[MITEK SYSTEMS, INC., v. UNITED SERVICES AUTOMOBILE ASSOCIATION [OPINION]]
Before Taranto, Schall, and Chen. Appeal from the United States District Court for the Eastern District of Texas
Summary: The plaintiff could not seek declaratory judgment of non-infringement because (i) its product did not meet all the limitations of the asserted claims and (ii) the DJ proceeding could not have resolved the issue of whether the plaintiff must indemnify customers who modified the product.
Mitek Systems, Inc. (Mitek) sought declaratory judgment that its software product did not infringe three United Services Auto Association (USAA) patents. Mitek claimed two bases for declaratory judgment jurisdiction: 1) Mitek’s potential liability for infringement and 2) the possibility of indemnity demands made by Mitek’s licensees after USAA sent letters proposing licenses to the USAA patents. Mitek argued that, due to the customizability of its software, an end user could utilize Mitek’s product in a way that infringed USAA’s patents. After an initial remand, the district court found that Mitek had no reasonable apprehension of direct or indirect infringement liability. After reviewing the letters USAA sent to Mitek’s licensees and Mitek’s indemnification agreements, the district court also concluded that there was no reasonable risk that Mitek would need to indemnify its customers.
The Federal Circuit affirmed the district court’s decision. Accepting without deciding that the mere capability of Mitek’s software to infringe the patents could be grounds for a direct infringement action, the Federal Circuit noted that the asserted claims in USAA’s patents also involved hardware limitations that could not be met by modification. Similarly, there was no potential for inducement infringement because Mitek had never encouraged performance of the remaining limitations. A claim of contributory infringement would also fail because Mitek’s software was capable of substantial non-infringing uses. As to Mitek’s second basis for declaratory judgment, the Federal Circuit explained that the agreements with its customers contained indemnity carveouts that eliminated any reasonable risk that Mitek would be found liable for its customers’ modification of the product. Thus, Mitek could not establish subject matter jurisdiction over its declaratory judgment claims.
Finally, in the alternative, the Federal Circuit held that, even if the district court did have jurisdiction over the declaratory judgment claims, it nevertheless did not err by declining to exercise that jurisdiction in this case. The district court found that the “best” way for Mitek to defend its software would be to intervene in another litigation brought by USAA against a Mitek customer. The district court found that intervening would provide Mitek the avenue to obtain the relief it sought via declaratory judgment. In addition, the district court found that any litigation of the issue of indirect infringement via declaratory judgment would require extensive involvement of the end users of Mitek’s software. A declaratory judgment suit between Mitek and USAA – without the participation of the end users – could not resolve issues of infringement for such modified products. The Federal Circuit explained that it previously approved discretionary decisions that declined to exercise jurisdiction if the declaratory judgment action would not address the uncertainty giving rise to the proceeding in the first place. Thus, the Federal Circuit concluded that, even if subject matter jurisdiction did exist, it would not have been an abuse of discretion for the district court decline to exercise that jurisdiction.
Editor: Sean Murray
