Are you a Canadian software vendor with customers in the USA?
Let's say your US end-user customer is sued for patent
infringement in the US based on use of your software, but the
lawsuit avoids naming your company. In other words, your customers
are sued, but you are not.
Ok, so you avoided a lawsuit. However, for business reasons you
may want to be "in the ring" to assist your end-user
customers to defend the infringement claims. One of the defences to
infringement is to challenge the validity of the patent in
question. But if your company is not named, how do you raise that
defence? In order to seek a "declaratory judgment" that
the patent is invalid, you need something called
"standing" - a right to make your case in court. If you
are defending an infringement allegation (if you are named in the
lawsuit), you have that standing as a defendant. But if
not, you have to ask the court for standing... sound
This is what happened to Microsoft, when its end-users were sued
for patent infringement by Datatern. Datatern, not wanting to lock
horns with Microsoft (for obvious reasons) just named the software
end-users in the patent infringement lawsuit. In Microsoft Corporation v. Datatern,
Inc. (Fed. Cir. 2014), Microsoft sought standing
to have the patents declared invalid.
The Federal Circuit Court of Appeals in the US said that
Microsoft does not have the "right
to bring the declaratory judgment action solely because their
customers have been sued for direct infringement". To bring an
invalidity declaratory judgment action against DataTern, Microsoft
needed something more. The court indicated that:
Microsoft would need to show a controversy between Microsoft
and the patent holder as to Microsoft's liability
induced infringement, or
based on the alleged acts of direct infringement by the end-user
Microsoft would have standing if it had a
contractual obligation to indemnify its customers against the
infringement claim. In this case, there was no indemnity
The use of Microsoft-provided documentation by
Datatern in the patent infringement lawsuit was enough to establish
standing for Microsoft, since this implied that Microsoft
encouraged (or "induced") the infringing use. However,
this only applied to some of the patents in question.
Wherever Datatern used third-party (non-Microsoft) documentation
to evidence the alleged infringement, Microsoft was too far removed
from the controversy and there was no implied assertion that
Microsoft induced the infringement. Microsoft could not establish
the necessary controversy between it and Datatern, the patent
holder. In connection with that particular patent, Microsoft lacked
standing and its declaratory judgment action to challenge the
validity of the patent could not proceed.
Remember this is a US case, but Canadian software vendors should
review these patent infringement issues with counsel (including the
costs and benefits of IP infringement indemnity clauses) to ensure
that their end-user license agreements manage the risks in light of
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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A recent Saskatchewan Court of Queen's Bench decision allowed a court-appointed receiver to sell and transfer intellectual property rights free and clear of encumbrances, finding that a license to use improvements of an invention was a contractual interest and not a property interest.
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