A recent decision by the Federal Circuit in JVC Kenwood Corp. v. Nero, Inc., decided August 17, 2015, involves nuanced details of standard-essential patents, but arrived at a common sense result:  either the patents at issue are standard-essential and thus licensed by defendant, or plaintiff cannot solely rely on the licensed technology standards to show infringement.

Here, JVC Kenwood Corporation ("JVC") sued Nero, Inc. and Arcsoft, Inc. for contributory and induced infringement ("indirect infringement") of certain JVC patents directed to various uses of DVD and Blu-ray optical discs.  The charge of indirect infringement is based on Nero's sale of software to end users of DVD and Blu-ray discs, who allegedly directly infringe the JVC patents.

Patents at Issue and Infringement Allegations

There are six JVC Patents are at issue, directed to aspects of optical discs and specific structures, methods, or systems used with optical discs such as "jump reproduction" -- e.g., fast-forwarding, fast-rewinding, etc., methods of recording moving picture data on a recording medium (i.e., burning data to DVDs and Blu-Ray discs), and methods of controlling whether certain kinds of content, such as a "R" rated movie on a DVD, should be played according to preconditions (i.e., implementation of parental controls) (see, e.g., U.S. Patent No. 6,522,692).

The record describes two licensing pools for optical disc technology including the DVD Patent Licensing Group (also called DVD6C), and One Blue LLC for Blu-ray technology.  JVC is a member of both groups, and the Patents in suit are included in both pools, and thus, are considered standard-essential patents for this technology.

For the DVD6C pool, the DVD6C license for DVD Patents "extends only to the structure, features and functions of a DVD Product used to practice those DVD Standard Specifications or +R/+RW Standard Specifications applicable to that DVD Product and for which the DVD Patents are Essential."  The DVD Standard Specifications are a series of documents setting forth the technical qualifications for standards-compliant products.  They are published by the DVD Forum, an international association tasked with defining the DVD Specifications.

The One Blue patent licensing arrangement is similar.  One-Blue licenses can be obtained for specific categories of Blu-ray products, and "applies only to the extent the structure, features and functions of a BD Registered Product are used to practice" the applicable standards.

Some of JVC's infringement contentions include that when end-users use Nero software with blank optical discs to record moving picture data, they directly infringe by practicing a specified "method of recording moving picture data on a recording medium," of one of the JVC patents.  JVC also alleged that "when the end-user then uses Nero software to reproduce (playback) the moving picture data and to fast forward (or fast reverse) through the content, the end-user directly infringes" claims of the JVC patents.  Still further, JVC alleged that when an end-user uses Nero software to perform the parental/regional control functions as recited in the claims, the end-user directly infringes claims of the JVC patents.

For all six standard-essential JVC Patents, JVC alleged that since Nero's software customers are direct infringers, Nero is liable for induced or contributory infringement as provider of the software.

JVC attempted to prove indirect infringement by showing that Nero is a licensed member of the DVD Format/Logo Licensing Corporation ("DVD FLLC"), the licensing agent for the DVD Forum, which is responsible for licensing the Format Books setting forth the DVD standards specifications and the DVD logo.  JVC stated that Nero is bound by the terms of the DVD FLLC license agreement, which requires all products manufactured or sold by the licensee to comply with the standards set forth in the Format Books.  JVC's theory of infringement is based on a standards-compliance theory of infringement, in that, since Nero's software necessarily complies with the standards specifications, use of Nero's software by end users for the purposes described in any of the Patents (which are standards-compliant), directly infringes the relevant Patent.

District Court Result

The District Court held that direct infringement of the patented systems, methods, and apparatuses, as 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."  The District Court generally observed that licensees cannot be infringers.

The District Court held that JVC is "barred from asserting claims of direct infringement against end users for use of Nero software with DVD and Blu-ray optical discs made or sold by a party whose products have been expressly released from claims of infringement by JVC with regard to the Patents."  The District Court also held that, absent direct infringement, Nero cannot be liable for indirect infringement.

The District Court found that because Nero has shown an extensive licensing program, both as part of the DVD6C and One Blue patent pools as well as through JVC's individual licensing program, there cannot be infringement without specific allegations and evidence showing use of unlicensed optical discs.

Federal Circuit Result

JVC appealed and argued that licensees to the DVD6C pool only receive a license to those patents related to particular products, selected by the licensee, which "practice the DVD Standard Specifications" applicable to the licensee's products, citing the DVD6C License Agreement.  Thus, JVC tried to argue that Nero's license, as a member of DVD FLLC, varied from the standards-essential patent license.

The Federal Circuit shot down JVC's arguments, and noted that, based on the proffered evidence of infringement, summary judgment of non-infringement was properly granted.  JVC cited no "specific allegations and evidence" of any unlicensed discs.

The Federal Circuit thus affirmed the District Court's ruling, and further stated that on JVC's premise that these Patents are essential and are directly infringed by users of Nero software, it was JVC's burden to proffer at least plausible evidence in support of its position that unlicensed optical discs were in use.  JVC offered no evidence of specific unlicensed discs.

The Federal Circuit noted that JVC cannot have it both ways -- either the Patent is essential and licensed or JVC cannot solely rely on compliance with the standards to show infringement as it has chosen to do.

While JVC may have slipped up by overlooking evidentiary procedures, or possibly was unable to prove that any unlicensed discs exist, the result here seems to come out as common sense (i.e., licensed patents cannot be infringed).  This decision is further important to provide support for the notion that such licensed patents also cannot be indirectly infringed.  While the result is not so broad, it does help support companies who have obtained licenses from later attacks of indirect infringement via use by end users.  Downstream assertion of standard-essential patents, or two bites at the apple for patent holders (a first against companies as licensees and a second against the companies as indirect infringers) is not likely to be allowed by the Federal Circuit.

Patent Exhaustion

An alternative holding was advanced by the District Court, however, regarding patent exhaustion.  The District Court applied Quanta and stated that "here, [JVC] has suggested no reasonable use for the [licensed DVD and Blu-ray optical discs] other than . . . practice[ing] the [JVC] Patents."

The Federal Circuit declined to opine directly on this issue for a few reasons.  Notably, the Federal Circuit found that the District Court clearly and effectively determined that infringement had not been shown on JVC's theory and argument of the case, and thus, any further holding of patent exhaustion would have been redundant for purposes of assertion of the patents.  In addition, the Federal Circuit found that the "sketchy record, contradictory arguments, and undeveloped facts before us" did not enable them to expand the theory of patent exhaustion to reach this case.  Thus, with facts material to the issue of patent exhaustion being insufficiently developed to warrant summary judgment on that alternative ground, the District Court's ruling with respect to patent exhaustion was vacated.

It was further noted that in arguing that the District Court improperly applied the criteria of patent exhaustion, JVC also negated its own theory of infringement (e.g., if the Patents represent a "substantial embodiment" of the optical discs as sold -- as JVC argued in support of infringement -- then the Patents are exhausted on sale of the discs).  This contradiction, and lack of details in evidence led the Federal Circuit to punt on the issue of patent exhaustion.

JVC Kenwood Corp. v. Nero, Inc. (Fed. Cir. 2015)
Panel: Circuit Judges newman, Dyk, and Reyna
Opinion by Circuit Judge Newman