Hiller, LLC v. Success Group International Learning Alliance, LLC et al

MEMORANDUM in Support of 220 MOTION to Dismiss for Lack of Jurisdiction Intervenor's Counterclaims as to Non-Asserted Copyrights

M.D. Tenn.February 19, 2019

UNITED STATES DISTRICT COURT MIDDLE DISTRICT OF TENNESSEE NASHVILLE DIVISION HILLER, LLC, ) ) Plaintiff, ) ) v. ) Civil Action Number 3:17-CV-743 ) Judge Jon Phipps McCalla SUCCESS GROUP INTERNATIONAL ) Magistrate Judge Jeffery S. Frensley LEARNING ALLIANCE, LLC, and ) REBECCA CASSEL, ) ) Defendants. ) ) and ) ) CLOCKWORK IP, LLC, ) ) Intervenor/Counter-Plaintiff. ) MEMORANDUM IN SUPPORT OF PLAINTIFF’S MOTION TO DISMISS COUNTERCLAIMS AS TO NON-ASSERTED COPYRIGHTS PURSUANT TO FED. R. CIV. P. 12(b)(1) Jurisdiction under the Declaratory Judgment Act requires, at all stages of the case, a “substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 1118, 127 (2007). When Hiller withdrew its allegations of copyright infringement concerning related to Hiller copyright Nos. TX-8,318,685, TX-8,318,689 and TX-8,318,681 (the “Non-Asserted Copyrights”), it extinguished any underlying case or controversy concerning them. The Court must dismiss Clockwork’s invalidity counterclaims covering the Non-Asserted Copyrights because the Court no longer has jurisdiction to hear them. Although the Court touched on the jurisdictional question in its order on Clockwork’s Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 1 of 12 PageID #: 10684 2 motion for reconsideration (Dkt. 205), the issue has never been fully briefed. Clockwork’s unilateral submission (to which Hiller was not permitted a response under the local rules) cited sparse and inapposite case law. To the extent the Court’s order can be read as affirmatively finding that jurisdiction exists, Hiller submits that the Court was led by Clockwork to an erroneous conclusion. Under the proper test, the withdrawal of the underlying claims of infringement vitiated any immediacy that existed at the time Clockwork intervened. Clockwork cannot meet its burden of establishing a continuing case and controversy regarding the Non- Asserted Copyrights. In the alternative, even if the Court finds an existing case or controversy despite Hiller’s withdrawal of the Non-Asserted Copyrights, the Court should exercise its discretion to decline declaratory judgment jurisdiction of these claims on equitable, prudential and policy grounds. For the reasons set forth below, the Court should dismiss Intervenor Clockwork’s declaratory judgment actions regarding the Non-Asserted Copyrights because the Court lacks subject matter jurisdiction with respect to these claims. Pursuant to Fed. R. Civ. P. 12(h)(3) and 12(i), Hiller respectfully requests that the Court determine this jurisdictional issue before trial. I. BACKGROUND In its Complaint, Hiller, LLC alleged that Defendants Success Group International Learning Alliance, LLC and Rebecca Cassel infringed Hiller’s copyrights in four training manuals, the Hiller Technician’s Guide (initially Exhibit C to the Complaint, TX-8,318-687) and three additional “Hiller Service Guides” (Complaint Exhibits A (TX-8,318,685), B (TX- 8,318,689) and D (TX-8,318,681). Clockwork IP, LLC was permitted to intervene in this action and asserted a declaratory counterclaim that all four of the initially-asserted copyrights are invalid due to an alleged fraud on the Copyright Office. Dkt. 71 at ¶ 27, As an element of its Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 2 of 12 PageID #: 10685 3 counterclaim, Clockwork pleads that each of the manuals are unauthorized derivative works of copyrights owned by Clockwork. Id. On October 12, 2018, in response to Defendants’ partial summary judgment, Hiller withdrew its allegations of copyright infringement based on the three Hiller Service Guides. Specifically, Hiller stated in its opposition memorandum: With respect to Exhibits A, B and D, Hiller disagrees with the premise of the motion – that Hiller does not own a valid copyright in these materials – but withdraws its claims of infringement based on these copyrights . . . . Dkt. 130 at n.1. Similarly, in response to Clockwork’s motion for summary judgment, Hiller acknowledged the withdrawal of its claims of infringement of the Non-Asserted Copyrights: As stated in Hiller’s response to Defendant’s motion for summary judgment, in order to simply [sic] the issues before the Court, Hiller withdraws its allegations of infringement based on three of the four originally-asserted copyright works (Exs. A, B, and D of the Complaint) and will proceed solely on its claims of infringement of Ex. C to the Complaint… Dkt. 128 at n. 1. In its order disposing of Clockwork’s motion for summary judgment, the Court acknowledged that the withdrawal of the claims of copyright infringement over the Hiller Service Guides mooted Clockwork’s motion as to the withdrawn copyrights. The Court does not need to evaluate whether, as a matter of law, Hiller owns copyrights in three of the four training manuals because those claims have been withdrawn. Hiller’s claims regarding the training manuals, Exhibits A, B, and D are DISMISSED. Because Hiller is withdrawing its claims with respect to Exhibits A, B, and D, Defendants’ Motion regarding those manuals is DENIED AS MOOT. Dkt. 189 at 7. On November 27, 2018, Clockwork filed a motion to reconsider the dismissal of its summary judgment motion regarding the withdrawn Hiller Service Guides. Clockwork argued Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 3 of 12 PageID #: 10686 4 that Supreme Court precedent establishes that dismissal of the underlying infringement claim does not moot an invalidity counterclaim. As set forth in Clockwork’s memorandum: Specifically, in Cardinal Chemical Company v. Morton International, Inc., the Supreme Court addressed whether a finding of noninfringement in a patent case mooted declaratory judgment counterclaims for invalidity. 508 U.S. 83 (1993). The Court explicitly held it did not, explaining that “seeking a declaratory judgment of invalidity presents a claim independent of the patentee’s charge of infringement.” Id. at 96. As a result, the Court affirmatively held that a “finding of noninfringement alone . . . does not justify” the “refusal to reach the merits of a validity determination;” the counterclaims must be decided regardless of whether infringement is no longer an issue. Id. at 102. Dkt. 202 at 2. (emphasis added). More, Clockwork represented to the Court that two unreported cases – Home Services and Faulkner Press - “extended the holding in Cardinal to cases involving copyrights.” Id.1 In its order granting the motion for reconsideration, the Court relied on the Cardinal case and the Faulkner Press case in finding that Hiller’s withdrawal of its infringement claims “does not mean that Clockwork’s claims that it owns the copyrights of those Additional Manuals is moot.” Dkt. 205 at 3. In the Amended Pretrial Order, Hiller submitted its position that there is a remaining jurisdictional question with respect to the Non-Asserted Copyrights.2 Dkt. 219 at 2. Clockwork 1 Hiller did not have an opportunity to respond to Clockwork’s motion for reconsideration. LR 7.01(a)(3) (no responses for motions for reconsideration shall be filed unless ordered by the Court). 2 In the process of preparing the Amended Pretrial Order, counsel for Hiller reviewed the Cardinal case as well as additional research which suggested that that the withdrawal of the underlying infringement claims did, in fact, divest the Court of subject matter jurisdiction over the non-asserted Service Guides. On February 11, 2019, counsel for Hiller sent a revised draft of the Amended Pretrial Order for consideration by all Parties, which identified the jurisdictional issue at question. Hiller promptly prepared this instant motion and memorandum. Given the immediacy of trial and in light of Fed. R. Civ. P. 12(h)(3) and 12(i), Hiller requests that the Court rule on this jurisdictional issue before trial. Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 4 of 12 PageID #: 10687 5 submitted its position, including that “the Court’s order on reconsideration (Dkt. 205) has previously resolved the issue.” Id. II. LEGAL STANDARDS “Article III of the Constitution gives federal courts subject matter jurisdiction over actual cases or controversies[.]” Murray v. U.S. Dep't of Treasury, 681 F.3d 744, 748 (6th Cir. 2012); see also North Am. Natural Resources, Inc. v. Strand, 252 F.3d 808, 812 (6th Cir. 2001) (“One of the fundamental axioms of American jurisprudence is that a federal court may consider only actual cases and controversies.”). Federal courts are required to determine whether Article III jurisdiction exists prior to proceeding to the merits of the case. Steel Co. v. Citizen’s For a Better Environment, 523 U.S. 83 (1998). Pursuant to Fed. R. Civ. P. 12(h)(3), if “the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.” (emphasis added). “Because at issue in a factual 12(b)(1) motion is the trial court's jurisdiction—its very power to hear the case—there is substantial authority that the trial court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case. In short, no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.” Mortensen v. First Fed. Sav. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977)). Furthermore, because Clockwork is the party seeking declaratory relief from the Court, it “bears the burden of establishing that the Court has subject-matter jurisdiction” in its response to Hiller’s 12(b)(1) motion to dismiss. See e.g., Rogers v. Stratton Industries, Inc., 798 F.2d 913, 915 (6th Cir. 1986); Whipple v. Chattanooga-Hamilton County Hosp. Authority, 2013 WL 1194472, at *1 (M.D.Tenn. Mar. 22, 2013); see also Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992). Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 5 of 12 PageID #: 10688 6 III. ARGUMENT A. The Court Lacks Subject Matter Jurisdiction over Clockwork’s Claims Regarding the Non-Asserted Copyrights. For subject matter jurisdiction to exist under the Declaratory Judgment Act, there must be a “substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). Moreover, there must be a substantial controversy at all stages of review, not merely at the time the complaint was filed. Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1058 (Fed. Cir. 1995). The declaratory plaintiff bears the burden of establishing that jurisdiction exists. MedImmune, 57 F.3d at 144. In its motion to reconsider, Clockwork relied on Cardinal Chem. Co. v. Morton Int’l, 508 U.S. 83 (1993), a patent case, to support its assertion that Hiller’s “withdrawal of its claims against Defendants does not moot Clockwork’s invalidity counterclaims.” (Dkt. 202 at 2) (quoting 508 U.S. at 96 (“[a] party seeking a declaratory judgment of invalidity presents a claim independent of the patentee’s charge of infringement.”) In citing to patent law, Clockwork is on the right track. Courts adjudicating copyright cases have often looked to patent infringement precedent for guidance on jurisdictional issues, given the commonality of policy considerations and the Federal Circuit’s “wealth of precedent in the intellectual property field.” Texas v. West, 882 F.2d 171, 175 (Fed. Cir. 1989). The problem, however, is that neither Cardinal, nor patent law generally, supports Clockwork’s conclusion.3 In fact, over twenty years ago, the Federal Circuit considered and soundly rejected Clockwork’s exact argument (based on the identical language from Cardinal). 3 Hiller did not have an opportunity to respond to Clockwork’s motion for reconsideration. L.R. 7.01(a)(3) (no responses to motions for reconsideration shall be filed unless ordered by the Court). Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 6 of 12 PageID #: 10689 7 Cardinal includes language that sounds supportive of expansive declaratory judgment jurisdiction “but only after cutting it loose from the context in which it was made.” Super Sack, 57 F.3d at 1060. As the Federal Circuit recognized, the holding in Cardinal was exceedingly narrow and concerned appellate review: [A]ccording to Cardinal, a claim for a declaratory judgment of invalidity is independent of a patentee’s charge of infringement in the following— and only the following—way: an affirmed finding of non-infringement does not, without more, justify a reviewing court’s refusal to reach the trial court’s conclusion on invalidity. Id. 4 The Cardinal holding is inapplicable to the jurisdictional issues presented here. Similarly, neither Home Design Services nor Faulkner Press—the unreported cases Clockwork cited for the proposition that Cardinal has been extended to copyright law—has anything to do with the effect of the withdrawal of an underlying infringement claim has on a declaratory judgment counterclaim of invalidity.5 Fortunately, this issue at bar has been squarely addressed by myriad other courts, both in the patent context and (less frequently) in cases involving trademarks and copyrights. As with the Super Sack case from the Federal Circuit, the instant case “comes to us in a posture far 4 The question actually before the Supreme Court in Cardinal was “’whether the affirmance by the [Federal Circuit] of a finding that a patent has not been infringed is a sufficient reason’, by itself, ‘for vacating a declaratory judgment holding the patent invalid.” Super Sack at 57 F.3d at 18 (quoting Cardinal, 508 U.S. at 85). In other words, Cardinal only holds that when a trial court rules on an infringement claim and an invalidity counterclaim, an appellate court cannot vacate the invalidity finding merely because it finds no infringement on review. 5 Both of Clockwork’s cited unpublished opinions address whether a counterclaim for declaratory judgment of invalidity is duplicative of a pending claim for copyright infringement, given the requirement that the plaintiff establish ownership of a valid copyright. Home Design Servs., Inc. v. Westerheim Props., Inc., No. 3:13-cv-154, 2013 WL 12081092, at *2 (N.D. Fla. Sept. 10, 2013 (agreeing with plaintiff’s argument that “the claim for infringement and the validity of the copyright are not necessarily duplicative”); Faulkner Press, LLC v. Class Notes, LLC, No. 1:08-cv-49, 2010 WL 996506, at *2 (N.D. Fla. Mar. 17, 2010) (denying motion to dismiss “on the ground that the validity of copyrights is an issue already raised by the Third Amended Complaint” and therefore “duplicative”). These holdings are neither particularly surprising nor are they germane to the jurisdictional inquiry. Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 7 of 12 PageID #: 10690 8 removed from the one scrutinized in Cardinal,” a posture that mandates dismissal of the declaratory judgment claims as to the Non-Asserted Copyrights. See Super Sack, 57 F.3d at 1060 (affirming dismissal of counterclaims for invalidity after withdrawal of infringement claims). That another copyright is still at issue is of no moment. In patent cases, for example, declaratory judgment jurisdiction is determined not on a patent-by-patent basis, but is sliced even more finely—claim-by-claim within each patent. Streck, Inc. v. Research Diagnostic Sys., Inc. 665 F.3d 1269, 1281 (Fed. Cir. 2012). Following the Supreme Court’s decision in MedImmune, a counterclaimant alleging patent invalidity “must show a continuing case or controversy with respect to withdrawn or otherwise unasserted claims.” Id. at 1283. A patentee’s decision to voluntary narrow the scope of its case by withdrawing select claims prior to a dispositive ruling has frequently be found to divest the court of jurisdiction over a reciprocal invalidity counterclaim based on those withdrawn claims. See e.g., Allergan, Inc. v. Sandoz, Inc., 681 F. App’x 955, 962-64 (Fed. Cir. 2017) (reversing determination of invalidity of withdrawn patent claims); Fox Grp., Inc. v. Cree Inc., 700 F.3d 1300, 1308 (Fed. Cir. 2012) (vacating declaration of invalidity as to non-asserted patent claims); Streck, Inc., 665 F.3d at 1284 (affirming dismissal of declaratory judgment counterclaims with respect to withdrawn patent claims). Following the withdrawal of Hiller’s claims of infringement over the Non-Asserted Copyrights, no actual case or controversy of any immediacy or reality exists. Hiller has never threatened Clockwork with infringement of the Non-Asserted Copyrights or, indeed, any copyrights. This, alone, is enough to divest the Court of jurisdiction. However, to avoid any fragment of doubt, Hiller hereby covenants not to sue Defendants or Clockwork for any past, present, or future infringement of the Non-Asserted Copyrights, which puts any case or Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 8 of 12 PageID #: 10691 9 controversy firmly to bed.6 See Already, LLC v. Nike, Inc., 133 S. Ct. 721, 728 (2013) (finding no declaratory judgment jurisdiction in trademark action after covenant-not-to-sue); Velvet Underground v. Andy Warhol Foundation for the Visual Arts, Inc., 890 F.Supp. 2d 398, 402 (S.D.N.Y. 2012) (holding that a covenant not to sue divested the court of jurisdiction over declaratory judgment claim of copyright ownership). B. Alternatively, the Court Should Decline to Exercise Declaratory Judgment over Clockwork’s Claims Regarding the Non-Asserted Copyrights Even if the Court were to find that a case and controversy exists as to the Non-Asserted Copyrights, it should exercise its discretion to decline declaratory judgment jurisdiction on claims concerning these copyrights. For when an actual case or controversy does exist, courts still hold “unique and substantial discretion” in deciding whether to dismiss a declaratory judgment action on equitable, prudential, and policy grounds. MedImmune, 539 U.S. at 136–37. Considerations of equity and judicial economy support dismissal of the declaratory counterclaims covering the Non-Asserted Copyrights. See MedImmune, 539 U.S. at 136. “Reduction of claims and invalidity defenses are an important case management tool . . . [however] for the process to work there must be fairness—both claims and related invalidity defenses need to be dismissed.” VirnetX Inc. v. Cisco Sys. Inc., No. 6:10-cv-00417, 2014 WL 6 Hiller hereby unconditionally and irrevocably covenants to refrain from asserting or alleging infringement of any of the following non-asserted copyrights TX-8-318-685 (Effective March 13, 2017), TX-8-318-689 (Effective March 13, 2017), and TX-8-318-681 (Effective March 13, 2017) against Defendants Rebecca Cassel and Success Group International Learning Alliance, LLC, and Intervenor Clockwork IP, LLC, including all employees, members or customers thereof, based on any of Defendants’ or Clockwork’s training sessions, manuals, or other materials whether in existence in the past, currently as of the filing of this Amended Pretrial Order, or in the future. See e.g., Already, (discussing the effect of covenant not to sue on declaratory judgment jurisdiction); Super Sack, 57 F.3d at 1059–60 (holding that an affirmative statement in a pleading may serve as an effective covenant-not-to-sue). To be clear, Hiller makes this covenant without prejudice to any claim of infringement of the Hiller Technician’s Guide, U.S. Copyright No. TX 8-318-687 (Effective March 13, 2017), in the present action or in the future. Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 9 of 12 PageID #: 10692 10 12605380, at *5 (E.D. Tex. Mar. 28, 2014). Here, equitable considerations are doubly in favor of dismissal, as Clockwork is an intervenor not a defendant, and withdrawal of the Non-Asserted Copyrights has erased the requisite commonality of fact related to those claims. See Fed. R. Civ. P. 24(b)(1)(B). Hiller’s trial presentation will focus on the creation of the Technician’s Guide, the validity of the copyright in the Technician’s Guide, Defendants’ copying of the Technician’s Guide, and damages resulting therefrom. Clockwork’s declaratory judgment counterclaims drastically expand the scope of the trial, bringing in evidence regarding the creation and validity of three non-asserted Service Guides as well as whatever additional of the “Clockwork Preexisting Materials” Clockwork alleges are present in the Non-Asserted Manuals. Finally, considerations of judicial economy cry out for dismissal. Unfortunately for all Parties, three important witnesses are unavailable for trial and their testimony must be offered through deposition. Clockwork alone designated well over five hours of deposition testimony to be played or read at trial. The removal of these counterclaims from the case will allow the Parties to pare down hours of deposition testimony, including significant time spent going page-by-page through the non-asserted Service Guides. IV. CONCLUSION For the foregoing, the Court should dismiss Intervenor Clockwork’s declaratory judgment actions regarding the non-asserted Hiller copyright Nos. TX-8,318,685, TX-8,318,689 and TX-8,318,681. Dated: February 19, 2019 /s/ Jason P. Stearns . Wendy V. Miller, TN #023500 John G. Harrison, TN #027004 Ogletree, Deakins, Nash, Smoak & Stewart, P.C. SunTrust Plaza 401 Commerce Street, Suite 1200 Nashville, TN 37219-2446 Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 10 of 12 PageID #: 10693 11 Telephone: 615.254.1900 Facsimile: 615.254.1908 Email: Wendy.Miller@ogletree.com Email: John.Harrison@ogletree.com Local Counsel for Plaintiff/Counter- Defendant Timothy M. Nitsch, Jennifer Fitzgerald, Jeffrey J. Catalano Freeborn & Peters LLP 311 S. Wacker Dr. Suite 3000 Chicago, IL 60606 Telephone: 312.360.6000 Jason P. Stearns Freeborn & Peters LLP 201 North Franklin Street Suite 3550 Tampa, FL 33602 Telephone: 813.488.2920 Lead Counsel for Plaintiff/Counter- Defendant Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 11 of 12 PageID #: 10694 12 CERTIFICATE OF SERVICE I hereby certify that on this the 19th day of February 2019, the foregoing memorandum in support was filed electronically with the Clerk of the Court to be served by operation of the Court’s electronic filing system upon the following: Charles Malone Gayle Malone, Jr. Gibeault C. Creson James W. Callen Clinton Edward Hunter Brush Butler Snow LLP The Pinnacle at Symphony Place 150 Third Avenue, South Nashville, TN 37201 Charles.Malone@butlersnow.com Gayle.Malone@butlersnow.com Beau.Creson@butlersnow.com Jason.Callen@butlersnow.com Hunter.Brush@butlersnow.com Andrea T. McKellar McKellar Hyde, PLC 411 Broadway, Suite 302 Nashville, TN 37203 amckellar@mckellarhyde.com Brad R. Newberg McGuireWoods LLP 1750 Tysons Boulevard, Suite 1800 Tysons, VA 22102 bnewberg@mcguirewoods.com John E. Joseph McGuire Woods LLP 260 Forbes Avenue, Suite 1800 Pittsburg, PA 15222 jejoseph@mcguirewoods.com Amanda L. DeFord Lucy Jewett Wheatley McGuireWoods LLP Gateway Plaza 800 East Canal Street Richmond, VA 23219 adeford@mcguirewoods.com lwheatley@mcguirewoods.com /s/ Jason P. Stearns __ Counsel for Plaintiff/Counter-Defendant Case 3:17-cv-00743 Document 221 Filed 02/19/19 Page 12 of 12 PageID #: 10695