Microsoft, SAP Ask Federal Circuit to Bless Anti-Troll Tactic
SAN FRANCISCO — While Congress and the Obama administration look to crack down on patent troll litigation, the U.S. Court of Appeals for the Federal Circuit heard two cases last week that could put a new tool in the hands of accused infringers.
The issue is whether Microsoft Corp. and SAP can bring declaratory judgment actions for non-infringement when 72 of their customers were sued over the use of the technology giants' software. Microsoft and SAP argue that patent assertion entity DataTern Inc. targeted their customers—but not them—because the customers would be more likely to pay nuisance-value settlements.
Reflecting the charged debate surrounding troll litigation and the pressure on the judiciary to devise solutions, the Nov. 4 arguments set off fireworks, with Chief Judge Randall Rader accusing DataTern of running a "lucrative patent milking business" and Judge Kimberly Ann Moore calling Microsoft and SAP's arguments "crazy."
If DataTern really is a troll that puts the squeeze on timid companies, "why would Microsoft think it has legally adverse interests?" Moore asked Microsoft and SAP's lawyer, Edward Reines. "You clearly are a litigate-to-the-death sort of company, so why would you be worried that DataTern was coming after you?"
Reines, a partner at Weil, Gotshal & Manges, argued that mass customer litigation by PAEs is shaking public confidence in the legal system. Because DataTern was suing customers indiscriminately, and some of them were demanding indemnification from Microsoft and SAP, the companies met the standard for the court to exercise declaratory judgment jurisdiction, he argued.
Chief Judge Rader sounded sympathetic. "As a matter of policy, don't we prefer a single suit against a supplier, rather than letting you sue dozens and dozens of customers, and avoid the person you're ultimately after?" he asked DataTern attorney Erik Belt, a McCarter & English partner.
The third member of the panel, Judge Sharon Prost, did not join the discussion on jurisdiction.
DataTern is a subsidiary of U.K. venture capital company Amphion Innovations that was created to monetize IP that originates with Amphion's partner companies. The company brought suit in the Eastern District of Texas against a host of Fortune 500 companies that use Microsoft and SAP software, asserting its own patents for "facilitating the interaction of object oriented software with relational databases." It's not the Microsoft and SAP products per se that infringe, DataTern contends, but the manner in which the customers configured them.
Microsoft and SAP say DataTern brought scattershot claims without investigating the individual configurations. The tech giants brought actions for declaratory relief in the Southern District of New York. Judge Katherine Forrest granted them summary judgment last year.
In the meantime, patent litigation has grown into a prominent political issue. The White House's June 2013 report "Patent Assertion and U.S. Innovation" specifically cites the problem of PAEs suing customers, rather than manufacturers, and House Judiciary Chairman Bob Goodlatte has identified such suits as "an abusive patent litigation tactic."Chief Judge Rader, who has said repeatedly that the courts are capable or reining in "troll" litigation on their own, sounded sensitive to the issue last week as the court heard DataTern v. Microsoft and DataTern v. SAP.