Opinion
Civ. Nos. 05-CV-1777-B (AJB), 05-CV-1780-B (AJB), 05-CV-1784-B (AJB), 05-CV-1796-B (AJB).
March 15, 2006
In these consolidated cases, Plaintiffs are television manufacturers who seek a declaratory judgment that Defendant's two patents are invalid. Plaintiffs move to stay the litigation while the Patent and Trademark Office (PTO) re-examines the patents. Defendant moves to dismiss the suits contending that Plaintiffs are seeking leverage in the licensing negotiations, and there was no real threat of patent litigation, and thus, no jurisdictional basis for a declaratory relief action. The parties agree on the law, but dispute the application of the law to the facts.
The Court heard argument on February 13, 2006. At the end of that hearing, Plaintiffs suggested that a compromise might be reached, and the Court deferred ruling to allow the parties to pursue an agreement. The parties have notified the Court in writing that no agreement was reached, and the Court now resolves the pending motions. For the reasons stated below, the Court dismisses the consolidated actions for lack of jurisdiction.
Background
A. V-Chip Patents and Legislation
Inventor Peter Vogel, an Australian, obtained two patents — Nos. 4,930,148 and 4,930,160 — in May 1990 in the United States. Def.'s Exs. 4 5. The patents involve a video chip or "V-chip" that allows parents to program a television set, or recording device such as a VCR, to block shows considered unsuitable for children.
The same year that the patents issued, 1990, Congress enacted legislation to ensure consumers had access to the new video technology to block programming selected by its rating. Congress prohibited the shipment, in interstate or foreign commerce, of television receivers that did not contain a technology for parents to block programs based on content. 47 U.S.C. § 330. Though enacted in 1990, the law allowed manufacturers time to adjust production. Effective July 1999, Congress applied the law to half of all newly manufactured television sets, and six months later, to all sets.
The inventor sold the patents to Defendant Guardian Media Technologies, Ltd. (Guardian), in late November 2003. Dowler Decl. ¶ 8; Def.'s Exs. 7 8. Defendant began to pursue licensing agreements with television manufacturers, including the four Plaintiffs in this action — Sony Electronics, Inc. (Sony), Mitsubishi Digital Electronics American, Inc. (Mitsubishi), Thomson Inc. (Thomson), and Matsushita Electric Industrial Co., Ltd. (Matsushita)
Victor Company of Japan ("JVC") is a subsidiary of Matsushita, and is a co-plaintiff in Matsushita's declaratory relief action. Defendant Guardian initially corresponded with JVC, but JVC ultimately referred the matter to Matsushita. Def.'s Ex. 77. For simplicity, the Court refers to these related corporations collectively as Matsushita, and, refers to "four" plaintiffs.
B. License Negotiations
1. Initial Discussions
Each of the four negotiations generally followed the same pattern. For the sake of brevity, the Court describes Sony's negotiations and indicates when the facts varied in any significant way for other Plaintiffs.
In the Fall of 1999, a patent lawyer in New York sent a letter on behalf of the inventor, Vogel, to three Plaintiffs (but not to Thomson). Gresalfi Decl. Ex. A (Sony, dated 9/24/99); Belusko Decl. Ex. A (Mitsubishi, dated 10/6/99); Berger Decl. Ex. A (Matsushita via subsidiary JVC, dated 9/9/99). It was captioned as "Notice of Patent Infringement." Id. (emphasis in original). The letter stated that it had come to Vogel's attention that specific electronic products using parental control technology infringed Vogel's V-chip patents. Id. Vogel's attorney asked Plaintiffs to discuss the matter, and in two instances requested a response "within ten days." Id.
Sony requested claim charts, which Vogel's attorney provided. Gresalfi Decl. Exs. B C. After some investigation, Sony concluded that Vogel's patents were anticipated or obvious, and cited prior art references to support that belief Gresalfi Decl. Ex. D; accord Belusko Decl. Exs. B, C D (Mitsubishi investigated for a year, and concluded that its products did not infringe, and that Vogel had failed to reveal prior art references); Berger Decl. Ex. B (in April 2000, Matsushita concluded it did not need a license because of invalidity). There is no evidence indicating that Vogel pursued either further licensing negotiations, or patent litigation to enforce his rights.
In August 2004, Defendant Guardian sent a letter to Plaintiff Sony seeking to discuss a license to the patents. Def.'s Ex. 5; accord Ex. 44 (Mitsubishi), Def.'s Ex. 26 (Thomson); Exs. 69 78 (JVC Matsushita). Guardian mentioned that a court in a case involving comparable technology had determined a royalty rate of $1.15 per unit, and Guardian stated it would offer a discount as an incentive to early licensees. Id. Guardian asserted the right for compensation for products sold since 1999, when the law took effect. Id. Guardian stated that it knew the manufacturer would need time to analyze the issue, and to assist with that process, Guardian included a compact disk containing the patents, the prosecution histories, and the prior art references cited. Id. Guardian requested a prompt reply and expressed its optimism that they could work together to "bring this matter to an early and mutually satisfactory conclusion." Id.
When two months passed, Guardian sent a follow up letter. Def.'s Ex. 6. Though courteous in tone, Guardian emphasized a time constraint by stating that it "require[d]" some response, and that it would appreciate hearing back within a month, characterizing that as a "substantial extension of time." Id. In addition, Guardian restated its offer to give early signers a lower rate. Id. Ex. 7 (a similar follow up letter to Sony dated 12/3/04 stated "while we do not intend to rush your response, we feel obligated to inform you" that the deep discounts "may not be available if Sony does not act fairly quickly in negotiating a license"), accord Ex. 45 (Mitsubishi), Exs. 26 28-33 (Thomson), Ex. 79 (Matsushita).
After these initial solicitations, the parties exchanged correspondence for several months generally discussing the patents' validity, the alleged infringement, and the terms of the proposed license. E.g., Def.'s Exs. 10, 11, 14 (Sony); accord Exs. 45-52, 55 (Mitsubishi), Def.'s Ex. 27 (Thomson requested claim charts and stated that $1.15 per unit was not "remotely close" to an industry standard), Ex. 34 (proposed rate was "grossly inflated"), Ex. 36-39 (Thomson), Ex. 72 (JVC considered $1.15 "quite unrealistic"), Exs. 75 (JVC thought $.69 discount "still too high"), 79-84, 86-91, 93, 95 (Matsushita JVC). In the course of these discussions, Guardian provided claim charts advancing its theory of infringement and submitted formal written offers. Def.'s Ex. 14 (claim chart to Sony) Ex. 18 (formal offer calculated on Sony's actual royalty obligations of $31 million, but offering 40% discount to a royalty rate of 69 cents, and if signed within one month, Guardian would reduce the lump sum to $9 million); accord Def.'s Ex. 59 (4/1/05 letter calculated Mitsubishi owed $4.4 million for products sold since 1999, but offering discount to $3.5 million if Mitsubishi signed within one month), Def.'s Ex. 37 (similar formal offer to Thomson calculating obligation at $1.15 rate but offering 40% discount to $.69 per unit), Def.'s Ex. 83 (claim charts to Matsushita) Ex. 99 (formal offer); see also Dowler Decl. ¶ 51 (in 3/2/05 telephone conversation, Thomson said it was interested in resolving the issues and opined that the top offer would be $1 million), ¶ 54 (in a 7/12/05 telephone conversation, Thomson said Guardian's offer was too high, that Thomson had stopped selling TVs, but that the attorney would talk to the top management to see what they would authorize), id. (Thomson called on 7/20/05 to inquire into licensing fees paid by other manufacturers).
Also during this time frame, Guardian proposed meeting in person in Japan, or in the United States at industry events. E.g., Def.'s Exs. 8, 9, 12 ("We will be in the Far East meeting with other prospective licensees" in April 2005), 13, 15, 16 17; accord Def.'s Ex. 35, 53, 85, 92, 94. Eventually, Sony met with Guardian in New York in June 2005 to discuss licensing the V-chip patents. Def.'s Ex. 17 18; accord Def.'s Ex. 57 60-65 (Mitsubishi meeting in Los Angeles in June 2005); Exs. 97-99 (June 2005 meeting with Matsushita in New York); see Exs. 37-39 (reflecting telephone conversations and electronic mail messages with Thomson).
2. Declaratory Relief Lawsuits filed in September 2005
On July 7, 2005, Defendant Guardian sent Sony a written offer, as it had promised to do at the June meeting. Def.'s Ex. 18. Guardian repeated its offer to discount the royalty rate from $1.15 to $.69 per unit. Id. ("As we previously offered, Guardian at this time remains willing to give Sony a 40% discount"). Guardian calculated Sony's allegedly infringing sales in the United States back to 1999, when the parental control law took effect, and estimated an obligation of $31 million. Based on the 40% discount, Guardian asserted that Sony's royalties amounted to $18.6 million, but in the next paragraph offered an additional discount:
In order to resolve these issues quickly and amicably, for a limited time Guardian will offer Sony a fully paid-up license for $9,000,000. This license will include each of Guardian's patents, and it will cover every V-chip enabled product that Sony has sold and will sell for the life of each of the Guardian patents. This is a one-time offer and will expire on August 31, 2005. Guardian is willing to offer Sony these very steep discounts due to unique circumstances and because Sony has been diligent in working with Guardian on these issues.Id. (emphasis added). Guardian understood that Sony would in turn "respond to the offer and, if necessary, provide a more detailed explanation of the substantive issues that it would like to discuss further." Id.
In its last letter dated August 24, 2005, Guardian stated that it "required" a response from Sony, and mentioned the other manufacturers that had accepted licenses. Def.'s Ex. 19.
Without any further communication, Sony filed its declaratory judgment complaint on September 14, 2005. Def.'s Ex. 20 (Complaint time stamped 11:54 a.m. PST). Similarly, on August 31, 2005 when Guardian followed up with Mitsubishi about the status of the offer, Mitsubishi sent a letter dated September 13, 2005 that it was still "not interested in a license" because the patents were "clearly invalid." Def.'s Exs. 66-67. On September 15, 2005, Mitsubishi filed its complaint. Def.'s Ex. 68 (time stamped 1:50 p.m. PST).
Thomson followed the same pattern. On August 24, 2005, Guardian sent an e-mail inquiring about the counter-offer Thomson promised. Late in the afternoon of September 14, Thomson sent an e-mail stating its understanding of the status of negotiations, in short, that the top management had not changed its mind and was "unwilling to offer up any funds to settle this matter and in fact felt quite strongly in standing firm" and would "not accept a license." Def.'s Ex. 41 (original e-mail message sent at 2:51 p.m.). Before the close of business, Thomson filed its federal lawsuit. Def.'s Ex. 42 (Complaint filed 9/14/05). Because Defendant Guardian was unaware of Thomson's lawsuit, it responded and "apologize[d] for any confusion or inaccuracy between our telephone conversations and our written correspondence. None was intended." Def.'s Ex. 41. Guardian accepted Thomson's right not "to offer up any funds whatsoever." Id. Guardian continued:
We simply reiterate Guardian's suggestion that Thomson offer something as a means for starting the process of seeking a business resolution to the issues. We had understood (perhaps incorrectly) that Thomson was willing to pay on the order of $1M to resolve these issues. We will never know whether these issues can be resolved amicably if Thomson doesn't offer something.
Absent hearing back from you within 30 days, we will assume Thomson does not share Guardian's interest in an amicable resolution to these licensing issues.Id.
In almost identical facts relative to Plaintiff Matsushita, Guardian "required" a response in a letter dated August 24, 2005, and on August 30, 2005, Matsushita reported that the attorney was overseas until September 6 but would respond when he returned to the office. Def.'s Exs. 100 101. On September 16, Matsushita sent a letter stating it had no interest in the offer and it was rejected. Def.'s Ex. 102 (fax time stamped 12:05). Within hours, Matsushita filed its complaint. Def.'s Ex. 103 (Complaint time stamped 12:09 PST).
All complaints seek declaratory judgments of patent invalidity and non-infringement, and unenforceability due to laches and estoppel. Plaintiffs served their complaints at the end of December 2005.
C. Patent Reexamination
In October 2005, Plaintiffs filed ex parte applications requesting reexamination of the two patents on the ground that they were anticipated by, and obvious over various patents and publications, which had not been cited in the original examination. In December, the PTO granted the request and set a date for an optional statement by the patent owner.
Discussion
I. Motion to Dismiss for Lack of Subject Matter Jurisdiction
Defendant Guardian moves to dismiss all four actions for lack of subject matter jurisdiction. Fed.R.Civ.P. 12(b)(1). The Court must determine whether it has subject matter jurisdiction first. Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 94 (1998) ("Without jurisdiction, the court cannot proceed at all in any cause.")
A. Legal Standards
The Declaratory Judgment Act empowers federal courts to issue a declaration of rights in an actual controversy. 28 U.S.C. § 2201. The "actual controversy" requirement means that federal courts must ensure that there is a "`definite and concrete' dispute between adverse parties, appropriate to immediate and definitive determination of their legal rights." BP Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 977 (Fed. Cir. 1993) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)).
The parties agree that Federal Circuit law applies. Electronics for Imaging, Inc. v. Coyle, 394 F.3d 1341, 1345-46 (Fed. Cir. 2005); Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 888 n. 4 (Fed. Cir. 1992). The Federal Circuit has held that:
As applied to declarations of patent rights and relationships, for an actual controversy more is required than the existence of an adversely held patent. Thus in patent litigation there has evolved a pragmatic two-part test for determining declaratory justiciability. There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity. The element of threat or reasonable apprehension of suit turns on the conduct of the patentee, while the infringement element depends on the conduct of the asserted infringer. The purpose of the two-part test is to determine whether the need for judicial attention is real and immediate or is prospective and uncertain.BP Chems., 4 F.3d at 978 (citations omitted).
The parties agree that the second prong is not at issue; therefore, this motion concerns the first prong of the Federal Circuit's test. Plaintiffs must show their reasonable apprehension by a preponderance of the evidence. Shell, 970 F.2d at 887; Indium Corp. v. Semi-Alloys, Inc., 781 F.2d 879, 883 (Fed. Cir. 1985). The test is objective, and is judged on the totality of the circumstances. BP Chems., 4 F.3d at 979. "A purely subjective apprehension of an infringement suit is insufficient to satisfy the actual controversy requirement." Indium, 781 F.2d at 883.
The Federal Circuit carefully considers the practical pressures on both sides of the negotiations, and of the potential to undermine or preserve the purpose of the Declaratory Judgment Act. "[T]he purpose of the Declaratory Judgment Act is to enable those threatened to remove such a cloud on their commercial activity, instead of being obliged to await the convenience of the threatening party. . . . Thus it is appropriate to consider the commercial impact when the accused infringement is ongoing. While the practical effect of denying access to the courts is the concern of the Declaratory Judgment Act, there must still be a case of actual controversy." Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kasisha, 57 F.3d 1051, 1053 (Fed. Cir. 1995) (citation omitted). Consequently, the Federal Circuit has warned that an alleged infringer cannot "abuse the declaratory judgment device to obtain a more favorable bargaining position in its ongoing negotiations with the patentee and also to undermine the value of the patent so as to impede its sale or licensing to a third party." EMC Corp. v. Norand Corp., 89 F.3d 807, 814 (Fed. Cir. 1996). Conversely, "one who may become liable for infringement should not be subject to manipulation by a patentee who uses careful phrases in order to avoid explicit threats, thus denying recourse to the courts while damages accrue." Phillips Plastics, 57 F.3d at 1053.
Even if a declaratory judgment plaintiff presents sufficient evidence of a reasonable apprehension of imminent litigation to satisfy the subject matter jurisdictional requirements, the federal court can exercise its discretion to decline the declaratory relief suit. Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995); Teva Pharm. USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1331-32 (Fed. Cir. 2005) (court has "substantial discretion to decline that jurisdiction"). However federal courts have a duty to resolve actual controversies concerning patents, and the Federal Circuit concludes that "[t]here must be well-founded reasons for declining to entertain a declaratory judgment action." Capo, Inc. v. Dioptics Med. Prods., 387 F.3d 1352, 1355, 1357 (Fed. Cir. 2004) ("when there has been a direct charge of infringement by the patentee, and an actual controversy exists due to ongoing activity that has been accused of infringement, the accused infringer has the right to resolve the dispute," and district court erred by failing to give a reason for declining jurisdiction, especially given the public interest aspect of patents).
When deciding a motion to dismiss for lack of jurisdiction under Rule 12(b)(1), the court may rely on evidence outside the pleadings. Indium, 781 F.2d at 884; see also BP Chems., 4 F.3d at 978 (district court held evidentiary hearing and considered depositions and documents).
B. Analysis of Reasonable Apprehension of an Infringement Suit
Defendant Guardian argues, and the Court agrees, that it did not expressly threaten to sue Plaintiffs for patent infringement. After some resistance, counsel for Sony also conceded this point at the hearing. As there is no evidence of a direct threat of litigation, Plaintiffs argument is that Defendant's conduct amounted to an implied threat of litigation. A reasonable "apprehension may be induced by subtler conduct if that conduct rises to a level sufficient to indicate an intent . . . to initiate an infringement action." EMC Corp., 89 F.3d at 811 (alterations and quotations omitted); Phillips Plastics, 57 F.3d at 1053 ("access to declaratory procedures in patent cases does not necessarily require an explicit threat of suit"). Plaintiffs argue that the totality of circumstances established its objectively reasonable apprehension that litigation was imminent because the negotiations had stalled; and although Guardian carefully avoided any magic words, there was an implied threat of litigation.
As support for their position that Guardian's conduct was carefully crafted to send the message that litigation was the next step, Plaintiffs first argue that the patentee threatened them with litigation by accusing them of infringing the V-chip patents. Plaintiffs rely on the 1999 correspondence with the New York attorney who represented the inventor, Vogel, because the initial letter was captioned as "Notice of Infringement."
The Court concludes that Vogel's notification in 1999 that Plaintiffs had been infringing the V-chip patents carries little weight in justifying their current declaratory relief action. Every patentee claims its patent is valid. "No patent owner with any sense would open negotiations by assuring his opposite party that he does not intend to enforce his patent rights under any circumstances. The threat of enforcement . . . is the entire source of the patentee's bargaining power." EMC Corp., 89 F.3d at 811. More importantly, Vogel silently disappeared after Plaintiffs investigated the prior art and asserted that his patents were invalid. Four years past without any further communication from Vogel. Gresalfi Decl. ¶ 7-8 (Sony); Belusko Decl. ¶ 8 (Mitsubishi); Def's Ex. 84 (Matsushita told Guardian that "[i]t is our understanding that no response was ever made on behalf of Mr. Vogel to this letter [discussing prior art and invalidity]"); see Berger Decl. ¶ 4 (Matsushita JVC). Vogel's lack of litigation, following unsuccessful solicitations to license, does not support Plaintiffs' argument that litigation was imminent when they filed these actions in September 2005. Such historical evidence, while relevant, carries minimal weight. See Indium, 781 F.2d at 883 (prior litigation against two other parties was "too remote" to create objectively reasonable apprehension).
Plaintiffs also argue that the letters from Defendant Guardian in 2004 and 2005, "in effect, charge" them with infringement, thereby giving rise to a credible belief that litigation would soon follow. Though the letters may be phrased politely rather than as "bellicose saber rattling," "[i]n light of the subtleties in lawyer language," Plaintiffs' argue that the totality of circumstances show a real and immediate apprehension of suit. EMC, 89 F.3d at 811-12; Arrowhead Indus. Water Inc. v. Ecolochem, Inc., 846 F.2d 731, 737 (Fed. Cir. 1988).
The Court is not persuaded. The letters are wholly silent on the possibility of litigation. The Court notes the calm and polite tone of Guardian's letters. Guardian provided formal written offers when requested, and stated that it would give a discount for early agreements. Guardian's detailed discussions of the prior art objections demonstrate that it was not feigning interest in the negotiations purely to stall a declaratory relief action. The Defendant did not exhibit impatience with the progress of the negotiations. On the contrary, Guardian always left open the possibility of further discussions, and remained willing to discuss invalidity or infringement issues that might affect the value of a license.
The facts of Plaintiff Thomson's negotiations illustrate that Guardian did not act as if it would soon file an infringement action. In August 2005, when Defendant Guardian alleged that its $5 million offer was comparable to other licensing agreements in the same field, Thomson said it would give a counter-offer. Dowler Decl. ¶ 55. Later that month, Guardian followed up. Def.'s Ex. 40. On September 14, 2005, Thomson sent an e-mail message stating that it was unwilling to make an offer and that management "felt quite strongly in standing firm." Def.'s Ex. 41. (Guardian disputes the accuracy of the summary of the status of the discussions. According to Guardian, this was the first indication that Thomson was not interested. Guardian had expected Thomson to give a counteroffer. Dowler Decl. ¶ 56.) The next day, Guardian responded to the e-mail and apologized for any misunderstanding about the state of the negotiations. Guardian suggested that Thomson make a counter-offer "as a means for starting the process of seeking a business resolution to these issues." Def.'s Ex. 43. This evidence shows that Guardian continued to be available to discuss a commercial, rather than judicial, solution even after Thomson summarily rejected Guardian's formal offer.
Plaintiffs point to language in which Guardian set deadlines for responses and designated September 15, 2005 as the date its exorbitant "one-time" offers would "expire"; thereby causing Plaintiffs to believe that the amicable relationship had ended and the only available course was patent litigation.
The record shows that Guardian was persistent. Guardian consistently sent follow up letters to "demand" replies when time had passed between correspondence. But the Federal Circuit cautions courts to evaluate the parties' language with a practical perspective. The Federal Circuit allows some "jawboning," aggressive language, and posturing. Shell, 970 F.2d at 888-89. The facts demonstrate that Guardian's strong words were a negotiation tactic. In one letter, Guardian stated, absent timely response "we will be forced to assume that Mitsubishi has no interest in a business resolution to these issues." Def.'s Ex. 56. Yet, Mitsubishi apologized for delay and suggested a meeting. Def.'s Ex. 57. While the Defendant's demanding language could have been construed as a veiled threat, in practice, Guardian acted as if it wanted to negotiate, and Plaintiffs responded in kind. The tone of the interactions did not show "that there was a substantial controversy between the parties `of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Teva Pharm., 395 F.3d at 1333 (quoting Maryland Cas. Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273 (1941)). This record contains no language expressing an intent to sue, nor innuendos of a willingness or capacity to use litigation. Cf. Goodyear, 824 F.2d at 956 n. 5 (defendant showed willingness to protect its patents by stating that "the parties might wind up in Federal Court on these issues"). For example, Guardian included proposed alternatives to make a license practical to both parties. E.g., Def.'s Exs. 36 59. Nor did Guardian enforce its own deadlines, for example, the discount offered to Thomson expired in April, but Guardian offered to revise that offer after Thomson stated it was no longer in the business. Def.'s Ex. 37 38. When evaluated in context, the Court concludes that Guardian's assiduous pursuit did not pose "a real prospect of a non-judicial resolution of the dispute." EMC Corp., 89 F.3d at 814.
Moreover, the Court finds that Plaintiffs have taken the "one-time offer" language out of context to suggest that Guardian was poised to sue if the manufacturers rejected these initial, written offers. The letter is clear that the steep discount would expire, but that the negotiations could continue. E.g., Def.'s Ex. 18. Guardian mentioned that many other companies had signed license agreements, and that the time for the discount was running out. The Court views the language as a marketing approach to encourage a quick license agreement for commercial gain. There was no indication by Guardian that it would escalate its activities into the arena of litigation if Plaintiffs did not enter a license; rather, the letters stated that the incentive of the discount would be lost without prompt action.
On the whole, the letters bear out Guardian's assertion that it repeatedly communicated that its business philosophy is not to litigate, but to negotiate. E.g., Def.'s Ex. 14 ("we invite you to discuss a business resolution to those differences, recognizing that most licensing negotiations do not conclude with one party or the other agreeing on the issues of infringement and/or validity"). The face-to-face meetings corroborate the view that Guardian sought a business solution. For example, Guardian was willing to fly to Japan if that location was more convenient for Plaintiffs. In his declaration describing the meeting with Sony as "very beneficial," the attorney for Defendant reports that: "At no point during this meeting did Guardian indicate any desire to litigate the matter against Sony. Rather, the entire meeting was spent discussing the technology, the prior art cited by Sony, and factors that would make the license practical in business terms to both parties. From my experience, Sony's interest in obtaining a license from Guardian was evident from this meeting." Dowler Decl. ¶ 31; accord id. ¶ 71 (describing meeting with Mitsubishi as "very beneficial"), ¶ 107 (describing meeting with Matsushita as "mutually beneficial"); see Def.'s Ex. 18 (Guardian's summary of Sony meeting), Ex. 65 (same for Mitsubishi meeting), Ex. 99 (same for Matsushita JVC); see also Def.'s Ex. 41 (e-mail expressing understanding of status of negotiations with Thomson). That Plaintiffs devoted the time to meet with Defendant is a strong indication that the parties were discussing a license. Naturally, these discussions involved the related issues of the value, if any, of such a license, given the Plaintiffs' position that the patents were invalid. Absent an enforceable judgment of validity against a third party, the underlying issue of the validity of the patents is at play in every licensing negotiation. Defendant's theoretical right to sue had not been asserted as a real probability. The mere possibility of litigation, which exists in every licensing negotiation, does not create federal jurisdiction.
The Court also relies on the circumstances surrounding the filing of these declaratory relief actions. Shortly before filing the lawsuits, Plaintiffs suddenly wrote to Defendant to express their firm conclusion that the negotiations had ended. EMC, 89 F.3d at 812-13 (parties can couch their exchanges to create declaratory judgment jurisdiction); Océ-Office Sys., Inc. v. Eastman Kodak Co., 805 F.Supp. 642, 647 (N.D. Ill. 1992) (one side did not want to continue to negotiate and terminated fruitless discussions), cited with approval in Phillips Plastics, 57 F.3d at 1054. Plaintiffs stated at the hearing that no further discussions were warranted because Defendant Guardian sought to extort outrageous sums on invalid patents. EMC, 89 F.3d at 813 (large demand showed litigation was realistic threat). The Court finds that the timing of each Plaintiffs' abrupt rejection letters and nearly simultaneous filing of complaints creates a reasonable inference that Plaintiffs' apprehension was not legitimate. For example, Defendant Guardian had an outstanding offer to Sony at the time it filed its complaint. Def.'s Ex. 18. Rather, it appears that Guardian correctly characterized these last-minute communications as being calculated to give the impression that the negotiations had been exhausted so Plaintiffs could file declaratory relief suits. E.g., Def.'s Ex. 42 at ¶ 28 (Thomson alleges in its Complaint that "[n]o licensing negotiations have been undertaken by Thomson"). The Court finds that the circumstances demonstrate that Plaintiffs' were feigning a lack of interest in order to justify the filing of these lawsuits. See Phillips Plastics, 57 F.3d at 1053 (plaintiff did not advise defendant that negotiations had broken down, but instead filed suit).
Although the calculation of a royalty on television sets and VCRs produced since 1999 resulted in a large sum, the royalty rate itself was a very small percentage of the price of such electronic equipment. Defendant's discounted offer of $.69 per unit suggests that, had the negotiations continued in good faith, a mutually acceptable royalty rate probably would have been much lower.
Moreover, Plaintiffs would have the Court jump to the conclusion that if they rejected Defendant Guardian's opening offer, that Guardian would sue them. But one could reasonably infer that Guardian, having purchased the V-chip patents solely to license them, and having generated some revenue from a dozen other manufacturers, would not risk expensive and complicated patent litigation.
In any event, the Court need not speculate because the evidence shows that Defendant Guardian acted consistent with its declaration that it had no intent to sue. Dowler Decl. ¶ 10-15 (counsel for Guardian declares under penalty of perjury that "Guardian had no intention of bringing an infringement suit."). "[I]t is the objective words and actions of the patentee that are controlling. Although such words and actions are not viewed in isolation of their intended effect on the listener, a subjective apprehension is insufficient without objective substance." BP Chems., 4 F.3d at 979.
Moreover, there was no history of litigation by Guardian (or the inventor Vogel), thus, no pattern of employing litigation in pursuit of its patent rights. Cf. Arrowhead, 846 F.2d at 737; Goodyear, 824 F.2d at 955 ("these parties are themselves currently embroiled in a protracted dispute in state court"). It is a small partnership and has never sued anyone on its patents. Dowler Decl. ¶ 14; cf. Indium Corp., 781 F.2d 879, 883-84 (one prior lawsuit against another infringer did not establish reasonable apprehension). Guardian has successfully negotiated licenses with other manufacturers. Dowler Decl. ¶ 12-15 (Guardian's attorney's purpose was to seek business solution and had no intention of bringing an infringement action).
Plaintiffs state that their apprehension was reinforced when Guardian refused to sign a covenant not to sue and refused to stipulate to stay the action pending reexamination. Gresalfi Decl. ¶ 19-20. If Guardian genuinely wanted to continue negotiations, Plaintiffs argue it would have agreed to these proposals. "Although a patentee's refusal to give assurances that it will not enforce its patent is relevant to the determination, this factor is not dispositive." BP Chems., 4 F.3d at 980; accord Teva Pharm., 395 F.3d at 1333.
In summary, the Court concludes that Plaintiffs filed their lawsuits too soon, and likely did so in order to influence the negotiations. The Court is mindful of the right of a declaratory judgment plaintiff to have access to the courts to remove a cloud over its business activities. EMC Corp., 89 F.3d at 811 ("when the patentee takes steps that create a reasonable apprehension that he will seek redress through the courts, the alleged infringer is not required to wait for the patentee to decide when and where to sue"); see generally Arrowhead, 846 F.2d at 734-35 (describing danse macabre that rendered competitors "helpless and immobile so long as the patent owner refused to grasp the nettle and sue," and the useful role of Declaratory Judgment Act to "clear the air."). Nonetheless, the Court finds no implicit threat of immediate litigation in the correspondence or actions of the patentee. Instead, the parties' relationship demonstrates substantive licensing discussions.
C. Discretion to Exercise Jurisdiction of Declaratory Relief Action
Even if there were sufficient facts to support subject matter jurisdiction, the Court has discretion to decline jurisdiction. Public Serv. Comm'n v. Wycoff Co., 344 U.S. 237, 241 (1952); EMC Corp., 89 F.3d at 813. The Declaratory Judgment Act "creates an opportunity, rather, than a duty, to grant a new form of relief to qualifying litigants." Wilton, 515 U.S. at 288. The district court must honor "the purposes of the Declaratory Judgment Act and the principles of sound judicial administration." EMC Corp., 89 F.3d at 813-14. At the same time, the Court must be cognizant of its duty to resolve actual disputes. See Phillips, 57 F.3d at 1053 (declaratory plaintiff "should not be subject to manipulation by a patentee who uses careful phrases in order to avoid explicit threats, thus denying recourse to the courts while damages accrue") (emphasis added).
Obviously, a court may not decline a declaratory judgment action on a "`whim or personal disinclination."' EMC Corp., 89 F.3d at 813 (quoting Public Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962). By this Court's standards, its strong preference is to accept patent litigation because of the interesting technical and legal issues involved and the high caliber of counsel; thus, this Court is acting against its inclination in declining the cases.
On this record, the Court exercises its discretion to dismiss these consolidated declaratory judgment actions for two primary reasons. First, if the Court has erred in its determination that there is no actual controversy, this is a close case. EMC Corp., 89 F.3d at 809, 813-15. Even if some of Guardian's language can be construed as implied threats, the overall tone of the interactions between the parties was one of discussion and negotiation. This case is distinguishable from Capo, where the patentee "minced no words, left no doubt" and had already filed three lawsuits against others, thereby, creating an objectively reasonable apprehension that litigation would follow the failed negotiations. Capo, 387 F.3d at 1356-58 (court abused discretion by declining to resolve dispute over which jurisdiction existed). Here, Guardian indicated by express statements and by its actions that it sought a business solution. Plaintiffs' premature filing at a time when Guardian was still open to negotiations "is inconsistent with the sound policy of promoting extrajudicial dispute resolution." EMC Corp., 89 F.3d at 814 (citation omitted).
Second, there is a strong appearance that the manufacturers coordinated a litigation strategy for commercial reasons. The circumstances in which Plaintiffs abruptly and unilaterally communicated to Defendant that the negotiations had ended, and immediately and simultaneously filed similar complaints creates a potent impression that these parties are seeking a tactical advantage in the licensing negotiations. Given Plaintiffs' size, wealth, and legal resources, the collective activity to seek judicial relief indicates a strategic motive "to obtain a more favorable bargaining position in its ongoing negotiations with the patentee and also to undermine the value of the patent so as to impede its sale or licensing to a third party." Id. At the hearing, defense counsel stated that this litigation had adversely effected Guardian's other negotiations because a prospective licensee declined to discuss license agreement, citing this lawsuit.
The federal law mandated manufacturers to include some type of V-chip technology in their television sets, therefore, if the patents are valid, Plaintiffs would have to enter licensing agreements to stay in business. This creates a compelling motivation for Plaintiffs to file these declaratory relief lawsuits as a contrivance in its negotiations with Guardian.
The Court is also influenced by the Plaintiffs' steps to delay the adjudication of these lawsuits. Plaintiffs waited until the time to serve the complaints had nearly expired before effecting service on Defendant. Plaintiffs immediately filed a motion to stay these cases pending reexamination by the PTO. While these are legitimate actions, when considered in the totality of circumstances, they indicate that Plaintiffs have no desire for an early judicial resolution.
Another contributing factor is that Plaintiffs acted to prevent the Defendant from selecting the Eastern District of Texas forum, which Plaintiffs view as being friendly to patentees. Pls.' Joint Oppo. Br. at 14; Berger Decl. Exs. 17-22. Plaintiffs' speculation that Guardian would select that unfavorable forum fueled its decision to file its own lawsuits prematurely. Cf. Electronics, 394 F.3d at 1347-48 ( one factor in declining jurisdiction is "whether a party intended to preempt another's infringement suit" in a "race to the courthouse").
In sum, the facts as a whole create an appearance that Plaintiffs filed these lawsuits as an intimidation tactic to gain leverage in the licensing negotiations. BP Chems., 4 F.3d at 981 (declaratory judgment suits should not be used for marketing or competitive purposes). Accordingly, the Court exercises its discretion to decline jurisdiction over these consolidated declaratory judgment actions. EMC Corp., 89 F.3d at 813-15.
II. Plaintiffs' Motion to Stay
In light of the Court's ruling, this joint motion to stay is denied as moot.
CONCLUSION
Upon due consideration of the parties' memoranda and exhibits, the arguments of counsel, a review of the record, and for the reasons set forth above, the Court GRANTS Defendant's Motion to Dismiss for lack of subject matter jurisdiction. [# 20]. The Clerk shall close these consolidated cases. The Court DENIES Plaintiffs' Joint Motion to Stay as Moot. [# 23]IT IS SO ORDERED.