Each week, we succinctly summarize the preceding week of Federal Circuit precedential patent opinions. We provide the pertinent facts, issues, and holdings. Our Review allows you to keep abreast of the Federal Circuit’s activities – important for everyone concerned with intellectual property. We welcome any feedback you may provide.
– Joe Robinson, Bob Schaffer, John Morrissett, Parker Hancock, Lindsay Henner and Tinh Nguyen
Federal Circuit Review – Issue No. 64-05
Federal Circuit Affirms a Finding of No Direct Infringement by End Users and No Indirect Infringement by Software Provider
JVC Kenwood Corp. v. Nero, Inc., No. 2014-1011, 2015 U.S. App. LEXIS 14402 (Fed. Cir. Aug. 17, 2015) (Before Newman, Dyk, and Reyna, J.) (Opinion for the court, Newman, J.). Click Here for a copy of the opinion.
JVC Kenwood Corp. (“JVC”) sued Nero for indirect infringement of relevant patents directed to various uses of optical discs. JVC argued that “end users of Nero’s third-party software, when used with DVD and Blu-ray discs (not supplied by Nero) , nevertheless comply with the DVD and Blu-ray standards to which the JVC Patents are essential. Therefore, “end users ‘must necessarily’ infringe the Patents.” According to JVC, Nero, as provider of the software, was liable for contributory and induced infringement. JVC claimed that its patents are “essential to playing, copying, and recording data on an optical disc compliant with the DVD or Blu-ray standard.” In other words, because the Nero software was used with standards-compliant optical discs, the software must practice the JVC patents. This was claimed to induce infringement because Nero and its end users allegedly had no authorization to combine the Nero software with the optical discs. The end users would necessarily be direct infringers when they use compliant optical discs with compliant Nero software.
On summary judgment, the district court rejected JVC’s argument and held that direct infringement is negated by JVC’s extensive licensing program – because a licensee cannot be an infringer. JVC is a member of two licensing pools for optical disc technology, one for DVD and one for Blu-ray. The asserted patents are included in both pools. The district court adopted JVC’s position that the asserted patents are essential to the licensed DVD and Blu-ray optical discs. Given the patent pool and licensing program, which covers any and all optical disc structures and uses that are essential under the patents, only the use of unlicensed optical discs would be an infringement – regardless of any third-party software used to manipulate the discs. JVC did not argue, and no evidence of record established, that unlicensed discs should be attributed to Nero, or the patent pool license should not encompass discs and end-users that implemented the Nero software. (JVC’s request to take additional discovery on this issue was denied.)
The court alternatively held that “[e]nd users’ use of Nero software with DVD and Blu-ray optical discs licensed under the Patents is subject to the complete affirmative defense of patent exhaustion with regard to infringement of the Patents.” JVC’s patent rights were “exhausted” when end users purchased compliant optical discs with Nero software, which embodied essential features of the patents, and had no alternative use other than to practice the patents.
On appeal, the Federal Circuit agreed that the district court properly granted summary judgment of non-infringement. Since JVC failed to present evidence of direct infringement, i.e. unlicensed products or uses, the district court did not abuse its discretion in finding that Nero was not liable for indirect infringement.
The Federal Circuit vacated the district court’s patent exhaustion ruling. The principle of exhaustion requires “that the product whose sale is suggested to exhaust the patent must have originated from or through the patentee.” The record did not establish that the allegedly infringing sales originated with JVC, so “patent exhaustion” could not be a defense against JVC in this case.