Summary
In Sirius Satellite Research, Inc. v. Acacia Research Corp., 05-cv-7495 (PAC), 2006 WL 238999 (S.D.N.Y. Jan. 30, 2006), the court concluded that allegations of infringement without an explicit threat to sue do not present a case or controversy.
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No. 05 Civ. 7495 (PAC).
January 30, 2006
OPINION ORDER
Plaintiff Sirius Satellite Radio Inc. ("Plaintiff' or "Sirius") commenced this action on August 24, 2005, seeking a declaratory judgment that a patent owned by defendants Acacia Research Corporation and Acacia Global Acquisition Corp. (collectively, "Defendant" or "Acacia") is invalid or, in the alternative, that Sirius is not infringing the patent. Acacia now moves to dismiss the Complaint, pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, on the grounds that the pre-action communications between the parties, which form the basis of plaintiff's complaint, do not create an actual controversy. The Court agrees with Acacia; finds that it lacks subject matter to entertain this action; and, accordingly, dismisses the complaint.
Acacia bases its Federal Rule 12(b)(6) argument on the same failure to create an actual controversy as the Federal Rule 12(b)(1) argument. Since the existence of an actual controversy speaks to the subject matter jurisdiction of the Court, the proper motion would be a motion to dismiss pursuant to Federal Rule 12(b)(1). Therefore, the Court will treat Acacia's motion solely as a motion to dismiss pursuant to Federal Rule 12(b)(1) for lack of subject matter jurisdiction.
FACTS
Sirius is a corporation providing digital satellite radio service throughout the United States. (Compl. ¶ 4.) Acacia is a corporation in the business of purchasing patents from third parties and licensing or enforcing them. (Id. ¶ 5.)On November 5, 1991, the United States Patent and Trademark Office ("USPTO") issued U.S. Patent No. 5,063,610 (the "610 Patent") to the inventor, David Alwadish. (Id. ¶ 7.) The 610 Patent covers a system for broadcasting material together with related program information, such as the name of the song or its artist. (Id.) Alwadish sold the 610 Patent to Global Patent Holdings, Inc., which in turn sold it to Acacia in January 2005. (Id. ¶ 8.)
Acacia immediately began enforcing, and attempting to license, the 610 patent. By letter dated March 30, 2005, Robert Berman, the Chief Operating Officer and General Counsel of Acacia, wrote to Sirius, alleging that the 610 Patent "covers a service being offered by Sirius." (Caplan Decl., Ex. A.) In the letter, Acacia urged Sirius to consult outside patent counsel to determine if its service infringed the 610 Patent, expressed its desire to resolve the matter "amicably without the need for excessive legal costs," and communicated its interest in negotiating an exclusive license. (Id.) Mr. Berman made himself and the company engineers available for consultation and advised that he would follow up in thirty days if he did not hear from a Sirius representative in the interim. (Id.)
The exact language reads:
I would expect that you will send this matter to outside patent counsel for review. We will make our engineers and attorneys available to you via telephone, and are also available to meet in person with you and your counsel to answer any questions and provide any additional material you may need. As before, our goal is to resolve this matter amicably without the need for excessive legal costs.
If you act quickly, we are also prepared to discuss an exclusive license for Sirius . . .
. . . . I will contact you in approximately 30 days to check on the status of this matter and discuss next steps.
(Id.)
Sirius immediately retained outside counsel to review the matter. (Caplan Decl. ¶¶ 1-3 Exs. C-G, L.) Sirius's attorney, Mr. Jonathan D. Caplan, attempted to investigate Acacia's allegations, but discovered that filewrapper — the record of proceedings before the USPTO resulting in the issuance of the 610 Patent — had disappeared. (Id. ¶¶ 4-5.) Unable to fully investigate the potential infringement without the filewrapper, Sirius refused to commence license negotiations with Acacia. (Id.)
Sirius retained Mr. Jonathan Caplan, Esq., of Kramer Levin Naftalis Frankel LLP, immediately upon receipt of the March 30, 2005 letter. (See Caplan Decl. ¶¶ 1-3.) All subsequent communication between Sirius and Acacia went through Mr. Caplan, rather than through Sirius's in-house counsel, business executives, or patent specialists. (Id. Ex. C-G, L.) Acacia, on the other hand, continued to handle the matter in house, through its General Counsel. (Id.)
Thorough investigation revealed that the USPTO had lost the filewrapper, neither the inventor nor his patent attorney had retained a file, and Acacia was not given a file when it obtained the patent from Global Patent Holdings. (Caplan Decl., Ex. G.)
In an effort to facilitate license negotiations, Acacia made the inventor and his attorney available to Sirius. (Id., ¶ 6 Exs. C-D.) Acacia limited the scope of questioning, however, to issues of patent prosecution (i.e., office actions, meetings with examiners, changes to claims, and all other proceedings directly related to the grant of the patent by the USPTO), not "general discovery." (Id., Ex. D, at 1.) After interviewing both the investor and his patent prosecution attorney, Sirius still refused to enter license negotiations. (Id. Ex. C.)
Acacia continued to press the matter. On June 17, 2005, Mr. Berman wrote another letter to Sirius stating that it expected a "substantive response to [its] infringement allegations and license request within [a] two week period." (Id.) Two weeks came and went without a definitive answer; however, Acacia took no action that would suggest an impending infringement suit. Instead, Acacia continued to push for license negotiations. (Id., Exs. E G.) For example, on August 4, 2005, Acacia faxed Sirius the one document it was able to locate from the filewrapper. (Id., Ex. E) Rather than spur negotiations, after reviewing this document — a May 30, 1991 letter discussing the allowability of the Alwadish patent's main claim 1 in view of another pre-existing patent — Sirius concluded that it could not be infringing the 610 patent and therefore would not negotiate a license. (Id., Exs. F L.)
Sirius communicated its position to Acacia on August 15, 2005. (Id., Ex. F.) In the letter, Sirius expressly declared: "Sirius does not, and cannot infringe the Alwadish patent . . . Therefore, Sirius considers this matter closed-the Alwadish patent does not apply to Sirius." (Id.) Acacia responded the same day. (Id., Ex. G.) In its response letter, Acacia challenged Sirius's interpretation of the 1991 letter, suggesting that the 1991 letter "cut the heart out of Sirius's defense," and therefore strengthens Acacia's case, and urging further discussions between the two companies, "so that [Acacia's] engineers can explain to [Sirius] how [they] believe Sirius is infringing the Alwadish patent, and [Sirius] can in turn, explain how [it] is not." (Id.)
The letter actually states:
I understand your frustration in that the [1991] letter . . . seems to cut the heart out of Sirius' defense. Your contention is that the patent was invalid and should not have been issued over [the pre-existing patent]. As indicated by the letter, this argument was rejected by the examiner, for the reasons indicated.
. . .
We believe that the [1991] letter makes our case even stronger. If "closed" means that Sirius is no longer interested in amicably resolving this matter, please confirm that to me. Otherwise, I suggest that we have at least one more call so that my engineers can explain to you how we believe Sirius is infringing the Alwadish patent and you can in turn, explain how they are not.
(Id.)
Sirius was not persuaded. In an August 24, 2005 conference call, Mr. Caplan made clear that because Sirius was not infringing the 610 patent, it was not interested in discussing the patent further or entertaining license negotiations. (Id. ¶ 15.) Mr. Berman responded that Acacia understood Sirius's position and Acacia would "act accordingly." (Id.) The same day, Sirius filed this declaratory judgment action. (Compl. ¶ 1.)
DISCUSSION
A. Federal Rule 12(b)(1) Motion to Dismiss for Lack of Subject Matter Jurisdiction
A district court must dismiss a case pursuant to Federal Rule of Civil Procedure 12(b)(1) when it lacks the statutory or constitutional power to adjudicate it. Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). As the party "seeking to invoke the subject matter jurisdiction of the district court," plaintiff bears the burden of proving jurisdiction. Scela v. City Univ. of New York, 76 F.3d 37, 40 (2d Cir. 1996); Malik v. Meissner, 82 F.3d 560, 562 (2d Cir. 1996). Thus, the Court must "refrain from `drawing from the pleadings inferences favorable to the party asserting [jurisdiction],'" Takeda Chem. Indus., Ltd. v. Watson Pharm., Inc., 329 F. Supp. 2d 394, 402 (S.D.N.Y. 2004) (quoting APWU v. Potter, 343 F.3d 619, 623 (2d Cir. 2003)), and may "refer to evidence outside the pleadings." Luckett v. Bure, 290 F.3d 493, 496-96 (2d Cir. 2002).
B. Subject Matter Jurisdiction Under the Declaratory Judgment Act
Through the Declaratory Judgment Act, 28 U.S.C. §§ 2201 and 2202, a litigant may file an action in federal court seeking a "declar[ation] of its rights and other legal relations." 28 U.S.C. § 2201. This declaration has the effect of a final judgment, and may be used by the prevailing party to stave off future litigation. Id. Since federal courts may not issue advisory opinions, however, a litigant may seek a declaratory judgment only where an "actual controversy" exists. Id. "The difference between an abstract question and a `controversy' contemplated by the Declaratory Judgment Act is necessarily one of degree." Dataline, Inc. v. MCI Worldcom Network Servs., Inc., No. 00 Civ. 1578, 2001 WL 102336, at *2 (S.D.N.Y. Feb. 6, 2001). "In general, the presence of an `actual controversy' within the meaning of the statute depends on `whether the facts alleged, under all the circumstances, show . . . a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'"Gen-Probe Inc. v. Vysis, Inc., 359 F.3d 1376, 1379 (Fed. Cir. 2004) (quoting EMC Corp. v. Norand Corp., 89 F.3d 807, 810 (Fed. Cir. 1996), and Md. Cas. Co. v. Pac. Coal Oil Co., 312 U.S. 270, 273 (1941)).
The conduct required to create an "actual controversy" differs according to the subject matter of the action. In the patent context, the Federal Circuit follows a two-part test, which focuses on the conduct of both the patentee and the putative infringer, to determine if a declaratory judgment plaintiff has an "actual controversy." First, there must be "an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory judgment plaintiff that it will face an infringement suit." Gen-Probe, 359 F.3d at 1380 (emphasis added) (quoting BP Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 978 (Fed. Cir. 1993)). "Reasonableness" is judged by an objective standard, based on the conduct of the patent holder, not the subjective feelings of the potential infringer. Cygnus Therapeutics Systems v. ALZA Corp., 92 F.3d 1153, 1160 (Fed. Cir. 1996). The burden falls on the declaratory judgment plaintiff to prove, by a preponderance of the evidence, that its apprehension of suit was reasonable. Id. at 1159.
Second, there must be a "present activity which could constitute an infringement or concrete steps taken with the intent to conduct such activity."Id. The parties do not dispute that Sirius satisfies this second prong, as Sirius currently offers the allegedly infringing service in the marketplace. (Caplan Decl., Ex. A.) This case thus turns on whether, based on Acacia's conduct and communications prior to the filing of this action, Sirius had a reasonable apprehension of imminent infringement litigation.
1. Reasonable Apprehension Created by an Express Charge of Infringement
To create a reasonable apprehension, the patentee "must signal an intention to file suit claiming infringement." Hunter Douglas, Inc. v. Harmonic Design, Inc., 153 F.3d 1318, 1326 (Fed. Cir. 1998). The Federal Circuit has held that when a patentee makes an explicit threat of an infringement suit or an express charge of infringement, there is always an actual controversy. See Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1998). The declaratory judgment plaintiff need not make any additional showing in order to file a declaratory judgment action. Id. ("If defendant has expressly charged a current activity of the plaintiff as an infringement, there is clearly an actual controversy, certainty has rendered apprehension irrelevant, and one need say no more.").
Sirius argues that Acacia's March 30, 2005 letter amounts to an express charge of infringement. The Court does not agree; and a fair reading of the letter does not support a conclusion that there was an express threat. It is well settled that neither the offer of a patent license nor language in a letter stating that the declaratory judgment plaintiff's product or service is "covered by" or "falls within" defendant's patent amounts to an "express charge" of infringement. See Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisia, 57 F.3d 1051, 1053 (Fed. Cir. 1995); Shell Oil Co. v. Amoco Corp., 970 F.2d 885 (Fed. Cir. 1992). More explicit language is required before a court will find an express charge or threat. See, e.g., Elecs. for Imaging, Inc. v. Coyle, 394 F.3d 1341, 1344 (Fed. Cir. 2005) (finding express threat where the patentee stated that it would drive the alleged infringer out of business and sue all its customers, warned that "bad things are going to happen," and even identified specific attorneys and law firms in support of his litigation threats). Acacia's March 30, 2005 letter does not expressly charge infringement of the 610 patent or threaten infringement litigation, it merely expresses a belief that Sirius might be infringing the patent and invites discussions between the companies and their patent experts to resolve the matter. The letter was carefully crafted to promote licensing negotiations between the parties, using the same "covered by" language that the Federal Circuit has previously deemed permissible. This language is not sufficient to create an actual controversy.
The purpose of the March 30, 2005 letter was to initiate negotiations for a patent license — a goal which is to be encouraged. If every suggestion of patent coverage and request to enter license negotiations were deemed to be a "threat" sufficient to justify a declaratory judgment, there would be far fewer patent license negotiations and far more litigation. Its character is not changed by Exhibit B, which presents a detailed claims analysis. Had Exhibit B not been included with Exhibit A, Sirius could have stated, correctly, that it would not respond until it saw the patent holder's claims analysis. Thus, Exhibit B does not provide evidence of a threat, rather, it supports the request to enter into license negotiations.
2. Reasonable Apprehension by a Totality of the Circumstances
In the alternative, Sirius argues that Acacia's conduct, when viewed as a whole, created a reasonable apprehension of imminent litigation, and therefore created an actual controversy. The Federal Circuit is mindful of the risk that requiring an "explicit threat" could promote manipulation by "patentee[s] who use careful phrases in order to avoid explicit threats, thus denying recourse to the courts while damages accrue." Phillips Plastics, 57 F.3d at 1053. Therefore, a court may find an "actual controversy" in the absence of an express charge of infringement or threat of litigation, if the totality of the circumstances create a reasonable apprehension — based on an objective test — that the patentee intended to bring an infringement suit. Arrowhead, 846 F.2d at 736; Shell Oil, 970 F.2d 888.
While the "totality of the circumstances" test is a fact-specific inquiry, the Federal Circuit has identified certain factors that make a declaratory judgment plaintiff's apprehension of litigation presumptively reasonable: (1) where the allegations of infringement come from outside litigation counsel, rather than from the patentee's in-house counsel or business executives; (2) where the patentee warned the declaratory judgment plaintiff's customers of the potential infringement; (3) where the patentee has enforced the same patent or technology against other companies in prior litigation; or (4) where the patentee gave the declaratory judgment plaintiff an unfairly short period of time to respond to the infringement allegations before taking other action. See, e.g., Arrowhead, 846 F.2d at 737-38 (finding actual controversy where all four factors present, and noting that contact of infringer's customers and prior litigation were especially strong evidence of the patentee's willingness and desire to sue); see also Kos Pharm., 242 F. Supp. 2d at 315-16 (finding actual controversy where patentee had filed three prior lawsuits against the plaintiff to enforce similar patents);Cargill, Inc. v. Sears Petroleum Transp. Corp., No. 02 Civ. 1395, 2002 WL 31426308, at *4 (S.D.N.Y. Oct. 28, 2002) (finding reasonable apprehension of imminent litigation where letters came from patentee's outside litigation counsel, patentee told plaintiff's distributors of the patent dispute, and patentee's lawyers gave plaintiff only 10 days to respond before advising their client of its legal options); Consac Indus., Inc. v. Nutramax Labs, Inc., No. 97 Civ. 1155, 1998 WL 229255, at *3-4 (E.D.N.Y. Mar. 31, 1998) (finding reasonable apprehension where letters came from patentee's attorneys and patentee had previously filed three infringement actions to enforce the patent). Conduct that would not create a reasonable apprehension of an infringement action in isolation may create a reasonable apprehension when coupled with other activities. See Teva Pharm. USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1333 (Fed. Cir. 2005).
Sirius argues that a number of these presumptively threatening factors are present in this case. First, Sirius points to Acacia's recommendation in the March 30, 2005 letter that Sirius "send this matter to outside patent counsel for review." Sirius argues that this reference to outside counsel created a reasonable apprehension of imminent litigation. In making this argument, however, Sirius misconstrues the case law. In all of the cases finding a reasonable apprehension of litigation based on the involvement of outside counsel, the Court focused on the patentee's decision to refer the case to its own outside counsel.See, e.g., Cargill, 2002 WL 31426308, at *4 (finding reasonable apprehension where all correspondence came from patentee's attorneys); Consac Indus., 1998 WL 229255, at *4 (same); see also Dataline, Inc. v. MCI Worldcom Network Servs., Inc., No. 00 Civ. 1578, 2001 WL 102336, at *4 (S.D.N.Y. Feb. 6, 2001) (finding no reasonable apprehension of litigation where initial letter came from in-house executive). In this case, on the other hand, all correspondence came from Acacia's Chief Operating Officer and General Counsel, an in-house executive. Acacia did not involve outside litigation counsel until after Sirius filed this declaratory judgment action. There is no indication that Sirius's reference to "outside patent counsel" signaled an intent to litigate. The more reasonable interpretation is that Acacia believed that Sirius could benefit from outside review of the patent before entering license negotiations.
Second, Sirius points to Acacia's history of defending its patents through infringement litigation. The Federal Circuit has expressly held, however, that the fact that a patentee has aggressively asserted its patent rights against other alleged infringers is not sufficient to create a reasonable apprehension of imminent litigation. See Teva, 395 F.3d at 1333 (finding that history of infringement litigation unrelated to subject patent did not create reasonable apprehension of imminent litigation); Gen-Probe, 359 F.3d at 1381, 1382 (finding no reasonable apprehension of imminent litigation even though parties had a history of litigation over other patents). Only where the patentee has "demonstrated a readiness and inclination to sue [plaintiff] over its patents" by filing previous infringement actions to enforce the same technology is an apprehension of imminent litigation reasonable. Kos Pharm., Inc. v. Barr Labs., 242 F. Supp. 2d 311, (S.D.N.Y. 2003) (finding reasonable apprehension where patentee had filed three prior lawsuits against plaintiff to enforce similar patents); see Arrowhead, 846 F.2d at 738 (finding reasonable apprehension where, in addition to other factors, the patentee had previously sued another company for infringement of the same patent);Consac Indus., Inc. v. Nutramax Labs, Inc., No. 97 Civ. 1155, 1998 WL 229255, at *3 (E.D.N.Y. Mar. 31, 1998) (finding reasonable apprehension where, in addition to the fact that the patentee had already referred the matter to outside litigation counsel, the patentee had previously filed three infringement actions against other companies to enforce the same technology).
Third, Sirius contends that Acacia's desire to "act quickly" created a reasonable apprehension of imminent litigation. To support this contention, Sirius points to Mr. Berman's March 30, 2005 letter, in which he "provided a 30-day period for response," and his June 17, 2005 e-mail, in which he "provided a `2 week' time limit for Sirius' response to Acacia's infringement charges." (Pl.'s Mem. of Law in Opp'n 15, 16.) Sirius urges the Court to find that this language is identical to the language found by other courts to create a reasonable apprehension of litigation. (Id. at 16.) Despite Sirius's urgings, however, its cases do not support the conclusion it urges. Acacia's actual conduct falls well short of "deadlines" imposed by other patent holders. In Sirius's cases, the patentee strongly suggested litigation if the alleged infringer did not respond within a reasonably short period of time. See Arrowhead, 846 F.2d at 737 (demanding, within 20 days, a confirmation that all unauthorized practices were discontinued, and threatening that the patentee "had in the past not hesitated to protect its patent rights whenever appropriate"); Cargill, 2002 WL 3146308, at * 1 (advising, in letter sent by patentee's outside litigation counsel, that if alleged infringer did not respond within ten days the authors would "advise [their] client of their legal options"); Comtec Info. Sys., Inc. v. Monarch Marking Sys., Inc., 962 F. Supp. 15, 17 (D.R.I. 1997) (finding reasonable apprehension of imminent litigation where patentee threatened, in third letter from outside counsel, that if the alleged infringer did not act promptly, the patentee "will have no choice but to proceed accordingly").
No similar language is present in this case. In the March 30, 2005 letter, Mr. Berman states that he "will contact [Sirius] in approximately 30 days to check on the status of this matter and discuss next steps." (Caplan Decl., Ex. A.) Mr. Berman did not threaten legal action at the end of the 30-day period. Instead, he suggests that if he has not heard by then, he will call Sirius. No reasonable observer would find this statement to create an apprehension of immediate litigation. Similarly, in the June 17, 2005 e-mail, Mr. Berman requested that Sirius respond to Acacia's infringement allegations within two weeks. Again, Mr. Berman did not threaten legal action if it did not hear from Sirius at the end of the two-week period. Significantly, even though the parties had not entered license negotiations by the end of the two-week period mentioned in the e-mail, Acacia did not file, or even threaten, an infringement action. This course of events hardly suggests that Acacia intended to sue Sirius in the near future.
Fourth, Sirius contends that Acacia's choice of words in its communications created a reasonable apprehension of imminent litigation. Specifically, Sirius points to Acacia's reference in the March 30, 2005 letter to "excessive legal costs" and in subsequent correspondence to "contentions," "infringement allegations," "Sirius' defense" and the strength of Acacia's "case," "terms which are universally understood to refer to litigation." (Pl.'s Mem. of Law in Opp'n 16.) The Court is not persuaded by this argument; a reasonable observer would not find Acacia's use of these terms, when read in context, forewarned litigation. Instead, a contextual reading confirms that Acacia was merely "jawboning" in anticipation of license negotiations. Acacia's goal of was a license, not a lawsuit. Taking a position in license negotiations is commercially acceptable behavior and does not create a reasonable apprehension of imminent litigation.See Cygnus, 92 F.3d at 1160; Shell Oil, 970 F.2d at 889.
Looking at the totality of the circumstances, the Court finds that Acacia's conduct prior to the filing of this declaratory judgment action did not create a reasonable apprehension of litigation. Acacia did not involve outside patent counsel, threaten Sirius's customers with infringement if it continued using Sirius's service, sue other alleged infringers to enforce the 610 patent, or use language that would suggest imminent litigation. To the contrary, Acacia repeatedly signaled an intent to avoid litigation in favor of discussions between the parties. Admittedly, Acacia pressed for license negotiations, but "the reasonable apprehension of suit test requires more than the nervous statement of mind of a possible infringer; it requires that the objective circumstances support such an apprehension"Cygnus, 92 F.3d at 1160 (internal quotation marks omitted). The Court finds no such circumstances in this case. Acacia's mere attempts to license the 610 patent to Sirius, however persistent, did not create a reasonable apprehension of litigation sufficient to invoke the jurisdiction of this Court under the Declaratory Judgment Act.
CONCLUSION
The Court finds that Acacia's conduct prior to the filing of this declaratory judgment action did not create a reasonable apprehension of imminent litigation. Since no actual controversy existed, the Court does not have subject matter to entertain this action pursuant to the Declaratory Judgment Act. Accordingly, Acacia's motion to dismiss the complaint for lack of subject matter jurisdiction is GRANTED. The Clerk of Court is directed to enter judgment and close out this case.
SO ORDERED.