May 23, 2011
On May 19, 2011, the Federal Circuit issued a decision in Arris Group, Inc. v. British Telecommunications PLC, a case that has clarified the issue of supplier standing to bring declaratory judgment actions. This decision has important ramifications for declaratory judgment litigants.
In this case, Arris was a supplier of equipment related to Voice over Internet Protocol (VoIP) technology to cable system operators, including Cable One. Patent owner British Telecommunications (BT) informed Cable One that it believed Cable One was infringing four BT patents. In response, Arris sought a declaratory judgment that the BT patents were invalid and not infringed. Arris also sought an injunction preventing BT from suing Arris or its customers for infringement of the patents.
In order to bring an action under the Declaratory Judgment Act, an “actual controversy” must exist. The controversy must be between “adverse legal interests” and must be of “sufficient immediacy and reality.” The district court dismissed the matter for lack of subject matter jurisdiction, finding that there was no case or controversy between Arris and BT. Because BT had directed its infringement allegations only to Cable One, reasoned the court, Arris did not have standing to bring the declaratory judgment action.
The Federal Circuit reversed, finding that Arris did indeed have standing to bring the action based on its own concerns of potential liability for contributory infringement. The appeals court held that through the infringement contentions and discussions with Cable One, BT had singled out Arris’s products and implied that the Arris products were used as a “material part” of Cable One’s infringement. The court further noted that Arris was directly and substantially involved in the infringement and licensing negotiations between BT and Cable One. Because BT implicitly accused Arris of committing contributory infringement, the court concluded that Arris had good reason to fear liability. Thus, held the court, there existed a case or controversy sufficient to confer standing to sue on Arris.
The Federal Circuit’s decision is significant in that it clarifies grounds upon which suppliers may seek declaratory judgments of noninfringement and invalidity. Based on Arris Group, suppliers whose customers have been threatened with patent infringement allegations may be able to seek declaratory relief. Conversely, patentees who wish to assert patents against customers or end users may find themselves on the receiving end of a supplier declaratory judgment action.
If you have questions concerning this decision, please contact Fitch Even attorney Brett J. Smith, the author of this alert.