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March 28, 2007, Alert No. 1,558.
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Federal Circuit Rules on Case or Controversy Requirement in Patent DJ Actions

3/26. The U.S. Court of Appeals (FedCir) issued its opinion [26 pages in PDF] in SanDisk v. STMicroelectronics, a patent infringement case involving flash memory storage products. The Court of Appeals vacated the judgment of the District Court, which had dismissed SanDisk's claims relating to declaratory judgment of noninfringement and invalidity for failure to present an actual controversy. The declaratory judgment claims will proceed in the District Court.

Overview. The Supreme Court of the United States (SCUS) recently addressed the case or controversy requirement in the context of an existing patent license. It held in its January 9, 2007, opinion [30 pages in PDF] that the Article III case or controversy requirement, and the Declaratory Judgment Act, which is codified at 28 U.S.C. 2201, do not require a patent licensee to terminate, or be in breach of, its license agreement before it can seek a declaratory judgment that the underlying patent is invalid, unenforceable, or not infringed. See also, story titled "Supreme Court Rules on Case or Controversy Requirement in Patent Litigation" in TLJ Daily E-Mail Alert No. 1,516, January 9, 2007.

However, there are no patent licenses in the present case. Patent holder STMicroelectronics (ST) approached SanDisk and presented detailed analyses that SanDisk was infringing its patents. ST sought money from SanDisk through licensing. However, when SanDisk sought a declaratory judgment (DJ) of noninfringement from the District Court, ST asserted there is no Article III case or controversy.

ST wants to be able to assert infringement, demand licensing and royalties, but prevent SanDisk from litigating the merits of these infringement assertions.

The Court of Appeals ruled, in effect, that ST could not have it both ways. Its actions gave rise to a justiciable case or controversy. Patent holders that engage in scare and run demands for royalties cannot hide behind Article III. The Court of Appeals vacated the judgment of the District Court. SanDisk can now proceed with its DJ claims.

Background. SanDisk and ST both make and hold patents related to flash memory storage products. The two companies, at ST's requests, engaged in series of lengthy written and in person discussions regarding technologies, patents, and licensing.

ST brought in its litigation experts. ST made statements that SanDisk engaged in "unlicensed activities" and infringed ST's patents, and backed this up with detailed analyses. ST stated repeatedly that SanDisk must license its patents.

SanDisk denied infringement, refused to pay royalties to ST, and declined to participate in further negotiations.

ST also requested that the discussions be treated as "settlement discussions" under Federal Rule of Evidence 408. ST filed no patent infringement action against SanDisk. ST stated to SanDisk that it would not bring an infringement action.

District Court. SanDisk filed a complaint in U.S. District Court (NDCal) against ST alleging infringement of one of its patents. It also sought a DJ of noninfringement and invalidity of fourteen ST patents. ST moved to dismiss the DJ claims.

The District Court dismissed all of SanDisk's DJ claims. The Court of Appeals summarized the District Court's holding: "no actual controversy existed for purposes of the Declaratory Judgment Act because SanDisk did not have an objectively reasonable apprehension of suit, even though it may have subjectively believed that ST would bring an infringement suit."

Holding of the Court of Appeals. SanDisk brought the present appeal. The Court of Appeals vacated and remanded.

Article III of the Constitution, which defines the judicial power, provides that "The judicial Power shall extend to all Cases, in Law and Equity, arising under this Constitution, the Laws of the United States ..." and "to Controversies to which the United States shall be a party ..." Article III lists other types of "Cases" and other types of "Controversies". Thus, "the judicial Power" extends only to certain "Cases" and "Controversies". The Constitution does not define these two terms.

The Court of Appeals distinguished the Supreme Court's holding in MedImmune. v. Genentech. It wrote that "The Supreme Court in MedImmune addressed declaratory judgment jurisdiction in the context of a signed license."

The Court of Appeals held that "In the context of conduct prior to the existence of a license, declaratory judgment jurisdiction generally will not arise merely on the basis that a party learns of the existence of a patent owned by another or even perceives such a patent to pose a risk of infringement, without some affirmative act by the patentee. But Article III jurisdiction may be met where the patentee takes a position that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior or abandoning that which he claims a right to do."

The Court of Appeals continued that "We need not define the outer boundaries of declaratory judgment jurisdiction, which will depend on the application of the principles of declaratory judgment jurisdiction to the facts and circumstances of each case. We hold only that where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license, an Article III case or controversy will arise and the party need not risk a suit for infringement by engaging in the identified activity before seeking a declaration of its legal rights."

The Court of Appeals then applied this principle to the facts of the present case and concluded that there is an Article III case of controversy. "ST sought a right to a royalty under its patents based on specific, identified activity by SanDisk." Moreover, it gave SanDisk "a thorough infringement analysis presented by seasoned litigation experts ... which identified, on an element-by-element basis, the manner in which ST believed each of SanDisk's products infringed the specific claims of each of STs patents".

The Court of Appeals also held that ST's statement to SanDisk that it would not file a complaint did not remove the case or controversy "because ST has engaged in a course of conduct that shows a preparedness and willingness to enforce its patent rights despite" ST's statement.

And finally, the Court of Appeals ruled that the District Court could not, in its discretion, decline to exercise jurisdiction.

This case is SanDisk Corporation v. STMicroelectronics, Inc. and STMicroelectronics, NV, U.S. Court of Appeals for the Federal Circuit, App. Ct. No. 06-1300, an appeal from the U.S. District Court for the Northern District of California, D.C. No. 04-CV-04379, Judge Jeremy Fogel presiding.

GAO Finds Information Security Weaknesses at SEC

3/28. The Government Accountability Office (GAO) released a report [25 pages in PDF] titled "Information Security: Sustained Progress Needed to Strengthen Controls at the Securities and Exchange Commission".

It states that the "SEC has not consistently implemented key controls to effectively safeguard the confidentiality, integrity, and availability of its financial and sensitive information and information systems".

As a result, the GAO report finds, the SEC's "financial and sensitive data are at increased risk of unauthorized disclosure, modification, or destruction."

The SEC receives various types of electronic documents, including registration statements, periodic reports, and other disclosure statements, which are stored and made available to the public through the Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. The EDGAR online database enables investors to use information contained in this database to make investment decisions.

The GAO report is does not elaborate, for example, on whether there are information security weaknesses at the SEC that might render documents in the EDGAR database vulnerable to modification. Nor does the report speculate on the potential for attacks on SEC information systems to be used to perpetrate securities fraud. Nor does that report speculate on the potential for malicious attacks on SEC information systems to disrupt the efficient operation of securities markets, or to diminish investor confidence in securities markets.

The report also states that the GAO prepared a second non-public report that details additional information security weaknesses at the SEC.

The report adds that the SEC has made progress in addressing previously identified weaknesses. Moreover, it states that the "SEC's senior management was actively engaged in implementing information security related activities, including establishing policies and procedures for risk management, ensuring that all users complete security training, and developing an incident response program."

SEC's Cox Discusses XBRL Tagging of Executive Compensation Data

3/23. Securities and Exchange Commission (SEC) Chairman Chris Cox gave a speech at the University of Southern California (USC) in which he discussed various internet related projects at the SEC.

He said that "we're tapping the power of technology to bring higher-quality information to investors more quickly and more easily than ever before. Our new e-proxy rules will soon make it possible for investors to realize the full potential of interactive data. And in a related area, our ongoing conceptual work to update the proxy rules could pave the way for an Electronic Shareholder Forum in which investors could securely and anonymously share information about their company. That cutting-edge thinking is already spurring private firms to invest in creative new ways for shareholders to use the Internet to communicate with one another."

He also discussed the use of XBRL tags to make the data in SEC filings interactive. He said that "right now only a handful of early adopters are reporting their financial information to the SEC using interactive data. We aim to change that very soon. But even before interactive data becomes the norm for all reporting companies, we're going to tag the executive compensation data for you using XBRL. We're going to do this with at least several hundred of the largest public companies in America. And we expect to have it available in June."

He also gave a live computer demonstration of how XBRL and interactive data will enable users to extract, display, and compare executive compensation data from multiple companies' SEC filings.

He then said that "getting investors the information they need, in a form they can use, is the most basic ingredient of insuring good corporate governance".

People and Appointments

3/29. Federal Communications Commission (FCC) Commissioner Michael Copps named Rick Chessen to be a Senior Legal Adviser, effective April 5, 2007. Chessen is currently Associate Chief of the FCC's Media Bureau. He has worked for the FCC since 1994. From 2001 through 2005 he chaired the FCC's Digital Television Task Force. See, FCC release [PDF].

Washington Tech Calendar
New items are highlighted in red.
Thursday, March 29

The House will meet at 10:00 AM for legislative business. See, Rep. Hoyer's weekly calendar [PDF]. It will consider HConRes 99, the concurrent resolution on the budget for FY08.

The Senate will meet at 9:00 AM. It will resume consideration of HR 1591, a supplemental appropriations bill.

9:00 AM - 5:00 PM. The National Aeronautics and Space Administration's (NASA) National Space-Based Positioning, Navigation, and Timing (PNT) Advisory Board will meet. See, notice in the Federal Register, March 13, 2007, Vol. 72, No. 48, at Page 11381. Location: Polaris Suite, Ronald Reagan Building and International Trade Center, 1300 Pennsylvania Ave., NW.

9:30 AM - 12:30 PM. The Department of Justice's (DOJ) Antitrust Division and the Federal Trade Commission (FTC) will hold another in their series of joint hearings on single firm conduct. This hearing is titled "Remedy in the Face of Technological Change". The speakers will be Michael Cunningham (Red Hat Inc.), Renata Hesse (Wilson Sonsini Goodrich & Rosati), Marina Lao (Seton Hall Law School), William Page (University of Florida's Levin College of Law), and Howard Shelanski (UC Berkeley law school). Location: FTC, Room 432, 600 Pennsylvania Ave., NW.

11:30 AM - 1:00 PM. The International Association of Privacy Professionals (IAPP) will host a lunch. The speaker will be Hugo Teufel, Chief Privacy Officer of the Department of Homeland Security (DHS). The IAPP states that this event is restricted to IAPP Members and TRUSTe Seal holders. The DHS states that this event is "OPEN PRESS". Location: Wiley Rein, 1776 K St., NW.

12:30 - 2:00 PM. The Federal Communications Bar Association's (FCBA) Communications Law, Copyright, and Digital Rights Management Committee will host a brown bag lunch titled "What's New at the Copyright Office". The speaker will be Marybeth Peters (Register of Copyrights). For more information, contact Ben Golant at bgol at loc dot gov or 202-707-9127. The FCBA asserts in its web site that "THIS EVENT IS OFF THE RECORD". Location: National Association of Broadcasters, 1771 N Street, NW.

2:00 PM. The Senate Judiciary Committee (SJC) may hold a business meeting. The agenda includes consideration of S 236, the "Federal Agency Data Mining Reporting Act of 2007". This bill has been on many prior agendas. The SJC rarely follows its published agendas. Press contract: Tracy Schmaler (Leahy) at 202-224-2154 or Courtney Boone (Specter) at Courtney_Boone at judiciary-rep dot senate dot gov or 202-224-2984. See, notice. Location: Room 226, Dirksen Building.

2:00 PM. The House Appropriations Committee's Subcommittee on Commerce, Justice & Science will hold a hearing on the Office of the U.S. Trade Representative and the U.S. International Trade Commission. Location: Room H-309, Capitol Building.

2:00 - 3:00 PM. The President's National Security Telecommunications Advisory Committee (NSTAC) will hold a partially closed meeting by teleconference. See, notice in the Federal Register, December 29, 2006, Vol. 71, No. 250, at Page 78451, and notice in the Federal Register, March 15, 2007, Vol. 72, No. 50, at Pages 12179-12180. The open portion of the meeting pertains to the NSTAC's International Task Force (ITF). The closed portion of the meeting pertains to Global Infrastructure Resiliency (GIR).

2:00 - 4:00 PM. The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC) will meet to prepare advice for the meeting of the Telecommunication Development Advisory Group (TDAG). See, notice in the Federal Register: February 12, 2007, Vol. 72, No. 28, at Pages 6640-6641. Location: DOS, Room 2533A.

6:30 - 8:30 PM. The Federal Communications Bar Association's (FCBA) Young Lawyers Committee will host an event titled "Happy Hour". For more information, contact Natalie Roisman at nroisman at akingump dot com or Chris Fedeli at chrisfedeli at dwt dot com. Location: The Bar at Morton's, 1050 Connecticut Ave., NW.

Day three of a three day conference hosted by the National Institute of Standards and Technology (NIST) and others titled "International Conference on Frontiers of Characterization and Metrology for Nanoelectronics". See, notice. The deadline to register is March 8, 2007. Location: NIST, Red Auditorium, 100 Bureau Drive, Gaithersburg, MD.

Friday, March 30

Rep. Hoyer's weekly calendar [PDF] states that "no votes are expected in the House".

9:00 AM - 1:00 PM. The National Aeronautics and Space Administration's (NASA) National Space-Based Positioning, Navigation, and Timing (PNT) Advisory Board will meet. See, notice in the Federal Register, March 13, 2007, Vol. 72, No. 48, at Page 11381. Location: Polaris Suite, Ronald Reagan Building and International Trade Center, 1300 Pennsylvania Ave., NW.

TIME? The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC) will meet by teleconference to prepare for ITU-T Study Groups 11, 13, and 19. See, notice in the Federal Register, February 12, 2007, Vol. 72, No. 28, at Pages 6640-6641.

Effective date of the Securities and Exchange Commission's (SEC)rule [119 pages in PDF] regarding voluntary internet availability of proxy materials. See, notice in the Federal Register, January 29, 2007, Vol. 72, No. 18, at Pages 4147-4173. See also, story titled "SEC Adopts E-Proxy Rule Changes" in TLJ Daily E-Mail Alert No. 1,506, December 15, 2006.

Deadline to submit comments to the Securities and Exchange Commission (SEC) in response to it proposal to make mandatory internet availability of proxy materials. See, notice in the Federal Register, January 29, 2007, Vol. 72, No. 18, at Pages 4175-4188. See also, story titled "SEC Seeks Comments on Proposal to Mandate Internet Availability of Proxy Materials" in TLJ Daily E-Mail Alert No. 1,529, January 30, 2007.

Saturday, March 31

Deadline for the Office of the U.S. Trade Representative to submit its annual report, as required by Section 1377 of the Omnibus Trade and Competitiveness Act of 1988, which is codified at 19 U.S.C. 3106, regarding the operation, implementation and effectiveness of all trade agreements regarding telecommunications products and services. See, notice in the Federal Register, November 15, 2006, Vol. 71, No. 220, at Pages 66563-66564.

Monday, April 2

The House will not meet or April 2-6 or 9-13. See, House 2007 calendar.

The Senate will not meet on April 2-6 or 9. See, Senate 2007 calendar.

Passover begins at sundown.

Deadline to submit comments to the Federal Acquisition Regulation (FAR) Secretariat regarding its proposal to amend the FAR to delete references to the Federal Acquisition Computer Network (FACNET). See, notice in the Federal Register, February 1, 2007, Vol. 72, No. 21, at Pages 4675-4676.

Tuesday, April 3

Passover.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Translogic Technology v. Hitachi, App. Ct. No. 2005-1387, and In Re Translogic Technology, App. Ct. No. 2006-1192. Location: Courtroom 203, 717 Madison Place, NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Advanced Technology Materials v. Praxair, App. Ct. No. 2006-1540, a patent case involving semiconductor manufacturing technology. Location: Courtroom 203, 717 Madison Place, NW.

2:00 PM. The U.S. Court of Appeals (FedCir) will hear oral argument in UTStarcom v. Starent Networks, App. Ct. No. 2006-1295, an appeal from the U.S. District Court (NDCal) in a patent case involving technology for networking equipment that enables mobile data communications. Location: Courtroom 201, 717 Madison Place, NW.

Wednesday, April 4

9:00 - 10:30 AM. The Information Technology and Innovation Foundation (ITIF) will host a breakfast forum titled "Understanding the Japanese Broadband Miracle". The speaker will be Takashi Ebihara, Senior Director of the Corporate Strategy Department at NTT East Corporation. RSVP to Torey Liepa at tliepa at itif dot org. Location: ITIF, Suite 200, 1250 I Street, NW.

10:00 AM. The Securities and Exchange Commission (SEC) will hold a meeting to discuss the Public Company Accounting Oversight Board's (PCAOB) proposed auditing standard for Section 404 of the Sarbanes-Oxley Act and the coordination of that proposed standard with the SEC's related pending proposal to provide guidance for management of public companies implementing Section 404. See, SEC release and release. Location: SEC, Auditorium, Room L-002, 100 F St., NW.

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