Free Declaration - District Court of Delaware - Delaware

Case 1:07-cv-00649-JJF-LPS

Document 12

Filed 11/15/2007

Page 1 of 4

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE CITICORP CREDIT SERVICES, INC., Plaintiff, v. LPL LICENSING, LLC, and PHOENIX LICENSING, L.L.C., Defendants. ) ) ) ) ) ) ) ) )

C.A. No. 07-649-JJF (LPS)

AFFIDAVIT OF SEAN LUNER IN SUPPORT OF CONSOLIDATED MOTIONS TO DISMISS OF DEFENDANTS LPL LICENSING, L.L.C. AND PHOENIX LICENSING, L.L.C.

November 13, 2007

THE BAYARD FIRM Richard D. Kirk (rk0922) 222 Delaware Avenue, Suit 900 Wilmington, Delaware 19899-5130 [email protected] (3020) 655-5000 Attorneys for Defendants, LPL LICENSING, L.L.C. and PHOENIX LICENSING, L.L.C.

OF COUNSEL: Gregory Dovel Sean Luner Dovel & Luner LLP 201 Santa Monica, Suite 600 Santa Monica California 90401 (310) 656-7066

Case 1:07-cv-00649-JJF-LPS

Document 12

Filed 11/15/2007

Page 2 of 4

Case 1:07-cv-00649-JJF-LPS

Document 12

Filed 11/15/2007

Page 3 of 4

Case 1:07-cv-00649-JJF-LPS

Document 12

Filed 11/15/2007

Page 4 of 4

Case 1:07-cv-00649-JJF-LPS

Document 12-2

Filed 11/15/2007

Page 1 of 1

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 11of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 22of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 33of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 44of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 55of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 66of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 77of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 88of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 99of 11 Filed 11/15/2007 Page of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 10 of 11 Filed 11/15/2007 Page 10 of 11

Case 1:07-cv-00649-JJF-LPS Case 2:07-cv-00387-TJW-CE

Document 12-3 Document 1-1

Filed 08/31/2007 Page 11 of 11 Filed 11/15/2007 Page 11 of 11

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 1 1 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 2 2 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 3 3 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 4 4 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 5 5 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 6 6 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 7 7 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 8 8 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 9 9 of 14 Filed 11/15/2007 Page of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 10 of 14 Filed 11/15/2007 Page 10 of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 11 of 14 Filed 11/15/2007 Page 11 of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 12 of 14 Filed 11/15/2007 Page 12 of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 13 of 14 Filed 11/15/2007 Page 13 of 14

Case 1:07-cv-00649-JJF-LPS Document 12-4 Case 2:07-cv-00387-TJW-CE Document 66

Filed 11/09/2007 Page 14 of 14 Filed 11/15/2007 Page 14 of 14

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 1 of 18

1 Mark Deatherage (010208) [email protected] 2 GALLAGHER & KENNEDY, P.A. 3 2575 East Camelback Road Phoenix, Arizona 85016-9225 4 (602) 530-8000 5 (602) 530-8500 fax Attorneys for Defendants 6 7 8 9 10 11
! " # $ % &' ) * # &" # # #

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA State Farm Mutual Automobile Insurance Company, Plaintiff, vs. LPL Licensing, L.L.C.; and Phoenix Licensing, L.L.C., Defendants. Defendants LPL Licensing, LLC ("LPL") and Phoenix Licensing LLC No. CV07-1329 PHX-MHM Motion to Dismiss for Lack of Subject Matter Jurisdiction

12 13 14 15 16

(% #

17 ("Phoenix") hereby move to dismiss this action under Rule 12(b)(1) for lack of subject 18 matter jurisdiction. This motion is based on the following memorandum of points and 19 authorities and the accompanying declarations and exhibits. 20 21 I. 22 Introduction. This is a declaratory judgment action brought against the exclusive Memorandum of Points and Authorities.

23 licensor of three patents (Defendant LPL Licensing, LLC) and the owner of the patents 24 (Defendant Phoenix Licensing, LLC) by plaintiff State Farm Mutual Automobile 25 Insurance Company ("State Farm Mutual"). Defendants now move to dismiss for lack 26 of subject matter jurisdiction on two grounds. 27 First ground: The exercise of declaratory judgment subject matter 28 jurisdiction is discretionary. MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 776

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 2 of 18

1 (2007) (the Declaratory Judgment Act grants a district court "unique and substantial 2 discretion" in deciding whether to exercise subject matter jurisdiction) (quoting Wilton 3 v. Seven Falls Co., 515 U.S. 277, 286 (1995)). In determining whether to exercise 4 jurisdiction, district courts consider how closely the action fits with the core purposes of 5 the declaratory judgment act, as well as matters of practical judicial administration. 6 When a patent holder defers filing suit because an accused infringer 7 asserts that it wants to engage in settlement discussions rather than litigation, and then 8 the infringer files a declaratory judgment action to preempt the patentee's choice of 9 forum, such an action is far from the core purposes of declaratory judgment jurisdiction. 10 EMC Corp. v. Norand Corp., 89 F.3d 807, 814 (Fed. Cir. 1996). In such a case, "it 11 would be inappropriate to reward -- and indeed abet -- conduct which is inconsistent 12 with the sound policy of promoting extrajudicial dispute resolution." EMC, 89 F.3d at 13 814 (internal quotes omitted). That is exactly the situation here. 14 State Farm Mutual expressly represented to LPL, in writing, that it "will 15 continue to be State Farm's intent to discuss this matter and LPL's allegations in good 16 faith." Exh. 8. Then, State Farm Mutual strung LPL along. Tache decl. (exh. 14) ¶¶ 617 23; Exhs. 2-11. In response to LPL's most recent licensing offer, on June 25, 2007, 18 State Farm Mutual's lawyer wrote that "the State Farm decision makers . . . are away 19 from the office on vacation . . . . and I have every expectation that we will get to an 20 answer very quickly when we are all at work." Exh. 11. Two weeks later, without 21 warning, State Farm Mutual filed this declaratory judgment action to preempt LPL's 22 choice of forum. 23 Moreover, now apprised of State Farm Mutual's hostile intentions, LPL 24 and Phoenix filed a patent infringement action on August 31, 2007 against State Farm 25 Mutual in the Eastern District of Texas. Exh. 12. The action has been assigned to the 26 Hon. T. John Ward, and is styled Phoenix Licensing, LLC et al. v. Chase Manhattan 27 Mortgage Corp. et al., No. 2:07-cv-00387-TJW-CE (E.D. Tex.). Id. In that same 28 action, LPL and Phoenix also sued 23 other infringers. Two of the defendants in the 2

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 3 of 18

1 Texas litigation have their principal places of business in Texas, and 19 are based in 2 cities closer to Texas than Arizona (even State Farm Mutual's lawyers are based in 3 Texas). Exh. 12 ¶¶ 6-28. The center of gravity of these patent infringement cases 4 resides with Judge Ward in the Eastern District of Texas. To avoid duplication of effort 5 and the risk of inconsistent verdicts, the Eastern District of Texas should handle all the 6 patent infringement disputes among all the parties. 7 Second ground: In addition, as to one of the three patents in this case, 8 patent No. 6,076,072 (the "`072 patent"), this Court has no jurisdiction because there is 9 no actual controversy. Neither LPL nor Phoenix asserted that State Farm Mutual 10 infringed that patent and, even today, they are not aware of any conduct by State Farm 11 Mutual that infringes that patent. Libman decl. (exh. 13) ¶ 12. Accordingly, there is no 12 actual controversy and no subject matter jurisdiction as to the `072 patent. 13 II. 14 15 State Farm Mutual bears the burden of proving jurisdiction with evidence. Two important principles guide this Court's review of this motion. First, the burden of proving subject matter jurisdiction rests solely on

16 State Farm Mutual. "The burden of establishing jurisdiction in the district court lies 17 with the party seeking to invoke the court' jurisdiction." Cedars-Sinai Medical Ctr. v. s 18 Watkins, 11 F.3d 1573, 1584 (Fed. Cir. 1993). 19 Second, to meet its burden, State Farm Mutual may not rest on the 20 allegations in the complaint. "If the Rule 12(b)(1) motion denies or controverts the 21 pleader' allegations of jurisdiction, however, the movant is deemed to be challenging s 22 the factual basis for the court' subject matter jurisdiction. In such a case, the s 23 allegations in the complaint are not controlling, and only uncontroverted factual 24 allegations are accepted as true for purposes of the motion. All other facts underlying 25 the controverted jurisdictional allegations are in dispute and are subject to factfinding by 26 the district court." Cedars-Sinai, 11 F.3d at 1584 (internal citations omitted); Jervis B. 27 Webb Co. v. Southern Systems, Inc., 742 F.2d 1388, 1399 (Fed. Cir. 1984) ("where, as 28 3

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 4 of 18

1 here, the declaratory defendant (patentee) has denied the factual allegations that 2 allegedly support the existence of case or controversy, the declaratory plaintiff must 3 prove the existence of facts underlying such allegations"); Bridgelux, Inc. v. Cree, Inc., 4 2007 U.S. Dist. LEXIS 14472, *10 (N.D. Cal. 2007). 5 6 III. 7 State Farm Mutual cannot meet that burden here. The Court should decline to exercise discretionary jurisdiction in this case. "The Declaratory Judgment Act states that courts `may' grant relief; it

8 does not require courts to grant relief." Sony Elecs., Inc. v. Guardian Media Techs., 9 Ltd., 2007 U.S. App. LEXIS 18465 (Fed. Cir. Aug. 7, 2007). "This text has long been 10 understood `to confer on federal courts unique and substantial discretion in deciding 11 whether to declare the rights of litigants.'" MedImmune, Inc. v. Genentech, Inc., 127 S. 12 Ct. 764, 776 (2007) (emphasis added) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 13 286 (1995)). 14 "[T]he [Supreme] Court explained that `the statute' textual commitment s 15 to discretion, and the breadth of leeway we have always understood it to suggest, 16 distinguish the declaratory judgment context from other areas of the law.'" EMC Corp. 17 v. Norand Corp., 89 F.3d 807, 813 (Fed. Cir. 1996) (quoting Wilton v. Seven Falls Co., 18 515 U.S. 277, 286 (1995)). However, a district court does not enjoy unlimited 19 discretion regarding jurisdiction in declaratory judgment actions. Wilton, 515 U.S. at 20 289. For example, a court cannot decline declaratory judgment jurisdiction solely as "a 21 matter of whim or personal disinclination." EMC, 89 F.3d at 813 (citation omitted). 22 Nor can a court decline jurisdiction, without any other reasons, "merely because a 23 parallel patent infringement suit was subsequently filed in another district." Id. 24 26 27 28 In determining whether a case is appropriate for declaratory judgment (1) how closely this action fits with the core purposes of the Declaratory Judgment Act, and (2) considerations of practicality and judicial economy. 4 25 jurisdiction, district courts should consider:

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 5 of 18

1 EMC, 89 F.3d at 814. Each of these factors is discussed in turn below. 2 3 4 A. This case is at the periphery, not the core, of declaratory judgment jurisdiction. The Court should consider whether this is one of the "cases closer to the

5 central objectives of declaratory proceedings." EMC Corp. v. Norand Corp., 89 F.3d 6 807, 814 (Fed. Cir. 1996); MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 776 7 (2007) (the declaratory judgment act "vest[s] district courts with discretion" to consider 8 "facts bearing on the usefulness of the declaratory judgment remedy"). 9 In the patent context, at the core of declaratory judgment jurisdiction are 10 cases where "`the patent owner attempts extra-judicial patent enforcement with scare11 the-customer-and-run tactics that infect the competitive environment.'" EMC, 89 F.3d 12 at 814 (quoting Arrowhead Industrial Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 735 13 (Fed. Cir. 1988)). In such a case, "a patent owner engaging in `extra-judicial patent 14 enforcement' tactics rendered its competitors `helpless and immobile so long as the 15 patent owner refused to grasp the nettle and sue.'" Sony Elecs., Inc. v. Guardian Media 16 Techs., Ltd., 2007 U.S. App. LEXIS 18465, *34-*35 (Fed. Cir. Aug. 3, 2007) (quoting 17 Arrowhead, 846 F.2d at 735); see Capo, Inc. v. Dioptics Med. Prods., 387 F.3d 1352, 18 1356 (Fed. Cir. 2004) (declaratory judgment jurisdiction appropriate where patent 19 holder's "threats were not aimed at negotiation, but at impeding a competitor's 20 commercial activity"). 21 At the opposite end of the spectrum are cases where the "declaratory 22 judgment plaintiff `took advantage of the fact that [patentee] had deferred the filing of 23 expensive and probably protracted litigation because of its belief that settlement 24 negotiations were under way.'" EMC Corp. v. Norand Corp., 89 F.3d 807, 814 (Fed. 25 Cir. 1996) (quoting NSI Corp. v. Showco, Inc., 843 F. Supp. 642, 645-46(D. Or. 1994). 26 In such a case, "`it would be inappropriate to reward -- and indeed abet -- conduct 27 which is inconsistent with the sound policy of promoting extrajudicial dispute 28 resolution, and conservation of judicial resources." EMC, 89 F.3d at 814 (quoting 5

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 6 of 18

1 Davox Corp. v. Digital Systems International, Inc., 846 F. Supp. 144, 148 (D. Mass. 2 1993)). In such a case, allowing a declaratory judgment "`action to proceed would be to 3 discourage such good faith effort to negotiate.'" EMC, 89 F.3d at 814 (quoting Bausch 4 & Lomb Inc. v. Alcide Corp., 684 F. Supp. 1155, 1160 (W.D.N.Y. 1987)). As a result, 5 "a court may take into account the pendency of serious negotiations to sell or license a 6 patent in determining to exercise jurisdiction over a declaratory judgment action." 7 EMC, 89 F.3d at 814; see Sage Prods. v. Am. Nonwovens Corp., 2004 U.S. Dist. LEXIS 8 8511 *6 (N.D. Ill. 2004) ("This pursuit of an extrajudicial resolution of the issues 9 should be encouraged. . . . Thus, the court would decline to exercise jurisdiction even if 10 an actual controversy existed.") 11 Moreover, a patentee's good faith participation in settlement negotiations 12 may be a basis for dismissing a declaratory judgment action even where it is "clear that 13 [the patent holder] intended to resort to litigation if it were not satisfied with the results 14 of the parties' negotiations." EMC Corp. v. Norand Corp., 89 F.3d 807, 812-13 (Fed. 15 Cir. 1996). "There is no evidence that [patent holder] in any way delayed or intended to 16 avoid filing suit if an amicable resolution could not be achieved. Exercising jurisdiction 17 over declaratory-relief actions under such circumstances would create a strong 18 disincentive for patentees to communicate with potential infringers before filing suit, for 19 fear of being sued first and thus forced to litigate in the defendant's forum of choice." 20 Fresenius United States v. Transonic Sys., 207 F. Supp. 2d 1009, 1012-13 (N.D. Cal. 21 2001). 22 Where does the present case fall on the spectrum between a patent-holder 23 improperly using a patent to threaten a competitor's customers and a patent holder 24 delaying filing suit against an infringer who says that it is interested in good faith 25 settlement discussions? 26 28 13) ¶¶ 9-11. 6 First, there is no evidence that LPL was using its patents to threaten State 27 Farm Mutual's customers or was engaged in any similar conduct. Libman decl. (exh.

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 7 of 18

1

Second, LPL engaged in settlement discussions, and refrained from suing

2 State Farm Mutual, only after receiving an express representation from State Farm as to 3 its intentions. LPL asked State Farm to "confirm that it is your client's intention to 4 promptly engage in good faith and meaningful discussions regarding a license 5 agreement for at least the `434 and'938 patents." Tache decl. (exh. 14) ¶ 6; Exh. 8. In 6 response, State Farm represented: "It has and will continue to be State Farm's intent to 7 discuss this matter and LPL's allegations in good faith." Id. Right up through (and 8 past) the date it filed suit, State Farm never withdrew that representation, 9 11 12 13 14 15 16 17 18 20 Third, LPL actively engaged in good faith settlement negotiations with · provided detailed information and analysis of infringement, validity, and royalties to State Farm Mutual; · promptly responded to State Farm Mutual's questions; · flew two representatives to Texas to meet personally with representatives of State Farm Mutual; · discussed detailed licensing terms; and · had used the same approach to settle successfully with four other major financial and/or insurance entities. Fourth, the record shows no effort by LPL to delay or prolong the 10 State Farm. In particular, LPL:

19 Libman decl. ¶¶ 2-11; Tache decl. ¶¶ 2-23; Exhs. 1-11. 21 discussions unreasonably. LPL consistently and aggressively pushed the settlement 22 discussions forward with State Farm Mutual. Libman decl. ¶¶ 2-11; Tache decl. ¶¶ 223 23; Exhs. 1-11. By contrast, the records shows that State Farm Mutual delayed and 24 stalled. Id. 25 Fifth, there is no evidence that, if the settlement discussions failed, LPL 26 intended to delay filing suit against State Farm Mutual. State Farm Mutual admits that, 27 on June 19, 2007, LPL stated: 28 7

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 8 of 18

1 2 3

If State Farm' answer is that State Farm is not interested in a license, then s LPL will investigate its options. There is simply too much money on the table for LPL to walk away. . . . I can tell you that LPL is talking to litigation counsel in Texas about its litigation options.

4 Complaint ¶ 13. State Farm Mutual further admitted that, at the time State Farm Mutual 5 filed its lawsuit, "LPL is preparing to file a complaint against State Farm alleging that 6 State Farm infringes." Complaint ¶ 13. Because "[t]here is no evidence that [LPL] in 7 any way delayed or intended to avoid filing suit if an amicable resolution could not be 8 achieved," for the Court to "[e]xercis[e] jurisdiction over declaratory-relief actions 9 under such circumstances would create a strong disincentive for patentees to 10 communicate with potential infringers before filing suit, for fear of being sued first and 11 thus forced to litigate in the defendant's forum of choice." Fresenius United States v. 12 Transonic Sys., 207 F. Supp. 2d 1009, 1012-13 (N.D. Cal. 2001). 13 Sixth, based on State Farm Mutual's admissions that it understood that 14 LPL was preparing to file suit "if State Farm's answer is that State Farm is not 15 interested in a license," Complaint ¶ 13 and that LPL had consulted "litigation counsel 16 in Texas," id., and also on the fact that State Farm Mutual filed this suit without first 17 notifying LPL of its intentions, it is reasonable to conclude that State Farm Mutual filed 18 suit to preempt LPL's choice of forum in Texas. It is proper "to consider that [the 19 declaratory relief plaintiff] intended to preempt [patentee's] infringement suit . . . as one 20 factor in the decision whether to dismiss the declaratory suit in favor of [patentee's] 21 subsequent infringement action." Serco Servs. Co., L.P. v. Kelley Co., 51 F.3d 1037, 22 1039-40 (Fed. Cir. 1995). 23 Seventh, State Farm Mutual made statements that actively concealed its 24 true intentions. Even up through the date State Farm Mutual filed suit, LPL believed it 25 was engaged in good faith negotiations and was anticipating a response from State Farm 26 regarding LPL's most recent proposal. Just a few days before filing suit, State Farm's 27 representative wrote that "the State Farm decision makers . . . are away from the office 28 on vacation . . . and I have every expectation that we will get to an answer very quickly 8

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 9 of 18

1 when we are all at work." Exh. 11. Two weeks later, without warning, State Farm 2 Mutual filed this declaratory judgment action to preempt LPL's choice of forum. A 3 declaratory judgment plaintiff's "procedural fencing and inequitable if not outright s 4 deceptive conduct do present sound reasons, in the court' view, not to retain 5 [jurisdiction]." Lyons Indus. v. American Std., 993 F. Supp. 609, 615 (W.D. Mich. 6 1997). 7 In sum, LPL deferred filing suit based on State Farm Mutual's written 8 representation that it would engage in good faith settlement negotiations, LPL 9 demonstrated its good faith by devoting substantial time and money to that process, 10 State Farm Mutual understood that LPL was prepared to initiate suit in Texas if 11 settlement talks failed, and State Farm Mutual surreptitiously filed a preemptive suit 12 while settlement discussions were still under way. This is not a case at the core of 13 declaratory judgment jurisdiction; it lies at the outermost periphery. This factor weighs 14 strongly in favor of the Court declining to exercise jurisdiction. 15 16 17 B. Considerations of practicality and efficient judicial administration weigh in favor of dismissal. For suits brought under the Declaratory Judgment Act, "the normal

18 principle that federal courts should adjudicate claims within their jurisdiction yields to 19 considerations of practicality and wise judicial administration." Wilton v. Seven Falls 20 Co., 515 U.S. 277, 288 (1995). "Although courts generally favor the forum of the first 21 filed action, `considerations of judicial and litigant economy, and the just and effective 22 disposition of disputes' may require otherwise." Cingular Wireless LLC v. Freedom 23 Wireless, Inc., 2007 U.S. Dist. LEXIS 47957, 13-14 (D. Ariz. 2007 (quoting Genetech, 24 Inc. v. Eli Lilly and Co., 998 F.2d 931, 937 (Fed. Cir. 1993)). The first-filed action is 25 not preferred if "considerations of judicial and litigant economy, and the just and 26 effective disposition of disputes, require otherwise." Serco Servs. Co., L.P. v. Kelley 27 Co., 51 F.3d 1037, 1039 (Fed. Cir. 1995) (internal quotes omitted); see Genetech, Inc. v. 28 Eli Lilly and Co., 998 F.2d 931, 938 (Fed. Cir. 1993) (court should exercise discretion 9

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 10 of 18

1 to dismiss if exercising jurisdiction would be "inefficient"). 2 The comprehensive Texas litigation is central to the analysis of the 3 efficient resolution of the dispute between LPL, Phoenix, and State Farm Mutual. 4 Because the Texas litigation includes claims for patent infringement by LPL and 5 Phoenix against State Farm Mutual on U.S. Patent No. 5,987,434 ("the `434 patent") 6 and U.S. Patent No. 6,999,938 ("the `938 patent"), it includes the exact same claims
1 7 between the exact same parties as in the present case. As to these claims and parties,

8 the existence of two lawsuits will necessarily entail complete duplication of efforts by 9 the courts and the parties and the risk of inconsistent judgments. But here, the 10 inefficient judicial administration created by this declaratory judgment action extends 11 beyond the claims against State Farm Mutual. 12 14 15 16 17 19 20 The Texas litigation also includes three other categories of claims that · claims against State Farm Bank (a related, but different, entity than State Farm Mutual) on the `434 and `938 patents; · claims against 21 other defendants, on the `434 and `938 patents; and · claims against 8 other defendants on the `072 patent. the risk of inconsistent judgments As to the claims against State Farm Mutual on the `434 and `938 patents, 13 give rise to inefficiencies and duplication:

18 The considerations for judicial administration for all of these are described below.

21 there is an obvious risk of judgments that are inconsistent at every level. In addition, 22 there is the additional risk of an inconsistent judgment in the claims against two 23 24 As explained below, although State Farm Mutual asserts a claim for declaratory relief as to the `072 patent as well, this Court has no subject matter 25 jurisdiction over such a claim because there is no actual controversy as to the `072 patent. Likewise, in the Texas Litigation, State Farm Mutual is not accused of 26 infringing the `072 patent. Exh. 12. 27 28 10
1

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 11 of 18

1 affiliated companies -- State Farm Mutual in the Arizona case and State Farm Bank in 2 the Texas litigation. Moreover, there is a risk of inconsistent claim constructions and 3 inconsistent findings of validity or invalidity on the `434 and `938 patents as between 4 the Arizona case and the case against 21 other defendants in the Texas litigation. 5 Finally, there is the risk of inconsistent claim constructions as between the 6 `072 patent and the `434 and `938 patents. The Texas Court will be construing terms 7 for the `072 patent (a patent over which this Court does not have jurisdiction because, as 8 discussed below, there is no actual controversy with State Farm Mutual). Because the 9 three patents are related, circumstances can arise where the same terms used in each 10 patent should be given the same construction. E.g., Elkay Mfg. Co. v. Ebco Mfg. Co, 11 192 F.3d 973, 980 (Fed. Cir. 1999) ("When multiple patents derive from the same initial 12 application, the prosecution history regarding a claim limitation in any patent that has 13 issued applies with equal force to subsequently issued patents that contain the same 14 claim limitation."). This gives rise to the risk of inconsistent constructions as between 15 this Court's construction of terms for the `434 and `938 patents, and the Texas Court's 16 construction of the `072 patent. 17 This factor weighs in favor of discretionary dismissal. Cingular Wireless 18 LLC v. Freedom Wireless, Inc., 2007 U.S. Dist. LEXIS 47957 *16 (D. Ariz. 2007) 19 ("The opportunity for inconsistent judgments between the . . . pending cases weighs on 20 this Court, the risk of which favors discretionary dismissal.") 21 22 duplication of judicial resources In construing claim terms, a court will have to learn the nuances of the

23 patent specifications and the lengthy prosecution history. This will require a complete 24 duplication of effort as between this Court and the Texas Court. This is true for (i) the 25 duplicate claims in Texas involving State Farm Mutual, (ii) the claims in Texas against 26 State Farm Bank, (iii) the claims in Texas against the other Defendants on the `434 and 27 `938 patents, and (iv) the claims in Texas against the other Defendants on the `072 28 patents. 11

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 12 of 18

1

Similarly, when considering issues of invalidity based on prior art, both

2 Courts will have to duplicate efforts to understand the prior art, to identify the 3 differences between the invention and the prior art, and to evaluate the objective 4 indicators of non-obviousness. "The certainty of wasted resources weighs strongly in 5 favor of dismissal. See Lonza Inc. v. Rohm and Haas, Inc., 951 F. Supp. 46, 50 6 (S.D.N.Y. 1997) (`[T]here is simply no reason why the patent issues in dispute should 7 be litigated in two different fora.')." Cingular Wireless LLC v. Freedom Wireless, Inc., 8 2007 U.S. Dist. LEXIS 47957 *16 (D. Ariz. 2007). 9 10 duplicate discovery and trial efforts In both the present case and the Texas case, there will be substantial

11 duplication of discovery. In particular, it is likely that duplicate depositions would be 12 taken of witnesses such as the inventor, the attorneys who prosecuted the patents, and 13 key prior art witnesses. Similarly, there would be duplication of testimony and exhibits 14 at trial. That would be true, again, as to all four categories of claims in Texas. 15 "Therefore, the other actions in Texas will require the presence of the 16 parties, counsel, witnesses and inventors regardless of this dispute's location, which 17 weighs in favor of discretionary dismissal." Cingular Wireless, 2007 U.S. Dist. LEXIS 18 47957. 19 20 ability of the other forum to handle this case Another factor is whether the other forum, in this instance the Eastern

21 District of Texas, has the ability to administer the disputes. The litigation in Texas 22 involves 23 defendants and three patents. Moreover, each of the patents contains 23 multiple claims. The `434 patent has 56 separate claims. The `072 patent has 134 24 separate claims. The `938 patent has 312 separate claims. And, a successful 25 reexamination of the `434 patent has just been completed by the Patent and Trademark 26 Office in which 104 additional claims were added for a total of 160 claims in that 27 patent. 28 12

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 13 of 18

1

Relevant here is "the Eastern District of Texas' adoption of special rules

2 for patent infringement actions, which streamline discovery, claim construction and 3 other pre-trial matters. While any United States District Court, including this one, can 4 afford all parties the timeliness, fairness, justice and competence required to resolve 5 their patent disputes, the Court is persuaded that the Eastern District of Texas' special 6 rules will most efficiently promote sound judicial administration." Cingular Wireless 7 LLC v. Freedom Wireless, Inc., 2007 U.S. Dist. LEXIS 47957, n.3 (D. Ariz. 2007). 8 9 convenience for parties Another factor is the convenience of the forum for the parties. Arizona is

10 a convenient forum for the patent holder. Texas is the most convenient forum for 11 several of the defendants in the Texas litigation. For example, USAA Federal Savings 12 Bank has its offices in San Antonio, and Citi Assurance Services, Inc. has its offices in 13 Fort Worth. Exh. 12 at ¶¶ 13, 28. State Farm Mutual and State Farm Bank use counsel 14 based in Texas. Tache decl. (exh. 14) ¶ 14; Exh. 2. Many of the defendants have their 15 principal business operations on the East Coast, for example in New York (e.g. J.P. 16 Morgan Chase), or South Carolina (e.g. Liberty Life). Exh. 12 at ¶¶ 6-28. Overall 17 Texas is centrally located and provides as convenient a forum as any for these claims. 18 This factor slightly favors Texas. See also Cingular Wireless LLC v. Freedom Wireless, 19 Inc., 2007 U.S. Dist. LEXIS 47957 *17 (D. Ariz. 2007) (considering that although the 20 patent holder "maintains its principal place of business in Phoenix, Arizona" at least one 21 accused infringer had "its principal place of business in Plano, Texas."). 22 24 IV. 25 26 27 In sum, every significant factor for practical and efficient judicial There is no "actual controversy" as to the `072 patent. A. An "actual controversy" requires a dispute that is concrete and based upon an assertion of actual infringement. The Declaratory Judgment Act provides, in relevant part, that "[i]n a case 23 administration weighs in favor of declining to exercise jurisdiction in this case.

28 of actual controversy within its jurisdiction . . . any court of the United States, upon the 13

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 14 of 18

1 filing of an appropriate pleading, may declare the rights and other legal relations of any 2 interested party seeking such declaration." 28 U.S.C. § 2201(a) (emphasis added). 3 The "actual controversy" requirement of the Declaratory Judgment Act is 4 satisfied only if "there is a substantial controversy, between parties having adverse legal 5 interests, of sufficient immediacy and reality." SanDisk Corp. v. STMicroelectronics, 6 Inc., 480 F.3d 1372, 1378 (Fed. Cir. 2007) (emphasis added) (quoting MedImmune, Inc. 7 v. Genentech, Inc., 127 S. Ct. 764, 771 (2007) (internal quote omitted)). In its recent 8 MedImmune case, "[t]he Supreme Court emphasized that Article III requires that the 9 dispute at issue be `definite and concrete, touching the legal relations of parties having 10 adverse legal interests'; and that it be `real and substantial' and `admi[t] of specific 11 relief through a decree of a conclusive character, as distinguished from an opinion 12 advising what the law would be upon a hypothetical state of facts.'" SanDisk Corp., 13 480 F.3d at 1378 (emphasis added) (quoting MedImmune, 127 S. Ct. at 771 (internal 14 quotes omitted)). 15 16 What does that mean in the context of a patent? "[D]eclaratory judgment jurisdiction generally will not arise merely on the

17 basis that a party learns of the existence of a patent owned by another or even perceives 18 such a patent to pose a risk of infringement, without some affirmative act by the 19 patentee." SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1380-81 (Fed. 20 Cir. 2007). By contrast, jurisdiction exists "where a patentee asserts rights under a 21 patent based on certain identified ongoing or planned activity of another party." Id., 22 480 F.3d at 1381 (emphasis added). A case or controversy exists where the patent 23 holder "has explicitly identified the patents it believes that [the accused infringer] 24 infringes, the relevant claims of those patents, and the relevant . . . products that it 25 alleges infringe those patents." Sony Elecs., Inc. v. Guardian Media Techs., Ltd., 2007 26 U.S. App. LEXIS 18465, 37-38 (Fed. Cir. 2007) (emphasis added). 27 28 14

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 15 of 18

1 2 3

B.

There is no actual controversy with State Farm Mutual over the `072 patent. For the `434 patent and the `938 patent, LPL provided claim charts

4 showing how specific State Farm Mutual marketing campaigns infringed the patents. 5 This created a case or controversy between LPL and State Farm Mutual as to those two 6 patents. By contrast, LPL did not accuse State Farm Mutual of infringing the `072 7 patent, and never identified an example of a marketing campaign or any other conduct 8 that infringed the `072 patent. The subject of potential infringement of the `072 patent 9 came up only once during the two-years of discussions between LPL and State Farm -10 at the very beginning. On June 24, 2005, LPL sent a letter to State Farm Bank accusing 11 it of infringing the `434 patent in its credit card marketing. Exh. 1 at 2. LPL attached 12 two examples of infringement of the `434 patent. Exh. 1 at attachments 1 and 2. In that 13 same letter, LPL said, "We suspect State Farm Bank and its affiliate companies in the 14 State Farm Group may also be infringing claims of the `072 Patent." Id. at 2 (emphasis 15 added). 16 This suspicion created no actual controversy. On its face, this statement 17 does not identify a dispute "of sufficient immediacy and reality" or that is "definite and 18 concrete." SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1378 (Fed. Cir. 19 2007) (quoting MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764, 771 (2007) 20 (internal quote omitted)). LPL had not "explicitly identified . . . the relevant . . . 21 products that it alleges infringe." Sony Elecs., Inc. v. Guardian Media Techs., Ltd., 22 2007 U.S. App. LEXIS 18465, 37-38 (Fed. Cir. 2007). 23 Moreover, when considered in context, the totality of the circumstances 24 makes clear that there was no case or controversy as to the `072 patent on the day that 25 State Farm Mutual filed suit. For two years after June 24, 2005, LPL and 26 representatives of State Farm exchanged dozens of communications concerning the 27 infringement of LPL patents, and never once mentioned the `072 patent. Tache decl. 28 (exh. 14); Exhs. 2-11. For example, on July 7, 2006, LPL sent to State Farm's lawyer 15

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 16 of 18

1 information about specific claims of the `938 patent. Exh. 7. On September 27, 2006, 2 LPL provided State Farm's lawyer, with "detailed information regarding infringement 3 of the `938 patent and the `434 patent." Tache decl (exh. 14) at ¶ 5. On October 23, 4 2006, LPL asked State Farm to confirm that they were engaged in "meaningful 5 discussions regarding a license agreement for at least the `434 and '938 patent." Exh. 8. 6 On April 24, 2007, LPL attended an in person meeting with representatives of State 7 Farm in Austin, Texas. Tache decl (exh. 14) ¶¶ 14-17. At that meeting, LPL presented 8 detailed claim charts regarding infringement of the `434 and `938 patent. Id. 9 Although there were dozens of communication on the subject of 10 infringement, LPL never accused State Farm Mutual of infringing the `072 patent. 11 Moreover, State Farm represented that it did not yet do any on-statement marketing 12 (marketing on a billing statement or other communication of the sort covered by the 13 `072 patent) and did not plan to do so for the foreseeable future. Tache decl. (exh. 14) 14 ¶¶ 11. 15 In addition, not only was there no actual controversy as to the `072 patent 16 on the date State Farm Mutual filed suit, even as of today no case or controversy exists. 17 "[A]n actual controversy must be extant at all stages of review, not merely at the time 18 the complaint is filed." Spectronics Corp. v. H.B. Fuller Co., 940 F.2d 631, 635 (Fed. 19 Cir. 1991) (quoting Preiser v. Newkirk, 422 U.S. 395, 401 (1975)). The burden is on 20 State Farm Mutual "to establish that jurisdiction over its declaratory judgment action 21 existed at, and has continued since, the time the complaint was filed." Id. Even as of 22 today, LPL is not aware of any conduct of State Farm Mutual that infringes the `072 23 patent. Libman decl. (exh. 13) ¶ 12. 24 As to the `072 patent, State Farm Mutual asks the Court to "advis[e] what 25 the law would be upon a hypothetical state of facts." SanDisk Corp., 480 F.3d at 1378 26 (internal quotes omitted). There is no case regarding the `072 that is "definite and 27 concrete" or "real and substantial." SanDisk Corp., 480 F.3d at 1378. 28 16

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 17 of 18

1 2 3

C.

That there is jurisdiction over two patents does not give the Court jurisdiction over the third. The existence of subject matter jurisdiction over the `434 patent and the

4 `938 patent does not give rise to jurisdiction to declare a judgment as to the `072 patent. 5 "By statutory and common law, each patent establishes an independent and distinct 6 property right. Each patent asserted raises an independent and distinct cause of action." 7 Kearns v. GMC, 94 F.3d 1553, 1555 (Fed. Cir. 1996) (internal citations omitted). If an 8 actual controversy exists over one patent this would not support declaratory judgment 9 jurisdiction over a related patent (or even over unasserted claims of the same patent). 10 See Spectronics Corp. v. H.B. Fuller Co., 940 F.2d 631, 635-36 (Fed. Cir. 1991) ("no 11 actual controversy existed to support declaratory judgment with respect to certain patent 12 claims, where patent holder abandoned allegation of infringement of those claims prior 13 to trial and there was no threat of future suit"). 14 16 patent. 17 V. 18 20 21 22 23 24 25 26 27 28 17 Conclusion. For the foregoing reasons, the Court should dismiss the action for lack of Because there is no actual controversy between State Farm Mutual and 15 LPL or Phoenix as to the `072 patent, there is no subject matter jurisdiction as to that

19 subject matter jurisdiction. Dated: September 4, 2007 Respectfully submitted, GALLAGHER & KENNEDY, P.A. By: s/Mark Deatherage Mark Deatherage 2575 East Camelback Road Phoenix, Arizona 85016-9225 Attorneys for Defendants

Case 1:07-cv-00649-JJF-LPS

Document 12-5

Filed 11/15/2007

Page 18 of 18

1

Copy of the foregoing electronically filed 2 with the Clerk of District Court th 3 this 4 day of September, 2007, and electronically copied to: 4 5 R. William Beard, Jr., Esq. Baker Botts LLP 6 98 San Jacinto Blvd. 7 Ste 1500 Austin, TX 78701-4078 8 and Ray Kendall Harris, Esq. 9 Fennemore Craig PC 10 3003 N. Central Ave., Ste 2600 11 Phoenix, AZ 85012-2913 Attorneys for Plaintiff 12 13 15 Copy of the foregoing mailed 14 this 4th day of September, 2007 to: Gregory S. Dovel, Esq. 16 Sean A. Luner, Esq. Dovel & Luner, LLP 17 201 Santa Monica Blvd., Suite 600 18 Santa Monica, CA 90401 Co-Counsels for Defendants 19 20 s/Susan Bailey 21 22 23 24 25 26 27 28 18
99-8228/1630619

Case 1:07-cv-00649-JJF-LPS

Document 12-6

Filed 11/15/2007

Page 1 of 5

Case 1:07-cv-00649-JJF-LPS

Document 12-6

Filed 11/15/2007

Page 2 of 5

Case 1:07-cv-00649-JJF-LPS

Document 12-6

Filed 11/15/2007

Page 3 of 5

Case 1:07-cv-00649-JJF-LPS

Document 12-6

Filed 11/15/2007

Page 4 of 5

Case 1:07-cv-00649-JJF-LPS

Document 12-6

Filed 11/15/2007

Page 5 of 5

Case 1:07-cv-00649-JJF-LPS

Document 12-7

Filed 11/15/2007

Page 1 of 1

Case 1:07-cv-00649-JJF-LPS

Document 12-8

Filed 11/15/2007

Page 1 of 2

Case 1:07-cv-00649-JJF-LPS

Document 12-8

Filed 11/15/2007

Page 2 of 2

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 1 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 2 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 3 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 4 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 5 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 6 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 7 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 8 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 9 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 10 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 11 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 12 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 13 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 14 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 15 of 16

Case 1:07-cv-00649-JJF-LPS

Document 12-9

Filed 11/15/2007

Page 16 of 16