Declaratory Judgment and the Supplier

A unanimous three judge panel of the Federal Circuit found in Arris Group v. British Telecommunications (decided May 19, 2011) that if a supplier’s customer is accused of infringement, there may be sufficient Article III case or controversy for a declaratory judgment action by the supplier, even if the supplier was never directly accused of infringement.

In this case, BT contacted a customer of Arris Group (Cable One), claiming they infringed a patent, and pointed to their use of Arris products specifically. There were a series of communications, discussing Cable One’s use or non-use of BT’s patents. Arris then filed for Declaratory Judgment.

The lower court found that Arris did not have standing, since there was no Article III case in controversy, because there was no adverse legal relationship, or reasonable apprehension of imminent suit.

The Federal Circuit reversed the lower court, and relied on MedImmune’s standard of “the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, 549 U.S. at 127.

Arris’ argument that it had standing because it suffered an economic injury, because of the likelihood that its customer would stop using its product, was quickly discarded. The Federal Circuit noted that MedImmune affirmed that economic injury alone is not sufficient to confer standing, and that an “adverse legal interest” was still required.

However, the unanimous court then turned around and stated that while the economic injury of having a customer accused of infringement is insufficient, the risk of contributory infringement charges is enough to provide standing for a declaratory action.  The court also noted the numerous communications between BT and Arris, and the fact that Arris was “directly and substantially involved in BT’s infringement and licensing negotiations.”

If you are a company accusing someone of infringement, be aware of the risk of an implied assertion that the supplier is committing contributory infringement.  If your communications imply such contributory infringement, and you communicate directly with that supplier, you are quite likely opening yourself up to a declaratory judgment suit.