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OCE-OFFICE SYS. v. EASTMAN KODAK CO.

November 3, 1992

OCE-OFFICE SYSTEMS, INC., and OCE-NEDERLAND B.V., Plaintiffs,
v.
EASTMAN KODAK CO., Defendant.


ALESIA


The opinion of the court was delivered by: JAMES H. ALESIA

MEMORANDUM OPINION AND ORDER

 Plaintiffs, Oce-Office Systems, Inc. and Oce-Nederland B.V. ("Oce") filed this action against the defendant, Eastman Kodak Co. ("Kodak"), seeking a declaratory judgment that plaintiffs' Oce 2500 Copier-Duplicator (hereinafter "Oce 2500") does not infringe any claim of United States Letters Patent 4,140,387 (hereinafter the '387 patent), which is owned by Kodak, or alternatively that no claim of the '387 patent is valid. Presently before the court is defendant's motion to dismiss plaintiffs' complaint pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure, alleging that this Court lacks subject matter jurisdiction because no justiciable controversy exists between the parties. For the reasons set forth below, defendant's motion is denied.

 I. Jurisdiction of Federal Courts under the Declaratory Judgment Act

 The Declaratory Judgment Act, 28 U.S.C. § 2201, provides that federal courts may issue declaratory judgments only in cases of "actual controversy." 28 U.S.C. § 2201; Shell Oil Co. v. Amoco Corp., 970 F.2d 885, 887 (Fed. Cir. 1992); International Harvester Co. v. Deere & Co., 623 F.2d 1207, 1210 (7th Cir. 1980). This requirement is a jurisdictional prerequisite. Therefore, the complaint in a declaratory judgment action must allege facts sufficient to establish such an actual controversy. International Harvester, 623 F.2d at 1210.

 Furthermore, when the jurisdictional sufficiency of a complaint is challenged, as here, the burden is on the plaintiff to establish jurisdiction affirmatively with competent proof. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 80 L. Ed. 1135, 56 S. Ct. 780 (1936). And where the facts presented in support of, and in opposition to, a motion to dismiss present a factual controversy, the resolution requires the court to "weigh the conflicting evidence in arriving at the factual [foundation] upon which to base the legal conclusion that subject matter jurisdiction either exists or does not." Grafon Corp. v. Hausermann, 602 F.2d 781, 783 (7th Cir. 1979). The court will, however, resolve all conflicts in the evidence in the favor of the plaintiff. Neiman v. Rudolf Wolff & Co., 619 F.2d 1189, 1190 (7th Cir. 1980).

 Specifically, in declaratory judgment actions concerning patents, there are two prerequisites to establishing an actual controversy. First, the plaintiff must have a reasonable apprehension, based on defendant's conduct, that it will face an infringement suit or the threat of one if it commences or continues the activity in question. Crown Drug Co. v. Revlon Inc., 703 F.2d 240, 243 (7th Cir. 1983); Shell Oil Co., 970 F.2d at 887. Secondly, the plaintiff must have actually produced the accused article or have engaged in preparations for production. International Harvester, 623 F.2d at 1210. This test is objective and is applied to the facts in existence at the time the complaint is filed. Indium Corp. of America v. Semi-Alloys, Inc., 781 F.2d 879, 883 (Fed. Cir. 1985). Oce has obviously satisfied the second prong of the "actual controversy" test in that production and sales of the Oce 2500 in the United States have been ongoing since 1989. Thus, the only remaining issue pending before the court is whether Oce had a reasonable apprehension of an infringement suit or the threat of one based on defendant's conduct. Applying the standard set forth above to the evidence presented, the court finds that a justiciable controversy existed at the time the suit was filed.

 A. Facts Establishing Jurisdiction

 In challenging jurisdiction, Kodak submitted an affidavit by Ronald P. Hilst, Senior Director of Business Development for Kodak, and various correspondence between the two parties. In opposition to Kodak's motion to dismiss, Oce submitted a declaration by Johannes M.M. van der Velden, Assistant Director and Legal Counsel for Oce, affidavits by William O. Bittman and Bernard L. Sweeney, both attorneys representing Oce in this action, as well as various correspondence between the parties. These materials established the facts as set out below.

 In 1984, Oce initially contacted Kodak regarding licenses under the '387 patent with the intent to use the '387 patent technology in as yet undeveloped Oce copier systems. At that point in time, the Oce 2500 was beyond this stage in its development and, therefore, these discussions did not include this copier. These licensing discussions continued until 1987 when they were terminated without Oce ever acquiring a license under the '387 patent. According to Oce, the terms offered by Kodak were unacceptable and Kodak would not consider granting a license under the '387 patent with respect to high-speed copiers.

 With regard to the Oce 2500, it was Kodak that initiated contact with Oce in a letter dated August 5, 1991. In this letter, Kodak expressed its belief that the Oce 2500 infringed the '387 patent and stated that if Oce disagreed, it was to provide a written explanation which conclusively established that there was no infringement. Kodak then stated that failure of Oce to provide such an analysis would indicate to Kodak that its belief regarding infringement was correct and that Oce should either take a license under the patent or immediately terminate its infringing activity and compensate Kodak for any damages resulting from the infringement. Defendant's Memorandum in Support, Exhibit F.

 Oce responded on September 25, 1991, with a letter to Kodak explaining why the Oce 2500 did not infringe the claims of the '387 patent. In the last paragraph of the letter, Oce requested that Kodak specify the terms under which it would be willing to license the '387 patent for future Oce machines. Nowhere in this letter to Kodak did Oce offer to discuss licensing the '387 invention for use in the Oce 2500 copier. Defendant's Memorandum in Support, Exhibit G.

 On November 18, 1991, Kodak responded by letter, stating that it still believed the Oce 2500 infringed the '387 patent. Additionally, Kodak enclosed with this letter a statement, prepared by Kodak's Patent Legal Staff, explaining why they believed the Oce 2500 copier directly infringed the '387 patent. Kodak then outlined the terms under which it would be willing to grant Oce a license under the '387 patent for high-speed copiers. Kodak further stated its intention that any such licenses would apply to the Oce 2500 as well as other relevant copiers. Kodak elaborated that it must hear from Oce regarding this matter on or before December 15, 1991 or else Kodak would "assume that Oce intended to continue its infringing activities, and had no interest in pursuing [the] license discussions." Kodak explained that if it did not hear from Oce, it would then proceed "with consideration of other appropriate actions to protect Kodak's patent rights." Defendant's Memorandum in Support, Exhibit H.

 The parties subsequently met on March 31, 1992. According to plaintiff's brief in opposition to Kodak's motion to dismiss, Oce agreed to hold such a meeting to further try to convince Kodak that the Oce 2500 did not infringe the '387 patent. At the start of this meeting, Kodak reiterated its belief that the Oce 2500 infringed the '387 patent. (van der Velden Declaration at P 15). Oce then explained why the Oce 2500 did not infringe the '387 patent based on the two position papers Oce had sent to Kodak prior to this meeting. Kodak responded that despite Oce's explanations, Kodak still believed that the Oce 2500 literally infringed the patent. Furthermore, ...


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