Opinion
CIVIL ACTION NO, SA-03-CA-1080 OG (NN).
September 3, 2004
MEMORANDUM AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
TO: Hon. Judge Orlando Garcia United States District Judge
I. Introduction
The matter before the court is the motion to dismiss brought by defendants HemoCue, Inc. and HemoCue AB (hereafter "HemoCue defendants" or "defendants"). The motion seeks dismissal of all the claims contained in plaintiff's complaint on the basis that this court lacks jurisdiction over the matter because there is no justiciable controversy between the parties.Plaintiff's complaint in federal court alleges that plaintiff imports and sells clinical diagnostic products, including microcuvettes produced by a competitor of the HemoCue defendants. The HemoCue defendants hold a patent on their microcuvette technology. The complaint avers that plaintiff has a reasonable apprehension of being sued by the HemoCue defendants for infringement of their patent (known as the '457 patent) on a capillary microcuvette. For this reason, plaintiff's federal court complaint "seeks a declaratory judgment that Stanbio's microcuvettes do not infringe the '457 Patent . . . that the '457 Patent is invalid . . . [and] that [Stanbio's] sale and offering to sell its products is lawful."
Docket Entry 1.
Docket Entry 1.
Docket Entry 1, ¶¶ 13-15, at 3.
Having reviewed the entire record in this case, including the arguments and evidence raised by defendants in support of dismissal, the arguments and evidence submitted by plaintiff through its replies to defendants' motions, and the applicable case and statutory law, I hereby recommend that defendants' motion to dismiss be DENIED. Plaintiff has met its burden of proving that this court has jurisdiction over the instant action.
Docket Entries 6, 7, 15, 19, and 28.
Docket Entries 11, 12, 13, 21, and 27.
I have jurisdiction to enter this Memorandum and Recommendation under 28 U.S.C. § 636(b) and the District Court's Order referring all pretrial matters in this proceeding to me for disposition by order, or to aid in their disposition by recommendation where my authority as a Magistrate Judge is statutorily constrained.
Docket Entry 10.
II. Statement of the Case
The HemoCue defendants are the manufacturers of microcuvettes which allow for quick hemoglobin testing. From approximately 1976 to 1996, the HemoCue defendants' microcuvette technology was protected — and under the HemoCue defendants' exclusive control — by virtue of United States Patent No. 4,088,448 ("the '448 patent'"). The '448 patent expired in 1996.Plaintiff Stanbio imports and sells microcuvettes for quick hemoglobin testing. The microcuvettes sold by plaintiff are manufactured by EKF Diagnostic GmbH ("EKF"). The EKF microcuvettes are based on the technology which was formerly protected by the '448 patent.
According to plaintiff, the HemoCue defendants made a very minor change to their microcuvettes when the '448 patent expired in 1996. Defendants contend that the change made was substantial. The HemoCue defendants sought to protect this "new" or "altered" microcuvette technology by virtue of United States Patent No. 5,674,457 ("the '457 patent'") and European Patent No. 821,784 ("the '784 patent'").
After the '448 patent expired, Bio Test Medizintechnik GmbH ("Bio Test"), a European company, began producing microcuvettes based on the '448 patent technology. Bio Test filed papers with the European Patent Office to invalidate the '784 patent. After the European Patent Office initially invalidated the '784 patent, the HemoCue defendants purchased Bio Test. Thereafter, the HemoCue defendants were able to get the European Patent Office to reverse its previous decision and reinstate the '784 patent. The HemoCue defendants allege that the European Patent Office's reversal was based entirely on the original arguments presented by both Bio Test and the HemoCue defendants. In contrast, plaintiff contends that the European Patent Office reversed its previous decision because Bio Test withdrew its previous filings once it had been acquired by the HemoCue defendants. Plaintiff further avers that the HemoCue defendants were able to sue on the '457 patent only after the '784 patent was reinstated in June 2003.
Defendants have submitted the affidavit of Nicolaus Preissner, the German patent attorney who represented HemoCue AB in the opposition filed in the European Patent Office by Biotest. Docket Entry 15, Exhibit 4. Mr. Preissner states, "under the European Patent Convention the ( sic) Board of Appeal was obligated to issue a final decision based on the arguments and evidence presented by the parties even though Biotest withdrew the opposition before a final decision was made." Docket Entry 15, Exhibit 4, ¶ 3. Mr. Preissner further opines, "The fact that Biotest had withdrawn it's ( sic) opposition had no effect from what I could tell on the Board of Appeal's final decision." Docket Entry 15, Exhibit 4, ¶ 4.
Plaintiff commenced the instant action on October 29, 2003. The HemoCue defendants now move to dismiss the action on the basis that there is no justiciable controversy, and therefore, no jurisdiction. Defendants claim jurisdiction is wanting because plaintiff had no reasonable apprehension of being sued at the time it filed this lawsuit.
Docket Entry 1.
See, generally Docket Entry 6.
On July 13, 2004, several months after the HemoCue defendants' motion to dismiss had been pending, plaintiff filed a Notice of Additional Suit with this court. In that advisory, plaintiff notified the court that the HemoCue defendants had initiated an action in the United States District Court for the Southern District of California against plaintiff and EKF. That action is styled: HemoCue AB; HemoCue, Inc. v. Stanbio Laboratory, L.P.; EKF-Diagnostic GmbH. Plaintiff argues that the action pending in California establishes that there was and is an actual controversy between the parties because plaintiff's apprehension of litigation was clearly reasonable. The HemoCue defendants strenuously counter that any action taken after the instant suit was filed cannot constitute factual support for asserting jurisdiction because plaintiff must establish that its apprehension of litigation was reasonable at the time the action was filed.
Docket Entry 27.
Id.
Docket Entries 27, 29.
Docket Entry 28.
III. Issue Presented
Whether a justiciable controversy exists between the parties such that this court has jurisdiction over this action?IV. Applicable Legal Standards
A. Federal Rule of Civil Procedure 12(b)(1)
Defendants have brought their motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1). Under Rule 12(b)(1), a plaintiff's claim must be dismissed when the court lacks jurisdiction over the subject matter of that claim. In particular, Rule 12(b)(1) requires the dismissal of a case for want of subject matter jurisdiction when the district court lacks the statutory and constitutional power to adjudicate the case. A district court may dismiss a case for want of subject matter jurisdiction on any one of three different bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the complaint supplement by undisputed facts plus the court's resolution of disputed facts. B. Overview: 28 U.S.C. § 2201 and actions for declaratory relief concerning patents
See Home Builders Association of Mississippi, Inc., v. City of Madison, 143 F.3d 1006, 1010 (5th Cir. 1998).
See Clark v. Tarrant County, 798 F.2d 736, 741 (5th Cir. 1986) (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir.), cert. denied, 454 U.S. 897 (1981)).
Courts are prohibited from issuing advisory opinions, i.e. opinions that adjudicate a non-existent existent claim or speculate on the proper outcome of a fictional dispute. In order to protect parties that might suffer the perilous consequences of waiting for an adverse party to sue, however, Congress enacted a statute which confers authority on district courts to adjudicate the rights of an interested party. Specifically, 28 U.S.C. § 2201(a) provides:
See Arrowhead Industrial Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735 (Fed. Cir. 1988).
Plaintiff may not, for example, obtain a declaratory judgment merely because it would like an advisory opinion on whether it would be liable for patent infringement if it were to initiate some merely contemplated activity. Arrowhead Industrial Water, Inc., 846 F.2d, at 736.
In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have the force and effect of a final judgment or decree and shall be reviewable as such.
28 U.S.C. § 2201(a). See also BP Chemicals Ltd. v. Union Carbide Corp., 4 F.3d 975, 977 (Fed. Cir. 1993):
The purpose of the Act is to enable a person who is reasonably at legal risk because of an unresolved dispute, to obtain judicial resolution of that dispute without having to await the commencement of legal action by the other side. It accommodates the practical situation wherein the interests of one side to the dispute may be served by delay in taking legal action.
As interpreted by the Supreme Court, the question surrounding actions for declaratory relief
`is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'
Arrowhead Industrial Water, Inc., 846 F.2d, at 735, quoting Maryland Casualty Co. v. Pacific Coal Oil Co., 312 U.S. 270, 273. See also Dewey Almy Chem. Co. v. American Anode, Inc., 137 F.2d 68, 70 (3rd Cir. 1943) (internal citations omitted):
There must be a concrete case touching the legal relations of parties having adverse legal interests, and susceptible `of an immediate and definitive determination of the legal rights of the parties in an adversary proceeding upon the facts alleged.'
Although an "actual controversy" is a mandatory prerequisite for declaratory relief, the Fifth Circuit has held that the declaratory relief act "is remedial and is to be liberally construed to achieve its wholesome and salutary purpose."
28 U.S.C. § 2201(a); Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 887 (Fed. Cir. 1992), "An actual controversy must be present before a declaratory judgment action is ripe for adjudication."
Allstate Insurance Co. v. Employers Liability Assurance Corp., Ltd., 445 F.2d 1278, 1280 (5th Cir. 1971).
In order to establish an actual controversy in an action for declaratory judgment concerning a patent,
the plaintiff has the burden of establishing by a preponderance of the evidence, inter alia, that it has a reasonable apprehension that it will be sued.
Shell Oil Co., 970 F.2d, at 887.
A party's reasonable apprehension that it will be sued is measured by the objective, two pronged test articulated in Goodyear Tire Rubber Co. v. Releasomers, Inc. :
Id. , at 888.
`First, the defendant's conduct must have created on the part of the plaintiff a reasonable apprehension that the defendant will initiate suit if the plaintiff continues the allegedly infringing activity. Second, the plaintiff must actually have either produced the device or have prepared to produce the device.'
Shell Oil Co., 970 F.2d, at 888, n. 2, quoting Goodyear Tire Rubber Co. v. Releasomers Inc., 824 F.2d 953, 955 (Fed. Cir. 1987).
The "first prong looks to defendant's conduct; [the] second to that of plaintiff." Importantly, the test "is applied to the facts existing when the complaint is filed" and must be "evaluated on a claim-by-claim basis." When the defendant disputes the existence of an actual controversy, "the declaratory plaintiff must prove the existence of facts underlying such allegations." As with all motions to dismiss, however, factual conflicts must be resolved in plaintiff's favor provided plaintiff has proffered competent evidence to support its version of the facts.
Arrowhead Industrial Water, Inc., 846 F.2d, at 736.
Jervis B. Webb Co. v. Southern Systems, Inc., 742 F.2d 1388, 1399 (Fed. Cir. 1984).
Id., 742 F.2d, at 1399.
See Brown v. Flowers Industries, Inc., 688 F.2d 328, 333 (5th Cir. 1982).
The first prong of the Goodyear test assesses the defendant's conduct. Defendant's actions "must be such as to indicate defendant's intent to enforce its patent." Express charges of infringement are not required for a plaintiff to establish a reasonable apprehension of litigation. Moreover, a "reasonable apprehension may be found in the absence of any communication from defendant to plaintiff." When an express charge of infringement has not occurred, the court is required to look at the totality of the circumstances to determine if, objectively, the plaintiff had a reasonable fear of suit. Factors which may weigh in favor of plaintiff's assertion that it reasonably feared litigation are: (1) related litigation by the defendant on the patent at issue; (2) a defendant's consistent pattern of vigorously defending its patent(s); and (3) implied threats of litigation. The fact that another party has obtained a patent, without more, cannot establish a reasonable apprehension of suit.
Arrowhead Industrial Water Inc., 846 F.2d, at 736.
Shell Oil Co., 970 F.2d, at 888.
Arrowhead Industrial Water, Inc., 846 F.2d, at 736, citing Dewey Almy Chem. Co. v. American Anode, Inc., 137 F.2d 68, 71 (3rd Cir. 1943).
Shell Oil Co., 970 F.2d, at 888.
Shell Oil Co., 970 F.2d, at 888.
Arrowhead Industrial Water Co., 846 F.2d, at 736. See also BP Chemicals Ltd. v. Union Carbide Corp., 4 F.3d 975, 978 (Fed. Cir. 1993), "for an actual controversy more is required than the existence of an adversely held patent."
The second prong of the Goodyear test looks at the plaintiff's conduct. Plaintiff's actions "must be such as to establish that plaintiff has a true interest to be protected by the declaratory judgment." A plaintiff is not required to admit infringement to satisfy the second prong. Rather,
Arrowhead Industrial Water Co., 846 F.2d, at 736.
Internat'l Medical Prosthetics Research Associates, Inc. d/b/a IMPRA v. Gore Enter. Holdings, Inc., 787 F.2d 572, 575 (Fed. Cir. 1986).
declaratory judgment plaintiffs who have been accused of infringement or threatened with suit are at full liberty to deny infringement . . . They are at liberty, also, to admit infringement while asserting that the patent is invalid and that no liability for the infringement can therefore exist.
Id.
So long as plaintiff has "actually produced" or has "actually prepared to produce" a potentially infringing device "at the time it filed its declaratory judgment" action, the plaintiff's conduct will satisfy the second prong of the Goodyear test.
Jervis B. Webb Co., 742 F.2d, at 1399.
V. Analysis
In the instant case, the second prong of the Goodyear test is not at issue. Both parties agree that plaintiff's activities in importing and/or selling EKF microcuvettes might constitute infringement if the HemoCue defendants' '457 patent is valid. Thus, the only issue before the court is whether the HemoCue defendants' conduct created an objectively reasonable apprehension of litigation for plaintiff.Defendants strenuously assert that plaintiff did not have a reasonable apprehension of litigation. Defendants argue that they never made express charges that plaintiff's or EKF's actions infringed on the patent nor did they ever threaten litigation. In fact, defendants have proffered the affidavits of four high ranking HemoCue AB and HemoCue, Inc. employees that all the employees of both companies were under strict instructions not to mention any possible infringement action or litigation against plaintiff because the HemoCue defendants had not yet undergone the expensive and complicated process of determining whether the EKF/Stanbio microcuvettes infringed a HemoCue patent. The affiants further stated that, to their knowledge, no employees had many any such threats.
See Docket Entry 6, at 1-2.
See Affidavit of Anders Williamsson, President of HemoCue AB, Docket Entry 6, Exhibit 2, at ¶¶ 3, 5, 6; Affidavit of Donald DuBois, General Manager of HemoCue, Inc., Docket Entry 6, Exhibit 3, ¶¶ 3, 5, 6; Affidavit of Charles Neff, National Sales Manager for HemoCue, Inc., Docket Entry 6, Exhibit 4; Affidavit of Clas Runnberg, Directory of Marketing and Business Development of HemoCue AB, Docket Entry 15, Exhibit 2, ¶ 3. See also Docket Entry 7.
Id.
In opposition to the motion to dismiss, plaintiff argues that defendants have an established practice of vigorously defending their patents. Plaintiff submits that proof of defendants' behaviors include, inter alia: (1) defendants' purchase of Bio Test after Bio Test began producing cuvettes based on HemoCue technology; (2) threats made to Physician Sales and Service ("PSS"), a company that attempted to negotiate with plaintiff to distribute EKF cuvettes; and (3) threats of litigation made to Berthold Walter, the General Manager of EKF. Plaintiff further asserts that the HemoCue defendants' specific "gag" instructions to its employees about any possible legal action against plaintiff was a charade that proves defendants' intention to pursue legal action. Finally, plaintiff contends that the fact that defendants recently filed a suit for patent infringement against plaintiff and EKF conclusively establishes that plaintiff's apprehension of litigation was reasonable.
See generally Docket Entry 11.
Id.
In support of these propositions, plaintiff has provided several affidavits, as well as excerpts from the deposition testimony of Brett Stromatt, the Business Segment Manager for Waived Products for Physician Sales and Service ("PSS"). For example, plaintiff submitted the affidavit of Berthold Walter, the General Manager of EKF. In his affidavit, Mr. Walter recounted a telephone conversation he had with Mr. Runnberg of HemoCue AB about EKF's preparations to enter the U.S. market with its own microcuvettes. Mr. Runnberg told Mr. Walter, "`should your entry into the U.S. reach a point where it could constitute an infringement of HemoCue's patent rights, we [HemoCue] will take all steps necessary and relevant to protect our rights . . .'" After Mr. Walter's conversation with Mr. Runnberg, Mr. Walter warned plaintiff that, "`It is a fact that HemoCue will take proceedings against Stanbio. The reason is the enclosed patent.'" In his declaration, defendants' own Mr. Runnberg confirmed Mr. Walter's statements by stating:
Docket Entry 11, Exhibit A.
Docket Entry 11, Exhibit A, ¶ 4(b).
Docket Entry 11, Exhibit A, ¶ 8; Docket Entry 11, Exhibit A, Exhibit 2.
Although I might have said that it is likely that EKF's cuvettes infringe HemoCue's patent, I always qualified that statement by telling Mr. Walter that HemoCue had not made such a determination.
Docket Entry 15, Exhibit 2, ¶ 3.
Similarly, Mr. Anders Williamsson, the President of HemoCue AB, stated in his affidavit that he told Mr. Walter
generally that if HemoCue should determine in the future that EKF's microcuvettes infringed the '457 patent, HemoCue would take whatever legal action is appropriate.
Docket Entry 6, Exhibit 2, ¶ 4.
Plaintiff has also provided excerpts from the deposition of Brett Stromatt. On behalf of his employer PSS, Mr. Stromatt was considering distributing plaintiff's/EKF's cuvettes. Mr. Stromatt testified that Charles Neff, the National Sales Manager for HemoCue, Inc., warned him that if PSS was going to market EKF cuvettes, PSS had better get "a hell of a lot of indemnification" from Stanbio. Based on more than two dozen conversation he had with Mr. Neff, during which Mr. Neff constantly reasserted the viability of the HemoCue patents on the cuvettes and PSS' need for indemnification from Stanbio, Mr. Stromatt concluded that PSS could be at risk if it sold Stanbio/EFK microcuvettes. For this reason, Mr. Stromatt warned his superiors about the threats of litigation. Mr. Stromatt further testified that no other vendor had so constantly asserted the viability of their patents or constantly reminded him to obtain indemnification.
Docket Entry 13, Exhibit G.
Docket Entry 13, Exhibit G, at 45.
Docket Entry 13, Exhibit G.
Id.
In reply, defendants also submitted portions of Mr. Stromatt's deposition testimony. In the excerpt of Mr. Stromatt's deposition testimony provided by defendants, counsel asked Mr. Stromatt directly if defendants had ever threatened him with an infringement suit. In response to this question, Mr. Stromatt answered, "No." Mr. Stromatt also testified that obtaining indemnification was a customary and wise business practice.
Docket Entry 15, Exhibit 1.
Docket Entry 15, Exhibit 1, at 39.
Importantly, Mr. Stromatt's testimony evidences the fact that he has been caught in between two important companies in his industry. Mr. Stromatt is clearly attempting to both tell the true version of events (as he sees them) and not enrage either of the companies which play a large role in his business community.
In evaluating the reasonableness of a party's apprehension of litigation, there is a great
need to look to substance rather than form . . . because in many instances . . . the parties are sensitive to the prospect of a declaratory judgment action and couch their exchanges in terms designed either to create or defeat declaratory judgment jurisdiction. In the end, the question is whether the relationship between the parties can be considered a `controversy,' and that inquiry does not turn on whether the parties have used particular `magic words' in communicating with one another.
EMC Corp. v. Norand Corp., 89 F.3d 807, 811-812 (Fed. Cir. 1996).
In this case, plaintiff's apprehension of litigation was reasonable in light of the totality and substance of defendants' actions. Defendants threatened EKF with litigation regarding the cuvettes imported and sold by plaintiff. Defendants strongly and consistently "warned" plaintiff's potential customer PSS that it would require indemnification to sell plaintiff's product. Defendants acquired all the assets of one of their competitors in the cuvette industry (Bio Test). And, amidst all the actions they were taking to assert the viability of their patents and protect their market share, defendants suspiciously warned all their employees not to mention possible legal actions against Stanbio in particular. Defendants were "sensitive to the prospect of a declaratory judgment action." They attempted to bully their competitors and potential clients, on the one hand, and "couch their exchanges in terms designed" to "defeat declaratory judgment jurisdiction" on the other. Plaintiff has satisfied its burden of proving that its fear of litigation was reasonable at the time it filed suit. For all these reasons, I recommend that defendants' motion to dismiss be DENIED.
Id.
VI. Recommendation
Based on the foregoing, it is my recommendation that defendants' motion to dismiss (docket entry 6) be DENIED. Plaintiff has met its burden of establishing this court's jurisdiction over the instant action as plaintiff has proven that an actual controversy existed between the parties at the time the complaint was filed.VII. Instructions for Service and Notice of Right to Object/Appeal
The United States District Clerk shall serve a copy of this Report and Recommendation on each and every party either (1) by certified mail, return receipt requested, or (2) by facsimile if authorization to do so is on file with the Clerk. According to 28 U.S.C. § 636(b)(1) and FED. R. CIV. P. 72(b), any party who desires to object to this report must serve and file written objections to the Report and Recommendation within ten (10) days after being served with a copy unless this time period is modified by the District Court. A party filing objections must specifically identify those findings. conclusions, or recommendations to which objections are being made and the basis for such objections; the District Court need not consider frivolous, conclusive, or general objections. Such party shall file the objections with the Clerk of the Court, and serve the objections on all other parties and the Magistrate Judge. A party's failure to file written objections to the proposed findings, conclusions, and recommendations contained in this report shall bar the party from a de novo determination by the District Court. Additionally, any failure to file written objections to the proposed findings, conclusions, and recommendations contained in this Report and Recommendation within ten (10) days after being served with a copy shall bar the aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Court.
See Thomas v. Arn, 474 U.S. 140, 149-52 (1985); Acuña v. Brown Root, Inc., 200 F.3d 335, 339 (5th Cir. 2000), cert. denied, 530 U.S. 1229 (2000).
Douglass v. United Servs. Auto. Ass'n., 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).