Monday, August 17, 2015

Judge Newman in JVC Kenwood v. Nero: Under Rule 56(d), the party requesting discovery must show, inter alia, that “the facts sought exist.”

Judge Newman wrote in JVC KENWOOD 2 CORPORATION v. NERO, INC.

We conclude that the district court correctly held that,
on JVC’s theory and proffered evidence of infringement,
summary judgment of non-infringement was properly
granted. However, facts material to the issue of patent
exhaustion were insufficiently developed to warrant
summary judgment on that alternative ground.

As to discovery issues:

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. Having failed to present
any evidence of unlicensed disks, JVC argues that the
district court erred in denying JVC’s request for additional
discovery to “collect specific information regarding
customers that are using Nero software with unlicensed
optical disks.” JVC Opp’n Summ. J. 16, ECF No. 93
(emphasis omitted); see also id. at 25. Under Rule 56(d),
the party requesting discovery must show, inter alia, that
“the facts sought exist.” Family Home & Fin. Ctr., Inc. v.
Fed. Home Loan Mortg. Corp., 525 F.3d 822, 827 (9th Cir.
2008) (setting forth the requirements of Rule 56(d)). The
district court reasoned that with respect to unlicensed
disks, JVC “has failed to present such evidence or even
specifically allege these facts.” Dist. Ct. Op. at 1009. In
light of that failure, the district court did not abuse its
discretion in refusing to grant additional discovery on the
issue of unlicensed disks.

As to patent exhaustion:

We conclude that the summary judgment record does
not clearly establish the conditions for patent exhaustion,
for it is silent as to some essential aspects. As the Court
explained: “Exhaustion is triggered only by a sale authorized
by the patent holder,” 553 U.S. at 636, whereby if the
thing that is sold “substantially embodies” patented
subject matter owned by the entity that authorized the
sale, then the patent is exhausted as to the thing sold. Id.
at 638. “Substantial embodiment” is 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. See id. at 631; LifeScan
Scotland, Ltd. v. Shasta Techs., LLC, 734 F.3d 1361,
1368-70 (Fed. Cir. 2013). The Court in Quanta explained
that, 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.” Quanta, 553 U.S. at 632
JVC argued, and the district court found, that the intended
use of DVD and Blu-ray optical discs is to “play,
copy, and record data in conformance with the DVD and
Blu-ray standards specifications.” Dist. Ct. Op. at 1013.
The court concluded 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.


On application of the principle of exhaustion as set
forth in Quanta, the threshold criterion is that the product
whose sale is suggested to exhaust the patent must
have originated from or through the patentee; the record
of this case does not so establish. See Quanta, 553 U.S. at
636 (“Exhaustion is triggered only by a sale authorized by
the patent holder.”).
In this case, where the district court clearly and effectively
determined that infringement had not been shown
on JVC’s theory and argument of the case, we affirm on
that ground. Thus we vacate the district court’s ruling
with respect to patent exhaustion.


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