Free Opening Brief in Support - District Court of Delaware - Delaware

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE HUNTLEY L.L.C., Plaintiff, v. MONTEREY MUSHROOMS INC., Defendant. ) ) ) ) ) ) ) ) ) )

C.A. No. 08-377 (GMS)

DEFENDANT MONTEREY MUSHROOMS' OPENING BRIEF IN SUPPORT OF ITS RULE 12(b)(1) MOTION TO DISMISS WITH PREJUDICE FOR LACK OF STANDING AND SUBJECT MATTER JURISDICTION

OF COUNSEL: Ricardo Rodriguez Reuben H. Chen COOLEY GODWARD KRONISH LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155 (650) 843-5000 July 28, 2008

MORRIS, NICHOLS, ARSHT & TUNNELL LLP Thomas C. Grimm (#1098) Benjamin J. Schladweiler (#4601) 1201 N. Market Street P.O. Box 1347 Wilmington, DE 19899-1347 (302) 658-9200 [email protected] Attorneys for Defendant Monterey Mushrooms, Inc.

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TABLE OF CONTENTS PAGE I. II. III. IV. NATURE AND STAGE OF THE PROCEEDING........................................................... 1 SUMMARY OF ARGUMENT ......................................................................................... 1 STATEMENT OF FACTS ................................................................................................ 2 ARGUMENT..................................................................................................................... 3 A. B. Legal Standard ....................................................................................................... 3 Huntley Lacks Standing to Sue.............................................................................. 4 1. 2. Huntley has not demonstrated any equitable interest in the `476 Patent and lacks standing to sue on any of his causes of action ................ 4 Even if Huntley has an equitable interest, Huntley lacks standing to sue on his patent infringement action since an equitable interest does not confer standing in an action "at law." ......................................... 5

V.

CONCLUSION.................................................................................................................. 6

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TABLE OF CITATIONS PAGE CASES Affymetrix, Inc. v. Illumina, Inc. 446 F. Supp. 2d 292 (D. Del. 2006)........................................................................................ 1, 3 Arachnid, Inc. v. Merit Indus., Inc. 939 F.2d 1574 (Fed. Cir. 1991)............................................................................................... 2, 5 Dynamic Mfg. Inc. v. Craze 46 U.S.P.Q.2d 1548 (E.D. Va. 1998).......................................................................................... 5 Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998)................................................................................................... 6 FW/PBS, Inc. v. City of Dallas 493 U.S. 215 (1990).................................................................................................................... 3 Gaia Techs., Inc. v. Reconversion Techs., Inc. 93 F.3d 774 (Fed. Cir. 1996)....................................................................................................... 4 Intel Corp. Microprocessor Antitrust Litig., In re, 452 F. Supp. 2d 555 (D. Del. 2006)........................................................................................ 1, 3 McNutt v. General Motors Acceptance Corp. 298 U.S. 178 (1936).................................................................................................................... 3 Pfizer Inc. v. Elan Pharm. Research Corp. 812 F. Supp. 1352 (D. Del. 1993)............................................................................................... 3 Procter & Gamble Co. v. Paragon Trade Brands, Inc. 917 F. Supp. 309 (D. Del. 1995)......................................................................................... 2, 4, 5 TM Patents, L.P. v. Int'l Bus. Machs. Corp. 121 F. Supp. 2d 349 (S.D.N.Y. 2000)......................................................................................... 4 STATUTES 35 U.S.C. § 261............................................................................................................................... 4 Federal Rule of Civil Procedure 12(b).................................................................................... 1, 3, 6 Federal Rule of Civil Procedure 41(a) ............................................................................................ 1 OTHER AUTHORITIES 37 C.F.R. § 3.54 .............................................................................................................................. 4 TREATISES 15-101 Moore's Federal Practice ­ Civil § 101.31 (2007) ............................................................ 3 2-12 Moore's Federal Practice ­ Civil § 12.34[1][b] (2007)......................................................... 3

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I.

NATURE AND STAGE OF THE PROCEEDING On February 16, 2007, more than four years after U.S. Patent No. 6,500,476

("`476 Patent") had issued, Plaintiff Huntley L.L.C. ("Huntley") filed a Complaint for Patent Infringement against Defendant Monterey Mushrooms, Inc. ("Monterey Mushrooms") based on a claim of an equitable interest in the `476 Patent due to legal fees owed to Huntley by a nonparty, EPL Technologies, Inc. ("EPL"). (Complaint, D.I. 1, Huntley & Associates, LLC v. Monterey Mushrooms Inc., C.A. No. 07-086 (GMS) ("Huntley I").) After Monterey Mushrooms filed a motion to dismiss, Huntley withdrew its complaint. (Motion to Dismiss, D.I. 8 and Motion to Withdraw Complaint, D.I. 10, Huntley I.)1 Eleven months after voluntarily dismissing its first suit, Huntley has filed a second Complaint against Monterey Mushrooms. (Complaint, D.I. 1, Huntley II.) Monterey Mushrooms submits this brief in support of its motion to dismiss Huntley's complaint with prejudice for lack of standing and subject matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). (Rule 12(b)(1) Motion to Dismiss With Prejudice). II. SUMMARY OF ARGUMENT Under Rule 12(b)(1), a court may dismiss an action for lack of subject matter jurisdiction if the plaintiff lacks standing. See Affymetrix, Inc. v. Illumina, Inc., 446 F. Supp. 2d 292, 294 (D. Del. 2006); In re Intel Corp. Microprocessor Antitrust Litig., 452 F. Supp. 2d 555, 557 (D. Del. 2006). The four causes of action alleged in Huntley's complaint all depend on Huntley's claim of an equitable interest in the `476 Patent. Huntley's claim of an equitable interest is based on an engagement letter between EPL and Huntley for legal services, and Huntley's assertion that EPL did not pay fees due to Huntley. The engagement letter, however,
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Under Federal Rule of Civil Procedure 41(a)(1)(A)(i), "the plaintiff may dismiss an action without a court order by filing: (i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment." Fed. R. Civ. P. 41(a). -1-

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contains no language that would create an interest in the `476 patent in the event of a failure to pay legal fees. As such, Huntley can show no equitable interest in the `476 Patent and therefore does not have standing to sue. Monterey Mushrooms respectfully requests that the Court dismiss Huntley's Complaint with prejudice. Further, to have standing to recover money damages for infringement of a United States patent, a plaintiff must have held legal title to the patent during the time of the infringement. See Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1579 (Fed. Cir. 1991); Procter & Gamble Co. v. Paragon Trade Brands, Inc., 917 F. Supp. 305, 309 (D. Del. 1995). Here, Huntley only purports to have an equitable interest in the `476 Patent. (Complaint ¶ 10, D.I. 1.) This is insufficient to confer standing for Huntley's patent infringement action. III. STATEMENT OF FACTS Huntley purports to have an "equitable interest" in the `476 Patent. (Complaint ¶ 10, D.I. 1.) Huntley bases its assertion on a Notice of Equitable Claim in Patent Application ("Notice of Equitable Claim") filed by Donald W. Huntley with the United States Patent and Trademark Office ("PTO") that has a recordation date of December 16, 2002. (See Complaint ¶ 10, D.I. 1; see also Notice of Equitable Claim, Ex. A, attached hereto.) The Notice of Equitable Claim references an engagement letter between EPL and Huntley as the basis for the equitable interest. (See id.) But, the letter does not contain any language regarding an assignment of the `476 Patent, let alone any interest in the patent in the event EPL failed to pay Huntley legal fees. (See id.) Monterey Mushrooms purchased the `476 Patent from EPL via an Assignment dated May 7, 2003 signed by Paul Devine, who was the Chief Executive Officer of EPL. The Assignment was subsequently recorded with the PTO. (See Assignment, Ex. B, attached hereto.) Additional facts are set forth in the Argument section, infra, as appropriate. -2-

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IV.

ARGUMENT A. Legal Standard. Federal Rule of Civil Procedure 12(b)(1) authorizes a court to "dismiss an action

for lack of subject matter jurisdiction if the plaintiff lacks standing to bring his claim." Affymetrix, 446 F. Supp. 2d at 294; see also Intel, 452 F. Supp. 2d at 557.2 "A motion to dismiss under 12(b)(1) may present either a facial or factual challenge to subject matter jurisdiction." Affymetrix, 446 F. Supp. 2d at 294-95; see also Intel, 452 F. Supp. 2d at 557. In considering a facial challenge, a court "must accept all factual allegations in the complaint as true and all reasonable inferences must be drawn in favor of the plaintiff." Intel, 452 F. Supp. 2d at 557 (emphasis added);3 see also Affymetrix, 446 F. Supp. 2d at 295. "In contrast, when considering a factual challenge, a court is free to weigh the evidence and no presumption of truthfulness attaches to the plaintiff's allegations." Affymetrix, 446 F. Supp. 2d at 295; see also Intel, 452 F. Supp. 2d at 558. Once subject matter jurisdiction is challenged, the plaintiff bears the burden to establish subject matter jurisdiction exists regardless of the stage of the litigation. See Intel, 452 F. Supp. 2d at 558; see also FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990); McNutt v. Gen. Motors Acceptance Corp., 298 U.S. 178, 189 (1936); 15-101 Moore's Federal Practice ­ Civil § 101.31 (2007).

2

A motion to dismiss for lack of standing may also be treated as a motion to dismiss for failure to state a claim for relief under Rule 12(b)(6). This Court, however, has recognized that a Rule 12(b)(1) motion "arguably provides a closer analogy" to a motion to dismiss for lack of standing than a Rule 12(b)(6) motion. See Pfizer Inc. v. Elan Pharm. Research Corp., 812 F. Supp. 1352, 1357 n.6 (D. Del. 1993). While facts must be accepted as alleged, a court need not accept legal conclusions or bald assertions. See 2-12 Moore's Federal Practice ­ Civil § 12.34[1][b] (2007). -3-

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B.

Huntley Lacks Standing to Sue. 1. Huntley has not demonstrated any equitable interest in the `476 Patent and lacks standing to sue on any of his causes of action.

35 U.S.C. § 261 provides in relevant part: "Applications for patent, patents, or any interest therein, shall be assignable in law by an instrument in writing." 35 U.S.C. § 261; see also Gaia Techs., Inc. v. Reconversion Techs., Inc., 93 F.3d 774, 778-80 (Fed. Cir. 1996), as amended on rehearing on different grounds, 104 F.3d 1296 (Fed. Cir. 1996); Procter & Gamble, 917 F. Supp. at 308-09. Further, "[t]he recording of a document . . . is not a determination by the [PTO] of the validity of the document or the effect the document has on the title to an application, a patent, or a registration." 37 C.F.R. § 3.54; see also Gaia Techs., 93 F.3d at 778 n.3 (Fed. Cir. 1996); TM Patents, L.P. v. Int'l Bus. Machs. Corp., 121 F. Supp. 2d 349, 364-65 (S.D.N.Y. 2000). Here, Huntley purports to have an "equitable interest" in the `476 Patent. (Complaint ¶ 10, D.I. 1, Huntley II.) As stated in its Complaint, Huntley filed a Notice of Equitable Claim with the PTO that has a recordation date of December 16, 2002. (Id.) The Notice of Equitable Claim states that Huntley's "ownership interest flows from unpaid fees for legal services rendered pursuant to an agreement between EPL Technologies, Inc., the assignee of the above patent application, and the undersigned effective September 27, 2000, a copy of which is attached hereto." (Ex. A.) But, the agreement referred to in the Notice of Equitable Claim is simply an engagement letter between Huntley and EPL. (See id.) The engagement letter does not state any consequences that would occur if EPL failed to pay its legal fees. Indeed, Huntley can point to no language in the letter that creates any interest in the `476 Patent in the event of failure to pay legal fees. Nor can Huntley rely on the Notice of Equitable Claim or the Recordation Form Cover Sheet ("Cover Sheet") to demonstrate an assignment from EPL,

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since the Notice of Equitable Claim and Cover Sheet show only Donald W. Huntley as the signatory. As such, merely on the face of the Complaint and the documents referenced therein, Huntley has failed to establish that it has any interest in the `476 patent. Since all four of Huntley's causes of action depend on Huntley's claim of an equitable interest, Huntley's Complaint should be dismissed with prejudice. 2. Even if Huntley has an equitable interest, Huntley lacks standing to sue on his patent infringement action since an equitable interest does not confer standing in an action "at law."

Even if Huntley can somehow establish that it has an equitable interest in the `476 Patent, without legal title Huntley has no standing to bring an action "at law." See Arachnid, 939 F.2d at 1579; Procter & Gamble, 917 F. Supp. at 309. When a plaintiff sues for money damages and equitable relief, the action is treated as one "at law." See id. at 309 n.6. In Procter & Gamble, a counterclaimant argued that because it was the "equitable owner" of a patent it had standing to bring an infringement counterclaim on that patent. See id. at 308. This Court dismissed the counterclaim and stated that equitable ownership would not provide standing for a party that has sued for money damages and equitable relief. See id. at 309; see also Dynamic Mfg. Inc. v. Craze, 46 U.S.P.Q.2d 1548, 1553 (E.D. Va. 1998) ("[E]ven if the Court determined that [plaintiff] was an `equitable title holder,' which it is not, still plaintiff would not be entitled to the damages sought in this case, both monetary and equitable relief."). Here, Huntley seeks both money damages and a permanent injunction for its patent infringement action. (Complaint at 4-5, D.I. 1.) As such, the action is one "at law." But, ownership of an equitable interest does not confer standing in an action "at law." Hence, even if

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Huntley can establish that it has an equitable interest in the `476 Patent, which it has not,4 Huntley still lacks standing to bring its patent infringement action. V. CONCLUSION For the foregoing reasons, Monterey Mushrooms respectfully requests that the Court grant its Rule 12(b)(1) Motion to Dismiss With Prejudice.

MORRIS, NICHOLS, ARSHT & TUNNELL LLP

/s/ Thomas C. Grimm
OF COUNSEL: Ricardo Rodriguez Reuben Chen COOLEY GODWARD KRONISH LLP Five Palo Alto Square 3000 El Camino Real Palo Alto, CA 94306-2155 (650) 843-5000 July 28, 2008
2428123

___________________________________ Thomas C. Grimm (#1098) Benjamin J. Schladweiler (#4601) 1201 N. Market Street P.O. Box 1347 Wilmington, DE 19899-1347 (302) 658-9200 [email protected] Attorneys for Defendant Monterey Mushrooms Inc.

4

Further, Huntley has not shown how its alleged equitable interest based on unpaid legal fees would entitle it to have sole ownership interest in the `476 Patent despite Monterey Mushrooms having purchased the patent from EPL for good value. The Federal Circuit has stated that owners of a partial interest in a patent cannot sue without the consent of all owners. See Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456, 1468 (Fed. Cir. 1998) ("[A]s a matter of substantive patent law, all co-owners must ordinarily consent to join as plaintiffs in an infringement suit."). -6-

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CERTIFICATE OF SERVICE I hereby certify that on July 28, 2008, I electronically filed the foregoing document with the Clerk of the Court using CM/ECF which will send notification of such filing to all registered participants. I also certify that on July 28, 2008, true and correct copies of the foregoing were caused to be served upon the following individuals in the manner indicated: BY E-MAIL & HAND-DELIVERY Donald W. Huntley HUNTLEY & ASSOCIATES 1105 North Market Street Wilmington, DE 19899-0948

/s/ Thomas C. Grimm
Thomas C. Grimm (#1098) [email protected]
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EXHIBIT A

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EXHIBIT B

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