“Conditional counterclaims” against DJ plaintiff/supplier insufficient to create jurisdiction, according to Federal Circuit

In Microsoft Corporation v. DataTern, Inc., the Federal Circuit made clear that conditional counterclaims and conditional statements of infringement alleged against a declaratory judgment plaintiff are insufficient to establish declaratory judgment jurisdiction. The Court noted, “[a] declaratory judgment plaintiff must plead facts sufficient to establish jurisdiction at the time of the complaint, and post-complaint facts cannot create jurisdiction where none existed at the time of filing.” The Court further noted that, even if post-complaint facts could be considered in evaluating DJ jurisdiction, the defendant/patentee’s conditional allegations and a refusal to grant a covenant not to sue are not the type of facts to support DJ jurisdiction. …

The Federal Circuit did affirm the district court’s finding of DJ jurisdiction over SAP’s DJ complaint and one of two patents in Microsoft’s DJ complaint where DataTern, in a prior litigation against these plaintiffs’ customers, prepared claim charts specifically detailing the elements of infringement based on documentation provided by SAP and Microsoft. These allegations were found to imply claims of indirect infringement alleged by DataTern against SAP and Microsoft.

The Federal Circuit also addressed whether and when indemnification claims give rise to DJ jurisdiction. In essence, the Court reaffirmed its prior position that a mere demand for indemnification is insufficient. The indemnitor must either agree or otherwise be found to have an indemnification obligation before indemnity can form the basis for DJ jurisdiction.

The opinion also included a dissent by Chief Judge Radar, in which he posits DJ jurisdiction should not be so narrowly defined. The dissent asserts that DJ jurisdiction should exist over both patents in Microsoft’s DJ complaint, even though DataTern’s prior claim charts regarding one of those patents cited only third-party documents rather than Microsoft documentation. Chief Judge Radar suggested that, “the practical effect of this holding creates a roadmap to allow DataTern and its successors to keep Microsoft on the sidelines while running up wins against customers, who are often smaller and less-equipped to defend themselves.” Of course the solution to this problem would be, as the majority opinion explains, for Microsoft to agree to indemnify one of its sued customers, which would allow Microsoft to step into its customer’s shoes in court. The real problem for Microsoft may have been that those customer suits are in Texas, whereas Microsoft chose New York for its DJ suit.

Link to case:

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