The Federal Circuit issued a split decision today that once again tries to create a special rule for patent litigation that does not follow the rules usually applied to other civil litigation.  In Microsoft v. DataTern, the Federal Circuit was reviewing Microsoft’s and SAP’s successful challenge to infringement allegations leveled by DataTern against their customers.  Suing (or threatening to sue) end users of a product is a common tactic for so-called “patent trolls” as often the end-user has neither the resources nor the inclination for a protracted patent dispute, and is more willing to pay a nominal fee for a license than fight.  Microsoft and SAP reacted to their customers’ indemnity demands by instituting their own declaratory judgment actions seeking a declaration that their products did not infringe DataTern’s asserted patents (and thus that their customers could not be infringing on those patents).

The majority decision in this case holds that the trial court had no jurisdiction to consider one of the declaratory judgment actions as there was not a legitimate case or controversy to be decided.  Essentially, the majority holds that DataTern’s claim chart (used to show the potential infringement by the end user) was not sufficient to show that Microsoft might be ultimately liable for contributory or induced infringement, and that the customers’ indemnity demands to Microsoft did not create declaratory jurisdiction, as Microsoft could just indemnify it customers and thus control the actual infringement litigation without the need for a declaratory action.

Judge Rader’s dissent on the declaratory judgment jurisdiction issue sets up the basis for a successful petition for Supreme Court review.  As Judge Rader notes, the majority opinion “gives aggressive parties a road map to avoid supplier suits,” which then allows patent holders to go after small customers who are much more likely to settle to avoid the costs of suit, allowing the patent holder to avoid dispositive determinations regarding infringement or validity.  As has been noted in an earlier blog post (Supreme Court Holds that Patent Owners Always Have Burden of Proving Infringement: Medtronic, Inc. v. Mirowski Family Ventures, LLC), the Federal Circuit is especially prone to reversal by the Supreme Court when it attempts to create special litigation rules for patent suits.  Microsoft is likely to seek Supreme Court review unless the entire Federal Circuit reviews this decision.  And given the public interest in curbing the activity of so-called “patent trolls,” Supreme Court review seems likely.