Summary
noting that the locus of operative facts is the same for infringement actions as well as declaratory judgment actions concerning claims of non-infringement
Summary of this case from A a Jewellers Limited v. Commemorative Brands, Inc.Opinion
02 Civ. 447 (MBM)
February 13, 2003
ROBERT NEUNER, ESQ., JAMES J. MAUNE, ESQ., PAUL D. ACKERMAN, ESQ. (Attorneys for Plaintiff) Baker Botts, New York, NY.
WILLIAM H. FRANKEL, ESQ., DAVID S. FLEMING, ESQ., JASON C. WHITE, ESQ. (Attorneys for Defendant), Brinks Hofer Gilson Lione, Chicago IL.
MARGOT J. METZGER, ESQ., THOMAS J. SCHELL, ESQ., (Attorneys for Defendant) Bryan Cave LLP, New York, NY.
OPINION AND ORDER
Plaintiff FindWhat.com ("FindWhat") sues its competitor Overture Services, Inc. ("Overture") under the Declaratory Judgment Act, 28 U.S.C. § 2201, 2202 (2000), asking for a declaration of invalidity, unenforceability, and noninfringement for U.S. Patent No. 6,269,361 ("the `361 patent"); an injunction against Overture's taking any further legal action concerning alleged infringement of the patent; and costs and fees. Defendant moves to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) or alternatively to transfer to the Central District of California pursuant to 28 U.S.C. § 1404(a)(2000). Defendant further moves to dismiss plaintiff's claim for a declaration of unenforceability based on inequitable conduct pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6); to strike various paragraphs of plaintiff's First Amended Complaint pursuant to Fed.R.Civ.P. 9(b) and 12(f); and to order plaintiff to provide a more definite statement of its inequitable conduct allegations pursuant to Fed.R.Civ.P. 12(e). For the reasons set forth below, the motion to dismiss pursuant to Rule 12(b)(1) is denied without prejudice to renewal in the Central District of California, and the motion to transfer is granted. Because this action will be transferred to the Central District of California, I do not address defendant's other motions.
I.
Plaintiff FindWhat is a Nevada corporation that is headquartered in New York, with technical operations based in Florida. (Pisaris-Henderson Decl. ¶ 2) FindWhat is in the business of selling services related to its "proprietary pay for performance Internet search engine." (First Am. Compl. ¶ 1) Defendant Overture, formerly know as GoTo.com ("GoTo"), is a California corporation that is headquartered in a 500-person office in Pasadena, California, but also has a six-person advertising field office in the Southern District of New York. (Id. ¶ 2; Metzger Decl. ¶¶ 2, 3; Ryan Decl. ¶ 6) In promotional material, Overture describes itself as "an international corporation with offices in Pasadena, New York, San Francisco and London." (FindWhat's Mem. Opp'n Mot. to Dismiss or Transfer Ex. 1) FindWhat and Overture compete in "the pay for performance search engine market sector." (First Am. Compl. ¶ 9) A pay-for-performance search engine lists "results . . . in an order that is determined, among other things, by how much the advertiser is willing to pay the service provider in the event a user selects its listing." (FindWhat's Mem. Opp'n Mot. to Dismiss or Transfer at 2)
FindWhat alleges that by January 19, 1998, GoTo was already using the system and services described in the `361 patent and had attracted 1000 advertisers. (First Am. Compl. ¶ 19) Several of these advertisers appear to be headquartered in the Southern District of New York. (Ackerman Decl. ¶ 11-14, Exs. 2-7)
On July 20, 1999, Emilia F. Cannella, counsel to GoTo, wrote to Robert Brahms of BeFirst Internet Corp. ("BeFirst"), now a subsidiary of FindWhat, to note that GoTo had applied for comprehensive patent rights concerning its "pay for placement' business model and features thereof," that GoTo would be monitoring BeFirst, and that it would "seek to enforce its patent rights against infringers upon issuance of its patent." (First Am. Compl. Ex. 2) The letter was forwarded also to the United States Patent and Trademark Office, which was at that time considering what would become the `361 patent. (Ackerman Decl. ¶ 3) On April 3, 2000, outside counsel for GoTo James P. Naughton wrote to his counterpart for FindWhat, Leonard D. Steinman, stating that the U.S.P.T.O. had granted GoTo's patent filing "expedited status due to the existence of potential infringements." (FindWhat's Mem. Opp'n Mot. to Dismiss or Transfer Ex. 4)
Later that month, on July 31, 2001, the U.S.P.T.O. issued the `361 patent, entitled "System and Method for Influencing a Position on a Search Result List Generated by a Computer Network Search Engine," with GoTo.com identified as the assignee of the entire interest in and to the patent. (First Am. Compl. Ex. 1) Earlier, in a declaration in support of a petition to expedite consideration of the proposed `361 patent, inventor Darren J. Davis had asserted that FindWhat's product would infringe the patent, if granted. (FindWhat's Mem. Opp'n Mot. to Dismiss or Transfer Ex. 3, ¶¶ 6(c)-(d), 7(e), 8, 11)
On August 3, 2001, FindWhat listed the threat of litigation from Overture as a risk factor in its 10-QSB quarterly SEC report. (Pisaris-Henderson Decl. ¶ 8)
On November 27, 2001, Overture wrote to FindWhat concerning a potential license of the `361 patent. (First Am. Compl. ¶ 11) Discussions commenced, and, during those discussions, FindWhat alleges, Overture's vice president of business affairs, Joshua Metzger, asserted in a conversation with FindWhat COO Phillip R. Thune that FindWhat was infringing the `361 patent. (Id. ¶ 12; Thune Decl. ¶ 9) Later, at a meeting held on January 10, 2002, Overture set out licensing terms that FindWhat found "financially and structurally oppressive" and "unreasonable" and, according to FindWhat, stated that FindWhat must comply with those terms within two weeks or present a substantially similar counteroffer. (First Am. Compl. ¶ 13; Pisaris-Henderson Decl. ¶ 17) Overture does not characterize this two-week date as an ultimatum, but instead as an agreed-upon time for a counterproposal by FindWhat and further discussion of the matter. (Metzger Decl. ¶ 9) At that meeting, FindWhat President and CEO Craig Pisaris-Henderson gave Metzger a business card and informed him that he maintained his office in Florida. (Id. ¶ 8, Ex. B)
FindWhat filed its initial complaint seeking a declaratory judgment on January 17, 2002, two weeks after the meeting. A few days later, on January 21, 2002, Pisaris-Henderson tried to contact Meisel in an attempt at "an alternate course to find a business resolution." (Pisaris-Henderson Decl. ¶ 22) Meisel asked Metzger to follow up on the call. (Metzger Decl. ¶ 11) Pisaris-Henderson refused to speak with Metzger, saying that he would only speak with Meisel. (Id.) On January 25, 2002, eight days after FindWhat filed its action, Overture countered by filing a patent infringement suit in the Central District of California. (Mem. Supp. Def. Overture's Mot. to Dismiss or Transfer at 3) In that Court, Judge George H. King has deferred any further action until this court rules on the motions before it. (Ackerman Decl. ¶ 16) Judge King has indicated that he will likely dismiss the action before him if I deny Overture's motions to dismiss and to transfer. (Id. ¶ 17)
Overture has informed this court that Thune has publicly announced that FindWhat is moving its headquarters to Florida. (Frankel Letter of 8/7/02) FindWhat calls to my attention that Overture recently brought a case against the search engine company Google in the Central District of California, unsuccessfully tried to get it assigned to Judge King's docket, and eventually withdrew it voluntarily and refiled in the Northern District of California. (Ackerman Letter of 8/14/02)
II.
FindWhat asserts subject-matter jurisdiction under the Declaratory Judgment Act, 28 U.S.C. § 2201, 2202 (2000), and the federal patent laws, pursuant to 28 U.S.C. § 1338(a) (2000). Overture moves to dismiss for lack of subject-matter jurisdiction pursuant to Rule 12(b)(1) or alternatively to transfer. Before a district court can consider a motion to transfer, it must determine whether it has subject-matter jurisdiction. Levitt v. Md. Deposit Ins. Fund Corp., 643 F. Supp. 1485, 1489 n. 3 (E.D.N.Y. 1986); United States ex rel. Jimenez v. Conboy, 310 F. Supp. 801, 802 (S.D.N.Y. 1970) (Weinfeld, J.) ("The defect here 15 not merely one of improper venue, but of lack of subject matter jurisdiction, which is fundamental and cannot be disregarded.")
The Declaratory Judgment Act does not expand the scope of the case or controversy requirement. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937). "The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests." Id. at 240-41. "It must be a real and substantial controversy admitting of specific relief through a decree of a conclusive character . . . ." Id. at 241. When a plaintiff seeks a declaration that its product does not infringe a patent, the Federal Circuit has established a two-pronged test to determine whether there is a justiciable controversy. "First, the plaintiff must actually produce or he prepared to produce an allegedly infringing product. Second, the patentee's conduct must have created an objectively reasonable apprehension on the part of the plaintiff that the patentee will initiate suit if the activity in question continues."EMC Corp. v. Norand Corp., 89 F.3d 807, 811 (Fed Cir. 1996). The plaintiff has the burden to establish the second prong by a preponderance of the evidence. See Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 887 (Fed. Cir. 1992). The Federal Circuit's test is applied to the facts as they were at the time when the complaint was filed. Arrowhead Indus. Water, Inc. v. Ecolochem. Inc., 846 F.2d 731, 736 (Fed. Cir. 1988)
Overture does not dispute the fact that FindWhat could meet this prong of the EMC test.
"If defendant has expressly charged a current activity of the plaintiff as an infringement, there is clearly an actual controversy, certainty has rendered apprehension irrelevant, and one need say no more." Id. at 736. In this case, plaintiff has twice alleged that Metzger, Overture's vice president of business affairs, asserted in a conversation with FindWhat COO Thune that FindWhat was infringing the `361 patent. (First Am. Compl. ¶ 12; Thune Decl. ¶ 9) Overture does not expressly deny this claim. In his declaration, Metzger claims merely to have given Thune "an overview of the license terms that Overture was offering." (Metzger Decl. ¶ 7) I find that Overture has expressly charged FindWhat with infringement. See Applexion S.A. v. Amalgamated Sugar Co., No. 95 C 858, 1995 WL 229049 (N.D. Ill. Apr. 17, 1995) (finding an express charge of infringement)
Overture argues that the negotiations between itself and FindWhat provide evidence that FindWhat did not suffer under a reasonable apprehension of an infringement suit. It cites Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051 (Fed. Cir. 1995), in which the Federal Circuit said that "[w]hen there are proposed or ongoing license negotiations, a litigation controversy normally does not arise until the negotiations have broken down," id. at 1053. However, the case before me is distinguishable from Phillips in that there has been an express charge of infringement here.
Thus, following Arrowhead, I find based on what is now in the record that there is an actual controversy and that this court has subject-matter jurisdiction over the case. I therefore deny Overture's motion to dismiss pursuant to Rule 12(b)(1), but I do so without prejudice to renewal of the motion in the Central District of California, to where this action will be transferred for the reasons explained below.
I also will not exercise my discretion to decline jurisdiction over this declaratory judgment action, as Overture has requested that I do. In reviewing the parties' submissions, I have seen no reason to limit FindWhat's access to a declaratory judgment if it can prove its case.
III.
Overture has moved, pursuant to 28 U.S.C. § 1404(a), for an order transferring this action to the Central District of California. In the Federal Circuit, the first-filed rule, which states that an action will normally remain in the jurisdiction in which it was first filed, is the norm, but it has exceptions. Kahn v. General Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir. 1989). "To overcome the preference for the forum of the first-filed suit, a sound reason must exist that would make it unjust or inefficient to continue the first-filed action." Bank of Tokyo-Mitsubishi, Ltd. v. J.A. Jones, Inc., No. 98 Civ. 2494, 1998 WL 283355, at *2 (S.D.N.Y. May 29, 1998)Overture offers several reasons to depart from the first-filed rule. In one, it accuses FindWhat of forum shopping and asks this court to transfer on those grounds. However, in order for transfer to be proper as an antidote to forum shopping, Overture would have to prove that forum shopping was the "sole reason" that FindWhat brought its action here. See Novo Nordisk of N. Am., Inc. v. Genentech, Inc., 874 F. Supp. 630, 632 (S.D.N.Y. 1995). Overture cannot prove any such thing in this case. FindWhat's corporate headquarters are in New York, which represents a perfectly good reason, not necessarily related to forum shopping, for it to have brought its action here.
Overture argues that the difference in time between the filing of the two actions, only eight days, weakens the force of the first-filed rule. That is not the case under the law of the Federal Circuit. Genentech, 998 F.2d at 938 ("However, the rule favoring the right of the first litigant to choose the forum, absent countervailing interests of justice or convenience, is supported by `[reasons] just as valid when applied to the situation where one suit precedes the other by a day as they are in a case where a year intervenes between the suits.'" (quoting Crosley Corp. v. Westinghouse Electric Manufacturing Co., 130 F.2d 474, 475 (3d Cir. 1942))), abrogated on other grounds by Wilton v. Seven Falls Co., 515 U.S. 277, 289 (1995).
Overture argues also that the lack of progress in either action mitigates the effect of the first-filed rule. Indeed, Judge King has deferred any further action in the infringement case until my decision on these motions. Because "[a] lack of progress in either litigation may also warrant an exception to the first-filed rule," Invivo Research, Inc. v. Magnetic Resonance EQuip. Corp., 119 F. Supp.2d 433, 441 (S.D.N.Y. 2000), I will take this factor into consideration in deciding whether to make an exception to the first-filed rule.
To determine whether the first-filed rule should be set aside in this case, I employ the same nine-factor interest analysis used to decide a convenience transfer motion under 28 U.S.C. § 1404(a). See 800-Flowers, Inc. v. Intercontinental Florist, Inc., 860 F. Supp. 128, 133 (S.D.N.Y. 1994). The factors are as follows:
(1) the convenience of witnesses; (2) the location of relevant documents and the relative ease of access to sources of proof; (3) the convenience of the parties; (4) the locus of the operative facts; (5) the availability of process to compel attendance of unwilling witnesses; (6) the relative means of the parties; (7) a forum's familiarity with the governing law; (8) the weight accorded a plaintiff's choice of forum; and (9) trial efficiency and the interests of justice, based on the totality of the circumstances.
Id. at 133.
Convenience of witnesses is "perhaps the most important consideration of a Section 1404(a) motion." Invivo, 119 F. Supp.2d at 437 (quotingGarrel v. NYLCare Health Plans, Inc., No. 98 Civ. 9077, 1999 WL 459925, at *5 (S.D.N.Y. June 29, 1999) (internal quotation marks omitted)). This factor tips heavily in Overture's factor. All ten inventors listed in the `361 patent reside in the greater Los Angeles area. (Ryan Decl. ¶ 3) Additionally, Pisaris-Henderson has an office in Florida, so he will have to travel a significant distance regardless of whether this case is heard here or in California. (Metzger Decl. ¶ 8, Ex. B) FindWhat is headquartered in New York. It asserts also that it will need to examine Overture's advertisers to prove its claim that Overture's prior public use and sale of the claimed invention more than one year prior to the filing of the patent invalidates the patent. Many of these advertisers are located in New York. (Ackerman Decl. ¶¶ 11-14, Exs. 2-7) However, because Overture has named ten specific witnesses with personal knowledge of the details of the patent and its prosecution — the ten inventors — and because the patent is central to both cases, convenience of the witnesses weighs heavily in favor of transfer.
The location of relevant documents and the relative ease of access to sources of proof also favors Overture, which is headquartered in California. It asserts that all documents relating to the invention and all ancillary documentation for communications with advertisers are located at headquarters. (Ryan Decl. ¶ 4) Given the importance of the patentee's documents in cases like this one, see Riviera Trading Corp. v. Oakley, Inc., 944 F. Supp. 1150, 1159 (S.D.N.Y. 1996), this factor favors Overture.
The convenience of the parties does not weigh heavily in either party's favor. Overture is headquartered in California with a small sales office in New York, and FindWhat is headquartered in New York but has an office in Florida where its president and CEO works. Thus, each party would be inconvenienced to some degree by having to travel to the forum of the other party's choosing.
Considering the locus of operative facts suggests that California would be the more appropriate forum. In infringement cases, the operative facts usually relate "to the design, development, and production of a patented product." Invivo, 119 F. Supp.2d at 439. The same would seem to be true for this declaratory judgment action. The development of the invention took place in California. Furthermore, the licensing negotiation meeting in this case also took place at Overture's headquarters in California. (Metzger Decl. ¶ 8)
The availability of process to compel the attendance of witnesses also weighs in Overture's favor. Five of the ten inventor witnesses it has identified are no longer employed by Overture (Ryan Decl. ¶ 3) and are thus non-parties. Because they live in California (id.), they may be unwilling to travel to New York for judicial proceedings. FindWhat has not been as specific in naming and locating its non-party witnesses.
FindWhat asserts that Overture has reported earnings and profits over ten times larger than its own. (Pisaris-Henderson Decl. ¶ 3) However, although Overture's means may be greater than FindWhat's, neither party's means are so minimal as to make this factor relevant. See Computer Generated Solutions, Inc. v. L'Koral Inc., No. 97 Civ. 6298, 1999 WL 14012, at *2 (S.D.N.Y. Jan. 14, 1999). The forum's familiarity with the governing law is also immaterial here, because all federal district courts are assumed to be equally familiar with federal patent law. Recoton Corp. v. Allsop, Inc., 999 F. Supp. 574, 578 (S.D.N.Y. 1998).
Turning to the eighth factor, I do put weight in the plaintiff's choice of forum, but it must be balanced against the other interests discussed in this section. Finally, examination of trial efficiency and the interests of justice, based on the totality of the circumstances, a catch-all factor, adds nothing new to the analysis.
Based on all nine of the factors above, and also taking into account the lack of progress in both cases, I find that there is sufficient reason to depart from the general rule favoring the forum of the first-filed action. The convenience of witnesses and the location of documents are particularly persuasive in this regard. Therefore, Overture's motion is granted, and this action will be transferred to the Central District of California, pursuant to 28 U.S.C. § 1404(a). Because the case will proceed in another district, I will not rule on any of Overture's remaining motions.
* * *
For the reasons set forth above, the motion to dismiss pursuant to Rule 12(b)(1) is denied without prejudice to renewal in the Central District of California, and the motion to transfer is granted. The Clerk will transfer the case to the Central District of California.
SO ORDERED: