nothing "squarely" about this case and SanDisk doesnot support HP's proposition. [HN3]Intentionally or not,MedImmune may have lowered the bar for determiningdeclaratory judgment jurisdiction in all patent cases;certainly it did so in the licensor-licensee context. See,e.g., Micron Tech., Inc. v. Mosaid [*1362] Techs., Inc.,518 F.3d 897, 902 (Fed. Cir. 2008) ("[T]he now morelenient legal standard facilitates or enhances theavailability of declaratory judgment jurisdiction in patentcases."). But a lowered bar does not mean no bar at all.Indeed, a declaratory judgment plaintiff must show thatthe dispute is "definite and concrete, touching the legalrelations of parties having [**7] adverse legal interests;and that it be real and substantial and admit of specificrelief through a decree of a conclusive character, asdistinguished from an opinion advising what the lawwould be upon a hypothetical state of facts."MedImmune, 549 U.S. at 127 (internal quotation marksand brackets omitted). Thus, a communication from apatent owner to another party, merely identifying itspatent and the other party's product line, without more,cannot establish adverse legal interests between theparties, let alone the existence of a "definite andconcrete" dispute. More is required to establishdeclaratory judgment jurisdiction.

Acceleron argues that it never asserted its rightsunder the '021 patent because its correspondence with HPdid not contain language threatening to sue forinfringement or demand a license. As a result, Acceleron

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contends that there is no justiciable case or controversygiving rise to declaratory judgment jurisdiction. Wedisagree.

Judge Markey eloquently described the dilemmafacing a potential infringement defendant as

the sad and saddening scenario that ledto enactment of the Declaratory JudgmentAct. In the patent version of that scenario,a patent owner [**8] engages in a dansemacabre, brandishing a Damoclean threatwith a sheathed sword. Guerrilla-like, thepatent owner attempts extra-judicial patentenforcement withscare-the-customer-and-run tactics thatinfect the competitive environment of thebusiness community with uncertainty andinsecurity. Before the Act, competitorsvictimized by that tactic were renderedhelpless and immobile so long as thepatent owner refused to grasp the nettleand sue. After the Act, those competitorswere no longer restricted to an in terroremchoice between the incurrence of agrowing potential liability for patentinfringement and abandonment of theirenterprises; they could clear the air bysuing for a judgment that would settle theconflict of interests.

Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846F.2d 731, 734-35 (Fed. Cir. 1988) (citations omitted).[HN4]The purpose of a declaratory judgment actioncannot be defeated simply by the stratagem of acorrespondence that avoids the magic words such as"litigation" or "infringement." Of course, if "a party hasactually been charged with infringement of the patent,there is, necessarily, a case or controversy adequate tosupport [declaratory judgment] [**9] jurisdiction."Cardinal Chem. Co. v. Morton Int'l, 508 U.S. 83, 96, 113S. Ct. 1967, 124 L. Ed. 2d 1 (1993). But it is implausible(especially after MedImmune and severalpost-MedImmune decisions from this court) to expect thata competent lawyer drafting such correspondence for apatent owner would identify specific claims, presentclaim charts, and explicitly allege infringement.

In its first letter to HP, Acceleron identified itself asthe owner of the '021 patent, which it described as

"relat[ing] to Blade Servers." The district court foundthat, in this letter, Mr. Ramey requested that HP "not filesuit." Hewlett-Packard, 601 F. Supp. 2d at 587.Acceleron imposed a two-week deadline on HP torespond. In its second letter to HP, Acceleron againimposed a two-week deadline on HP and insisted that ifHP did not respond to its [*1363] original letter by thedeadline, it would understand that HP did not "haveanything to say about the merits of this patent, or itsrelevance to [HP's] Blade Server products." (emphasesadded). The district court found that this was a casewhere "a non-competitor patent holding company ...directly contacted plaintiff regarding its rights in the '021patent." Id. at 586. The court also found that [**10] (1)Acceleron failed to propose a confidentiality agreement,and (2) Acceleron failed to accept the terms of HP's120-day standstill proposal or to provide acounter-proposal or some other reassurance it would notsue HP. Id. at 586-87. Acceleron does not dispute any ofthe district court's findings on appeal.

Acceleron argues that a patent owner may contactanother party to suggest incorporating the patentedtechnology into the other party's product, or to attempt tosell the patent to the other party. Given the circumstancesof this case, such an assertion appears disingenuous. Wedo not doubt that such scenarios as presented byAcceleron occur, and perhaps quite frequently. However,we doubt that in those situations, the patent ownerswould assert a patent as "relevant" to the other party'sspecific product line, impose such a short deadline for aresponse, and insist the other party not file suit. As thedistrict court correctly recognized, these factors "must beconsidered along with all the circumstances at bar."Hewlett-Packard, 601 F. Supp. 2d at 587. We also agreewith the district court that "the receipt of suchcorrespondence from a non-competitor patent holdingcompany . [**11] . . may invoke a different reaction thanwould a meet-and-discuss inquiry by a competitor,presumably with intellectual property of its own to placeon the bargaining table." Id. at 589. Under the totality ofthe circumstances, therefore, it was not unreasonable forHP to interpret Acceleron's letters as implicitly assertingits rights under the '021 patent.

Acceleron repeatedly emphasizes that "[a]t the timeHP filed its complaint, Acceleron could not have assertedits rights in the '021 patent against HP because it had noteven determined if it had a basis to assert the patentagainst HP." However, it is irrelevant whether Acceleron

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had conducted an adequate investigation or whether itsubjectively believed HP was infringing. [HN5]"The test[for declaratory judgment jurisdiction in patent cases],however stated, is objective . . . ." Arrowhead, 846 F.2dat 736 (emphasis added). "Indeed, it is the objectivewords and actions of the patentee that are controlling."BP Chems. v. Union Carbide Corp., 4 F.3d 975, 979(Fed. Cir. 1993). Thus, conduct that can be reasonablyinferred as demonstrating intent to enforce a patent cancreate declaratory judgment jurisdiction.

Acceleron points to the [**12] language in the letterfrom Mr. Ritz, a counsel from HP, in which he stated thatHP was "interested to learn any further information"Acceleron had in order to "conduct a complete andaccurate assessment." Acceleron thus argues that "HP'sletter admits that HP had not determined that its legalinterests were adverse to Acceleron." We are notpersuaded. First of all, Mr. Ritz's letter was dated October1, 2007. HP did not file the declaratory judgment actionuntil October 17. HP may well have conducted athorough infringement analysis in the interim. Moreimportantly, HP is not required to make a formaldeclaration of having an adverse legal interest. Indeed,HP's filing of the suit seeking declaratory judgment isindicative of its belief that Acceleron was threatening toassert its rights to the '021 patent against HP.

[*1364] Finally, we observe that Acceleron issolely a licensing entity, and without enforcement itreceives no benefits from its patents. This addssignificance to the fact that Acceleron refused HP'srequest for a mutual standstill--and such a limitedstandstill is distinguishable from a covenant not to sue,such as that cited by the district court in Prasco, LLC, v.Medicis Pharmaceutical Corp., 537 F.3d 1329, 1341(Fed. Cir. 2008).

This [**13] court has explained that[HN6]"declaratory judgment jurisdiction generally willnot arise merely on the basis that a party learns of theexistence of a patent owned by another or even perceivessuch a patent to pose a risk of infringement, without someaffirmative act by the patentee." SanDisk, 480 F.3d at1381. The facts of this case, when viewed objectively andin totality, show that Acceleron took the affirmative stepof twice contacting HP directly, making an impliedassertion of its rights under the '021 patent against HP's

Blade Server products, and HP disagreed. 1 Therefore, wehold that there is declaratory judgment jurisdictionarising from a "definite and concrete" dispute betweenHP and Acceleron, parties having adverse legal interests.

1 The district court found that there was nohistory of litigation by Acceleron regarding the'021 patent. Hewlett-Packard, 601 F. Supp. 2d at589. A history, or the lack thereof, of litigating inthe industry can certainly be a factor to beconsidered. See Prasco, LLC v. Medicis Pharm.Corp., 537 F.3d 1329, 1341 (Fed. Cir. 2008)("Prior litigious conduct is one circumstance to beconsidered in assessing whether the totality ofcircumstances creates [**14] an actualcontroversy."). However, we note that Accelerononly acquired the '021 patent on May 31, 2007and initiated the contact with HP merely three andhalf months later. Therefore, in this case, the factthat Acceleron had not filed any suit againstothers in such a short period is not a factorweighing against finding declaratory judgmentjurisdiction.

III. CONCLUSION

As the district court recognized in its careful opinionanalyzing declaratory judgment jurisdiction, there is nobright-line rule for distinguishing those cases that satisfythe actual case-or-controversy requirement from thosethat do not. See MedImmune, 549 U.S. at 127. Ourdecision in this case undoubtedly marks a shift from pastdeclaratory judgment cases. However, [HN7]MedImmunehas altered the way in which the Declaratory JudgmentAct applies to patent law cases, requiring that legalinterests be evaluated in patent cases under the generalcriteria of the Act. Our jurisprudence must consequentlyalso evolve, and in this case the facts demonstrate adverselegal interests that warrant judicial resolution. Thedismissal of the district court is reversed and the action isremanded.

IV. COSTS

Each party shall bear its own [**15] costs.

REVERSED AND REMANDED

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Page 6

LEXSEE

AnalysisAs of: Dec 03, 2010

INNOVATIVE THERAPIES, INC., Plaintiff-Appellant, v. KINETIC CONCEPTS,INC., KCI LICENSING, INC., and KCI USA, INC., Defendants-Appellees.

2009-1085

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

599 F.3d 1377; 2010 U.S. App. LEXIS 6727; 94 U.S.P.Q.2D (BNA) 1307

April 1, 2010, Decided

SUBSEQUENT HISTORY: US Supreme Courtcertiorari denied by Innovative Therapies, Inc. v. KineticConcepts, Inc., 2010 U.S. LEXIS 8277 (U.S., Oct. 18,2010)

PRIOR HISTORY: [**1]Appeal from the United States District Court for the

District of Delaware in case no. 07-CV-589, Judge Sue L.Robinson.Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 2008U.S. Dist. LEXIS 89775 (D. Del., Nov. 5, 2008)

DISPOSITION: AFFIRMED.

CASE SUMMARY:

PROCEDURAL POSTURE: Plaintiff competitor ofdefendant patent owners brought an action against theowners seeking a declaration that the competitor'smedical device did not infringe the owners' patentsrelating to devices for negative pressure wound therapy.The competitor appealed the order of the U.S. DistrictCourt for the District of Delaware which dismissed thedeclaratory judgment action based on an absence of anactual controversy.

OVERVIEW: The owners contended that they had notseen the competitor's device, had not examined it forpossible infringement of the patents, and had not accused

the competitor of infringement. The competitor arguedthat sufficient adverse interests existed to entitle thecompetitor to declaratory adjudication based onrepresentations in obtaining government approval that thedevice had the same technological characteristics as apatented product, representations of employees of theowners that the owners would not hesitate to sue forinfringement, and the owners' history of infringementlitigation. The appellate court held that the competitorfailed to show sufficient adverse legal interests toestablish a controversy warranting declaratory relief. Thesame technological characteristics did not establishinfringement, the informal conversations with theemployees did not constitute threats of suit, and theowners' history of litigation did not establish acontroversy over a device the owners had neither seennor evaluated. Further, the fact that the ownerssubsequently sued the competitor for infringement didnot establish declaratory judgment jurisdiction at the timethe action was filed.

OUTCOME: The order dismissing the competitor'sdeclaratory judgment action was affirmed.

CORE TERMS: patent, infringement, declaratoryjudgment, declaratory, conversation, supplemental, actualcontroversy, phone calls, responded, declaratory actions,convenience, telephone, wound, colleague, evaluated,patentee, therapy, license, patent infringement, justiciable

Page 1

controversy, technological, disputed, planned, place ofbusiness, general rule, declaratory judgment action,totality of circumstances, legal rights, time of filing,phone conversations

LexisNexis(R) Headnotes

Civil Procedure > Jurisdiction > General Overview[HN1]The jurisdiction of a court depends upon the stateof things at the time an action is brought.

COUNSEL: Jonathan G. Graves, Cooley GodwardKronish, LLP, of Reston, Virginia, argued forplaintiff-appellant. With him on the brief was Justin P.D.Wilcox.

Erik R. Puknys, Finnegan, Henderson, Farabow, Garrett& Dunner, L.L.P., of Palo Alto, California, argued fordefendants-appellees. With him on the brief were WendyA. Herby; Donald R. Dunner and Don O. Burley, ofWashington, DC. Of counsel on the brief were R.Laurence Macon and Karen Kroesche Gulde, Akin GumpStrauss Hauer & Feld LLP, of San Antonio, Texas.

JUDGES: Before MICHEL, Chief Judge, NEWMANand PROST, Circuit Judges.

OPINION BY: NEWMAN

OPINION

[*1379] NEWMAN, Circuit Judge.

Innovative Therapies, Inc. ("ITI") appeals thejudgment of the United States District Court for theDistrict of Delaware, dismissing ITI's declaratoryjudgment action against Kinetic Concepts, Inc. ("KCI")based on absence of an actual controversy within thecontemplation of the Declaratory Judgment Act. 1 Weaffirm the dismissal.

1 Innovative Therapies, Inc. v. Kinetic Concepts,Inc., (D. Del. 2008) 2008 U.S. Dist. LEXIS 89775

DISCUSSION

The five patents at [**2] issue are United StatesPatent Nos. 4,969,880; 5,645,081; 5,636,643; 7,198,046;and 7,216,651, all owned by the defendant KCI or

exclusively licensed to KCI from the assignee WakeForest University. The patents relate to medical devicesfor negative pressure wound therapy, used in treatment ofchronic wounds. Several of the inventors are scientists atWake Forest University in Winston-Salem, NorthCarolina.

The declaratory plaintiff ITI was established in 2006by several former employees of KCI, in conjunction withDr. Paul Svedman, a surgeon who had worked in the fieldof negative pressure wound therapy. On September 25,2007 ITI filed this suit for declaration that the five patentsare invalid and/or not infringed by a device that ITIplanned to offer for sale "on or about October 1, 2007,"called the Svedman Wound Treatment System. KCImoved to dismiss for lack of declaratory jurisdiction,stating that it had not seen the ITI device, had notexamined it for possible infringement of any KCI patent,and had not accused ITI of infringement. ITI respondedthat sufficient adverse interests existed to entitle it toadjudication, citing the liberalized criteria for declaratoryactions as [**3] established by the Supreme Court inMedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127S. Ct. 764, 166 L. Ed. 2d 604 (2007). ITI identifiedseveral factors that when considered together, as requiredby MedImmune's totality of the circumstances test, werestated by ITI to establish declaratory jurisdiction.

I

In dismissing the complaint, the district courtobserved that the mere existence of an adversely heldpatent does not suffice to establish adverse legal interests,and that the circumstances cited by ITI did not establishdeclaratory jurisdiction at the time the complaint wasfiled. On appeal ITI again argues that a confluence ofthree factors, taken together, established the existence ofa controversy of "sufficient immediacy and reality," thewords of MedImmune, to warrant declaratoryjurisdiction. These factors are (1) ITI's representations tothe FDA, (2) ITI's phone calls to KCI executives, and (3)KCI's patent enforcement history.

(1) ITI's representations to the FDA

ITI had obtained expedited pre-marketing approvalof the Svedman device based [*1380] on itsrepresentations to the FDA that the Svedman device hasthe "same technological characteristics" as KCI'spreviously approved wound therapy device and otherFDA-approved [**4] devices that KCI has charged with

599 F.3d 1377, *; 2010 U.S. App. LEXIS 6727, **1;94 U.S.P.Q.2D (BNA) 1307; 2007 U.S. LEXIS 1003

Page 2

infringement. ITI stated that such expedited approval,obtained pursuant to § 510(k) of the Food, Drug andCosmetic Act, 21 U.S.C. § 360(k), demonstrated thereasonableness of ITI's belief that KCI would regard theSvedman device as infringing KCI's patents. ITI statedthat it learned through discovery that KCI was aware ofITI's filings with the FDA. ITI thus argued that KCI hadsufficient knowledge of ITI's Svedman device, evenbefore its introduction to the market, to suggest that KCImight have been preparing to sue ITI for infringement.

KCI responded in the district court that at the timeITI filed this declaratory action KCI had not seen anydevice produced or intended to be produced by ITI, thatno such device had been sold or offered for sale, and thatKCI had not charged ITI with infringement as to any suchdevice. KCI argued that ITI's representations that theSvedman device has the "same technologicalcharacteristics" as a patented product did not establishinfringement of any KCI patent.

The district court accepted that ITI had requested andreceived regulatory approval for a product that it intendedto place on the market. Although "meaningful [**5]preparation" to take infringing action may suffice fordeclaratory jurisdiction in some circumstances, see CatTech LLC v. Tubemaster, Inc., 528 F.3d 871, 881 (Fed.Cir. 2008), representations to a third person about"technological characteristics" do not establish ajusticiable controversy with the patentee. Although theparties disputed the extent of knowledge that KCI hadabout ITI's filings with the FDA, we agree with thedistrict court that even if KCI knew of ITI'srepresentations to the FDA, this knowledge of itself didnot create a controversy within the contemplation of theDeclaratory Judgment Act.

(2) ITI's phone calls to KCI executives

ITI placed its strongest reliance on two telephonecalls from ITI, arguing that statements made by KCIemployees during these phone conversations weresufficient to demonstrate the existence of a justiciablecontroversy.

On September 12, 2007 ITI's Chief TechnologyOfficer, David Tumey, who had previously beenemployed at KCI as Director of Research andDevelopment, telephoned his former colleague MichaelGirouard, KCI's Director of Marketing. Another ITIemployee who also was a former KCI employee, Mark

Meents, participated in the call. The [**6] parties agreethat during the call Tumey described the Svedman deviceand asked Girouard to predict KCI's response to ITI'splanned launch of this product. Tumey and Meents statedthat Girouard responded: "KCI will act aggressively. Youknow that." Tumey and Meents also stated that Girouardqualified his statement by saying that KCI would sueonly "if it first determined that the product infringed theKCI patents." Tumey stated that Girouard said that hewas aware of one of ITI's two 510(k) filings with theFDA, but Girouard disputed this aspect of theconversation. The district court stated that it acceptedITI's version of this conversation for the purpose ofdetermining whether to accept declaratory jurisdiction.

On September 17, 2007 Tumey telephoned anotherformer colleague, Michael [*1381] Burke, Senior VicePresident of Manufacturing at KCI. Tumey knew thatBurke planned to retire at the end of September. Theparties stated that after discussing Burke's imminentretirement, Tumey described the Svedman device andasked Burke how he thought KCI would react when ITIintroduced this device. Tumey stated that Burkeresponded that KCI would "aggressively go after us . . .particularly if it [**7] is foam-based." Tumey stated thatwhen he asked Burke if the odds were "100%" that KCIwould sue, Burke responded "100% no doubt about it,"and stated that any product that "scratches the surface ofour patents" would be the subject of a lawsuit. Tumeystated that he asked about the possibility of peacefullycoexisting, and that Burke said there was "no way tocoexist."

ITI argued that these telephone conversationsestablished that a controversy existed with respect topatent infringement by the devices that ITI intended tomarket. KCI argued that these phone calls, initiated byITI in the guise of friendly conversations, did notconstitute a threat of legal action by KCI as to productsthey had not seen and had not reviewed for infringement.KCI stated that neither Girouard nor Burke had authorityto decide on his own whether KCI would conductinfringement litigation, although ITI disputed this point.

The district court described these phone calls as a"sub rosa" effort to create jurisdiction "by initiatingtelephone conversations to employees of the patenteewho were not in decision-making positions and who werenot informed of the real purpose behind theconversations." The court [**8] found that these phone

599 F.3d 1377, *1380; 2010 U.S. App. LEXIS 6727, **4;94 U.S.P.Q.2D (BNA) 1307; 2007 U.S. LEXIS 1003

Page 3

calls, made to former colleagues who had not seen andhad not evaluated ITI's device, produced imprompturesponses, not an assertion of patent rights.

ITI argues on this appeal that a justiciablecontroversy was indeed created by KCI's statementsduring ITI's telephone calls. ITI states that the districtcourt misunderstood the purpose of the phone calls, andthat they were not a subterfuge to establish jurisdiction,but an effort to clear the air as to the product ITI wasabout to launch. KCI responds that Tumey phoned hisex-colleagues under cover of friendship, withoutrevealing his true purpose and without knowing whetherthose persons had knowledge of the structure of the ITIdevice and any basis for threatening an infringement suit.KCI argues that ITI sought to obtain indirect evidence ofa controversy without subjecting itself to the possibilityof suit. Thus KCI argues that its employees' imprompturesponses cannot be deemed to be charges ofinfringement or other indications of a real and immediatecontroversy within the cognizance of the DeclaratoryJudgment Act.

The district court found that these informalconversations did not constitute a threat of [**9] suit forpatent infringement against a device that had not beenseen and evaluated for infringement of any patent. Weagree that the indirection reflected in these conversationsdid not produce a controversy of such "immediacy andreality" as to require the district court to acceptdeclaratory jurisdiction. See SanDisk Corp. v.STMicroelectronics, Inc., 480 F.3d 1372, 1378 (Fed. Cir.2007).

(3) KCI's patent enforcement history

The third aspect on which ITI relied was KCI'shistory of litigation to enforce its patents. ITI argued thatKCI's known [*1382] enforcement of these patentsagainst others should be given weight in evaluating thetelephone statements of the KCI executives. KCIresponded that although it indeed enforces its legal rights,it had not seen any ITI device, no ITI device had beensold, and no accusation of infringement or threat of suithad been made, either in these phone conversations or inany other way. KCI stressed that ITI's assertion to theFDA that similar products had received FDA approvaldoes not equate to a statement that ITI's Svedman deviceinfringes any KCI patent. See CardioVention, Inc. v.Medtronic, Inc., 483 F. Supp. 2d 830, 840 (D. Minn.2007) ("Courts have [**10] repeatedly refused to allow

FDA 510(k) notification of substantial equivalence asadmission of infringement in patent cases.").

The district court found that KCI's history oflitigation against others, and general propensity toenforce its legal rights, did not establish an actualcontroversy between KCI and ITI over a device that KCIhad not seen and evaluated. Although MedImmune heldthat a reasonable apprehension of suit for infringement isnot always required to establish declaratory jurisdiction,the particular circumstances must be considered. InMedImmune there was no apprehension of suit forinfringement because the challenger was already licensedunder the patent and continued to pay royalties, even asthe challenger sought to adjudicate the obligation to payroyalties. The Court held that the licensee did not have toterminate or breach the license in order to challenge thelicensor's position and that the licensee did not have torisk loss of the license in order to obtain judicial reviewof its obligations under the license. However,MedImmune did not hold that a patent can always bechallenged whenever it appears to pose a risk ofinfringement. See SanDisk, 480 F.3d at 1380-81 [**11]("In the context of conduct prior to the existence of alicense, declaratory judgment jurisdiction generally willnot arise merely on the basis that a party learns of theexistence of a patent owned by another or even perceivessuch a patent to pose a risk of infringement, without someaffirmative act by the patentee.").

Thus while prior litigation is a circumstance to beconsidered in assessing the totality of circumstances, thefact that KCI had filed infringement suits against otherparties for other products does not, in the absence of anyact directed toward ITI, meet the minimum standarddiscussed in MedImmune. See Prasco, LLC v. MedicisPharm. Corp., 537 F.3d 1329, 1341 (Fed. Cir. 2008)(noting that "prior litigious conduct is one circumstanceto be considered in assessing whether the totality ofcircumstances creates an actual controversy," butconcluding that no controversy was shown). The holdingof Micron Tech., Inc. v. MOSAID Techs., Inc., 518 F.3d897, 901 (Fed. Cir. 2008), is not otherwise, for in Micronthe patentee had not only litigated the patents againstothers, but also had sent several threatening letters to thedeclaratory plaintiff. The specific facts of each [**12]case must be considered, in deciding whether adeclaratory action is warranted. 2

2 ITI has moved the court to take judicial notice

599 F.3d 1377, *1381; 2010 U.S. App. LEXIS 6727, **8;94 U.S.P.Q.2D (BNA) 1307; 2007 U.S. LEXIS 1003

Page 4

of other litigation involving KCI and third parties.The motion is granted, although these aspects donot affect our affirmance of the district court'sjudgment.

Subsequent events

ITI pointed to events that occurred after itsdeclaratory judgment complaint [*1383] was filed butbefore the district court's decision on the motion todismiss, and argued that the presence of a controversy atthe time of filing was confirmed by KCI's later suitsagainst ITI, after KCI had inspected the Svedman device.On December 4, 2007 ITI permitted KCI to inspect theSvedman device and provided KCI with copies of theUser Manual and Instructions. On January 2, 2008 KCIfiled suit in Texas state court against ITI and three of itsemployees who had previously been employed by KCI,with counts including breach of confidentialityagreements and misappropriation of trade secrets. OnJanuary 10, 2008 KCI and Wake Forest University filed apatent infringement suit in the Middle District of NorthCarolina, based on acts of alleged infringement thatoccurred in High Point, North Carolina.

The [**13] district court held that subsequent eventscould not change the fact that no actual controversyexisted at the time the original complaint was filed. Thecourt observed that the existence of justiciablecontroversy is determined as of the time of the filing ofthe complaint, citing GAF Building Materials Corp. v.Elk Corp. of Dallas, 90 F.3d 479, 483 (Fed. Cir. 1996)("[L]ater events may not create jurisdiction where noneexisted at the time of filing."). See Benitec Austl., Ltd. v.Nucleonics, Inc., 495 F.3d 1340, 1344 (Fed. Cir. 2007)("The burden is on the party claiming declaratoryjudgment jurisdiction to establish that such jurisdictionexisted at the time the claim for declaratory relief wasfiled and that it has continued since.").

On January 25, 2008 ITI filed an AmendedComplaint, adding counts based on KCI's conductsubsequent to the filing of ITI's original complaint. TheAmended Complaint included new counts for falseadvertising and unfair competition in violation of theLanham Act, based on KCI's criticism of the Svedmandevice to potential customers, and requesting adeclaration of ITI's unencumbered right to use and sellthe Svedman device. KCI then filed another motion[**14] to dismiss for lack of declaratory judgmentjurisdiction, or in the alternative to transfer the case to the

Middle District of North Carolina. The district courtobserved that ITI's Amended Complaint was actually a"supplemental" complaint, which is the proper pleadingwhen a party seeks to add issues based on events thatoccurred after the filing of the original complaint. SeeFed. R. Civ. P. 15(d) (providing for "supplementalpleading setting out any transaction, occurrence, or eventthat happened after the date of the pleading to besupplemented"). The district court observed that ITI hadnot sought leave to file this pleading, as is required byRule 15, but in the interest of "completeness" the courttreated the Amended Complaint as if it were anauthorized supplemental pleading.

The district court found that the later acts by KCI,including the filing of an infringement suit, showed thatan actual controversy existed as of that later date. SeeCardinal Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83, 96,113 S. Ct. 1967, 124 L. Ed. 2d 1 (1993) ("If . . . a partyhas actually been charged with infringement of thepatent, there is, necessarily, a case or controversyadequate to support jurisdiction."). However, we agree[**15] with the district court that these acts after thefiling of ITI's original complaint did not establish that anactual controversy existed at that earlier time. See GrupoDataflux v. Atlas Global Group, L.P., 541 U.S. 567,570-71, 124 S. Ct. 1920, 158 L. Ed. 2d 866 (2004) ("Ithas long been the case that [HN1]the jurisdiction of thecourt depends upon the state of [*1384] things at thetime the action was brought.").

ITI argues that the district court erred when itevaluated whether a controversy existed at the time theoriginal complaint was filed. ITI states that the date of theAmended Complaint provided the operative time, citingthis court's recent decision in Prasco, 537 F.3d at 1337("As the district court accepted Prasco's AmendedComplaint, it is the Amended Complaint that is currentlyunder consideration, and it is the facts alleged in thiscomplaint that form the basis of our review."). Prascoindeed focused on the allegations of the complaint asamended, but it did not thereby change the rule thatunless there was jurisdiction at the filing of the originalcomplaint, jurisdiction could not be carried back to thedate of the original pleading. The district court observedthat to hold otherwise "would invite a declaratory [**16]judgment plaintiff in a patent case to file suit at theearliest moment it conceives of any potential benefit todoing so, confident that it will either draw aninfringement suit in response (thereby retroactively

599 F.3d 1377, *1382; 2010 U.S. App. LEXIS 6727, **12;94 U.S.P.Q.2D (BNA) 1307; 2007 U.S. LEXIS 1003

Page 5

establishing jurisdiction over their first-filed declaratoryjudgment suit) or will suffer no adverse consequenceother than having its suit dismissed." InnovativeTherapies, No. 07-589-SLR/LPS, 2008 U.S. Dist. LEXIS53290, 2008 WL 2746960, at *10 (D. Del. July 14,2008).

Federal Rule of Civil Procedure 15(c) does not treatevents that post-date the original pleading as if they hadoccurred at an earlier time. The district court sorecognized when it treated the Amended Complaint as asupplemental, rather than amended, pleading. We discernno error in the district court's conclusion that ITI'ssupplemental complaint did not establish an actualcontroversy at the time of the original pleading, and thatjurisdiction based on subsequent events did not relateback to the filing date of the initial complaint. KCI pointsout that its suits in the Middle District of North Carolinaand in state court in Texas were filed before thesupplemental complaint. See, e.g., Electronics forImaging, Inc. v. Coyle, 394 F.3d 1341, 1347 (Fed. Cir.2005) [**17] ("We apply the general rule favoring theforum of the first-filed case, unless considerations ofjudicial and litigant economy, and the just and effectivedisposition of disputes, requires otherwise."); Genentech,Inc. v. Eli Lilly & Co., 998 F.2d 931, 937 (Fed. Cir.1993) ("The general rule favors the forum of thefirst-filed action, whether or not it is a declaratoryaction.").

II

The district court also held that the case should bedismissed in the exercise of the court's discretion. SeeWilton v. Seven Falls Co., 515 U.S. 277, 282, 115 S. Ct.2137, 132 L. Ed. 2d 214 (1995) ("[D]istrict courtspossess discretion in determining whether and when toentertain an action under the Declaratory Judgment Act,even when the suit otherwise satisfies subject matterjurisdictional prerequisites."). The district court explainedthat ITI had used a ploy to attempt to generatejurisdiction through informal phone calls to pastcolleagues, and that this strategy did not comport with thepurposes of the Declaratory Judgment Act. The districtcourt did not abuse its discretion in observing that "where(as here) a declaratory judgment plaintiff was not willingto make its concerns of record pre-suit, I am notconvinced that the objectives [**18] of the DeclaratoryJudgment Act are being served by allowing such aplaintiff to plead uncertainty and delay." The district

court also observed [*1385] that all of the issues raisedby ITI were subject to resolution in the cases pending inTexas and North Carolina.

ITI argues that the district court abused its discretion.However, the discretion afforded to district courts toadminister the declaratory judgment practice is broad.See id. at 287 (noting the "unique breadth" of districtcourts' declaratory discretion); Sony Elecs., Inc. v.Guardian Media Techs., Ltd., 497 F.3d 1271, 1288 (Fed.Cir. 2007) ("If a district court's decision is consistent withthe purposes of the Declaratory Judgment Act andconsiderations of wise judicial administration, it mayexercise its discretion to dismiss (or stay) the case.");EMC Corp. v. Norand Corp., 89 F.3d 807, 813-14 (Fed.Cir. 1996) (same). We discern no abuse of discretion inthe district court's discretionary decision on the facts andcircumstances of this case.

III

ITI also argues that the district court committed legalerror because it failed to apply the "convenience factors"of choice of forum, discussed in Micron as relevant to theexercise of [**19] declaratory jurisdiction. In Micron aninfringement suit was filed the day after a declaratoryjudgment action was filed in a different forum, and thiscourt ruled that the reasons whereby the district courtdismissed the earlier-filed declaratory suit wereinsufficient. This court stated that "in cases such as thiswith competing forum interests, the trial court needs toconsider the 'convenience factors' found in a transferanalysis under 28 U.S.C. § 1404." 518 F.3d at 902-03.

Although Micron did not hold that forumconvenience is the dominant consideration relevant to thecourt's exercise of discretion in every case, theconvenience factors of this case do not weigh against thedistrict court's dismissal. ITI is incorporated in Delaware,but its principal place of business is in Maryland. KCI isincorporated in Texas and has its principal place ofbusiness in Texas, the situs of the asserted state lawviolations. Codefendants KCI Licensing and KCI USAare incorporated in Delaware, but have their principalplaces of business in Texas. The Middle District of NorthCarolina is the home of Wake Forest University and theinventors of four of the five patents in suit, and is theforum [**20] in which the sole act of infringement isstated to have occurred. ITI's unfair competition count inits supplemental complaint is based on conduct that isasserted to have occurred in the Middle District of North

599 F.3d 1377, *1384; 2010 U.S. App. LEXIS 6727, **16;94 U.S.P.Q.2D (BNA) 1307; 2007 U.S. LEXIS 1003

Page 6

Carolina. ITI has not stated that any party has anysignificant business operations in Delaware, nor that anywitness resides in Delaware, nor that any conductrelevant to any aspect of the parties' dispute occurredthere. We hence reject ITI's argument that theconvenience of the forum requires retaining the action inDelaware, for the undisputed facts are incompatible withsuch a conclusion.

CONCLUSION

The district court did not clearly err in its findingsconcerning the factors on which ITI relied to supportdeclaratory jurisdiction, and did not abuse its discretionin its decision to dismiss the declaratory action includingthe supplemental complaint. The dismissal is affirmed.

AFFIRMED

599 F.3d 1377, *1385; 2010 U.S. App. LEXIS 6727, **20;94 U.S.P.Q.2D (BNA) 1307; 2007 U.S. LEXIS 1003

Page 7

LEXSEE

CautionAs of: Dec 03, 2010

I4I LIMITED PARTNERSHIP and INFRASTRUCTURES FOR INFORMATIONINC., Plaintiffs-Appellees, v. MICROSOFT CORPORATION, Defendant-Appellant.

2009-1504

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

598 F.3d 831; 2010 U.S. App. LEXIS 5010; 93 U.S.P.Q.2D (BNA) 1943; 81 Fed. R.Evid. Serv. (Callaghan) 805

March 10, 2010, Decided

SUBSEQUENT HISTORY: US Supreme Courtcertiorari granted by Microsoft Corp. v. I4I Ltd. P'ship,2010 U.S. LEXIS 9311 (U.S., Nov. 29, 2010)

PRIOR HISTORY: [**1]Appeal from the United States District Court for the

Eastern District of Texas in case no. 07-CV-113, JudgeLeonard Davis.i4i L.P. v. Microsoft Corp., 589 F.3d 1246, 2009 U.S.App. LEXIS 28131 (Fed. Cir., 2009)

DISPOSITION: AFFIRMED.

CASE SUMMARY:

PROCEDURAL POSTURE: Appellee owners of apatent for a method of editing custom computer languagebrought an action against appellant developer ofcomputer software alleging that the developer infringedthe patent by incorporating the patented method in certainof its word processing software. The developer appealedthe judgment of infringement entered in the United StatesDistrict Court for the Eastern District of Texas.

OVERVIEW: The developer contended that the patentclaim of distinct storage means required storage inseparate files and independent manipulation of themetacode map and mapped content, and that the patent

was invalid as obvious and anticipated. The developeralso argued that the evidence was insufficient to supportthe finding of infringement, and that the damagesawarded by the jury were excessive. The appellate courtfirst held that the patent requirement for distinct storagemeans permitted but did not require storage in separatefiles, and independent manipulation was a benefit ofseparate storage but was not a claim limitation. Further,in finding that the patent was not invalid, the jurynecessarily found that it would not have been obvious tocombine prior art, and testimony of the inventors of priorart supported the finding that the patent was notanticipated by the prior art. Also, the evidence wassufficient to find that at least one customer of thedeveloper performed the patented method, and that thedeveloper knowingly induced infringement. Moreover,the award of damages, while substantial, was based onproper expert testimony concerning the scope ofinfringing use.

OUTCOME: The judgment of infringement wasaffirmed.

CORE TERMS: i4i's, infringement, custom, injunction,infringing, editor, metacode, patent, map, storage,invention, software, user's, tag's, prior art, willfulness,specification's, mapped, patented, damage award, opined,jury instructions, new trial, patentee's, royalty rate,

Page 1

anticipation, contributory, infringed, enhanced, experttestimony

LexisNexis(R) Headnotes

Patent Law > Jurisdiction & Review > Standards ofReview > General Overview[HN1]For issues not unique to patent law, the U.S. Courtof Appeals for the Federal Circuit applies the law of theregional circuit in which the appeal would otherwise lie.

Civil Procedure > Trials > Judgment as Matter of Law> General OverviewCivil Procedure > Appeals > Standards of Review > DeNovo Review[HN2]An appellate court reviews denials of judgment asa matter of law (JMOL) de novo. JMOL is appropriateonly if the court finds that a reasonable jury would nothave a legally sufficient evidentiary basis to find for theparty on that issue. Fed. R. Civ. P. 50(a)(1).

Civil Procedure > Judgments > Relief From Judgment> Motions for New TrialsCivil Procedure > Appeals > Standards of Review >Abuse of Discretion[HN3]An appellate court reviews a denial of a new trialmotion for abuse of discretion. The court will not reversea denial absent a clear showing of an absolute absence ofevidence to support the jury's verdict.

Civil Procedure > Trials > Jury Trials > JuryInstructions > General OverviewCivil Procedure > Appeals > Standards of Review >Abuse of Discretion[HN4]An appellate court reviews jury instructions forabuse of discretion, cognizant of the district court's broaddiscretion to compose jury instructions, so long as theinstructions accurately describe the law. The appellatecourt will reverse a judgment only if the jury instructionsas a whole create a substantial doubt as to whether thejury has been properly guided in its deliberations.

Civil Procedure > Trials > Jury Trials > JuryInstructions > General OverviewCivil Procedure > Appeals > Standards of Review >

Harmless & Invited Errors > Harmless Error Rule[HN5]Erroneous jury instructions are subject to harmlesserror review. An appellate court will not reverse if,considering the record as a whole, the erroneousinstruction could not have affected the outcome of thecase.

Patent Law > Infringement Actions > ClaimInterpretation > Construction PreferencesPatent Law > Jurisdiction & Review > Standards ofReview > De Novo Review[HN6]An appellate court reviews a district court's patentclaim construction de novo. To ascertain the scope andmeaning of the asserted claims, the appellate court looksto the words of the claims themselves, the specification,and the prosecution history.

Patent Law > Infringement Actions > ClaimInterpretation > Construction Preferences[HN7]Generally, a claim of a patent is not limited to theembodiments described in the specification unless thepatentee has demonstrated a clear intention to limit theclaim's scope with words or expressions of manifestexclusion or restriction. By the same token, not everybenefit flowing from an invention is a claim limitation.

Patent Law > Jurisdiction & Review > Standards ofReview > De Novo ReviewPatent Law > Nonobviousness > Evidence & Procedure> Fact & Law Issues[HN8]Although obviousness is a question of law in apatent case, it is based on factual underpinnings. Anappellate court's review of the ultimate legal question,whether the claimed invention would have been obvious,is de novo.

Civil Procedure > Trials > Judgment as Matter of Law> Postverdict JudgmentsCivil Procedure > Trials > Judgment as Matter of Law> Preverdict JudgmentsPatent Law > Nonobviousness > Elements & Tests >General Overview[HN9]A party asserting patent obviousness must file apre-verdict motion for judgment as a matter of law(JMOL) on all theories, and with respect to all prior artreferences, that it wishes to challenge with a post-verdictJMOL. If the party fails to do so, an appellate court does

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not consider whether the evidence presented at trial waslegally sufficient to support the jury's verdict. Theappellate court's review is limited to determining whetherthe district court's legal conclusion of non-obviousnesswas correct, based on the presumed factual findings. Inconducting this review, the appellate court must presumethe jury resolved underlying factual disputes in thepatentee's favor where the jury made no explicit factualfindings. This presumption applies to disputes about: (1)the scope and content of the prior art; (2) differencesbetween the prior art and asserted claims; (3) theexistence of motivation to modify prior art references;and (4) the level of ordinary skill in the pertinent art.

Patent Law > Statutory Bars > On Sale Bar > Elements[HN10]To prove invalidity of a patent by the on-sale bar,a challenger must show by clear and convincing evidencethat the claimed invention was on sale in the UnitedStates, more than one year prior to the date of theapplication for patent in the United States.

Patent Law > Infringement Actions > Defenses > PatentInvalidity > General Overview[HN11]A court requires corroboration of any witnesswhose testimony alone is asserted to invalidate a patent.

Patent Law > Infringement Actions > General OverviewPatent Law > Jurisdiction & Review > Standards ofReview > Substantial Evidence[HN12]Patent infringement is a question of fact. Whereinfringement was tried to a jury, an appellate courtreviews the verdict only for substantial evidence.

Civil Procedure > Trials > Jury Trials > Verdicts >General VerdictsCivil Procedure > Appeals > Standards of Review >Substantial Evidence > Sufficiency of Evidence[HN13]An appellate court must set aside a generalverdict if the jury was told it could rely on any of two ormore independent legal theories, one of which wasdefective. However, the court will not set aside a generalverdict simply because the jury might have decided on aground that was supported by insufficient evidence. Thecourt will uphold such a verdict if there was sufficientevidence to support any of the alternative factual theories;the court assumes the jury considered all the evidenceand relied upon a factual theory for which the burden of

proof was satisfied.

Patent Law > Infringement Actions > Infringing Acts >Contributory, Indirect & Induced InfringementPatent Law > Subject Matter > Processes > GeneralOverview[HN14]To succeed on a theory of contributory or inducedpatent infringement, a patentee is required to show directinfringement of the patent. Where the claims asserted bythe patentee are method claims, sale of a product, withoutmore, does not infringe the patent. Direct infringementoccurs only when someone performs the claimed method.

Patent Law > Infringement Actions > Infringing Acts >Contributory, Indirect & Induced InfringementPatent Law > Subject Matter > Processes > GeneralOverview[HN15]A party is liable for contributory patentinfringement if that party sells, or offers to sell, a materialor apparatus for use in practicing a patented process. Thatmaterial or apparatus must be a material part of theinvention, have no substantial non-infringing uses, and beknown by the party to be especially made or especiallyadapted for use in an infringement of such patent. 35U.S.C.S. § 271(c).

Patent Law > Infringement Actions > Infringing Acts >Use[HN16]In assessing whether an asserted non-infringinguse was substantial in a patent infringement case, a jury isallowed to consider not only the use's frequency, but alsothe use's practicality, the invention's intended purpose,and the intended market.

Civil Procedure > Appeals > Standards of Review >Abuse of DiscretionEvidence > Procedural Considerations > Rulings onEvidence[HN17]An appellate court reviews evidentiary rulings forabuse of discretion.

Evidence > Testimony > Experts > Daubert Standard[HN18]To determine whether expert testimony wasproperly admitted under Fed. R. Evid. 702 of the FederalRules of Evidence, an appellate court uses use aframework which requires a district court to ensure thatany scientific testimony is not only relevant, but reliable.

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When the methodology is sound, and the evidence reliedupon sufficiently related to the case at hand, disputesabout the degree of relevance or accuracy (above thisminimum threshold) may go to the testimony's weight,but not its admissibility.

Evidence > Testimony > Experts > Admissibility[HN19]An expert witness with scientific, technical, orotherwise specialized knowledge, may testify and forman opinion if (1) the testimony is based upon sufficientfacts or data, (2) the testimony is the product of reliableprinciples and methods; and (3) the witness has appliedthe principles and methods reliably to the facts of thecase. Fed. R. Evid. 702.

Evidence > Testimony > Experts > Daubert Standard[HN20]Under Fed. R. Evid. 702, the question is whetheran expert witness relied on facts sufficiently related to thedisputed issue.

Evidence > Testimony > Experts > Daubert StandardPatent Law > Infringement Actions > Burdens of Proof[HN21]It is not a district court's role under the Daubertstandard to evaluate the correctness of facts underlyingthe testimony of an expert witness. Questions about whatfacts are most relevant or reliable to calculating areasonable royalty in a patent infringement case are for ajury. The jury is entitled to hear the expert testimony anddecide for itself what to accept or reject.

Civil Procedure > Remedies > Damages > GeneralOverviewCivil Procedure > Appeals > Standards of Review >Clearly Erroneous Review[HN22]The standard of review for denial of a motion fora new trial based on excessive damages is highlydeferential: an appellate court may set aside a damagesaward and remand for a new trial only upon a clearshowing of excessiveness. To be excessive, the awardmust exceed the maximum amount calculable from theevidence. The court must affirm unless the appellantclearly shows there was no evidence to support the jury'sverdict.

Patent Law > Remedies > Collateral Assessments >Increased Damages[HN23]35 U.S.C.S. § 284 gives a district court discretion

to increase patent infringement damages up to three timesthe amount found or assessed by the jury. A finding ofwillful infringement is a prerequisite to the award ofenhanced damages.

Patent Law > Jurisdiction & Review > Standards ofReview > Substantial EvidencePatent Law > Remedies > Collateral Assessments >General Overview[HN24]Whether patent infringement was willful is aquestion of fact. Where the question was submitted to ajury, and answered in the affirmative, appellate review islimited to asking whether that verdict is supported bysubstantial evidence.

Patent Law > Remedies > Collateral Assessments >General Overview[HN25]Patent infringement is willful when the infringerwas aware of the asserted patent, but nonetheless acteddespite an objectively high likelihood that its actionsconstituted infringement of a valid patent. Aftersatisfying this objective prong, the patentee must alsoshow that the infringer knew or should have known ofthis objectively high risk.

Patent Law > Remedies > Equitable Relief >Injunctions[HN26]An appellate court reviews a decision to grant aninjunction in a patent infringement case, as well as thescope of that injunction, for abuse of discretion. Factualfindings made in support of the injunction are reviewedfor clear error; the district court's conclusion as to eachfactor is reviewed for abuse of discretion. The appellatecourt's review is guided by statute and well-establishedprinciples of equity. 35 U.S.C. § 283. A plaintiff has theburden of showing that: (1) it has suffered an irreparableinjury; (2) remedies available at law are inadequate tocompensate for that injury; (3) considering the balance ofhardships between the plaintiff and a defendant, a remedyin equity is warranted; and (4) the public interest wouldnot be disserved by a permanent injunction.

Patent Law > Remedies > Equitable Relief >Injunctions[HN27]Courts may grant injunctions in accordance withthe principles of equity to prevent the violation of anyright secured by patent, on such terms as a court deems

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reasonable. 35 U.S.C.S. § 283.

Patent Law > Remedies > Equitable Relief >Injunctions[HN28]Past harm to a patentee's market share, revenues,and brand recognition is relevant for determining whetherthe patentee has suffered an irreparable injury warrantinginjunctive relief.

Patent Law > Remedies > Equitable Relief >Injunctions[HN29]Neither commercial success, nor sunkdevelopment costs, shield an infringer of a patent frominjunctive relief. The infringer is not entitled to continueinfringing simply because it successfully exploited itsinfringement.

COUNSEL: Donald R. Dunner, Finnegan, Henderson,Farabow, Garrett & Dunner, L.L.P., of Washington, DC,argued for plaintiffs-appellees. With him on the briefwere Don O. Burley, Kara F. Stoll and Jason W. Melvin;and Erik R. Puknys, of Palo Alto, California. Of counselon the brief were Douglas A. Cawley and Jeffrey A.Carter, McKool Smith, P.C. of Dallas, Texas, and T.Gordon White, of Austin, Texas.

Matthew D. Powers, Weil, Gotshal & Manges LLP, ofRedwood Shores, California, argued fordefendant-appellant. With him on the brief were Kevin S.Kudlac and Amber H. Rovner, of Austin, Texas. Ofcounsel on the brief were Matthew D. McGill, MinodoraD. Vancea, Gibson, Dunn & Crutcher LLP, ofWashington, DC; and Isabella E. Fu, MicrosoftCorporation, of Redmond, Washington. Of counsel wasDavid J. Lender, Weil, Gotshal & Manges LLP, of NewYork, New York.

John W. Thornburgh, Fish & Richardson, P.C., of SanDiego, California, for amici curiae Dell Inc. andHewlett-Packard Company. With him on the brief wereJohn E. Gartman; and Indranil Mukerji, of Washington,DC.

Richard [**2] A. Samp, Washington Legal Foundation,of Washington, DC, for amicus curiae Washington LegalFoundation, of Washington, DC. With him on the briefwas Daniel J. Popeo.

JUDGES: Before SCHALL, PROST, and MOORE,

Circuit Judges.

OPINION BY: PROST

OPINION

[*839] PROST, Circuit Judge.

This is a patent infringement case about an inventionfor editing custom XML, a computer language. Theowner of the patent, i4i Limited Partnership ("i4i"),brought suit against Microsoft Corporation ("Microsoft"),alleging that the custom XML editor in certain versionsof Microsoft Word ("Word"), Microsoft'sword-processing software, infringed i4i's patent. After aseven-day trial, the jury found Microsoft liable for willfulinfringement. The jury rejected Microsoft's argument thatthe patent was invalid, and awarded $ 200 million indamages to i4i. The district court denied Microsoft'smotions for judgment as a matter of law and motions fora new trial, finding that Microsoft had waived its right tochallenge, among other things, the validity of the patentbased on all but one piece of prior art and the sufficiencyof the evidence supporting the jury's damage award.Although statutorily authorized to triple the jury'sdamages award because of Microsoft's [**3] willfulinfringement, the district court awarded only $ 40 millionin additional damages. It also granted i4i's motion for apermanent injunction. This injunction, which this courtstayed pending the outcome of this appeal, is narrow. i4iLtd. v. Microsoft Corp., 343 Fed. Appx. 619 (Fed. Cir.2009). It does not affect copies of Word sold or licensedbefore the injunction goes into effect. Thus, users whobought or licensed Word before the injunction becomeseffective will still be able to use the infringing customXML editor, and receive technical support fromMicrosoft. After its effective date, the injunctionprohibits Microsoft from selling, offering to sell,importing, or using copies of Word with the infringingcustom XML editor. Microsoft is also prohibited frominstructing or assisting new customers in the customXML editor's use.

On appeal, Microsoft challenges the jury verdict andinjunction on multiple grounds. Because this case went totrial and we are in large part reviewing what the juryfound, our review is limited and deferential. We affirmthe issuance of the permanent injunction, though wemodify its effective date to accord with the evidence. Inall other respects, [**4] we affirm for the reasons setforth below.

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BACKGROUND

i4i began as a software consulting company in thelate 1980s. Basically, companies would hire i4i todevelop and maintain customized software for them.Thus, while consumers might not find i4i's products onthe shelves at Best Buy or CompUSA, i4i was in thebusiness of actively creating, marketing, and sellingsoftware. In June 1994, i4i applied for a patentconcerning a method for processing and storinginformation about the structure of electronic documents.After approximately four years, the United States Patentand Trademark Office ("PTO") allowed the application,which issued as U.S. Patent No. 5,787,449 ("'449patent"). The invention claimed in the '449 patent formsthe basis of this litigation. Since then, i4i has developedseveral software products that practice the invention. Oneof these products is "add-on" software for MicrosoftWord, which expands Word's capability to work withdocuments containing custom XML.

XML is one of many markup languages. Markuplanguages tell the computer how text should be processedby inserting "tags" around text. Tags give the computer[*840] information about the text. For example, sometags might [**5] tell the computer how to display text,such as what words should appear in bold or italics. Tagscan also tell the computer about the text's content,identifying it as a person's name or social securitynumber, for instance. Each tag consists of a delimiter andtag name. The delimiter sets the tag apart from thecontent. Thus, a tag indicating that "717 Madison Pl.NW" is an address might appear as <address>717Madison Pl. NW</address> where "address" is the tag'sname and "<" and ">" are the delimiters. Custom XMLallows users to create and define their own tags. i4i refersto tags and similar information about a document'sstructure as "metacodes." The specification of the '449patent defines "metacode" as "an individual instructionwhich controls the interpretation of the content of thedata." '449 patent col.4 ll.15-16.

The '449 patent claims an improved method forediting documents containing markup languages likeXML. The improvement stems from storing a document'scontent and metacodes separately. Id. at col.6 ll.18-21.The invention primarily achieves this separation bycreating a "metacode map," a data structure that stores themetacodes and their locations within the document.[**6] The document's content is stored in a data structure

called "mapped content." Claim 14 is illustrative:

A method for producing a first map ofmetacodes and their addresses of use inassociation with mapped content andstored in distinct map storage means, themethod comprising:

providing the mapped content tomapped content storage means;

providing a menu of metacodes; and

compiling a map of the metacodes inthe distinct storage means, by locating,detecting and addressing the metacodes;and

providing the document as the contentof the document and the metacode map ofthe document.

Id. at col.16 ll.18-30.

Separate storage of a document's structure andcontent was an improvement over prior technology inseveral respects. Importantly, it has allowed users to worksolely on a document's content or its structure. Id. at col.7ll.6-11, 17-20.

Since 2003, versions of Microsoft Word, a wordprocessing and editing software, have had XML editingcapabilities. In 2007, i4i filed this action againstMicrosoft, the developer and seller of Word. i4i allegedthat Microsoft infringed claims 14, 18, and 20 of the '449patent by making, using, selling, offering to sell, and/orimporting Word products capable [**7] of processing orediting custom XML. i4i further alleged that Microsoft'sinfringement was willful. Microsoft counterclaimed,seeking a declaratory judgment that the '449 patent wasinvalid and unenforceable.

Before the case was submitted to the jury, Microsoftmoved for judgment as a matter of law ("JMOL") on theissues of infringement, willfulness, and validity. Thedistrict court denied Microsoft's motions, and the casewas submitted to the jury. The jury found that Wordinfringed all asserted claims of the '449 patent. The juryfurther found that the patent was not invalid, and thatMicrosoft's infringement was willful. It awarded $ 200million in damages.

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After trial, Microsoft renewed its motions for JMOLon infringement, validity, and willfulness. In thealternative, Microsoft moved for a new trial on theseissues based on the sufficiency of the evidence supportingthe jury's findings. Microsoft also argued it was entitledto a new trial [*841] based on errors in the claimconstruction, evidentiary rulings, and jury instructions.The district court denied Microsoft's motions. It grantedi4i's motion fora permanent injunction and awarded $ 40million in enhanced damages.

Microsoft now [**8] appeals. We have jurisdictionpursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

Microsoft raises numerous issues on appeal. First,Microsoft challenges the district court's construction ofthe claim term "distinct." Second, Microsoft challengesthe jury's validity finding, urging us to find that the '449patent was anticipated or obvious as a matter of law, or atleast grant a new trial on those issues. Third, Microsoftargues that the jury's infringement finding must be setaside because it is unsupported by substantial evidence.Fourth, Microsoft challenges the damages award,specifically the admission of certain expert testimony andthe sufficiency of the evidence supporting the award.Finally, Microsoft challenges the issuance and terms ofthe permanent injunction. We address each of theseissues in turn.

I. Standards of Review

[HN1]For issues not unique to patent law, we applythe law of the regional circuit in which this appeal wouldotherwise lie. Thus, we apply Fifth Circuit law whenreviewing evidentiary rulings and denials of motions forJMOL or new trial. Finisar Corp. v. DirecTV Group, Inc.,523 F.3d 1323, 1328 (Fed. Cir. 2008).

[HN2]We review denials of JMOL de novo.Cambridge Toxicology Group, Inc. v. Exnicios, 495 F.3d169, 179 (5th Cir. 2007). [**9] JMOL is appropriateonly if the court finds that a "reasonable jury would nothave a legally sufficient evidentiary basis to find for theparty on that issue." Fed. R. Civ. P. 50(a)(1); seeCambridge Toxicology, 495 F.3d at 179.

[HN3]We review the denial of a new trial motion forabuse of discretion. Industrias Magromer Cueros y PielesS.A. v. La. Bayou Furs Inc., 293 F.3d 912, 924 (5th Cir.

2002). We will not reverse a denial absent a "clearshowing" of an "absolute absence of evidence to supportthe jury's verdict." Duff v. Werner Enters., Inc., 489 F.3d727, 729 (5th Cir. 2007) (emphasis added).

[HN4]We review jury instructions for abuse ofdiscretion, cognizant as we do so of the district court'sbroad discretion to compose jury instructions, so long asthe instructions accurately describe the law. Baker v.Canadian Nat'l/Ill. Cent. R.R., 536 F.3d 357, 363-64 (5thCir. 2008); Walther v. Lone Star Gas Co., 952 F.2d 119,125 (5th Cir. 1992); see also Barton's Disposal Serv., Inc.v. Tiger Corp., 886 F.2d 1430, 1434 (5th Cir. 1989). Wewill reverse a judgment "only if [**10] the [juryinstructions] as a whole create [] a substantial doubt as towhether the jury has been properly guided in itsdeliberations." Baker, 536 F.3d at 363-64.[HN5]Erroneous instructions are subject to harmless errorreview. We will not reverse if, considering the record as awhole, the erroneous instruction "could not have affectedthe outcome of the case." Wright v. Ford Motor Co., 508F.3d 263, 268 (5th Cir. 2007).

II. Claim Construction

On appeal, we must decide whether the district courtproperly construed the claim term "distinct." In theasserted claims, the term "distinct" is used to describehow the metacode map and the mapped content arestored. Specifically, the claims say the metacode map isstored in "distinct map storage means" or "distinctstorage means." See, e.g., '449 patent col.16 ll.20, 25-26,53-54. Analogously, the document's [*842] content isstored in "mapped content storage," id. at col.16 ll.22-23,or "mapped content distinct storage means." Id. at col.15l.51 (emphasis added).

Before the district court, Microsoft argued that"distinct" added two requirements: (1) storing themetacode map and mapped content in separate files, notjust separate portions of the computer's [**11] memory;and (2) the ability to edit the document's content and itsmetacode map "independently and without access" toeach other.

The district court rejected both of Microsoft'sproposed limitations. Based on its review of the claimlanguage, the specification, and prosecution history, thedistrict court concluded that "distinct" did not requirestorage in separate files. Similarly, it concluded that theuser's ability to independently edit the document's

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structure or content was a benefit of separate storage, nota claim limitation. The district court then defined"distinct map storage means" in more general terms, as "aportion of memory for storing a metacode map.""Mapped content distinct storage means" was defined as"a portion of memory for storing mapped content."

On appeal, Microsoft renews both arguments aboutthe meaning of "distinct." [HN6]We review the districtcourt's claim construction de novo. Cybor Corp. v. FASTechs., Inc., 138 F.3d 1448, 1454-55 (Fed. Cir. 1998) (enbanc). To ascertain the scope and meaning of the assertedclaims, we look to the words of the claims themselves,the specification, and the prosecution history. Phillips v.AWH Corp., 415 F.3d 1303, 1315-17 (Fed. Cir. 2005)[**12] (en banc); see also 35 U.S.C. § 112 P 2;Innova/Pure Water, Inc. v. Safari Water Filtration Sys.,Inc., 381 F.3d 1111, 1115-16 (Fed. Cir. 2004) (holdingthat the claims are not "presumed" to be restricted to theembodiments disclosed in the specification). Weconclude that the district court properly rejected both ofMicrosoft's proposed limitations.

A. Separate Files

To determine whether "distinct" adds therequirement of storage in separate files, we begin with theclaim language. See Phillips, 415 F.3d at 1312. In thiscase, the claim's plain language does not require storageof the metacode map and mapped content in separatefiles. The term "file" appears nowhere in the '449 patent.Instead, the claims use "storage means"; the specificationuses "structures." '449 patent col.16 ll.22-26, 53; see alsoid. at col.4 ll.7-13, 21-24. Both "storage means" and"structures" are broader terms than "file," suggesting noparticular format. At trial, i4i's expert testified that aperson of ordinary skill in the art would understand"structures" to store and organize data, but not as limitedto a particular storage format. Indeed, the specificationarguably renounces particular formats by defining [**13]"document" as a "non-random aggregation of datairrespective of its mode of storage or presentation." Id. atcol.4 ll.57-59 (emphasis added).

Turning to the specification, we similarly see no"clear intent [] to limit the claim scope" to storage infiles. Abbott Labs. v. Sandoz, Inc., 566 F.3d 1282, 1288(Fed. Cir. 2009). The sample algorithms do not say thestorage means is restricted to "files." '449 patent col.8ll.53-62; see Innova/Pure Water, 381 F.3d at 1121-22.Instead, they use the more generic term "storage space,"

creating one for the mapped content and another for themetacode map.

As for the prosecution history, we do not read it aslimiting storage to files. During prosecution, i4idistinguished its invention from U.S. Patent No.5,280,574 ("Mizuta") prior art in part because Mizutastored "all [*843] document information . . . in one file .. . the document file." But this is not all i4i said. i4i thenexplained that Mizuta "lacked any notion of a metacodemap" or "distinct storage means." In evaluating whether apatentee has disavowed claim scope, context matters.Together, these statements make clear that whatdistinguished the Mizuta prior art was not the storagetype (file [**14] or no file), but rather the separation of adocument's content and structure. The statementsMicrosoft now plucks from the prosecution history do not"clear[ly] and unmistakabl[y] disavow" storage meansthat are not files. Computer Docking Station Corp. v.Dell, Inc., 519 F.3d 1366, 1374 (Fed. Cir. 2008) (citingPurdue Pharma L.P. v. Endo Pharms., Inc., 438 F.3d1123, 1136 (Fed. Cir. 2006)).

Because the claims themselves do not use the word"file" and the specification discloses embodiments wherethe storage format is not a file, we conclude that"distinct" does not require storage in separate files.Liebel-Flarsheim Co. v. Medrad, Inc., 358 F.3d 898,907-08 (Fed. Cir. 2004) (declining to limit the invention'sscope to the disclosed embodiments when thespecification did "not expressly or by clear implicationreject the scope of the invention" to those embodiments);see also Boston Scientific Scimed, Inc. v. Cordis Corp.,554 F.3d 982, 987 (Fed. Cir. 2009).

B. Independent Manipulation

The closer question is whether "distinct" requiresindependent manipulation of the metacode map andmapped content. Several of the embodiments in the '449patent allow the user to manipulate only the metacode[**15] map or mapped content. '449 patent figs.4, 5, 6, 8.However, based on our review of the claim language, thespecification, and the prosecution history, we concludethat the claims are not limited to these particularembodiments.

[HN7]Generally, a claim is not limited to theembodiments described in the specification unless thepatentee has demonstrated a "clear intention" to limit theclaim's scope with "words or expressions of manifest

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exclusion or restriction." Liebel-Flarsheim, 358 F.3d at906; see also Teleflex, Inc. v. Ficosa N. Am. Corp., 299F.3d 1313, 1327 (Fed. Cir. 2002). By the same token, notevery benefit flowing from an invention is a claimlimitation. See Computer Docking, 519 F.3d at 1374;Verizon Servs. Corp. v. Vonage Holdings Corp., 503F.3d 1295, 1302-03 (Fed. Cir. 2007).

We begin again with the claim language. None of theclaims mention "independent manipulation" of themapped content and metacode map, an omission we findsignificant. Had the inventors intended this limitation,they could have drafted the claims to expressly include it.

Similarly, the specification refers to "separate,"rather than "independent," manipulation of thedocument's architecture and content. [**16] Thespecification goes on to describe the storage of themetacode map and content as "distinct and separate.""Distinct" and "separate" are not the same as"independent." Moreover, the specification teaches that"separate manipulation" describes the user's ability towork on only the metacode map or content. Behind thescenes, the invention keeps the metacode map andcontent synchronized. For example, Figure 9 teaches thatupdates to the content may require the invention to makecorresponding changes to the metacode map. '449 patentcol.14 l.49-col.15 l.5.

Microsoft is correct that the specification refers toworking on "solely" the document's structure (metacodemap):

[*844] The present invention providesthe ability to work solely on metacodes.The process allows changes to be made tothe structure of a document withoutrequiring the content. A metacode mapcould be edited directly without themapped content. Additionally a new mapcan be created based solely on an existingmap without requiring the content.

Id. at col.7 ll.6-11 (emphases added). Read as a whole,however, these statements are best understood asdescribing the advantages of separate storage, the realclaim limitation. See Abbott Labs., 566 F.3d at 1289-90.[**17] The specification's permissive language, "could beedited," "can be created," and "ability to work," does notclearly disclaim systems lacking these benefits.

An examination of the prosecution history similarlyreveals no statements that unequivocally narrow theclaims to require independent manipulation. Initially, theexaminer rejected several claims as obvious, explainingthat "[s]torage is always distinct, even if at distinctaddresses." In response, i4i stated:

[T]he architecture of a document can betreated as a separate entity from thecontent of the document. Thus, thearchitecture of the document can betreated as an entity having distinct storagefrom the content of the document. Thisseparation allows distinct processes tooperate on the content and thearchitecture, with or without knowledge ofthe other. In other words, using the presentinvention, one could change thearchitecture, (layout, structure, orpresentation formation) of a documentwithout even having access to the actualcontent of the document. This is achievedby extracting the metacodes from anexisting document and creating a map ofthe location of the metacodes in thedocument and then storing the map and[**18] the content of the documentseparately.

The reason for the examiner's rejection helps usunderstand i4i's response. In context, i4i's response is bestread as clarifying why the invention's "storage means" aremore than just "distinct addresses." i4i's subsequentdiscussion of the benefits of separate storage is notsufficiently "clear and unmistakable" to disavowembodiments lacking independent manipulation. PurduePharma, 438 F.3d at 1136.

In light of the specification's permissive language,the prosecution history, and the claim language, weconclude that "independent manipulation" is a benefit ofseparate storage, but not itself a limitation.

III. Validity

Microsoft also appeals two issues regarding thevalidity of i4i's patent. The first is whether the inventionwould have been obvious to one of skill in the art. Thesecond is whether Microsoft is entitled to JMOL or a newtrial on validity, due to anticipation by a software

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program called S4.

At trial, Microsoft argued that the '449 patent wasinvalid based on several pieces of prior art. As relevanthere, Microsoft argued that i4i's invention would havebeen obvious in light of U.S. Patent No. 5,587,902("Kugimiya"), when combined [**19] with either anSGML editor known as Rita or U.S. Patent No. 6,101,512("DeRose"). In the alternative, Microsoft argued that i4i'sinvention was anticipated under 35 U.S.C. § 102(b) bythe sale of a software program, SEMI-S[4] ("S4"), by i4ibefore the critical date.

i4i disputed that it would have been obvious tocombine Kugimiya with Rita or DeRose. i4i presentedevidence that Kugimiya was in a different field (languagetranslation) than Rita, DeRose, or the '449 patent, whichaddress document editing. [*845] i4i also presentedevidence of secondary considerations, including long-feltneed, failure of others, and commercial success. As toanticipation, i4i also argued that S4 did not practice the'449 patent because it did not create a "metacode map."

Before the case was submitted to the jury, Microsoftmoved for JMOL on invalidity, arguing that i4i's sale ofS4 violated the on-sale bar under § 102(b). Microsoft didnot move for pre-verdict JMOL on obviousness or withregard to other prior art. The verdict form did not requirethe jury to make separate findings for the different piecesof prior art. Instead, the form asked: "Did Microsoftprove by clear and convincing evidence that any of[**20] the listed claims of the '449 patent are invalid?"The jury was instructed to answer "yes" if it found aparticular claim invalid, but otherwise answer "no." Thejury found all the asserted claims not invalid.

A. Obviousness

On appeal we must decide whether the '449 patentwould have been obvious in light of some combination ofRita or DeRose with Kugimiya.

The Rita prior art is a software program that allowsusers to create and edit documents using SGML, amarkup language like XML. Rita stores the SGML tagsand document's content in a "tree structure." This treestores the tags and content together. DeRose discloses asystem for generating, analyzing, and navigatingelectronic documents containing a markup language, suchas XML or SGML. To assist navigation, DeRose and Ritause "pointers," which allow the user to move between

different branches of the tree structure. Kugimiyadiscloses a system for translating documents fromEnglish to Japanese. As part of the translation process,Kugimiya finds, removes, and stores any XML tags in aseparate file. The program then translates the document'scontent from English to Japanese, after which it puts theXML tags into the translated document. [**21] After thetags are replaced, the separate file containing the tags isdiscarded.

[HN8]Although obviousness is a question of law, itis based on factual underpinnings. As always, our reviewof the ultimate legal question, whether the claimedinvention would have been obvious, is de novo.Duro-Last, Inc. v. Custom Seal, Inc., 321 F.3d 1098,1108 (Fed. Cir. 2003). The extent to which we mayreview the jury's implicit factual findings depends onwhether a pre-verdict JMOL was filed on obviousness.Id.; see also Jurgens v. McKasy, 927 F.2d 1552, 1557-58(Fed. Cir. 1991).

In this case, Microsoft has waived its right tochallenge the factual findings underlying the jury'simplicit obviousness verdict because it did not file apre-verdict JMOL on obviousness for the Rita, DeRoseand Kugimiya references. Fed. R. Civ. P. 50(a), (b). Aswe explained in Duro-Last, [HN9]a party must file apre-verdict JMOL motion on all theories, and withrespect to all prior art references, that it wishes tochallenge with a post-verdict JMOL. 321 F.3d at1107-08. Microsoft's pre-verdict JMOL on anticipation,based on S4, was insufficient to preserve its right topost-verdict JMOL on a different theory (obviousness), oron [**22] different prior art (Rita, DeRose, Kugimiya).Duro-Last, 321 F.3d at 1107-08.

Accordingly, we do not consider whether theevidence presented at trial was legally sufficient tosupport the jury's verdict. Our review is limited todetermining whether the district court's legal conclusionof nonobviousness was correct, based on the presumedfactual findings. Id. at 1108-09; Kinetic Concepts, Inc. v.Blue [*846] Sky Med. Group, Inc., 554 F.3d 1010,1020-21 (Fed. Cir. 2009). In conducting this review, wemust presume the jury resolved underlying factualdisputes in i4i's favor because the jury made no explicitfactual findings. Duro-Last, 321 F.3d at 1108. Thispresumption applies to disputes about (1) the scope andcontent of the prior art; (2) differences between the priorart and asserted claims; (3) the existence of motivation to

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modify prior art references; and (4) the level of ordinaryskill in the pertinent art. Id. at 1109; see also Graham v.John Deere Co., 383 U.S. 1,17, 86 S. Ct. 684, 15 L. Ed.2d 545 (1966); Kinetic Concepts, 554 F.3d at 1019.

Microsoft's argument on appeal--that it would havebeen obvious to combine DeRose or Rita withKugimiya--depends heavily on (1) the scope of the priorart, and (2) whether a person [**23] of ordinary skillwould have been motivated to combine the references'teachings. These are questions of fact. Kinetic Concepts,554 F.3d at 1020-21. Similarly, Microsoft's argument thatthe prior art discloses all of the claim limitations boilsdown to questions of fact: whether the "tree structure" inRita and DeRose is a "metacode map," and whether a"pointer" is an "address of use." See id.; Graham, 383U.S. at 17. The jury found all of the asserted claims notinvalid, meaning the jury must have believed that therewere differences between the prior art and assertedclaims, and that a person of ordinary skill would not havebeen motivated to combine the references. Cf. KineticConcepts, 554 F.3d at 1019-20; Duro-Last, 321 F.3d at1108-09. Because we must view the evidence in the lightmost favorable to the verdict, all of these questions mustbe resolved against Microsoft, and in favor of i4i.Arsement v. Spinnaker Exploration Co., 400 F.3d 238,249, 252-53 (5th Cir. 2005); see Jurgens, 927 F.2d at1557-58. In light of the jury's implicit factual findings,Microsoft has not established that the asserted claimswould have been obvious.

B. Anticipation

For anticipation, the question [**24] is whether thedistrict court erred in denying Microsoft's motion forpost-verdict JMOL on invalidity, or alternatively a newtrial, based on the sale of S4 violating the on-sale bar. See35 U.S.C. § 102(b).

S4 was a software program developed for a clientcalled SEMI by i4i's corporate predecessor. i4i's founder,Michel Vulpe, hired Stephen Owens to help develop S4,which they delivered to SEMI in early 1993. S4 allowedthe user to add and edit SGML tags in electronicdocuments. For storage purposes, S4 divided thedocument into "entities." According to Vulpe and Owens,these entities were simply chunks of the SGMLdocument, where the SGML tags were intermixed withthe content. Both Vulpe and Owens testified that S4 didnot create a "metacode map."

At trial, Microsoft argued that the sale of S4 beforethe critical date violated the on-sale bar. [HN10]To proveinvalidity by the on-sale bar, a challenger must show byclear and convincing evidence that the claimed inventionwas "on sale in this country, more than one year prior tothe date of the application for patent in the UnitedStates." Id.; Adenta GmbH v. OrthoArm, Inc., 501 F.3d1364, 1371 (Fed. Cir. 2007). It is uncontested that S4 was[**25] sold in the United States before the critical date.At trial, the dispute was whether S4 practiced the"metacode map" limitation of the '449 patent.

Because the S4 source code was destroyed after theproject with SEMI was completed (years before thislitigation began), the dispute turned largely on thecredibility of S4's creators, Vulpe and Owens, who arealso the named inventors on [*847] the '449 patent. Bothtestified that the S4 software sold to SEMI did notpractice the '449 patent, for which they claimed the keyinnovation--the metacode map--was not even conceiveduntil after the critical date. Both were extensivelycross-examined. Vulpe was impeached with statementsfrom a letter he had written to investors, as well as afunding application submitted to the Canadiangovernment.

On appeal, Microsoft argues that it was entitled toJMOL because it established a prima facie case ofanticipation, which i4i could not rebut by relying on theinventors' testimony alone, absent corroboration.Alternatively, Microsoft contends the evidence was notsufficient to support the jury's verdict of validity.

1. Burden of Proof

Microsoft's contention regarding a prima facie caseand i4i's "rebuttal" misunderstands [**26] the nature ofan anticipation claim under 35 U.S.C. § 102(b).Anticipation is an affirmative defense. See, e.g., ElectroMed. Sys., S.A. v. Cooper Life Scis., Inc., 34 F.3d 1048,1052 (Fed. Cir. 1994). We do not agree that i4i wasrequired to come forward with corroboration to "rebut"Microsoft's prima facie case of anticipation.Corroboration is required in certain circumstances. See,e.g., Martek Biosciences Corp. v. Nutrinova, Inc., 579F.3d 1363, 1374-76 (Fed. Cir. 2009) ("Because Lonzasought to introduce the testimony of an alleged priorinventor under § 102(g) for the purpose of invalidating apatent, Lonza was required to produce evidencecorroborating Dr. Long's testimony."); Procter & GambleCo. v. Teva Pharms. USA, Inc., 566 F.3d 989, 989-99

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(Fed. Cir. 2009) (requiring corroboration where patenteetried to prove that the conception date was earlier than thefiling date of a potentially anticipatory patent); HenkelCorp. v. Procter & Gamble Co., 560 F.3d 1286 (Fed. Cir.2009) (interference); Symantec Corp. v. ComputerAssocs. Int'l, Inc., 522 F.3d 1279, 1295-96 (Fed. Cir.2008) ("An alleged co-inventor's testimony, standingalone, cannot rise to the level of clear and convincing[**27] evidence; he must supply evidence to corroboratehis testimony."). However, this is not a case wherewitness testimony was being used to overcome prior artby establishing an earlier date of invention.

To support its argument that S4 practiced the '449patent, Microsoft offered testimony by a former i4iemployee and its expert. i4i responded with evidence,specifically testimony by S4's inventors, that S4 did notpractice the claimed method. Though [HN11]we requirecorroboration of "any witness whose testimony alone isasserted to invalidate a patent," Finnigan Corp. v. Int'lTrade Comm'n, 180 F.3d 1354, 1369-70 (Fed. Cir. 1999)(emphasis added), here the inventor testimony wasoffered by i4i in response to Microsoft's attack on thevalidity of the '449 patent. It was not offered to meetMicrosoft's burden of proving invalidity by clear andconvincing evidence. Cf. TypeRight Keyboard Corp. v.Microsoft Corp., 374 F.3d 1151, 1159-60 (Fed. Cir.2004); Tex. Digital Sys., Inc. v. Telegenix, Inc., 308 F.3d1193, 1217 (Fed. Cir. 2002); Finnigan, 180 F.3d at 1367.We know of no corroboration requirement for inventortestimony asserted to defend against a finding ofinvalidity by pointing to deficiencies [**28] in the priorart. Accordingly, we hold that corroboration was notrequired in this instance, where the testimony was offeredin response to a claim of anticipation and pertained towhether the prior art practiced the claimed invention.

2. Sufficiency of the Evidence

In contrast to obviousness, Microsoft did move forpre-verdict JMOL regarding [*848] anticipation basedon S4. We nonetheless conclude that there was sufficientevidence for a reasonable jury to find that the '449 patentwas not anticipated by the sale of S4. See Bellows v.Amoco Oil Co., 118 F.3d 268, 273 (5th Cir. 1997). Attrial, the jury heard conflicting testimony on whether S4met the "metacode map" limitation. In evaluating theevidence, the jury was free to disbelieve Microsoft'sexpert, who relied on the S4 user manual, and credit i4i'sexpert, who opined that it was impossible to know

whether the claim limitation was met without looking atS4's source code. Although the absence of the sourcecode is not Microsoft's fault, the burden was still onMicrosoft to show by clear and convincing evidence thatS4 embodied all of the claim limitations. The jury'sfinding of validity was supported by the testimony of theinventors [**29] (Vulpe and Owens), as well as theirfaxes to an attorney regarding the patent application.

3. Jury Instructions

Microsoft also challenges the jury instructions on itsburden of proving anticipation. According to Microsoft,the burden of proof should have been less for prior artthat was not before the PTO, as was the case for Rita andDeRose.

We conclude that the jury instructions were correctin light of this court's precedent, which requires thechallenger to prove invalidity by clear and convincingevidence. See, e.g., Zenith Elecs. Corp. v. PDI Commc'nSys., Inc., 522 F.3d 1348, 1363-64 (Fed. Cir. 2008). Thiscourt's decisions in Lucent Technologies, Inc. v.Gateway, Inc., 580 F.3d 1301, 1311-16 (Fed. Cir. 2009),and Technology Licensing Corp. v. Videotek, Inc., 545F.3d 1316, 1327 (Fed. Cir. 2008), make clear that theSupreme Court's decision in KSR International Co. v.Teleflex Inc., 550 U.S. 398, 426, 127 S. Ct. 1727, 167 L.Ed. 2d 705 (2007) did not change the burden of provinginvalidity by clear and convincing evidence. Thus, basedon our precedent, we cannot discern any error in the juryinstructions.

IV. Infringement

Taking Microsoft's arguments with regard toinfringement in turn, we first review the jury instructions[**30] on infringement. We then decide whether theverdict is supported by substantial evidence.

A. Jury Instructions

At trial, i4i presented three theories of liability:direct, contributory, and induced infringement. OverMicrosoft's objection, the district court used a generalverdict form, which did not require separate findings onthe different theories. Instead, the form asked: "Did i4iprove by a preponderance of the evidence that Microsoftinfringes Claims 14, 18, or 20 of the '449 patent?" Theform then instructed the jury to answer "yes" or "no" foreach claim. The jury answered "yes" for all asserted

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claims.

On appeal, Microsoft argues that it is entitled to anew trial because of two alleged errors in the juryinstructions regarding contributory infringement. First,Microsoft argues it was error to use the term"component" rather than "material or apparatus." Inrelevant part, the instructions provided:

If you find someone has directlyinfringed the '449 patent, then contributoryinfringement exists if i4i establishes by apreponderance of evidence that:

1) Microsoft sold, offered for sale, orimported;

2) A material component for use inpracticing the patented claim--or patentedmethod [**31] that is not a staple articleof commerce suitable for substantialnon-infringing use;

[*849] 3) With knowledge that thecomponent was especially made oradapted for use in an infringing manner.

The corresponding statutory section, 35 U.S.C. § 271(c),uses the words "material or apparatus," not "component,"for patented processes. Although the district court'sinstructions differed from the statute, this is not a casewhere the difference mattered. See Baker, 536 F.3d at363-64 (reversing a jury verdict "only if the charge as awhole creates a substantial doubt as to whether the juryhas been properly guided in its deliberations"). Theparties' infringement arguments did not turn on whetherWord's custom XML editor was a "component," versus a"material or apparatus." Nor is there any reason to thinkthe jury was aware of the difference, or would haveviewed the difference as anything but semantics had itknown, because both parties used the termsinterchangeably at trial. Under these circumstances, weare satisfied that the instruction properly guided the juryin its deliberations.

Microsoft also argues that the district court erred byinstructing the jury to focus on the custom XML editor,rather [**32] than all of Word, when deciding whetherany noninfringing uses were "substantial." Given theevidence presented at trial, the district court did not abuseits discretion. As we explained in Lucent, a particular tool

within a larger software package may be the relevant"material or apparatus" when that tool is a separate anddistinct feature. 580 F.3d at 1320-21. In Lucent, theinfringement inquiry accordingly focused on thedate-picker, even though that tool was included inMicrosoft Outlook, a larger software package. Id.Although the software differs, our reasoning in Lucentapplies equally here. At trial, i4i showed that someversions of Word 2003 included the custom XML editor,while others did not. Dr. Rhyne opined that this ability to"leave [the editor] out or put it in" various Word productsshowed that the editor was a separate and distinct feature.Thus, there was sufficient evidence before the jury for itto conclude that the relevant "material or apparatus" wasthe custom XML editor, not all of Word. Accordingly,the jury was properly instructed that it should focus onthe editor, not all of Word. See Ricoh Co. v. QuantaComputer Inc., 550 F.3d 1325, 1337 (Fed. Cir. 2008).

B. [**33] Sufficiency of the Evidence

Microsoft also challenges the sufficiency of evidencesupporting the jury's general verdict of infringement.[HN12]Infringement is a question of fact. Becauseinfringement was tried to a jury, we review the verdictonly for substantial evidence. ACCO Brands, Inc. v.ABA Locks Mfr. Co., 501 F.3d 1307, 1311 (Fed. Cir.2007).

Before we consider the evidence, we pause briefly toaddress what errors are fatal to a general verdict.Different rules apply depending upon whether the flaw isin the legal theory or the evidence. [HN13]We must setaside a general verdict if the jury was told it could rely onany of two or more independent legal theories, one ofwhich was defective. Walther, 952 F.2d at 126; seeNorthpoint Tech., Ltd. v. MDS Am., Inc., 413 F.3d 1301,1311-12 (Fed. Cir. 2005). However, we will not set asidea general verdict "simply because the jury might havedecided on a ground that was supported by insufficientevidence." Walther, 952 F.2d at 126 (emphasis added).We will uphold such a verdict if there was sufficientevidence to support any of the plaintiff's alternativefactual theories; we assume the jury considered all theevidence and relied upon a factual [**34] theory forwhich the burden of proof was satisfied. [*850] SeeNorthpoint Tech., 413 F.3d at 1311-12.

In this case, Microsoft argues that the general verdictmust be set aside unless both of i4i's alternative legaltheories, contributory infringement and induced

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infringement, are supported by substantial evidence. Wedisagree: the verdict must be upheld if substantialevidence supports either legal theory. Microsoft'sargument fails to distinguish between defects in legaltheories and defects in the factual evidence. In this case,the jury was instructed that it could rely on any of threelegal theories--direct, contributory, or inducedinfringement. All of these theories are legally valid andthe corresponding instructions on each were proper.Because the jury could not have relied on a legallydefective theory, the only remaining question is whetherthere was sufficient evidence to support either of i4i'sindependently sufficient legal theories, contributoryinfringement or induced infringement. 1 We concludethat there was.

1 Even though we could affirm the jury's verdictof infringement so long as there was sufficientevidence of direct infringement by Microsoft,here we focus on indirect [**35] infringementbecause that was the basis for i4i's damagesestimate, which the jury apparently credited. SeeLucent, 580 F.3d at 1334-35; Dynacore HoldingsCorp. v. U.S. Philips Corp., 363 F.3d 1263, 1274(Fed. Cir. 2004).

1. Direct Infringement

[HN14]To succeed on a theory of contributory orinduced infringement, i4i was required to show directinfringement of the '449 patent. Lucent, 580 F.3d at 1317;see also Glenayre Elecs., Inc. v. Jackson, 443 F.3d 851,858 (Fed. Cir. 2006). Because the claims asserted by i4iare method claims, Microsoft's sale of Word, withoutmore, did not infringe the '449 patent. Lucent, 580 F.3d at1317. Direct infringement occurs only when someoneperforms the claimed method. Id.

Based on the evidence presented at trial, a reasonablejury could have found that at least one person performedthe methods claimed in the '449 patent. This evidenceincluded testimony by i4i's expert (Dr. Rhyne), a jointstipulation, and Microsoft's response to interrogatories.Rhyne opined that Word's custom XML editor met all ofthe limitations of the asserted claims because the editorseparated a document into a "CP stream" of content and aseparate data structure containing the metacodes [**36]and their addresses of use. Rhyne testified that thisseparate data structure met the "metacode map"limitation. Though Microsoft's expert offered conflictingevidence, opining that Word did not infringe the asserted

claims, the jury was free to disbelieve Microsoft's expertand credit i4i's expert, who testified that the '449 patentwas infringed if Word was used to open an XMLdocument, edit an XML document, or save a documentcontaining custom XML in an XML file format. The jointstipulation and Microsoft's interrogatory responsesunequivocally state that Word was used in these ways.Cf. Fresenius USA, Inc. v. Baxter Int'l, Inc., 582 F.3d1288, 1298-99 (Fed. Cir. 2009); Martek, 579 F.3d at1371-72.

2. Contributory Infringement

For contributory infringement, the question iswhether there is substantial evidence to support a findingunder this theory. [HN15]A party is liable forcontributory infringement if that party sells, or offers tosell, a material or apparatus for use in practicing apatented process. That "material or apparatus" must be amaterial part of the invention, have no substantialnoninfringing uses, and be known (by the [*851] party)"to be especially made or especially adapted [**37] foruse in an infringement of such patent." 35 U.S.C. §271(c); Cross Med. Prods., Inc. v. Medtronic SofamorDanek, Inc., 424 F.3d 1293, 1312 (Fed. Cir. 2005).

Based on the evidence presented at trial, the jurycould have reasonably concluded that the custom XMLeditor had no substantial, noninfringing uses and thatMicrosoft knew that the use of the custom XML editorwould infringe i4i's patent. At trial, Rhyne agreed that thecustom XML editor could be used in three noninfringingways, but opined that none were "substantial." Rhyneexplained that saving a document in the noninfringing,binary format deprived users of the very benefit XMLwas intended to provide: namely, allowing anotherprogram to search and read the document's metacodetags.

Despite Microsoft's contention to the contrary,evidence that some users saved XML documents in thesenoninfringing formats does not render the jury's verdictunreasonable. Whether a use is "substantial," rather thanjust "unusual, far-fetched, illusory, impractical,occasional, aberrant, or experimental," cannot beevaluated in a vacuum. Vita-Mix Corp. v. Basic Holding,Inc., 581 F.3d 1317, 1327 (Fed. Cir. 2009). [HN16]Inassessing whether an asserted [**38] noninfringing usewas "substantial," the jury was allowed to consider notonly the use's frequency, but also the use's practicality,the invention's intended purpose, and the intended

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market. See id. Here, the jury heard ample testimony thatthe noninfringing, binary file format was not a practicalor worthwhile use for the XML community, for which thecustom XML editor was designed and marketed.

Further, the jury could have reasonably concludedthat Microsoft knew that use of the editor would infringethe '449 patent, based on the circumstantial evidencepresented at trial. Cf. Lucent, 580 F.3d at 1318, 1321-22;Fuji Photo Film Co. v. Jazz Photo Corp., 394 F.3d 1368,1377-78 (Fed. Cir. 2005). Here, the evidence showed thatthe Word development team heard a presentation by i4iabout software practicing the '449 patent, asked how thesoftware worked, and received marketing materials on thesoftware. Internal Microsoft emails showed that otherMicrosoft employees received a marketing email from i4icontaining the patent number, were "familiar" with i4i'sproducts, and believed the Word's custom XML editorwould render that product "obsolete." Based on thisevidence, the jury could have [**39] reasonablyconcluded that Microsoft knew about the '449 patent andknew use of its custom XML editor would infringe.

3. Induced Infringement

Though we need not reach this theory becausesubstantial evidence supports i4i's theory of contributoryinfringement, we do so for the sake of completeness. Onappeal, the sole question is whether there is substantialevidence to support a verdict of induced infringement. Toprove inducement, the patentee must show directinfringement, and that the alleged infringer "knowinglyinduced infringement and possessed specific intent toencourage another's infringement." MEMC Elec.Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420F.3d 1369, 1378 (Fed. Cir. 2005); see 35 U.S.C. § 271(b).

Based on the evidence presented at trial, a reasonablejury could have concluded that Microsoft had the"affirmative intent to cause direct infringement." DSUMed. Corp v. JMS Co., 471 F.3d 1293, 1306 (Fed. Cir.2006) (en banc in relevant part). The jury saw and heardabout Microsoft's online training and user supportresources, which provided detailed instructions on usingWord's custom XML editor. i4i's expert [*852] opinedthat using the editor as directed by these [**40] materialswould infringe the '449 patent. The instructionalmaterials were thus substantial evidence that Microsoftintended the product to be used in an infringing manner.See DSU, 471 F.3d at 1303, 1305. Unlike the instructionsin Vita-Mix, 581 F.3d at 1328-29, which taught a use the

defendant "could have reasonably believed wasnon-infringing" and another use that was"non-infringing," here there was substantial evidenceMicrosoft knew its instructions would result in infringinguse. As explained in our discussion of contributoryinfringement, Microsoft's internal emails are substantialevidence of Microsoft's knowledge, both of the '449patent and the infringing nature of Word's custom XMLeditor. Regarding i4i's software that practiced theinvention, one Microsoft employee remarked: "[W]e sawthis tool some time ago and met its creators. Word [2003]will make it obsolete. It looks great for XP though."Evidence that consumers were using Word in aninfringing manner included Microsoft data on usage ofWord, as well as a Microsoft marketing document listing"real" examples of custom XML's use in Word.

V. Damages

Microsoft protests the $ 200 million damages awardon several grounds. [**41] We begin by reviewing thepropriety of various evidentiary rulings. We then decidewhether the district court abused its discretion by denyingMicrosoft a new trial on damages.

A. Evidentiary Rulings

[HN17]We review evidentiary rulings for abuse ofdiscretion. Huss v. Gayden, 571 F.3d 442, 452 (5th Cir.2009); see Paz v. Brush Engineered Materials, Inc., 555F.3d 383, 387-88 (5th Cir. 2009). Microsoft challengesthe admission of expert testimony on damages, as well asa survey relied on by the expert. We address each in turn.

1. Expert Testimony

[HN18]To determine whether expert testimony wasproperly admitted under Rule 702 of the Federal Rules ofEvidence, we use the framework set out in Daubert v.Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579,589-90, 113 S. Ct. 2786, 125 L. Ed. 2d 469 (1993). 2

Daubert requires the district court ensure that anyscientific testimony "is not only relevant, but reliable."Id. at 589; see also Kumho Tire Co. v. Carmichael, 526U.S. 137, 141-42, 119 S. Ct. 1167, 143 L. Ed. 2d 238(1999). When the methodology is sound, and theevidence relied upon sufficiently related to the case athand, disputes about the degree of relevance or accuracy(above this minimum threshold) may go to thetestimony's weight, but not its admissibility. Knight v.Kirby Inland Marine Inc., 482 F.3d 347, 351 (5th Cir.

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2007); [**42] Moore v. Ashland Chem. Inc., 151 F.3d269, 276 (5th Cir. 1998) (en banc).

2 [HN19]An expert witness with "scientific,technical, or otherwise specialized knowledge,"may testify and form an opinion "if (1) thetestimony is based upon sufficient facts or data,(2) the testimony is the product of reliableprinciples and methods; and (3) the witness hasapplied the principles and methods reliably to thefacts of the case." Fed. R. Evid. 702.

On appeal, Microsoft challenges the expert testimonyby Dr. Wagner, i4i's damages expert. Wagner opined thata reasonable damages award would be $ 200 milliondollars, based on a hypothetical negotiation between i4iand Microsoft at the time the infringement began. Tocome up with the $ 200 million figure, Wagner calculateda royalty rate ($ 98), then multiplied that rate by thenumber of Word [*853] products actually used in aninfringing manner (2.1 million).

At trial, the parties hotly disputed the correctness ofthe $ 98 royalty rate. Microsoft argued that this rate wasexorbitant given the price of certain Word products,which could be as little as $ 97. As further evidence of itsunreasonableness, Microsoft pointed out that the rateresulted in a total damages [**43] amount ($ 200million) greatly exceeding the $ 1-$ 5 million Microsofthad paid to license other patents. In response, i4i had itsexpert (Wagner) give a detailed explanation for how hearrived at the $ 98 royalty rate. Wagner testified that hefirst chose an appropriate "benchmark" in order to valueMicrosoft's use of the claimed invention at the time of thehypothetical negotiation. Wagner chose a product calledXMetaL as his benchmark, which had a retail price of $499. To calculate the licensing fee, Wagner multiplied theprice of XMetaL ($ 499) by Microsoft's profit margin(76.6%), based on his assumption that any licensing feewould be a fraction of the profits. Wagner then appliedthe 25-percent rule to this number, which assumes theinventor will keep 25% of the profits from any infringingsales. This resulted in a baseline royalty rate of $ 96.Wagner testified that the 25-percent rule was"well-recognized" and "widely used" by people in hisfield.

To support his royalty calculation, Wagner adjustedthe baseline royalty rate of ($ 96) using the factors set outin Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.Supp. 1116, 1120 (S.D.N.Y. 1970). 3 Based on the

Georgia-Pacific [**44] factors, Wagner then increasedthe baseline from $ 96 to $ 98, which was the "reasonableroyalty rate" he used in calculating the $ 200-$ 207million damages estimate. Specifically, Wagnerconcluded that factors 3, 5, 6, 9, and 11 affected thebaseline rate.

3 These factors include: (1) royalties thepatentee has received for licensing the patent toothers; (2) rates paid by the licensee for the use ofcomparable patents; (3) the nature and scope ofthe license (exclusive or nonexclusive, restrictedor non-restricted by territory or product type); (4)any established policies or marketing programs bythe licensor to maintain its patent monopoly bynot licensing others to use the invention orgranting licenses under special conditions tomaintain the monopoly; (5) the commercialrelationship between the licensor and licensee,such as whether they are competitors; (6) theeffect of selling the patented specialty inpromoting sales of other products of the licensee;(7) the duration of the patent and license term; (8)the established profitability of the product madeunder the patent, including its commercial successand current popularity; (9) the utility andadvantages of the patent property [**45] over oldmodes or devices; (10) the nature of the patentedinvention and the benefits to those who have usedthe invention; (11) the extent to which theinfringer has used the invention and the value ofthat use; (12) the portion of profit or of the sellingprice that may be customary in that particularbusiness to allow for use of the invention oranalogous inventions; (13) the portion of therealizable profit that should be credited to theinvention as opposed to its non-patentedelements; (14) the opinion testimony of qualifiedexperts; and (15) the results of a hypotheticalnegotiation between the licensor and licensee. Id.

Wagner opined that factor 3, which considers thelicense's terms, lowered the royalty rate because hishypothetical license did not give Microsoft know-how,additional cooperation or trade secrets, just non-exclusiveuse in the United States. However, Wagner opined thatfactors 5, 6, 9, and 11 increased the royalty rate. Forfactor 5, which looks at the commercial relationshipbetween the licensor and licensee, Wagner found thatMicrosoft was a direct competitor of i4i, which meant

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any license would destroy a "very large segment" of i4i'smarket. For factor 6, [**46] which asks whether thepatented technology promotes the sale of other products,Wagner concluded that the infringing custom XML[*854] editor was critical to Microsoft's sales generally,as evidenced by internal Microsoft statements that acustom XML editor was "one of the most importantways" for encouraging users to purchase new Wordproducts. Examining factor 9, which examines theinfringer's need for taking a license, Wagner opined thatMicrosoft had no commercially acceptable,non-infringing alternatives to using i4i's patent. Thisopinion was based on internal Microsoft documentsdescribing Microsoft's interest in creating such a customXML editor, and prolonged inability to do so. For factor11, which looks at the use and value of the patentedtechnology to Microsoft, Wagner concluded that thecustom XML editor was a critical addition to Word. Insupport of this view, i4i presented statements byMicrosoft employees that custom XML was not a "slightaddition [but i]t's more like 90 percent of the value," was"where the future is, seriously," and "the glue that holdsthe Office ecosystem together." Based on all of theseGeorgia-Pacific factors, Wagner increased the baselineroyalty rate [**47] by $ 2, for a total of $ 98.

On appeal, Microsoft ably points out variousweaknesses in the damage calculations by i4i's expert. Attheir heart, however, Microsoft's disagreements are withWagner's conclusions, not his methodology. Daubert andRule 702 are safeguards against unreliable or irrelevantopinions, not guarantees of correctness. We haveconsistently upheld experts' use of a hypotheticalnegotiation and Georgia-Pacific factors for estimating areasonable royalty. See, e.g., Micro Chem., Inc. v.Lextron, Inc., 317 F.3d 1387, 1393 (Fed. Cir. 2003);Interactive Pictures Corp. v. Infinite Pictures, Inc., 274F.3d 1371, 1384 (Fed. Cir. 2001). Wagner's testimonyabout the acceptance of the hypothetical negotiationmodel among damage experts and economists, combinedwith his methodical explication of how he applied themodel to the relevant facts, satisfied Rule 702 andDaubert. See Daubert, 509 U.S. at 593. Given Wagner'stestimony about his credentials, the district court did notabuse its discretion in finding Wagner qualified to applythe methodology. See Pipitone v. Biomatrix, Inc., 288F.3d 239, 249-50 (5th Cir. 2002). Microsoft's quarrelwith the facts Wagner used go to the [**48] weight, notadmissibility, of his opinion.

We further hold that Wagner's opinion was "based onsufficient facts or data." Fed. R. Evid. 702. At trial,Microsoft disputed which facts were relevant fordetermining a reasonable royalty rate. In particular,Microsoft focused on the benchmark (XMetaL), theresulting baseline royalty rate, and i4i's survey forestimating infringing use.

Regarding the benchmark, Wagner explained that hechose XMetaL because it was the product Microsoftbought and used before developing its own custom XMLeditor, it was the cheapest of the custom XML editorsavailable on the market at the time, and it was one ofthree principal competitors Microsoft identified in thecustom XML market. Microsoft contended that a betterestimate of the custom XML editor's value was $ 50, thedifference in price between versions of Word with andwithout the editor. Microsoft also argued that becauseXMetaL has many additional features besides customXML editing, the $ 499 retail price overestimated thevalue of the custom XML editor. In response, Wagneracknowledged that not all users of custom XML wouldhave switched to a high-end product like XMetaL, butthat those "who really [**49] needed that functionality"would have, requiring them to buy one of thecommercially available products, even if it had manysuperfluous features. Wagner clarified that his damagesestimate only considered [*855] users who "reallyneeded" the custom XML editor, making it inappropriateto use the $ 50 price difference paid by all purchasers ofWord, regardless of whether they infringed or not.

As for using the baseline royalty rate ($ 96) as thestarting point for the Georgia-Pacific analysis, Wagneropined that it was necessary because of Microsoft'sbusiness strategy. According to Wagner, Microsoft'sprimary goal is to make sales, not to maximize the price itcharges for each additional feature. In making sales,Wagner explained that Microsoft's biggest competitor isalways itself: Microsoft has to convince consumers topurchase new versions of its products, even if theyalready have a "perfectly good" copy of an older version.To incentivize users to upgrade, Wagner testified thatMicrosoft included new features at no additional cost,making it difficult to value the new features.

As for the survey, i4i's survey expert (Dr. Wecker)explained that it was limited to estimating infringing use[**50] by businesses; i4i did not even seek damages forinfringing use by individual consumers. Wecker sent the

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survey to 988 large and small businesses randomlyselected from a database of 13 million U.S. companies.Wecker explained that this large sample size wasnecessary to ensure he received sufficient responses(between 25 and 100) because many companies are "toobusy" or have policies against responding to surveys. Thesurvey consisted of screening and substantive questions.The screening questions helped identify the proper personto speak with about the company's use of custom XML.Wecker received 46 responses to the survey, whichconsisted of approximately 40 substantive questions. Forall of the questions, the responder had the option ofsaying they did not know. Any company that took thesurvey received $ 35, regardless of the answers theygave. Wecker explained that he used logical imputation,an accepted procedure for statisticians to resolveinconsistent survey responses, to make some of theanswers consistent. Of those that responded to the survey,19 companies reported using Word in an infringingmanner. Wecker assumed that all the companies that didnot respond (942) did [**51] not use Word in aninfringing manner. Based on these assumptions, Weckerdetermined that 1.9% (19/988) of all copies of Word soldto businesses between 2003 and 2008 were used in aninfringing manner. Wecker then multiplied thispercentage (1.9%) by the number of copies of Word soldto businesses, for a total of 1.8 million infringing uses. 4

4 Based on sales of Word, Wagner thenestimated the number of additional infringing usesthat occurred between the end of the survey dateand start of trial, to give a total of 2.1 million.

Wecker opined that this estimate was conservative,"really an underestimate" and "way low" because heassumed every company that did not respond was notinfringing, which was highly unlikely and introduced a"serious downward bias." Microsoft contested theaccuracy of the survey, based on the low response rate,use of logical imputation to correct inconsistent answers,and questions requiring estimates of Word usage goingback several years. In response, i4i's experts opined thatthe survey's conservative assumptions about theunresponsive companies mitigated (and perhaps evenovercorrected) for those weaknesses.

Microsoft is correct that i4i's expert could have[**52] used other data in his calculations. The existenceof other facts, however, does not mean that the facts usedfailed to meet the minimum standards of relevance

[*856] or reliability. See Fed. R. Evid. 702 advisorycommittee's note. [HN20]Under Rule 702, the question iswhether the expert relied on facts sufficiently related tothe disputed issue. Here, that issue was a reasonableroyalty for the '449 patent. We conclude that Wagnerbased his calculations on facts meeting these minimumstandards of relevance and reliability. Fed. R. Evid. 702.

As i4i's expert explained, the facts were drawn frominternal Microsoft documents, publicly availableinformation about other custom XML editing software,and a survey designed to estimate the amount ofinfringing use. Thus, these facts had a sufficient nexus tothe relevant market, the parties, and the allegedinfringement. While the data were certainly imperfect,and more (or different) data might have resulted in a"better" or more "accurate" estimate in the absolute sense,[HN21]it is not the district court's role under Daubert toevaluate the correctness of facts underlying an expert'stestimony. See Micro Chem., 317 F.3d at 1392.Questions about what facts [**53] are most relevant orreliable to calculating a reasonable royalty are for thejury. The jury was entitled to hear the expert testimonyand decide for itself what to accept or reject. SeePipitone, 288 F.3d at 249-50.

As the Supreme Court explained in Daubert,"[v]igorous cross-examination, presentation of contraryevidence, and careful instruction on the burden of proofare the traditional and appropriate means of attackingshaky but admissible evidence." 509 U.S. at 596.Microsoft had these opportunities, and ably availed itselfof them. Microsoft presented expert testimony andattacked the benchmark, survey, and calculation'sreasonableness on cross-examination. Cf. Micro Chem.,317 F.3d at 1392.

Based on this record, the district court did not abuseits discretion in admitting Wagner's expert testimony ondamages.

2. The Survey

Microsoft also challenges the district court'sadmission of the survey used to estimate the amount ofinfringing use. We do not agree with Microsoft that thedanger of unfair prejudice substantially outweighed thesurvey's probative value, so as to warrant exclusion underRule 403. Both of i4i's experts, Wagner and Wecker,opined that the survey dramatically [**54]underestimated the amount of infringing use. Given the

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survey's conservative assumptions, the district court didnot abuse its discretion in admitting the survey. Further,the survey was properly admitted over Microsoft'shearsay objection under Federal Rule of Evidence 703,since the survey was used to estimate the amount ofinfringing use, a key number in i4i's damage calculation.Given the survey's importance, evidence about itsmethodology and findings could certainly help the juryevaluate the expert testimony. See C. A. May MarineSupply Co. v. Brunswick Corp., 649 F.2d 1049, 1054-55(5th Cir. 1981). The testimony of Wecker, the expert whohelped design the survey, sufficed to show that the surveywas compiled in accordance with acceptable surveymethods.

For these reasons, the district court did not abuse itsdiscretion in admitting the survey.

B. Reasonableness of the Damages Award

Microsoft urges us to follow this court's recentdecision in Lucent, 580 F.3d 1301, and hold that $ 200million is not a reasonable royalty. We cannot, however,because the procedural posture of this case differs fromLucent, and that difference controls this case. AlthoughMicrosoft [*857] now objects to [**55] the size of thedamages award, we cannot reach that question becauseMicrosoft did not file a pre-verdict JMOL on damages.

In Lucent, the accused infringer filed a pre-verdictJMOL motion challenging the sufficiency of thedamages' evidence. Id. at 1309. Though Microsoft couldhave similarly filed a pre-verdict JMOL, for whateverreason, it chose not to. See Fed. R. Civ. P. 50(a). Onappeal, what that strategic decision means for Microsoftis that we cannot decide whether there was a sufficientevidentiary basis for the jury's damages award. Cf.Lucent, 580 F.3d at 1332 (holding that "we see littleevidentiary basis under Georgia-Pacific" for the damagesaward). Asking whether a damages award is"reasonable," "grossly excessive or monstrous," "basedonly on speculation or guesswork," or "clearly notsupported by the evidence," are simply different ways ofasking whether the jury's award is supported by theevidence. Fuji Photo, 394 F.3d at 1378; CatalinaLighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277, 1290(Fed. Cir. 2002). Microsoft waived its ability to have usdecide that question by failing to file a pre-verdict JMOLon damages. Fed. R. Civ. P. 50(a), (b).

Had Microsoft filed [**56] a pre-verdict JMOL, it is

true that the outcome might have been different. Giventhe opportunity to review the sufficiency of the evidence,we could have considered whether the $ 200 milliondamages award was "grossly excessive or monstrous" inlight of Word's retail price and the licensing feesMicrosoft paid for other patents. Cf. Lucent, 580 F.3d at1325-32. As this court did in Lucent, we could haveanalyzed the evidentiary basis for the Georgia-Pacificfactors, and whether the benchmark (XMetaL) wassufficiently comparable. Id.

However, we cannot. Instead of the more searchingreview permitted under Rule 50(b), we are constrained toreview the verdict under the much narrower standardapplied to denials of new trial motions. Duff, 489 F.3d at730. [HN22]This standard is highly deferential: we mayset aside a damages award and remand for a new trial"only upon a clear showing of excessiveness." Id.(emphasis added). To be excessive, the award mustexceed the "maximum amount calculable from theevidence." Carlton v. H. C. Price Co., 640 F.2d 573, 579(5th Cir. 1981). We must affirm unless the appellantclearly shows there was no evidence to support the jury'sverdict. Duff, 489 F.3d at 730, 732; [**57] see alsoIndustrias Magromer, 293 F.3d at 923.

Under this highly deferential standard, we cannot saythat Microsoft is entitled to a new trial on damages. Thedamages award, while high, was supported by theevidence presented at trial, including the experttestimony--which the jury apparently credited. SeeUnisplay, S.A. v. Am. Elec. Sign Co., 69 F.3d 512, 519(Fed. Cir. 1995). On appeal, the question is not whetherwe would have awarded the same amount of damages ifwe were the jury, but rather whether there is evidence tosupport what the jury decided. See Fuji Photo, 394 F.3dat 1378. Here, the jury's award was supported by thetestimony of Wagner, i4i's damage expert, who opinedthat a reasonable royalty was between $ 200 and $ 207million. The award was also supported by the testimonyof Wecker, i4i's survey expert, who explained that thesurvey's conservative assumptions (i.e., that none of thecompanies who failed to respond infringed) meant thedamages figure was "really an underestimate" and "waylow." As we have recognized previously, any reasonableroyalty analysis necessarily involves an element ofapproximation, [*858] and uncertainty. See Lucent, 580F.3d at 1325; Unisplay, 69 F.3d at 517. [**58] Given theintensely factual nature of a damages determination andour deferential standard of review, we are not in a

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position to second-guess or substitute our judgment forthe jury's.

C. Enhanced Damages

Microsoft has only appealed the district court'sdecision to enhance damages under 35 U.S.C. § 284.

[HN23]Section 284 gives the district court discretionto "increase the damages up to three times the amountfound or assessed" by the jury. A finding of willfulinfringement is a prerequisite to the award of enhanceddamages. In re Seagate Technology, LLC. 497 F.3d 1360,1368 (Fed. Cir. 2007) (en banc). In this case, the questionof whether Microsoft willfully infringed the '449 patentwas submitted to the jury, which was instructed that i4ihad to prove Microsoft (1) was aware of the '449 patent;(2) acted despite an objectively high likelihood that itsactions infringed a valid patent; where (3) this objectivelyhigh risk was either known or so obvious it should havebeen known to Microsoft. The verdict form instructed thejury to answer "yes" or "no" to "Did i4i prove by clearand convincing evidence that Microsoft's infringementwas willful?" The jury answered "yes." Based on thejury's [**59] willfulness finding, i4i made a post-trialmotion for enhanced damages.

The district court then analyzed the factors set out inRead Corp. v. Portec, Inc., 970 F.2d 816, 826-27 (Fed.Cir. 1992), in deciding whether to enhance damages. Thedistrict court found that factors 2, 4, 6, 7, and 8 supportedenhancement. Factors 1 and 9, combined with i4i's delayin bringing suit, were found to weigh againstenhancement. For factor 1, which considers whether theinfringer deliberately copied the ideas or design ofanother, the district court found no evidence thatMicrosoft deliberately copied any of i4i's products. Forfactor 2, which considers whether the infringer knew ofthe patent, investigated the patent's scope and formed agood-faith belief of its invalidity or noninfringement, thedistrict court found Microsoft was aware of i4i's patent,never formed a good faith belief of noninfringement, andclearly intended to add a custom XML editor in Wordwith similar capabilities to i4i's patented products. Forfactor 4, which considers the infringer's size and financialcondition, the district court found that the jury's award,while "substantial," was only a small fraction ofMicrosoft's profits [**60] from the sale of Wordproducts. The district court also noted that Microsoft was"undisputedly" the world leader in software for businessand personal computing, with revenues of $ 60.42 billion

in 2008 alone. As for factors 6, 7, and 8, the district courtfound that Microsoft had started using the infringingproducts more than five years ago (in 2002), failed toconduct an infringement analysis after being notified ofthe '449 patent again in 2003, and implemented theinfringing custom XML editor with the purpose ofrendering i4i's products obsolete. Although statutorilyauthorized to increase the award to $ 600 million, thedistrict court awarded only $ 40 million in enhanceddamages. See 35 U.S.C. § 284.

On this record, we cannot conclude that the districtcourt abused its discretion in weighing the evidence orapplying the Read factors. See Amsted Indus., Inc. v.Buckeye Steel Castings Co., 24 F.3d 178, 184 (Fed. Cir.1994). The district court made detailed factual findingswhich, taken together, support its award of enhanceddamages. See Jurgens v. CBK, Ltd., 80 F.3d 1566,1570-71 (Fed. Cir. 1996). In deciding whether to enhancedamages, the district court properly declined to [**61]reapply [*859] the test for willfulness set out in Seagate,497 F.3d 1360. Although a finding of willfulness is aprerequisite for enhancing damages under § 284, thestandard for deciding whether--and by how much--toenhance damages is set forth in Read, not Seagate. See 35U.S.C. § 284; SRI Int'l v. Advanced Tech. Lab., 127 F.3d1462, 1468-69 (Fed. Cir. 1997); cf. Seagate, 497 F.3d at1371. Here, the question of willfulness was submitted tothe jury. Microsoft does not dispute that the juryinstructions were proper under Seagate, 497 F.3d at 1371.The test for willfulness is distinct and separate from thefactors guiding a district court's discretion regardingenhanced damages. Compare id., with Read, 970 F.2d at826-27. Under the Read factors, the district courtproperly considered Microsoft's size and financialcondition, as well as whether Microsoft investigated thescope of the patent. Id. at 827; see also Transclean Corp.v. Bridgewood Servs., Inc., 290 F.3d 1364, 1377-78 (Fed.Cir. 2002).

Microsoft is correct that it would have been improperto enhance damages based solely on litigationmisconduct, and that this is not the prototypical case oflitigation misconduct. 5 Typically, [**62] "litigationmisconduct" refers to bringing vexatious or unjustifiedsuits, discovery abuses, failure to obey orders of thecourt, or acts that unnecessarily prolong litigation.Jurgens, 80 F.3d at 1570-71 & n.3; see also Va. PanelCorp. v. MAC Panel Co., 133 F.3d 860, 866 (Fed. Cir.1997). Here, the misconduct was improper statements by

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Microsoft's counsel to the jury, in defiance of the court'srepeated admonitions. However, the district courtconsidered Microsoft's litigation misconduct only afterfinding that the other Read factors favored enhanceddamages: "Finally, also favoring enhancement isMicrosoft's counsel's litigation conduct . . . ." Consideringall the Read factors and the district court's statutoryauthority to treble damages under § 284, the actual awardof $ 40 million was not an abuse of discretion.

5 Enhanced damages are certainly not the soleremedy for attorney misconduct. Other tools,which may be more appropriate in the mine-run ofcases, include the award of attorney fees orsanctions. See 35 U.S.C. § 285; Fed. R. Civ. P.11, 38; see also 28 U.S.C. § 1927.

VI. Willfulness

We do not read Microsoft's opening brief aschallenging the denial of Microsoft's post-verdict [**63]JMOL on willfulness. Although Microsoft did mentionwillfulness when disputing the propriety of the enhanceddamages award, in substance this argument focused onthe district court's rationale for awarding enhanceddamages, not the jury's willfulness verdict. Whether thedistrict court abused its discretion in weighing the Readfactors is not the same question as whether there was alegally sufficient evidentiary basis for the jury's findingof willfulness. Fed. R. Civ. P. 50(a); compare Bryant v.Compass Group USA Inc., 413 F.3d 471, 475 (5th Cir.2005), with Read, 970 F.2d at 821, 826-27.[HN24]Whether Microsoft's infringement was willful is aquestion of fact. Cohesive Techs., Inc. v. Waters Corp.,543 F.3d 1351, 1374 (Fed. Cir. 2008); see Braun Inc. v.Dynamics Corp. of Am., 975 F.2d 815, 822 (Fed. Cir.1992). This question was submitted to the jury, whichanswered in the affirmative. Accordingly, appellatereview is limited to asking whether that verdict issupported by substantial evidence. ACCO Brands, 501F.3d at 1311-12. On appeal, Microsoft has never attackedthe jury instructions or the basis for the jury's willfulnessverdict. In light of what Microsoft actually argued, we do[**64] not read Microsoft's [*860] passing reference toits post-verdict JMOL on willfulness as raising the issue.

Even if we were to read the solitary sentence,"Microsoft is entitled to judgment as a matter of law onthe issue of willfulness," as challenging the jury's findingof willfulness, the result does not change. A reasonablejury could have concluded that Microsoft "willfully"

infringed the '449 patent based on the evidence presentedat trial. [HN25]Infringement is willful when the infringerwas aware of the asserted patent, but nonetheless "acteddespite an objectively high likelihood that its actionsconstituted infringement of a valid patent." Seagate, 497F.3d at 1371. After satisfying this objective prong, thepatentee must also show that the infringer knew or shouldhave known of this objectively high risk. Id.

In this case, i4i presented sufficient evidence at trialto prove each prong of the Seagate standard forwillfulness. The jury heard that Microsoft employeesattended demonstrations of i4i's software, whichpracticed the '449 patent. Further, the jury learned thatMicrosoft employees received i4i's sales kit, whichidentified i4i's software as "patented" technology andcited the '449 patent. [**65] The jury then saw a series ofemails between Microsoft employees discussing amarketing email sent by i4i. One of those emailsexplained that the "heart" of i4i's software was patented,again citing the '449 patent. Based on this circumstantialevidence, the jury could have reasonably inferred thatMicrosoft knew about the '449 patent.

At trial, i4i also showed that Word's custom XMLeditor was designed to and did perform the same methodsas i4i's software (which was known to practice the '449patent). Despite this highly similar functionality, there isno evidence Microsoft took any remedial action, eventhough Microsoft knew of the '449 patent as early asApril 2001, before any work had begun on Word'scustom XML editor. For example, Microsoft did notcease its infringing activity or attempt to design around;instead, Microsoft started marketing, selling, andinstructing others in the use of Microsoft's custom XMLeditor in 2002. Cf. DePuy Spine, Inc. v. MedtronicSofamor Danek, 567 F.3d 1314, 1336-37 (Fed. Cir.2009). Similarly, there is no evidence Microsoft evermade a good faith effort to avoid infringement; internalemails show Microsoft intended to render i4i's product"obsolete" [**66] and assure "there won't be a need for[i4i's] product." Based on this and other evidencepresented at trial, it would have been reasonable for thejury to infer that Microsoft went ahead with producing,marketing, and promoting its custom XML editor despitean objectively high likelihood the editor infringed the'449 patent. This same evidence supports the jury'sfinding as to the subjective prong of Seagate. Given theinformation Microsoft had about i4i's software and the'449 patent, Microsoft knew or should have known that

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there was an objectively high risk of infringement.

The fact that Microsoft presented several defenses attrial, including noninfringement and invalidity, does notmean the jury's willfulness finding lacks a sufficientevidentiary basis. See Fed. R. Civ. P. 50(a). The juryheard all of Microsoft's defenses, which it expresslyrejected in finding the '449 patent infringed and notinvalid. Cf. DePuy Spine, 567 F.3d at 1336-37 (notingthat the question of equivalence was "a close one").Based on its own assessment of the evidence andMicrosoft's defenses, the jury was free to decide for itselfwhether Microsoft reasonably believed there were anysubstantial defenses [**67] to a claim of infringement.Cf. Cohesive Techs., 543 F.3d at 1374.

[*861] VII. Permanent Injunction

We must decide whether the district court abused itsdiscretion in granting a permanent injunction againstMicrosoft, or in tailoring that injunction under eBay Inc.v. MercExchange, L.L.C. 547 U.S. 388, 391, 126 S. Ct.1837, 164 L. Ed. 2d 641 (2006).

The permanent injunction prohibits Microsoft from(1) selling, offering to sell, and/or importing into theUnited States any infringing Word products with thecapability of opening XML files containing customXML; (2) using Word to open an XML file containingcustom XML; (3) instructing or encouraging anyone touse Word to open an XML containing custom XML; (4)providing support or assistance that describes how to useWord to open an XML file containing custom XML; and(5) testing, demonstrating, or marketing Word's ability toopen an XML file containing custom XML.

The scope of this injunction is narrow, however. Itapplies only to users who purchase or license Word afterthe date the injunction takes effect. Users who purchaseor license Word before the injunction's effective date maycontinue using Word's custom XML editor, and receivingtechnical support.

[HN26]We review the decision to [**68] grant aninjunction, as well as the scope of that injunction, forabuse of discretion. Joy Technologies v. Flakt, Inc., 6F.3d 770, 772 (Fed. Cir. 1993). Factual findings made insupport of the injunction are reviewed for clear error; thedistrict court's conclusion as to each eBay factor isreviewed for abuse of discretion. Acumed LLC v. StrykerCorp., 551 F.3d 1323, 1327-31 (Fed. Cir. 2008). Our

review is guided by statute and well-establishedprinciples of equity. See 35 U.S.C. § 283. 6 The plaintiffhas the burden of showing that (1) it has suffered anirreparable injury; (2) remedies available at law areinadequate to compensate for that injury; (3) consideringthe balance of hardships between the plaintiff anddefendant, a remedy in equity is warranted; and (4) thepublic interest would not be "disserved" by a permanentinjunction. eBay, 547 U.S. at 391.

6 The Patent Act provides that [HN27]courts"may grant injunctions in accordance with theprinciples of equity to prevent the violation of anyright secured by patent, on such terms as the courtdeems reasonable." 35 U.S.C. § 283.

While we conclude that the injunction's effectivedate should have been five months, rather than sixty days,[**69] from the date of its August 11, 2009 order, weaffirm the district court's issuance of a permanentinjunction and otherwise affirm the injunction's scope.Below, we address each factor in turn.

A. Irreparable Injury

The district court concluded that i4i was irreparablyinjured by Microsoft's infringement, based on its factualfindings that Microsoft and i4i were direct competitors inthe custom XML market, and that i4i lost market share asa result of the infringing Word products. The districtcourt further found that the infringing Word productsrendered i4i's software obsolete, as a result of which i4ichanged its business model to make software thatcomplemented Microsoft's infringing products.

It was proper for the district court to considerevidence of past harm to i4i. [HN28]Past harm to apatentee's market share, revenues, and brand recognitionis relevant for determining whether the patentee "hassuffered an irreparable injury." Id. at 391 (emphasisadded); see, e.g., Acumed, 551 F.3d at 1328-29 [*862](considering the relevance of past licensing decisions inassessing irreparable injury); Voda v. Cordis Corp., 536F.3d 1311, 1329 (Fed. Cir. 2008) (concluding that thepatentee "had not identified [**70] any irreparable injuryto himself"); Innogenetics, N.V. v. Abbott Labs., 512F.3d 1363, 1379-80 (Fed. Cir. 2008) (analyzing whetherthe patentee "had been irreparably harmed"). Althoughinjunctions are tools for prospective relief designed toalleviate future harm, by its terms the first eBay factorlooks, in part, at what has already occurred. Considering

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past harm to a patentee does not establish a "general rule"or rely on the sort of "broad classifications" rejected bythe Supreme Court in eBay; not all patentees will be ableto show injury, and even those who do must still satisfythe other three factors. Cf. eBay, 547 U.S. at 393-94.

In this case, the district court properly consideredstrong circumstantial evidence that Microsoft'sinfringement rendered i4i's product obsolete for much ofthe custom XML market, causing i4i to lose market shareand change its business strategy to survive. i4i was notrequired to prove that its specific customers stoppedusing i4i's products because they switched to theinfringing Word products. Based on the evidencepresented at trial, it was not an abuse of discretion for thedistrict court to find that Microsoft's infringementirreparably injured [**71] i4i.

B. Inadequate Remedies at Law

The district court concluded that there wereinadequate remedies at law to compensate i4i for itsinjury. The district court found that before and afterMicrosoft began infringing, i4i produced and soldsoftware that practiced the patented method. The districtcourt found no evidence that i4i had previously licensedthe patent, instead finding evidence that i4i sought toretain exclusive use of its invention.

It was not an abuse of discretion for the district courtto conclude that monetary damages would be inadequate.In this case, a small company was practicing its patent,only to suffer a loss of market share, brand recognition,and customer goodwill as the result of the defendant'sinfringing acts. Such losses may frequently defy attemptsat valuation, particularly when the infringing actssignificantly change the relevant market, as occurredhere. The district court found that Microsoft captured80% of the custom XML market with its infringing Wordproducts, forcing i4i to change its business strategy. Theloss associated with these effects is particularly difficultto quantify. Difficulty in estimating monetary damages isevidence that remedies [**72] at law are inadequate.Broadcom Corp. v. Qualcomm Inc., 543 F.3d 683,703-04 (Fed. Cir. 2008).

C. Balance of Hardships

Except on the limited issue of timing, the balance ofhardships favors i4i. The district court found that i4i'sbusiness is comprised "almost exclusively" of products

based on the '449 patent. In contrast, Microsoft'sinfringing custom XML editor was found to be "merelyone of thousands of features" within Word, used by onlya small fraction of Microsoft's customers. The districtcourt further found that Microsoft's infringement of the'449 patent allowed Microsoft to "corner [] the XMLmarket."

Because the "balance of hardships" assesses therelative effect of granting or denying an injunction on theparties, the district court properly considered severalfactors in its analysis. eBay, 547 U.S. at 391. Thesefactors included the parties' sizes, products, and revenuesources. When measured by these factors, [*863] it isclear that the patented technology is central to i4i'sbusiness. Because most of i4i's products are based on the'449 patent, i4i's market share, revenues, and businessstrategy are similarly tied to the patented method. Thesesame factors reveal that the infringing [**73] customXML editor relates to only a small fraction of Microsoft'ssizeable business. The far greater importance of thepatented method to i4i, combined with the demonstratedpast effects of infringement on i4i, favors issuance of apermanent injunction.

The district court's analysis properly ignored theexpenses Microsoft incurred in creating the infringingproducts. See Acumed, 551 F.3d at 1330. Similarlyirrelevant are the consequences to Microsoft of itsinfringement, such as the cost of redesigning theinfringing products. Id. As we explained in Broadcom,[HN29]neither commercial success, nor sunkdevelopment costs, shield an infringer from injunctiverelief. 543 F.3d at 704. Microsoft is not entitled tocontinue infringing simply because it successfullyexploited its infringement. Id.; see also Windsurfing Int'lv. AMF, Inc., 782 F.2d 995, 1003 n.12 (Fed. Cir. 1986).

D. Public Interest

Except as to the injunction's effective date, thedistrict court did not abuse its discretion in finding thatthe narrow scope of the injunction and the public'sgeneral interest in upholding patent rights favorinjunctive relief. See Broadcom, 543 F.3d at 704 (quotingRite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1547 (Fed.Cir. 1995)). [**74] The district court's conclusionproperly recognized that the touchstone of the publicinterest factor is whether an injunction, both in scope andeffect, strikes a workable balance between protecting thepatentee's rights and protecting the public from the

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injunction's adverse effects. Broadcom, 543 F.3d at 704.In particular, the injunction's narrow scope substantiallymitigates the negative effects on the public, practicallyand economically. By excluding users who purchased orlicensed infringing Word products before the injunction'seffective date, the injunction greatly minimizes adverseeffects on the public. Id. Here, the relevant "public"includes not only individual consumers, but alsocompanies that license infringing Word products andmanufacturers that are part of Microsoft's distributionchannels. Cf. id. (defining the "public" to include affectednetwork carriers and manufacturers). By carving outusers who purchased or licensed infringing Wordproducts before the injunction's effective date, theinjunction's tailoring minimizes disruptions to the marketand the public.

E. Injunction's Effective Date

On appeal, Microsoft challenges the date on whichthe injunction goes [**75] into effect. We reviewwhether this aspect of the district court's order issupported by the record. As to the limited question of theinjunction's effective date, we conclude that it is not.Accordingly, the injunction's effective date is modified asdescribed below.

The district court ordered the injunction to go intoeffect sixty days after August 11, 2009, the date of itsorder issuing the injunction. Citing the declaration of aMicrosoft employee (the "Tostevin declaration"), thedistrict court found that "Microsoft ha[d] presentedevidence that it may take five months to implement anyinjunction." The district court also found, without anycitation to the record, that "i4i ha[d] presented evidencethat it is possible to design a software patch that can

remove a user's ability to operate the infringingfunctionality." Based on, among other things, "thiscompeting evidence" and "the [*864] uncertaintysurrounding what period of time would be 'reasonable' toexpect Microsoft to comply with any injunction," thedistrict court ordered Microsoft to comply with thepermanent injunction "within 60 days."

In light of the record evidence, we conclude that thedistrict court erred by ordering Microsoft [**76] tocomply with the injunction within sixty days. The onlyevidence about how long it would take Microsoft tocomply with the injunction was the Tostevin declaration,which gave an estimate of "at least" five months. Thedistrict court cited no other evidence, and our review ofthe record reveals no "competing evidence." Accordingly,we modify the injunction's effective date from "60 daysfrom the date of this order" to "5 months from the date ofthis order." Cf. Canadian Lumber Trade Alliance v.United States, 517 F.3d 1319, 1339 n.22 & 1344 (Fed.Cir. 2008) (modifying an injunction's terms on appeal);Forest Labs., Inc. v. Ivax Pharms., Inc., 501 F.3d 1263,1271-72 (Fed. Cir. 2007) (modifying an injunction'sterms on appeal). The injunction's effective date is nowJanuary 11, 2010.

CONCLUSION

The district court's claim construction is affirmed, asare the jury's findings of infringement and validity. Thedistrict court did not abuse its discretion in admitting i4i'sevidence as to damages or in granting enhanced damages.Finally, we affirm the entry of the permanent injunctionas modified herein.

AFFIRMED

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LEXSEE

CautionAs of: Dec 03, 2010

BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY,Plaintiff/Counterclaim Defendant-Appellant, and THOMAS MERIGAN and MARK

HOLODNIY, Counterclaim Defendants, v. ROCHE MOLECULAR SYSTEMS,INC., ROCHE DIAGNOSTICS CORPORATION, ROCHE DIAGNOSTICS

OPERATIONS, INC., Defendants/Counterclaimants-Cross Appellants.

2008-1509, 2008-1510

UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT

583 F.3d 832; 2009 U.S. App. LEXIS 21465; 92 U.S.P.Q.2D (BNA) 1442

September 30, 2009, Decided

SUBSEQUENT HISTORY: As Revised October 1,2009.Later proceeding at Bd. of Trs. of the Leland StanfordJunior Univ. v. Roche Molecular Sys., 130 S. Ct. 3536,177 L. Ed. 2d 1088, 2010 U.S. LEXIS 5372 (U.S., 2010)US Supreme Court certiorari granted by Bd. of Trs. of theLeland Stanford Junior Univ. v. Roche Molecular Sys.,2010 U.S. LEXIS 8553 (U.S., Nov. 1, 2010)

PRIOR HISTORY: [**1]Appeals from the United States District Court for the

Northern District of California in case no. 05-CV-04158,Judge Marilyn H. Patel.Bd. of Trs. of the Leland Stanford Junior Univ. v. RocheMolecular Sys., 563 F. Supp. 2d 1016, 2008 U.S. Dist.LEXIS 73352 (N.D. Cal., 2008)Bd. of Trs. v. Roche Molecular Sys., 487 F. Supp. 2d1099, 2007 U.S. Dist. LEXIS 27965 (N.D. Cal., 2007)

DISPOSITION: AFFIRMED-IN-PART,VACATED-IN-PART, AND REMANDED.

CASE SUMMARY:

PROCEDURAL POSTURE: Plaintiff, a university'sboard of trustees, filed suit in the United States District

Court for the Northern District of California, claimingthat defendant corporations infringed U.S. Patent Nos.5,968,730, 6,503,705, and 7,129,041. The district courtfound that all three patents were invalid because theywere obvious, and the board of trustees appealed.Defendants filed a cross-appeal on the issue of the parties'rights in the patents.

OVERVIEW: The trustees claimed that the corporationsinfringed patents that described methods for quantifyingthe Human Immunodeficiency Virus (HIV) in humanblood samples when they manufactured kits for detectingHIV. The corporations disagreed, and they filed acounterclaim which sought a judgment that they ownedthe patents because a researcher who worked for theuniversity and a company that collaborated with theuniversity gave his rights in the patents to the companybefore the corporations purchased those rights. Althoughthe district court found that the corporations'counterclaim was time-barred, it also found that thepatents were invalid. The court of appeals found that thecorporations' counterclaim alleging ownership of thepatents was barred by California's statute of limitations,and it affirmed that portion of the district court'sjudgment. However, the court of appeals vacated thedistrict court's judgment that the patents were invalid

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because the trustees lacked standing to sue. The trustees'inability to establish that the university possessed theresearcher's interest in the patents defeated their right toassert a patent infringement claim against thecorporations.

OUTCOME: The court of appeals affirmed the districtcourt's judgment dismissing the corporations'counterclaim seeking a judgment that it owned thepatents, vacated the district court's judgment that thepatents were invalid for obviousness, and remanded thecase to the district court with instructions that it dismissthe university's patent infringement claims.

CORE TERMS: patent, invention, ownership, statutesof limitation, assign, counterclaim, notice, license,inventor's, patents-in-suit, patent rights, assay, Bayh-DoleAct, cause of action, void, affirmative defense,cross-appeal, presentation, infringement, citationsomitted, invalidity, laches, summary judgment, bona fidepurchaser, equitable, co-owner, accrue, ownership claim,declaratory, correctly

LexisNexis(R) Headnotes

Civil Procedure > Appeals > General Overview[HN1]It is appropriate to file a cross-appeal when a partyseeks to enlarge its own rights under a judgment or tolessen the rights of its adversary under a judgment. Thus,a party must file a cross-appeal when acceptance of theargument it wishes to advance would result in a reversalor modification of the judgment rather than anaffirmance.

Civil Procedure > Summary Judgment > AppellateReview > Standards of ReviewCivil Procedure > Appeals > Standards of Review > DeNovo Review[HN2]The United States Court of Appeals for the FederalCircuit reviews a federal district court's grant or denial ofsummary judgment under the law of the regional circuit.The United States Court of Appeals for the Ninth Circuitreviews a district court's grant of summary judgment denovo, determining whether, viewing all evidence in thelight most favorable to the nonmoving party, there areany genuine issues of material fact and whether thedistrict court correctly applied the relevant substantive

law.

Civil Procedure > Pleading & Practice > Defenses,Demurrers & Objections > General OverviewCivil Procedure > Pleading & Practice > Pleadings >Counterclaims > General Overview[HN3]See Fed. R. Civ. P. 8(c)(2).

Civil Procedure > Pleading & Practice > Defenses,Demurrers & Objections > Affirmative Defenses >General OverviewCivil Procedure > Appeals > Standards of Review >Abuse of DiscretionPatent Law > Jurisdiction & Review > Standards ofReview > Abuse of Discretion[HN4]In patent cases, the United States Court of Appealsfor the Federal Circuit defers to the law of the regionalcircuits on matters of procedural law that do not implicateissues of patent law. In the Ninth Circuit, a district court'sdecision with regard to the treatment of affirmativedefenses is reviewed for an abuse of discretion.

Civil Procedure > Pleading & Practice > Defenses,Demurrers & Objections > General OverviewCivil Procedure > Pleading & Practice > Pleadings >Counterclaims > General Overview[HN5]Fed. R. Civ. P. 8(c)(2) generally applies if a partymistakenly designates its arguments. The phrase "ifjustice requires" that appears in Rule 8(c)(2) is not welldefined. But Rule 8(c)(2) generally favors defendants byconstruing responsive pleadings liberally to maximize thedefendant's available legal theories. Moreover, Rule8(d)(2) permits a party to set out two or more statementsof a claim or defense alternatively or hypothetically. If aparty pleads alternative statements, the pleading issufficient if any one of them is sufficient.

Civil Procedure > Pleading & Practice > Defenses,Demurrers & Objections > General OverviewGovernments > Legislation > Statutes of Limitations >General Overview[HN6]Under California law, a defense may be raised atany time, even if the matter alleged would be barred by astatute of limitations if asserted as the basis foraffirmative relief. The United States Supreme Court hasrepeatedly followed this distinction. The Supreme Courthas stated that the object of a statute of limitation in

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keeping stale litigation out of the courts would bedistorted if the statute were applied to bar an otherwiselegitimate defense to a timely lawsuit. To use the statuteof limitations to cut off the consideration of a particulardefense in a case is quite foreign to the policy ofpreventing the commencement of stale litigation.

Civil Procedure > Pleading & Practice > Defenses,Demurrers & Objections > Affirmative Defenses >General OverviewCivil Procedure > Pleading & Practice > Defenses,Demurrers & Objections > Affirmative Defenses >Laches[HN7]Under California law, laches does not baraffirmative defenses.

Civil Procedure > Justiciability > Standing > GeneralOverviewGovernments > Legislation > Statutes of Limitations >General Overview[HN8]It is well settled that questions of standing can beraised at any time and are not foreclosed by, or subject to,statutes of limitation.

Civil Procedure > Justiciability > Standing > GeneralOverviewPatent Law > Infringement Actions > General OverviewPatent Law > Ownership > Conveyances > Assignments[HN9]The question of who owns patent rights and onwhat terms typically is a question exclusively for statecourts. However, this rule has exceptions: the question ofwhether contractual language effects a presentassignment of patent rights, or an agreement to assignrights in the future, is resolved by Federal Circuit law.Although state law governs the interpretation of contractsgenerally, the question of whether a patent assignmentclause creates an automatic assignment or merely anobligation to assign is intimately bound up with thequestion of standing in patent cases. The United StatesCourt of Appeals for the Federal Circuit has accordinglytreated it as a matter of federal law.

Civil Procedure > Justiciability > Standing > GeneralOverviewContracts Law > Contract Interpretation > GeneralOverviewPatent Law > Jurisdiction & Review > Subject Matter

Jurisdiction > General OverviewPatent Law > Ownership > Conveyances > Assignments[HN10]Although state law governs the interpretation ofcontracts generally, the question of whether a patentassignment clause creates an automatic assignment ormerely an obligation to assign is intimately bound upwith the question of standing in patent cases. The UnitedStates Court of Appeals for the Federal Circuit hasaccordingly treated it as a matter of federal law.

Contracts Law > Contract Interpretation > GeneralOverviewContracts Law > Secured Transactions > Third PartyRights > AssignmentsPatent Law > Ownership > Conveyances > Assignments[HN11]The contract language "agree to assign" reflects amere promise to assign rights in the future, not animmediate transfer of expectant interests. However, anagreement to assign may vest the promisee with equitablerights.

Patent Law > Ownership > Conveyances > AssignmentsPatent Law > Ownership > Conveyances > Recordation[HN12]See 35 U.S.C.S. § 261.

Contracts Law > Types of Contracts > Bona FidePurchasers[HN13]Generally, a bona fide purchaser is one whopurchases legal title to property in good faith for valuableconsideration, without notice of any other claim ofinterest in the property.

Contracts Law > Types of Contracts > Bona FidePurchasersPatent Law > Ownership > Conveyances > AssignmentsPatent Law > Ownership > Conveyances > Recordation[HN14]While the bona fide purchaser defense to patentinfringement is a matter of federal law, the doctrinedraws upon common law principles. "Notice" under 35U.S.C.S. § 261 can include constructive or inquiry notice,in addition to actual notice.

Business & Corporate Law > Agency Relationships >Authority to Act > Business Transactions > PropertyContracts Law > Secured Transactions > Third PartyRights > AssignmentsPatent Law > Ownership > Conveyances > Assignments

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[HN15]An organization can be charged with notice of itsemployees' assignments.

Patent Law > Ownership > Federal GovernmentInventions[HN16]Congress passed the Bayh-Dole Act, 35 U.S.C.S.§§ 200-212, to promote the utilization of inventionsarising from federally supported research or developmentand to ensure that the Government obtains sufficientrights in federally supported inventions. 35 U.S.C.S. §200. The Act allows the U.S. Government to take title to"subject inventions" under certain circumstances, 35U.S.C.S. § 202(a) and (b), or "contractor" universities orinventors to retain ownership if the Government does not.35 U.S.C.S. § 202(d).

Patent Law > Ownership > Federal GovernmentInventions[HN17]When the Bayh-Dole Act's, 35 U.S.C.S. §§200-212, provisions are violated, the U.S. Governmentcan choose to take action; thus, title to a patent may bevoidable. However, it is not void: title remains with thenamed inventors or their assignees. Nothing in the statute,regulations, or Federal Circuit caselaw indicates that titleis automatically forfeited.

Patent Law > Ownership > Federal GovernmentInventions[HN18]Just as the Bayh-Dole Act, 35 U.S.C.S. §§200-212, does not automatically void ab initio aninventor's rights in government-funded inventions, it doesnot void prior contractual transfers of rights.

Patent Law > Ownership > Federal GovernmentInventions[HN19]Regardless of any state law contractualobligations between an academic and his university, theprimary purpose of the Bayh-Dole Act, 35 U.S.C.S. §§200-212, is to regulate relationships of small business andnonprofit grantees with the U.S. Government, notbetween grantees and the inventors who work for them.

Labor & Employment Law > Employment Relationships> Employment Contracts > Conditions & Terms >Trade Secrets & Unfair Competition > Noncompetition& Nondisclosure Agreements[HN20]Under California law, every contract by which

anyone is restrained from engaging in a lawfulprofession, trade, or business of any kind is to that extentvoid. Cal. Bus. & Prof. Code § 16600 (2009). By theplain language of § 16600, only those contracts thatprevent "engaging in a lawful profession, trade orbusiness of any kind" are void.

Civil Procedure > Jurisdiction > Subject MatterJurisdiction > Supplemental Jurisdiction > GeneralOverviewGovernments > Legislation > Statutes of Limitations >General Overview[HN21]When a federal district court has supplementaljurisdiction over a state-law claim, the state statute oflimitations and related principles of tolling and relationback apply to the actions.

Civil Procedure > Declaratory Judgment Actions >State Judgments > General OverviewGovernments > Legislation > Statutes of Limitations >Time Limitations[HN22]Under California law, the period of limitationsapplicable to ordinary actions at law and suits in equityshould be applied in like manner to actions fordeclaratory relief.

Civil Procedure > Declaratory Judgment Actions >State Judgments > General OverviewCivil Procedure > Summary Judgment > Standards >AppropriatenessGovernments > Legislation > Statutes of Limitations >Time Limitations[HN23]In California, it is elementary that a statute oflimitations does not begin to run until the cause of actionaccrues. Equally basic is that a cause of action does notaccrue until the party owning it is entitled to begin andprosecute an action thereon, that is, not until the lastelement essential to the cause of action occurs. A contractcause of action does not accrue until the contract has beenbreached. For a declaratory judgment action, thelimitations period begins when the corresponding claimfor damages or injunction accrues. However, the"discovery rule" mitigates the accrual of claims. Thediscovery rule postpones accrual of a cause of action untilthe plaintiff discovers, or has reason to discover, thecause of action, and the statute of limitations begins torun when a plaintiff has reason to suspect an injury andsome wrongful cause. While resolution of a statute of

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limitations issue is normally a question of fact, where theuncontradicted facts established through discovery aresusceptible of only one legitimate inference, summaryjudgment is proper.

Governments > Legislation > Statutes of Limitations >Time Limitations[HN24]A statute of limitations is suspended by the filingof an original complaint.

Governments > Legislation > Statutes of Limitations >Time LimitationsPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > General OverviewPatent Law > Ownership > General Overview[HN25]The United States Court of Appeals for theFederal Circuit's decision in Meyers v. Brooks Shoe, Inc.does not say that if an alleged co-owner claims ownershipof an invention, and knows that a related patentapplication is forthcoming, its cause of action under statelaw does not accrue until patent issuance.

Patent Law > Infringement Actions > General OverviewPatent Law > Jurisdiction & Review > Subject MatterJurisdiction > General Overview[HN26]It is well settled that all co-owners normally mustjoin as plaintiffs in a patent infringement suit.

COUNSEL: Ricardo Rodriguez, Cooley GodwardKronish LLP, of Palo Alto, California, argued forplaintiff/counterclaim defendant-appellant. With her onthe brief were Michelle S. Rhyu, Lori Ploeger andBenjamin G. Damstedt.

Adrian R. Pruetz, Pruetz Law Group LLP, of El Segundo,California, argued for defendants/counterclaimants-crossappellants. With him on the brief were Erica J. Pruetz andLauren M. Gibbs. Of counsel on the brief were Brian C.Cannon and Charlie Y. Chou, Quinn Emanuel UrquhartOliver & Hedges, LLP, of Redwood Shores, California.Of counsel was Pablo D. Arredondo, of New York, NewYork.

JUDGES: Before LINN, PROST, and MOORE, CircuitJudges.

OPINION BY: LINN

OPINION

[*836] LINN, Circuit Judge.

The Board of Trustees of the Leland Stanford JuniorUniversity ("Stanford") appeals a final judgment that theasserted claims of U.S. Patents No. 5,968,730 ("'730patent"), No. 6,503,705 ("'705 patent"), and No.7,129,041 ("'041 patent") are invalid for obviousness. Bd.of Trs. v. Roche Molecular Sys., Inc., 563 F. Supp. 2d1016 (N.D. Cal. 2008) ("Invalidity [**2] Opinion").Roche Molecular Systems, Inc., Roche DiagnosticsCorporation, and Roche Diagnostics Operations, Inc.(collectively, "Roche") cross-appeal that part of thedistrict court's judgment relating to Roche's ownership,license, and shop rights to the patents-in-suit. Bd. of Trs.v. Roche Molecular Sys., Inc., 487 F. Supp. 2d 1099(N.D. Cal. 2007) ("Contract Opinion").

Because the district court correctly found thatRoche's counterclaim for a judgment on its ownershipclaim was subject to California statutes of limitation, weaffirm that part of the district court's ruling. However,because the district court incorrectly declined to considerRoche's affirmative defense based on ownership, andbecause we conclude as a matter of [*837] law thatRoche possesses an ownership interest in thepatents-in-suit that deprives Stanford of standing, wevacate the district court's judgment of invalidity andremand with instructions to dismiss Stanford's action.

BACKGROUND The patents-in-suit claim methodsfor quantifying Human Immunodeficiency Virus("HIV")--the virus that causes AcquiredImmunodeficiency Syndrome ("AIDS")--in human bloodsamples, and correlating those measurements to thetherapeutic [**3] effectiveness of antiretroviral drugs.The claimed methods use the polymerase chain reaction("PCR") to measure ribonucleic acid ("RNA") from HIVin the blood plasma of infected humans who are takingdrugs such as zidovudine (AZT). PCR is a biochemicaltechnique that enables measurement of relatively smallquantities of nucleic acids by iteratively andexponentially "amplifying" a sample to detectable levels.

All three patents descend from a common parentapplication and share the same title: "Polymerase ChainReaction Assays for Monitoring Antiviral Therapy andMaking Therapeutic Decisions in the Treatment ofAcquired Immunodeficiency Syndrome." Three Stanfordresearchers--Mark Holodniy, Thomas Merigan, and

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David Katzenstein--are named inventors of all threepatents; a fourth inventor, Michael Kozal, appears on the'705 patent.

The technology related to the patents-in-suit wasdeveloped in the late 1980s and early 1990s byresearchers at Stanford and Cetus, a company where PCRtechniques matured in the early 1980s. The collaborationsbetween Stanford and Cetus included a series of writtenagreements. In 1988, Holodniy joined Merigan'slaboratory at Stanford as a Research Fellow in the [**4]Department of Infectious Disease, and signed a"Copyright and Patent Agreement" ("CPA") thatobligated Holodniy to assign his inventions to theuniversity. J.A. 741-47. Holodniy had no prior experiencewith PCR techniques. In February 1989, Holodniy beganregular visits to Cetus over several months to learn PCRand to develop a PCR-based assay for HIV. Holodniysigned a "Visitor's Confidentiality Agreement" ("VCA")with Cetus. Id. 1657-58. The VCA stated that Holodniy"will assign and do[es] hereby assign to CETUS, myright, title, and interest in each of the ideas, inventionsand improvements" that Holodniy may devise "as aconsequence of" his work at Cetus. Id. 1658.

During the same period, Cetus also collaborated withMerigan and Katzenstein to develop a separate HIVtreatment. Merigan, Stanford, and Cetus signed multiple"Materials Transfer Agreements" that permitted Stanfordto use certain PCR-related materials and informationsupplied by Cetus. Id. 1653-56. These agreementsprovided Cetus with licenses to technology that Stanfordcreated as a result of access to Cetus's materials. Id. 1655.

Eventually, Holodniy's research with Cetus producedan assay that used PCR to measure quantitatively [**5]the amount of plasma HIV RNA in samples from infectedhumans. After concluding his visits to Cetus andpublishing his findings with Cetus co-authors, Holodniyworked with Merigan, Katzenstein, and others on clinicalstudies at Stanford that tested the new PCR assay withhuman patients taking antiretroviral drugs. Theresearchers determined that HIV RNA, measured throughPCR, was a suitable "marker" of drug efficacy. Theseresults formed the basis for the patents-in-suit.

In December 1991, Roche purchased Cetus's "PCRbusiness," including its agreements [*838] with Stanfordand its researchers, through an "Asset PurchaseAgreement." Id. 3122, 3153-54. After this transaction,Roche began manufacturing HIV detection kits

employing RNA assays. In May 1992, Stanford filed thepatent application to which the patents-in-suit claimpriority. The '730 patent issued on October 19, 1999; the'705 patent on January 7, 2003; and the '041 patent onOctober 31, 2006, after this lawsuit began. Stanford is thenamed assignee of all three patents.

Stanford received government funding for its HIVresearch through the National Institutes of Health("NIH"). On June 24, 1992, Stanford filed an inventiondisclosure [**6] for the HIV RNA assay with the NIH.See id. 5091-93. On November 29, 1994, Stanfordconfirmed to the Government the grant of a"nonexclusive, nontransferable, irrevocable, paid-uplicense" under the parent application. Id. 5096. On April6, 1995, Stanford formally notified the Government thatit elected to retain title to the inventions under theBayh-Dole Act, 35 U.S.C. §§ 200-212. J.A. 5095. Allthree patents-in-suit contain the notation: "This inventionwas made with Government support under contractsAI27762-04 and AI27766-07 awarded by the NationalInstitutes of Health. The Government has certain rights inthis invention." E.g., '730 patent col.1 ll.11-15.

On April 6, 2000, Luis Mejia, a Senior LicensingAssociate at Stanford, offered a slide presentation atRoche that asserted Stanford's ownership of the HIVRNA assay invention and offered Roche an exclusivelicense to all patents descending from the parentapplication. J.A. 1201-18; Contract Op. at 1110. E-mailcorrespondence shows that as late as spring of 2004,Mejia and his Roche counterpart were negotiatingpossible license terms and contesting Roche's ownershiprights in the patents. See Contract Op. at 1113.

Stanford filed [**7] suit against Roche in theNorthern District of California on October 14, 2005,alleging that Roche's HIV detection kits infringe itspatents. Roche answered and counterclaimed againstStanford, Merigan, and Holodniy, asserting, inter alia,that Stanford lacked standing to maintain the cause ofaction against Roche, that Roche possesses ownership,license, and/or shop rights to the patents through Roche'sacquisition of Cetus's PCR assets, and that the assertedpatent claims were invalid. Roche pleaded its ownershiptheory in three forms: as a declaratory judgmentcounterclaim, an affirmative defense, and a challenge toStanford's standing to sue for infringement. Roche's FirstAm. Compl. 6-7, 13, 24.

The parties cross-moved for summary judgment on

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Roche's rights in the patents. Under Rule 8(c) of theFederal Rules of Civil Procedure, the district courtconstrued Roche's pleading as a counterclaim but not anaffirmative defense, reasoning that "Roche's claims ofownership of the patents and that Stanford lacks standingas the non-exclusive owner of the patents seek to expandRoche's current rights, and are properly viewed ascounterclaims subject to the applicable statute oflimitations." [**8] Contract Op. at 1112. The districtcourt denied Roche's motion in full and grantedStanford's motion in part, finding that (1) Roche'sownership claims were barred by California statutes oflimitation, laches, and the Bayh-Dole Act; (2) Roche'slicense claims failed because Stanford never consented toRoche's acquisition of Cetus's patent licenses; and (3)Roche lacked shop rights to the patents. Id. at 1124.Roche petitioned this court for a writ of mandamus tovacate the district court's ruling. We denied Roche'spetition. In re Roche Molecular Sys., Inc., 516 F.3d 1003(Fed. Cir. 2008).

[*839] After briefing and a Markman hearing, thedistrict court then construed several claim terms. Bd. ofTrs. v. Roche Molecular Sys., Inc., 528 F. Supp. 2d 967(N.D. Cal. 2007). Roche then moved for summaryjudgment that the asserted claims were invalid. Thedistrict court granted the motion, holding all assertedclaims obvious. Invalidity Op. at 1049.

Stanford appeals the judgment of invalidity and thedistrict court's claim construction of "about 30 cycles";Roche cross-appeals the judgment as to the parties'respective rights in the patents. We have jurisdictionunder 28 U.S.C. § 1295(a)(1) (2006).

DISCUSSION

I. [**9] Propriety of Cross-Appeal

As a threshold matter, Stanford challenges thepropriety of Roche's cross-appeal. Stanford argues that"the scope of [Roche's] cross-appeal includes onlyownership" because Roche's license arguments "do notseek to modify the scope of the judgment below and,therefore, are not the proper subject of a cross-appeal."Stanford's Reply Br. 40. Stanford's characterization isincorrect. Although Roche mistakenly characterizes itsownership and license arguments as "alternative grounds"for affirmance, Roche's Principal Br. 2, 35, thosearguments are not bases for invalidating the assertedclaims. The district court's summary judgment of

invalidity, which Stanford appeals, applies only to theasserted claims of the three patents-in-suit. Invalidity Op.at 1021. Roche's ownership and license arguments wouldestablish Roche's rights to the patents as a whole, notonly to specific claims. [HN1]"It is . . . appropriate to filea cross-appeal when a party seeks to enlarge its ownrights under the judgment or to lessen the rights of itsadversary under the judgment. Thus, a party must file across-appeal when acceptance of the argument it wishesto advance would result in a [**10] reversal ormodification of the judgment rather than an affirmance."Bailey v. Dart Container Corp., 292 F.3d 1360, 1362(Fed. Cir. 2002) (citations omitted); see also Rivero v.City & County of San Francisco, 316 F.3d 857, 862 (9thCir. 2002). Here, Roche's arguments would expand itsrights under the judgment and, thus, are properly thesubject of a cross-appeal.

II. The Parties' Patent Rights

Before the district court, Roche sought both to defeatStanford's suit based on Stanford's alleged defective titleand to obtain a judgment that it owned Holodniy's interestin the patents. The district court determined that theapplicable California statutes of limitation and thedoctrine of laches foreclosed Roche's counterclaim for ajudgment of ownership, and that such determination wasfatal to Roche's ownership and standing defenses. Whilewe agree with the district court that the statutes oflimitation preclude Roche from obtaining a judgment ofownership, we do not agree that such determinationprevents Roche from asserting Stanford's lack ofownership of Holodniy's interest as a defense and achallenge to Stanford's standing to maintain its actionagainst Roche.

[HN2]"This court reviews the [**11] district court'sgrant or denial of summary judgment under the law of theregional circuit." MicroStrategy Inc. v. Business Objects,S.A., 429 F.3d 1344, 1349 (Fed. Cir. 2005). The NinthCircuit "review[s] the district court's grant of summaryjudgment de novo, determining whether, viewing allevidence in the light most favorable to the nonmovingparty, there are any genuine issues of material fact andwhether the district court correctly applied the relevant[*840] substantive law." Kraus v. Presidio TrustFacilities Div., 572 F.3d 1039, 1043-44 (9th Cir. 2009).

Rule 8(c)(2) provides: [HN3]"If a party mistakenlydesignates a defense as a counterclaim, or a counterclaimas a defense, the court must, if justice requires, treat the

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pleading as though it were correctly designated, and mayimpose terms for doing so." [HN4]The Federal Circuit"defers to the law of the regional circuits on matters ofprocedural law that do not implicate issues of patentlaw." Duro-Last, Inc. v. Custom Seal, Inc., 321 F.3d1098, 1106 (Fed. Cir. 2003). In the Ninth Circuit, "adistrict court's decision[] with regard to the treatment ofaffirmative defenses is reviewed for an abuse ofdiscretion." 389 Orange St. Partners v. Arnold, 179 F.3d656, 664 (9th Cir. 1999).

We [**12] conclude that the district court abused itsdiscretion by striking Roche's affirmative defense andrefusing to adjudicate it on the merits. [HN5]Rule 8(c)(2)generally applies if a party "mistakenly designates" itsarguments. There is no indication that Roche erred whenit pleaded ownership as both a declaratory judgmentcounterclaim and an affirmative defense, nor any reasonwhy Roche could not have pleaded both to preserve itsarguments. Cf. Dubied Mach. Co. v. Vt. Knitting Co., 739F. Supp. 867, 871 n.3 (S.D.N.Y. 1990) ("It is permissibleto label a response to a plaintiff's cause of action as bothan affirmative defense and as a counterclaim."). Thephrase "if justice requires" is not well defined. 389Orange St., 179 F.3d at 664. But Rule 8(c)(2) generallyfavors defendants by construing responsive pleadingsliberally to maximize the defendant's available legaltheories. See Caldera v. Northrop Worldwide AircraftServs., 192 F.3d 962, 970 (Fed. Cir. 1999). Moreover,Rule 8(d)(2) permits a party to "set out two or morestatements of a claim or defense alternatively orhypothetically." If a party pleads alternative statements,"the [**13] pleading is sufficient if any one of them issufficient." Id. see also MB Fin. Group, Inc. v. U.S.Postal Serv., 545 F.3d 814, 819 (9th Cir. 2008).Therefore, the district court was obligated to considerRoche's counterclaim and defenses.

[HN6]Under California law, "a defense may beraised at any time, even if the matter alleged would bebarred by a statute of limitations if asserted as the basisfor affirmative relief." Styne v. Stevens, 26 Cal. 4th 42,51, 109 Cal. Rptr. 2d 14, 26 P.3d 343 (2001). TheSupreme Court has repeatedly followed this distinction.Beach v. Ocwen Fed. Bank, 523 U.S. 410, 415-16, 118 S.Ct. 1408, 140 L. Ed. 2d 566 (1998) ("As we have saidbefore, the object of a statute of limitation in keepingstale litigation out of the courts would be distorted if thestatute were applied to bar an otherwise legitimatedefense to a timely lawsuit . . . .") (quotation omitted);

United States v. W. Pac. R.R. Co., 352 U.S. 59, 72, 77 S.Ct. 161, 1 L. Ed. 2d 126, 135 Ct. Cl. 997 (1956) ("To usethe statute of limitations to cut off the consideration of aparticular defense in the case is quite foreign to the policyof preventing the commencement of stale litigation . . . .If this litigation is not stale, then no issue in it can bedeemed stale."). Under these principles, the statutes oflimitation [**14] do not preclude Roche's defense ofownership.

Stanford's assertion of laches and equitable estoppelalso fail. [HN7]Under California law, laches does not baraffirmative defenses. See Styne, 26 Cal. 4th at 52("[N]either the limitation of the statute nor the doctrine oflaches will operate to bar the defense of the invalidity ofthe agreement upon the ground of fraud.") (citationomitted). [*841] Stanford has also not shown that Rochemade any misrepresentations or concealed any factsabout ownership needed for a valid claim of equitableestoppel. Simmons v. Ghaderi, 44 Cal. 4th 570, 584-85,80 Cal. Rptr. 3d 83, 187 P.3d 934 (2008) (citationsomitted).

Finally, and critically here, Roche asserted itsownership interest as a bar to Stanford's standing.[HN8]It is well settled that questions of standing can beraised at any time and are not foreclosed by, or subject to,statutes of limitation. See Pandrol USA, LP v. Airboss Ry.Prods., 320 F.3d 1354, 1367 (Fed. Cir. 2003) (noting that"defendants' waiver of the defense of lack of patentownership did not waive the defendants' ability tochallenge the plaintiffs' standing to sue . . . at any stage ofthe litigation").

A. Chain of Title

1. The Agreements

[HN9]"[T]he question of who owns the patent[**15] rights and on what terms typically is a questionexclusively for state courts." Jim Arnold Corp. v.Hydrotech Sys., 109 F.3d 1567, 1572 (Fed. Cir. 1997);see also MyMail, Ltd. v. Am. Online, Inc., 476 F.3d 1372,1376 (Fed. Cir. 2007). However, this rule has exceptions:the question of whether contractual language effects apresent assignment of patent rights, or an agreement toassign rights in the future, is resolved by Federal Circuitlaw. [HN10]"Although state law governs theinterpretation of contracts generally, the question ofwhether a patent assignment clause creates an automaticassignment or merely an obligation to assign is intimately

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bound up with the question of standing in patent cases.We have accordingly treated it as a matter of federallaw." DDB Techs., L.L.C. v. MLB Advanced Media, L.P.,517 F.3d 1284, 1290 (Fed. Cir. 2008) (citations omitted).

Holodniy signed multiple contracts defining hisobligations to assign his invention rights. First, uponjoining Stanford, Holodniy executed the CPA withStanford on June 28, 1988. J.A. 741. Holodniy signed asa "Fellow" in the Department of Infectious Disease. Inthe CPA, Holodniy acknowledges that Stanford entersinto "Contracts [**16] or Grants" with third parties, suchas the Government, and that he may "conceive or firstactually reduce to practice" various inventions. Paragraph2 of the CPA then recites: "I agree to assign or confirmin writing to Stanford and/or Sponsors that right, title andinterest in . . . such inventions as required by Contracts orGrants." Id. (emphasis added).

We have held that [HN11]the contract language"agree to assign" reflects a mere promise to assign rightsin the future, not an immediate transfer of expectantinterests. IpVenture, Inc. v. Prostar Computer, Inc., 503F.3d 1324, 1327 (Fed. Cir. 2007) (interpreting "agree toassign" as "an agreement to assign," requiring asubsequent written instrument); see also Arachnid, Inc. v.Merit Indus., Inc., 939 F.2d 1574, 1580-81 (Fed. Cir.1991) (holding that "will be assigned" does not create "apresent assignment of an expectant interest"). Therefore,in the CPA, Holodniy agreed only to assign his inventionrights to Stanford at an undetermined time. Additionally,Stanford's contemporary Administrative Guide to"Inventions, Patents, and Licensing" states: "Unlikeindustry and many other universities, Stanford's inventionrights policy allows [**17] all rights to remain with theinventor if possible." J.A. 743. While Stanford mighthave gained certain equitable rights against Holodniy, seeArachnid, 939 F.2d at 1581 ("[A]n agreement to assign . .. may vest the promisee with equitable rights."), Stanforddid not immediately gain title to Holodniy's [*842]inventions as a result of the CPA, nor at the time theinventions were created.

Next, when initiating his visits to Cetus, Holodniysigned the VCA on February 14, 1989. Paragraph 3 of theVCA recites: "I will assign and do hereby assign toCETUS, my right, title, and interest in each of the ideas,inventions and improvements." J.A. 1658 (emphasisadded). In contrast to the CPA, the VCA's language of"do hereby assign" effected a present assignment of

Holodniy's future inventions to Cetus. E.g., Speedplay,Inc. v. Bebop, Inc., 211 F.3d 1245, 1253 (Fed. Cir. 2000)(interpreting "shall belong" as a present assignment);FilmTec Corp. v. Allied-Signal, Inc., 939 F.2d 1568,1572-73 (Fed. Cir. 1991). Therefore, Cetus immediatelygained equitable title to Holodniy's inventions.

"Once the invention is made and an application forpatent is filed, however, legal title to the rights accruingthereunder [**18] would be in the assignee . . . , and theassignor-inventor would have nothing remaining toassign." FilmTec, 939 F.2d at 1572. "Ordinarily, nofurther act would be required once an invention came intobeing; the transfer of title would occur by operation oflaw." Id. at 1573. Stanford filed the parent application tothe patents-in-suit, Serial No. 07/883,327, on May 14,1992, and there can be no dispute that Holodniyconceived his contribution to the invention by that date.Therefore, Cetus's equitable title converted to legal titleno later than the parent application's filing date. Holodniyexecuted an assignment of his rights in the parentapplication to Stanford on May 4, 1995. J.A. 5070-71.However, because Cetus's legal title vested first,Holodniy no longer retained his rights, negating hissubsequent assignment to Stanford during patentprosecution.

Stanford contends that there is a genuine factualdispute about whether the patents arose "as aconsequence of" Holodniy's access to Cetus's facilities orinformation, as the VCA requires. We agree with thedistrict court that "[t]his contention merits littlediscussion." Contract Op. at 1120. Stanford's variousarguments boil down [**19] to assertions that thepatented inventions were developed from nonconfidentialinformation, or were conceived and reduced to practiceafter Holodniy ended his visits to Cetus. However,Holodniy testified that the collaboration provided himwith "technical advice . . . from some of the Cetusscientists," J.A. 4509, information about PCR assays, id.4514, and "the necessary reagents for the PCR reaction,"id. 4523. Stanford also admitted in the parties' JointStatement of Undisputed Facts that Holodniy received aPCR protocol, equipment for HIV RNA extraction, andaccess to equipment to perform reverse transcription ofHIV RNA. J.A. 4790. It is undisputed that Holodniy tookthis information and material from Cetus and used themto develop the PCR assay for HIV RNA, and thusdeveloped the inventions "as a consequence" of hisaccess to Cetus. Even if Holodniy conceived and reduced

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to practice after departing Cetus, it was no later than May14, 1992, and his research was directly related to thecollaboration with Cetus. Thus, the chain of title toHolodniy's rights leads to Roche, leaving Stanford withdefective title to the rights of all the inventors.

2. Bona Fide Purchaser

To overcome [**20] its defective chain of title,Stanford argues that it was a bona fide purchaser under35 U.S.C § 261 (2006). Section 261 provides:[HN12]"An assignment, grant or conveyance shall bevoid as against any subsequent purchaser or mortgagee[*843] for a valuable consideration, without notice,unless it is recorded in the Patent and Trademark Officewithin three months from its date or prior to the date ofsuch subsequent purchase or mortgage."[HN13]"Generally, a bona fide purchaser is one whopurchases legal title to property in good faith for valuableconsideration, without notice of any other claim ofinterest in the property." Rhone-Poulenc Agro, S.A. v.DeKalb Genetics Corp., 284 F.3d 1323, 1329 (Fed. Cir.2002) (collecting cases).

Stanford contends that it purchased Holodniy's rightsthrough his 1995 assignment of the parent application for"good and valuable consideration," [**21] J.A. 5070,that Cetus and Roche never recorded their interests withthe Patent and Trademark Office, and that Stanfordreceived no notice of Holodniy's countervailingassignment to Cetus. However, Stanford's argument failsbecause there can be no genuine dispute that Stanford hadat least constructive or inquiry notice of the VCA.

[HN14]While "the bona fide purchaser defense topatent infringement is a matter of federal law," thedoctrine draws upon common law principles.Rhone-Poulenc, 284 F.3d at 1328-30. "Notice" under §261 can include constructive or inquiry notice, in additionto actual notice. See FilmTec, 939 F.2d at 1574 (notingthat either actual or inquiry notice might defeat a bonafide purchaser defense). Therefore, Stanford's claim thatit remained ignorant of the VCA until shortly before thecurrent litigation is inconsequential. The CPA establishedan employment relationship between Holodniy andStanford, and Holodniy's PCR work at Cetus relateddirectly to his infectious disease research at theuniversity. J.A. 741. Moreover, Merigan, Holodniy'ssupervisor at Stanford, directed Holodniy to work withCetus and himself executed Materials TransferAgreements with Cetus that [**22] allocated intellectual

property rights. See id. 4504-05. [HN15]An organizationcan be charged with notice of its employees' assignments.See FilmTecsee, 939 F.2d at 1574 (noting that where acompany founder signed away his patent rights, thecompany "may well be deemed to have had actual noticeof an assignment"); see also Santillan v. Roman CatholicBishop of Fresno , 163 Cal. App. 4th 4, 11, 77 Cal. Rptr.3d 343 (Ct. App. 2008) ("For this purpose, there is nodifference between constructive and actual notice. Therule applies to employees, who are agents of theiremployer.") (citations omitted); 3 Witkin Summary ofCalifornia Law of Agency § 150 ("[A] corporation maybe charged with notice of matters known to itsemployees."). The fact that Holodniy promised in theCPA to "not enter into any agreement creating copyrightor patent obligations in conflict with this agreement" doesnot prevent imputation of notice to Stanford. SeeRestatement (Third) of Agency § 5.04 cmt. b (2006)("Ordinarily, an agent's failure to disclose a material factto a principal does not defeat imputation, nor does thefact that the agent's action otherwise constitutes a breachof a duty owed the principal.").

Stanford claims that Holodniy [**23] signed theVCA on his own behalf, not Stanford's. Although theVCA states that Holodniy was "[a]cting as a consultantand an independent contractor," the context of the VCAreveals that this refers to Holodniy's status as a consultantto Cetus, not Stanford. The VCA specified a limited timeperiod for Holodniy's visits, restricted him from"perform[ing] consulting services" for other companies,and listed his address as "Stanford University MedicalCenter, Division of Infectious Disease." J.A. 1657-58.Stanford also argues that there was no evidence thatHolodniy "had authority to act as Stanford's agent inassigning patent [*844] rights." Stanford's Reply Br. 50.This contention misses the mark--Holodniy signed awayhis individual rights as an inventor, not Stanford's, whileperforming work for Stanford after promising to assignhis rights to the university. Stanford identifies no otherdisputed facts that could establish its bona fide purchaserstatus, and thus cannot prevail on this theory.

3. The Bayh-Dole Act

The district court held in the alternative that theBayh-Dole Act negated Holodniy's assignment to Cetusbecause it empowered Stanford to take complete title tothe inventions. [HN16]Congress [**24] passed theBayh-Dole Act "to promote the utilization of inventions

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arising from federally supported research ordevelopment" and "to ensure that the Government obtainssufficient rights in federally supported inventions." 35U.S.C. § 200 (2006). The Act allows the Government totake title to "subject inventions" under certaincircumstances, id. §§ 202(a), 202(b), or the "contractor"universities or inventors to retain ownership if theGovernment does not, id. § 202(d).

Stanford contends--and the district court agreed--thatBayh-Dole allowed Stanford a "right of second refusal"to the patents after the Government refrained fromexercising its rights. The court acknowledged our holdingin Central Admixture Pharmacy Services, Inc. v.Advanced Cardiac Solutions, P.C. that [HN17]when theBayh-Dole Act's provisions are violated, "the governmentcan choose to take action; thus, title to the patent may bevoidable. However, it is not void: title remains with thenamed inventors or their assignees. Nothing in the statute,regulations, or our caselaw indicates that title isautomatically forfeited." 482 F.3d 1347, 1352-53 (Fed.Cir. 2007). Thus, the Act did not automatically voidHolodniy's assignment [**25] to Cetus, and provided theGovernment with, at most, a discretionary option to hisrights. The district court noted, however, that under 35U.S.C. § 202(d), Holodniy, as an inventor, could keeptitle to his inventions only "[i]f a contractor does not electto retain title to a subject invention." On appeal, Stanfordinsists that Holodniy's rights were "contingent" upon hisCPA obligations to assign them to Stanford, and thatStanford's election of title in 1995 gave it all patentrights. Stanford's Reply Br. 47.

We are unconvinced of Stanford's interpretation ofthe Bayh-Dole Act in this case. Stanford identifies noauthorities or reasons why its election of title underBayh-Dole had the power to void any prior, otherwisevalid assignments of patent rights. Stanford was entitledto claim whatever rights were still available after theGovernment declined to exercise its option, including therights of co-inventors Merigan, Katzenstein, and Kozal.However, Holodniy transferred his rights to Cetus morethan six years before Stanford formally notified theGovernment of its election of title. As previously noted,Stanford's invention rights policy "allow[ed] all rights toremain with the [**26] inventor if possible," J.A. 743,which supports the conclusion that Holodniy stillpossessed rights at the time he signed the VCA withCetus. [HN18]Just as we explained that Bayh-Dole doesnot automatically void ab initio the inventors' rights in

government-funded inventions, Cent. Admixture, 482F.3d at 1352-53, we see no reason why the Act voidsprior contractual transfers of rights. 1

1 We express no opinion as to whetherHolodniy's execution of the VCA violated anyprovisions of the Bayh-Dole Act, or whether theAct provides the Government or Stanford someother legal recourse to recover Holodniy's rights.Cf. Cent. Admixture, 482 F.3d at 1353.

[*845] The ownership dispute in University ofPittsburgh v. Townsend is instructive. 2007 U.S. Dist.LEXIS 56860 (E.D. Tenn. Aug. 3, 2007), aff'd, 542 F.3d513 (6th Cir. 2008). There, the University of Pittsburghsought patent rights from Townsend, the inventor. TheUniversity employed Townsend and claimed all rights inhis inventions, but Townsend maintained simultaneousties with a private company, CTI. After inventing amedical scanner, Townsend assigned his rightsexclusively to CTI. Critically, the University thenformally elected title under the [**27] Bayh-Dole Act.Before the district court, the University argued that thiselection voided Townsend's earlier assignment. Tosupport this argument, the University cited the NorthernDistrict of California's analysis of Bayh-Dole in thecurrent case between Stanford and Roche. 2007 U.S.Dist. LEXIS 56860, at *59-61. The Townsend districtcourt rejected this position, noting that "the University'sostensible exercise of its right to title . . . occurred afterDr. Townsend's assignment to CTI." Id. at *60-61. TheUniversity's Bayh-Dole election did not give it superiortitle, nor prevent Pennsylvania statutes of limitation frombarring the University's contract and tort claims. TheSixth Circuit noted the University's use of Bayh-Dole, butnevertheless affirmed the statutes of limitation holding.542 F.3d at 520 & n.1. This outcome is consistent withour understanding that claiming title under Bayh-Doledoes not override prior assignments.

[HN19]Regardless of any state law contractualobligations between an academic and his university, "theprimary purpose of the Bayh-Dole Act is to regulaterelationships of small business and nonprofit granteeswith the Government, not between grantees and the[**28] inventors who work for them." Fenn v. Yale Univ.,393 F. Supp. 2d 133, 141-42 (D. Conn. 2004). Therefore,in this case, the Bayh-Dole statutory scheme did notautomatically void the patent rights that Cetus receivedfrom Holodniy.

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4. California Business and Professions Code § 16600

[HN20]Under California law, "every contract bywhich anyone is restrained from engaging in a lawfulprofession, trade, or business of any kind is to that extentvoid." Cal. Bus. & Prof. Code § 16600 (2009). Stanfordargues that section 16600 voids the VCA becauseHolodniy conceived the patented invention afterdeparting Cetus, and the VCA violates public policy if itencompasses inventions conceived after employmentterminates. Stanford also contends that once Holodniy'sresearch was published, it became public information,and that Roche's interpretation of the VCA would preventHolodniy from using this information in his later clinicalstudies.

We find no merit in Stanford's arguments. By theplain language of section 16600, only those contracts thatprevent "engaging in a lawful profession, trade orbusiness of any kind" are void. Stanford provides noevidence that the VCA restrained Holodniy fromengaging in [**29] any profession. Indeed, the recordshows that Holodniy freely continued his HIV research atStanford, publishing articles and using the knowledge heobtained from Cetus to further the science behind thepatents-in-suit. Nor does Stanford explain howHolodniy's assignment of his rights to Cetus prohibitedHolodniy from using any public information in his laterresearch. [*846] Moreover, California courts applysection 16600 to employment restrictions on departingemployees, not to patent assignments. See Thompson v.Impaxx, Inc., 113 Cal. App. 4th 1425, 1429, 7 Cal. Rptr.3d 427 (Ct. App. 2003); D'Sa v. Playhut, 85 Cal. App.4th 927, 934-35, 102 Cal. Rptr. 2d 495 (Ct. App. 2000).

B. Statutes of Limitation

Roche's counterclaim requests a declaratoryjudgment of ownership of the patents, which is generallya matter of state law. The district court had supplementaljurisdiction over this claim under 28 U.S.C. § 1367(2006). While the district court expressed some doubt asto which statutes of limitation apply to state claims infederal court under supplemental jurisdiction, ContractOp. at 1112, other circuits have noted--and the partieshere do not dispute--that state statutes of limitation apply.See Bouton v. BMW of N. Am., 29 F.3d 103, 110 (3d Cir.1994) [**30] ("The Rules of Decision Act arguably isalso the source of authority for applying state statute oflimitations to state law claims brought undersupplemental jurisdiction."); see also James William

Moore et. al, Moore's Manual: Federal Practice andProcedure § 11.64[5] (2009) ([HN21]"[W]hen the courthas supplemental jurisdiction over a state-law claim, thestate statute of limitations and related principles of tollingand relation back apply to the actions.").

[HN22]Under California law, "the period oflimitations applicable to ordinary actions at law and suitsin equity should be applied in like manner to actions fordeclaratory relief." Maguire v. Hibernia Sav. & LoanSoc., 23 Cal. 2d 719, 734, 146 P.2d 673 (1944). Theparties identified two relevant statutes of limitation, bothimposing a four-year deadline. California Code of CivilProcedure § 337(1) (2009) provides that "[a]n actionupon any contract, obligation or liability founded upon aninstrument in writing" must be brought within four years.While there is no contract between Roche and Stanford,Roche's claim to Holodniy's patent rights is based on awritten agreement, the VCA. Alternatively, CaliforniaCode of Civil Procedure § 343 (2009) applies [**31] aresiduary four-year limitation period to all causes ofaction that do not fall under specific statutes of limitation.2 Under either statute, Roche's claim is subject to afour-year limitation period.

2 Additionally, § 338(c) applies a three-yearlimitation to actions "for taking, detaining, orinjuring any goods or chattels, including actionsfor the specific recovery of personal property."While patents have the attributes of personalproperty, 35 U.S.C. § 261, Stanford does notargue on appeal that § 338(c) applies.

[HN23]In California, "[i]t is elementary that a statuteof limitations does not begin to run until the cause ofaction accrues. Equally basic is that a cause of actiondoes not accrue 'until the party owning it is entitled tobegin and prosecute an action thereon,' that is, not until'the last element essential to the cause of action' occurs."Spear v. Cal. State Auto. Ass'n, 2 Cal. 4th 1035, 1040, 9Cal. Rptr. 2d 381, 831 P.2d 821 (1992) (citationsomitted). "A contract cause of action does not accrueuntil the contract has been breached." Id. at 1042. For adeclaratory judgment action, the limitations period beginswhen the corresponding claim for damages or injunctionaccrues. Howard Jarvis Taxpayers Assn. v. City of LaHabra, 25 Cal. 4th 809, 821, 107 Cal. Rptr. 2d 369, 23P.3d 601 (2001). [**32] However, the "discovery rule"mitigates the accrual of claims. "The discovery rule'postpones accrual of a cause of action until the plaintiff

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discovers, or has reason to discover, the cause of action,'"E-Fab, Inc. v. Accountants, Inc. Servs., 153 Cal. App. 4th1308, 1318, [*847] 64 Cal. Rptr. 3d 9 (Ct. App. 2007)(citation omitted), and "the statute of limitations begins torun when the plaintiff has reason to suspect an injury andsome wrongful cause," Fox v. Ethicon Endo-Surgery,Inc., 35 Cal. 4th 797, 803, 27 Cal. Rptr. 3d 661, 110 P.3d914 (2005). "While resolution of the statute of limitationsissue is normally a question of fact, where theuncontradicted facts established through discovery aresusceptible of only one legitimate inference, summaryjudgment is proper." Jolly v. Eli Lilly & Co., 44 Cal. 3d1103, 1112, 245 Cal. Rptr. 658, 751 P.2d 923 (1988).

The district court correctly concluded, based onStanford's undisputed evidence, that Roche's claimaccrued no later than April 2000. On April 6, 2000, LuisMejia, a Stanford employee, conducted a slidepresentation at Roche that asserted Stanford's ownershipof the HIV RNA assay invention and offered Roche alicense to all relevant patents. J.A. 1201-18; Contract Op.at 1110. Mejia's presentation occurred more than four[**33] years before Stanford filed its complaint onOctober 14, 2005. See Sidney v. Superior Court, 198 Cal.App. 3d 710, 714-15, 244 Cal. Rptr. 31 (Ct. App. 1988)(noting that [HN24]"a statute of limitations is suspendedby the filing of the original complaint" (citationomitted)). Mejia's slide presentation begins withStanford's offer to license the invention entitled "PCRAssays for Monitoring Antiviral Therapy and MakingTherapeutic Decisions in the Treatment of AIDS," whichis the title common to all three patents-in-suit. J.A. 1201.The presentation then describes Holodniy's contributionto the conception of the invention, and notes that the '730patent issued in 1999. Most importantly, the presentationstates that "[c]ontinuations based on the same application'family' remain pending" and offers Roche a license that"would include rights to patents that may issue based onpending applications from the same patent 'family.'" Id.1210, 1216 (emphases added). Therefore, Mejia's slidesput Roche on notice that Stanford claimed ownership ofHolodniy's work, that Stanford had patented the inventionrelated to the Holodniy-Cetus collaboration, that Stanfordcontinued to file related patent applications, and that[**34] Stanford expected Roche to take a license tocurrent and future patents. These statements directlycontradicted Roche's claim that it owns all of Holodniy'srights to any "ideas, inventions and improvementsthereof" under the VCA. Id. 1658. Thus, Roche'sownership claim accrued upon receipt of the Mejia

presentation.

Roche does not dispute the contents of thepresentation, but argues that a cause of action for patentownership cannot accrue until each patent issues. TheMejia presentation occurred before the filing dates of theapplications for the '705 and '041 patents (February 13,2001 and December 16, 2002, respectively). Roche citesStark v. Advanced Magnetics, Inc., where this court statedthat because "each patent is a separate chose in action,"laches for an inventorship correction claim does not rununtil each patent issues. 29 F.3d 1570, 1576 (Fed. Cir.1994). However, Stark relied on the facts that, at the timethe case was decided, pending patent applications weresecret, and the party challenging inventorship lackedactual knowledge of the applications. Id. Here, however,Roche had explicit notice that Stanford intended to secureadditional patents to the same subject matter. [**35]Roche also had other constructive notice of the relatedpatents because the application resulting in the '705patent, No. 09/782,971, was published on August 30,2001, more than four years before Stanford filed suit.Moreover, the case that Stark cites for the propositionthat each [*848] patent is a separate action, Meyers v.Brooks Shoe, Inc., 912 F.2d 1459 (Fed. Cir. 1990),discusses laches for a patentee to bring an infringementsuit. This is logical because "suit can not be brought forinfringement of a patent that has not issued." Amgen, Inc.v. Genetics Inst., 98 F.3d 1328, 1332 (Fed. Cir. 1996).However, [HN25]Meyers does not say that if an allegedco-owner claims ownership of an invention, and knowsthat a related patent application is forthcoming, its causeof action under state law does not accrue until patentissuance. Cf. FilmTec, 939 F.2d at 1572-73 (noting thatlegal title can transfer "[o]nce the invention is made andan application for patent is filed").

Roche also claims that our holding in DDBTechnologies., L.L.C. v. MLB Advanced Media, L.P.precludes application of state statutes of limitation topatent ownership claims. 517 F.3d 1284 (Fed. Cir. 2008).In DDB, we determined [**36] that an inventor'scontract with an employer was an "automaticassignment" of future patent rights. Because theassignment was automatic, the plaintiff's statute oflimitations, waiver, and estoppel challenges to the patentassignment had "no merit." Id. at 1290. However, weaffirmed this result only because the district court heldthat Texas law prevents an assignor from urging estoppelor waiver against an assignee. See DDB Techs., L.L.C. v.

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MLB Advanced Media, L.P., 465 F. Supp. 2d 657, 669(W.D. Tex. 2006); see also Univ. of Tex. Med. Branch v.Allan, 777 S.W.2d 450, 453 (Ct. App. Tex. 1989). In thepresent case, Roche has not identified, nor can we find,any similar rule under California law. We thus concludethat Roche's counterclaim for a judgment of ownership ofthe '730, '705, and '041 patents is time-barred by statutesof limitation, and the district court correctly dismissedRoche's claim for a judgment of ownership on thatground. We need not reach the district court's conclusionthat laches also applies to Roche's counterclaim.

C. Stanford's Standing

Notwithstanding the running of the statutes oflimitation against Roche's claim for a judgment ofownership, Stanford's inability [**37] to establish that itpossessed Holodniy's interest in the patents-in-suitdefeats its right to assert its cause of action againstRoche. [HN26]It is well settled that "all co-ownersnormally must join as plaintiffs in an infringement suit."Int'l Nutrition Co. v. Horphag Research Ltd., 257 F.3d1324, 1331 (Fed. Cir. 2001) (finding lack of standingwhere defendant co-owner did not voluntarily join); seealso Isr. Bio-Eng'g Project v. Amgen Inc., 475 F.3d 1256,1264-65 (Fed. Cir. 2007) ("Absent the voluntary joinderof all co-owners of a patent, a co-owner acting alone willlack standing."); Ethicon, Inc. v. U.S. Surgical Corp., 135F.3d 1456, 1467 (Fed. Cir. 1998) ("An action forinfringement must join as plaintiffs all co-owners.").Roche asserted its ownership claim not only as a

counterclaim seeking a judgment of ownership ofHolodniy's interests, but also as an affirmative defenseand a challenge to Stanford's standing to assert claims ofinfringement against Roche. While Roche's failure totimely seek a judgment of ownership defeats itscounterclaim, it does not alter the fact that Stanfordcannot establish ownership of Holodniy's interest andlacks standing to assert its claims of infringement [**38]against Roche. Thus, the district court lacked jurisdictionover Stanford's infringement claim and should not haveaddressed the validity of the patents. See Morrow v.Microsoft Corp., 499 F.3d 1332, 1344 (Fed. Cir. 2007).The district court's grant of summary judgment ofinvalidity is therefore vacated, and the case is remanded[*849] with instructions to dismiss Stanford's claim forlack of standing.

CONCLUSION

For the foregoing reasons, we affirm the districtcourt's dismissal of Roche's ownership counterclaim,vacate the judgment that the asserted patent claims wereinvalid for obviousness, and remand with instructions todismiss Stanford's claim.

AFFIRMED-IN-PART, VACATED-IN-PART, ANDREMANDED

COSTS

Each party shall bear its own costs.

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