JVC Kenwood Corporation v. Nero, Inc.
Addressing whether an accused defendant infringed patents through the distribution of its software, the U.S. Court of Appeals for the Federal Circuit upheld the district court's summary judgment that the defendant did not indirectly infringe the asserted standard essential patents (SEPs) because there was insufficient proof of direct infringement by end users. JVC Kenwood Corporation v. Nero, Inc., Case No. 14-1011 (Fed. Cir., Aug. 17, 2015) (Newman, J.)
JVC argued in the district court that "Nero's software-implemented systems and methods, in conjunction with DVD and Blu-ray optical discs directly infringe" six of JVC's patents. According to JVC, its patents are essential to comply with the DVD and Blu-ray standards, which are used in Nero's software and "since Nero's software customers are direct infringers, Nero is liable for induced or contributory infringement." The district court, noting the extensive licensing of the asserted SEPs disagreed with JVC's theory of indirect infringement based on the assumption of direct infringement by users and granted summary judgment for Nero. The district court explained that as a consequence of the widely licensed SEPs, "use of Nero software with DVD and Blu-ray optical discs licensed under" JVC's patents is a complete, affirmative defense of patent exhaustion and so JVC could not prove direct infringement by end users. JVC appealed.
The Federal Circuit affirmed, explaining that "direct infringement of the patented systems, methods, and apparatuses, as 'generally alleged' by JVC, is negated by the 'extensive licensing program, both as part of the DVD6C and One Blue patent pools as well as through JVC's individual licensing program,'" and noted that "licensees cannot be infringers." Furthermore, the Federal Circuit found that "JVC cited no 'specific allegations and evidence' of unlicensed discs and the district court correctly rejected JVC's argument that it was not its burden to make such a showing." According to the Federal Circuit, "JVC cannot have it both ways—either the Patent is essential and licensed or JVC cannot rely on the standards to show infringement as it has chosen to do." Based on JVC's theory of the case, the Federal Circuit concluded that "summary judgment of non-infringement was properly granted."
With regard to the district court's alternate theory based on patent exhaustion, the Federal Circuit found that "the record of this case does not clearly establish the conditions for patent exhaustion" because "it is silent as to some essential aspects." According to the Federal Circuit, "[e]xhaustion is triggered only by a sale authorized by the patent holder," and "whereby if the thing that is sold 'substantially embodies' patented subject matter owned by the entity that authorized the sale." The district court found that "since the optical discs comply with the standards, and their use complies with the standards" to which JVC alleges its asserted patents are essential, the asserted patents are exhausted. JVC argued that exhaustion doctrine did not apply because "users of the Nero software could have been using unlicensed discs," or alternatively, Nero's software, not the disc sellers, infringes the patents. Because of "contradictory arguments, and undeveloped facts," the Federal vacated the district court's ruling with respect to this alternate theory of patent exhaustion.
Patent Owner's Licensing Program Was Fatal To Its Patent Infringement Theory
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