United States District Court, N.D. Illinois
May 11, 2004.
SAGE PRODUCTS, INC.
AMERICAN NONWOVENS CORP.
The opinion of the court was delivered by: PHILIP REINHARD, District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff, Sage Products, Inc., filed this action against defendant,
American Nonwovens Corp., seeking a declaratory judgment of invalidity
and unenforceability of U.S. Patent No. 5,928,973 ("973 patent") (Count
I), or alternatively, a correction of inventorship for the 973 patent
(Count II) or a declaratory judgment of non-infringement (Count III).
Jurisdiction is premised on 28 U.S.C. § 1338 (a) and 2201 (Declaratory
Relief Act) as the action arises under the patent laws of the United
States, 35 U.S.C. § 101 et seq. Defendant moves to dismiss under
Fed.R.Civ.P. 12(b)(1) for lack of standing (no actual controversy) under
Article III of the U.S. Constitution and, assuming standing is found, to
dismiss Count II for failure to meet the pleading particularity
requirements of Fed.R.Civ.P. 9(b).
In patent declaratory judgment actions, for an actual controversy and,
therefore, standing to exist there must be "both (1) an explicit threat
or other action by the patent owner creating a reasonable apprehension of
an infringement suit on the part of the declaratory plaintiff, and (2)
present activity constituting infringement or concrete steps being taken
with the intent to conduct such activity." Livorsi Marine, Inc. v.
Nordskog Publishing, Inc., 268 F. Supp.2d 994, 997 (N.D.Ill. 2003)
(St. Eve, J.); Phillips Plastics Corp. v. Kato Hatsujou Kabuhiki
Kiasha, 57 F.3d 1051, 1052 (Fed. Cir. 1995). The actual controversy
must exist at the time of the filing of the complaint. See Arrowhead
Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 734, n.2 (Fed.
Cir. 1988). Defendant argues it took no action which would create a
reasonable apprehension of it bringing an infringement suit.
Defendant owns the 973 patent. Plaintiff and defendant entered an
agreement in April 2000 in which it was agreed defendant would be "the
majority supplier of non-woven fabrics" to plaintiff, plaintiff would
secure a second source of supply for its exclusive use "without royalty
or retribution, as long as [defendant] remains the majority supplier and
the second source only supplies [plaintiff]," defendant would retain
"title to its patent and [plaintiff] neither acknowledges nor denies its
efficacy by agreeing to these terms." On October 28, 2003, plaintiff,
through its Director of Purchasing and Planning, Craig Boss, advised
defendant by telephone that it would no longer consistently purchase
fabric from defendant and that plaintiff would make the majority of its
fabric in-house. Boss Aff. ¶ 3. Later that day, Nelson Ortiz,
defendant's Executive Vice President, called Boss and told him the 973
patent covered the fabric and that defendant would do what it had to do if
plaintiff quit purchasing fabric consistently from defendant. Id. ¶ 9. By
letter dated the same day, defendant notified plaintiff that defendant
"can no longer allow use of its Patent by [plaintiff] without restriction
and consideration. It is necessary for us to begin discussion immediately
on a royalty arrangement for products that are within the bounds of
[defendant's] Patent." The letter indicated copies had been sent to
Wilbur O. Colom and Brian A. Hinton. Colom and Hinton are attorneys.
Plaintiff filed this declaratory judgment action on November 14, 2003.
Plaintiff argues that these facts show defendant intended to sue
plaintiff for infringement and that plaintiff, therefore, had a reasonable
apprehension of such a suit. Generally, an offer to conduct license
negotiations is insufficient to create a justiciable controversy.
Phillips, 57 F.3d at 1053. Ortiz's statement to Boss that the 973 patent
covered the fabric and that defendant would "do what it had to do" is a
necessary part of license negotiation and does not create a reasonable
apprehension of suit See Shell Oil Co. v, Amoco Corp., 970 F.2d 885, 889
(Fed. Cir. 1992). An indication that the patentee does not intend to
enforce its patent would remove the incentive of the potential licensee
to negotiate. See id. The statement must be looked at in the context in
which it arose. Plaintiff had just advised defendant that plaintiff was
going to end its use of defendant as its primary supplier of the fabric.
Defendant simply reiterated its belief its patent covered the fabric and
that it would act on that belief. By letter dated the same day, defendant
acted by offering to open licensing negotiations. That the letter
indicated copies had been sent to lawyers does not get plaintiff over the
top. Attorney involvement in licensing negotiations is common and does
not mean a lawsuit is contemplated. Taken in context, defendant's actions
do not give rise to a reasonable apprehension of suit in this case.
Even if the court were to find an actual controversy existed,
exercising jurisdiction under the Declaratory Judgment Act is
discretionary. EMC Corp. v. Norand Corp., 89 F.3d 807, 810 (Fed. Cir.
1996). cert. denied, 519 U.S. 1101(1997). The parties to this action have
had an ongoing business relationship which they crafted despite their
differences about the validity of defendant's patent. Plaintiff advised
defendant that the nature of the relationship was going to change.
Plaintiff was not going to buy primarily from defendant anymore.
Defendant took the logical step of trying to adjust to the changed
circumstances by seeking a licensing arrangement. This pursuit of an
extrajudicial resolution of the issues should be encouraged. See id. at
814. There is no indication defendant was trying to gain any advantage by
delaying litigation so as to leave plaintiff unable to act for fear of
racking up potential infringement damages which is the purpose of the
Declaratory Judgment Act. See id. at 815. Thus, the court would decline
to exercise jurisdiction even if an actual controversy existed.
Count II is an alternative count seeking to correct inventorship in the
event the patent is found valid under Count I. Because the court lacks
subject matter jurisdiction over Count I, the issue of patent validity is
not before the court. The court presumes plaintiff does not wish to take
the position that the patent is valid and that Count II should proceed to
correct inventorship. Accordingly, Count II will be dismissed without
prejudice without being considered on the merits. If plaintiff wishes to
pursue Count II at this time, it must notify the court within fourteen
days of the entry of this order. The court will then reinstate Count II
and address defendant's currently filed motion to dismiss Count II.
For the foregoing reasons, defendant's motion to dismiss Counts I and
III for lack of subject matter jurisdiction is granted. Count II is
dismissed without prejudice. Plaintiff is granted fourteen days to seek
reinstatement of Count II. If reinstated the court will address the
merits of defendants currently filed motion to dismiss Count II.
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