JVC Kenwood Corporation v. Nero, Inc.

Docket No. 2014-1011
August 17, 2015

Brief Summary: The FC panel affirmed the DC decision because “direct infringement was not established and thus Nero was not shown to be potentially liable for indirect infringement.” It also found patent exhaustion could not support a grant of SJ because “the record of this case does not…establish” that “the product whose sale is suggested to exhaust the patent…originated from or through the patentee” (Quanta).

Summary: JVC sued Nero and Arcsoft for induced (“indirect”) infringement of several patents based on Nero’s sale of software to end users of DVD and Blu-ray discs who allegedly directly infringe. The DC did not accept JVC’s theory of infringement that the discs maintain industry “standards deemed essential to the manufacture, sale and use” of and “each Patent is essential to playing, copying and recording data on” the same (“end users ‘must necessarily’ infringe the Patents”). It held that Nero could not be liable for indirect infringement “absent direct infringement” or, alternatively, “[e]nd users’ use…is subject to the complete affirmative defense of patent exhaustion”. The FC panel agreed with the DC conclusion but found SJ inappropriate because “facts material to the issue of patent exhaustion were insufficiently developed”. The opinion noted “the record describes two licensing pools for optical disc technology, viz., the DVD Patent Licensing Group (also called DVD6c), and One Blue LLC for Blu-ray technology”, JVC is a member of each, and the Patents in suit are encompassed thereby in “patent pools” through which manufacturer members obtain licenses. The DC found end users were licensed through these pools and that JVC needed to and did not show “evidence…of unlicensed optical discs”. JVC argued it requested additional discovery to look for that evidence but the FC held the DC’s denial of that request was not an abuse of discretion because JVC “failed to present…evidence or specifically allege [the required] facts” (Rule 56(d)). The DC decision was therefore affirmed on this ground. On the exhaustion issue, the FC concluded the grant of SJ was inappropriate because the record “is silent as to some essential aspects” under Quanta Computer (US 2008), whether “the thing that is sold ‘substantially embodies’ patented subject matter owned by the entity that authorized the sale” (“established if: (1) the only reasonable and intended use of the article is to practice the allegedly exhausted patent; and (2) the article embodies the essential or inventive features of the allegedly exhausted patent”). Under Quanta, “to determine whether the article sold has a reasonable and intended use that does not practice the patent, ‘the features partially practicing the patent are what must have an alternative use’.” The FC panel opinion found that “the record of this case does not…establish” that “the product whose sale is suggested to exhaust the patent…originated from or through the patentee” as required under Quanta and therefore vacated the DC patent exhaustion ruling. It also found no abuse of discretion with the DC’s rejection of certain declarations as inadmissible hearsay.

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