Summary
declining to dismiss second-filed action in favor of transfer to first-filed court
Summary of this case from NanoLogix, Inc. v. NovakOpinion
Case No. 1:08-cv-662.
January 9, 2009
Plaintiff SPEC International, Inc. ("SPEC") is a Michigan corporation and defendant Patent Rights Protection Group, Inc. ("PRPG") is a Nevada corporation. See Amended Complaint filed July 16, 2008 ("Am Comp") ¶¶ 2-3. SPEC designs, manufactures and markets custom cabinets for gaming and slot machines, and finished assemblies thereof, using customers' components, and PRPG is the assignee and holder of the two patents in suit, U.S. Patent No. 7,475,087 ("the 087 patent") and U.S. Patent Number 6,860,814 ("the 814 patent"). See Am Comp ¶¶ 5-6 and Exhibits ("Exs") A B. In June 2005, PRPG advised SPEC that it held the patents in suit, and advised SPEC to purchase a license to the patents, but SPEC responded that the patents are invalid. See Am Comp ¶¶ 7-8 and Ex D (SPEC Sept. 27, 2005 letter to PRPG).
The court has undisputed federal-question jurisdiction because the plaintiff seeks an adjudication of rights relative to patents under federal law (count one) and federal unfair-competition law (count two). Accordingly, the court does not need diversity jurisdiction.
During a series of telephone conversations between SPEC and PRPG between July and October 2005, SPEC representative Terpstra claimed that SPEC had sold door assemblies for products which PRPG accused of infringing the patents in suit, more than a year prior to the priority filing date of the patents. Terpstra proffered evidence in the form of drawings, invoices and written descriptions. See Am Comp ¶ 10. PRPG took no action in response until 2008, during which time SPEC continued to expand its business, allegedly considering the matter closed in reliance on what it describes as "PRPG's inaction." See Am Comp ¶ 11.
On May 21, 2008, PRPG filed three separate suits in the U.S. District Court for the District of Nevada ("the Nevada court") against three SPEC customers, alleging that SPEC cabinets used by the customers infringed the patents in suit, Am Comp ¶ 12, and PRPG amended the complaints to add SPEC as a defendant when it learned more about SPEC's involvement in the allegedly infringing activities of the gaming companies, MTD at 3-4 and Ex A — Declaration of PRPG Member Joseph W. Cole dated Nov. 11, 2008 ("Cole Dec") ¶¶ 14-15. See PRPG v. SPEC Cadillac Jack, Inc., No. 2:2008-cv-660 (D. Nev.) and PRPG v. SPEC Video Game Technologies, Inc., No. 2:2008-cv-662 (D. Nev.) and PRPG v. SPEC Nova Gaming, LLC., No. 2:2008-cv-663 (D. Nev.). SPEC provided these three customers with documents which it contended demonstrated "clearly and convincing[ly]" that both the patents in suit are invalid. SPEC customer Nova Gaming, Inc. ("Nova") provided these documents to PRPG. See Am Comp ¶ 13.
On June 28, 2008, Nova sent evidence to PRPG which SPEC contends "clearly and convincingly" shows that the patents in suit were rendered obvious or anticipated by SPEC's prior sale of a door assembly of the accused cabinets to a fourth customer, Video Gaming Technologies, Inc. ("VGT"). This evidence included (1) contemporaneous documents showing that SPEC's representative met with a representative of VGT in October 1998 and developed a gaming-machine cabinet that contained a flat-screen monitor built into the open-able door of the machine, which is the feature PRPG considers to be the principal area of innovation of the patents in suit; (2) technical drawings, dated February 4, 1999, depicting the display in the door of a gaming machine; and (3) an invoice evincing SPEC's February 25, 1999 sale of a gaming machine with an LCD display incorporated into the door. See Am Comp ¶¶ 14-17. SPEC notes that each of these dates "predate[s] the critical date for the patents in suit", which was March 3, 1999, "and the foregoing translation anticipate[s] or render[s] the patent[s] in suit obvious under the `for sale' bar." See Am Comp ¶¶ 18-19.
On July 9, 2008, PRPG responded to SPEC customer NOVA, stating its intention to "re-evaluate its position relative to SPEC and take the action PRPG deems appropriate" as a consequence of SPEC having "directly involved itself in this issue." See Am Comp ¶ 20 and Ex F.
On July 11, 2008, SPEC filed the original complaint in this action. On July 16, 2008, SPEC filed the first amended complaint. In count one, SPEC seeks a declaration of invalidity and non-infringement under the patent laws, title 35 of the U.S. Code. See Am Comp ¶¶ 22-26. In count two, SPEC claims that PRPG committed unfair competition in violation of the Lanham Act, 16 U.S.C. § 1125(a), specifically by making false or misleading representations of fact and by instituting three actions in the District of Nevada that it knew to be objectively baseless. See Am Comp ¶¶ 27-33. In count three, SPEC claims that PRPG committed unfair competition in violation of Michigan common law by communicating statements to third parties which it knew were materially false, with actual malice and the intent to injure SPEC and disparage its products. See Am Comp ¶¶ 34-35. In count four, SPEC claims that PRPG has tortiously interfered with SPEC's business relationship with at least three of its customers, telling the customers that SPEC's product infringed the patents in suit when it knew that they did not. See Am Comp ¶¶ 36-38.
The United States Supreme Court has issued only one decision using the words "first to file rule" or "first filed rule", whether hyphenated or unhyphenated. It did not address the issue. See Univ. of Penn. v. EEOC, 493 U.S. 182, 187 n. 1 (1990) ("Since the applicability of the first-filed rule to the facts of this case is not a question on which we granted certiorari, we do not address it.").
PRPG moves to dismiss this action without prejudice on three independent grounds: lack of personal jurisdiction, see MTD at 5-9 and P's Opp at 6-111; improper venue, see MTD at 9-10 and P's Opp at 11-12; and application of the first-filed rule, which counsels deference to earlier-filed actions pending in another federal district, see MTD at 11-14 and P's Opp at. Alternatively, PRPG moves to transfer this case to the U.S. District Court for the District of Nevada, as the more convenient forum, under 28 U.S.C. § 1404. See MTD at 14-17. As a fall-back position, PRPG would ask the court to stay this action pending the conclusion of the pending actions between these parties in the District of Nevada. See MTD at 17-19.
For the reasons that follow, the court is inclined to transfer this action to the Nevada court pursuant to the first-filed rule.
DISCUSSION
The first-to-file rule is "`a well-established doctrine that encourages comity among federal courts of equal rank.'" Certified Restoration Dry Cleaning Network, LLC v. Tenke Corp., 511 F.3d 535, 551 (6th Cir. 2007) (citing AmSouth Bank v. Dale, 386 F.3d 763, 791 n. 8 (6th Cir. 2004) (citation omitted)). Perhaps the earliest recorded American statement of the first-to-file rule was Smith v. McIver, 22 U.S. (9 Wheat.) 532 (1824), where the United States Supreme Court held that "in all cases of concurrent jurisdiction, the Court which first had possession of the subject must decide it." Id. at 535. Much more recently, the Supreme Court explained, "As between federal district courts, . . . though no precise rule has evolved, the general principle is to avoid duplicative litigation" Colorado River Water Conservation Dist. v. US, 424 U.S. 800, 817 (1976).
The modern rule provides that when actions involving nearly identical parties and issues have been filed in two district courts, the court in which the first suit was filed should generally proceed to judgment. Certified Restoration, 511 F.3d at 551 (quoting Zide Sport Shop of Ohio v. Ed Tobergte Assocs., Inc., 16 F. App'x 433, 437 (6th Cir. 2001)); see also Barber-Greene Co. v. Glaw-Knox Co., 239 F.2d 774, 778 (6th Cir. 1957) ("`When two suits have substantially the same purpose and the jurisdiction of the courts is concurrent, that one whose jurisdiction and process are first invoked by the filing of the bill is treated . . . as authorized to proceed with the cause.'") (quoting Penn Gen. Cas. Co. v. Commonwealth of Pa., 294 U.S. 189, 196 (1935)).
There are at least two exceptions to the first-filed rule recognized by courts in our circuit, but neither applies here.
First, there is a general exception to the first-filed rule when the first-filed action is a declaratory-judgment action and the later-filed suit is the related "substantive" action, see Certified Restoration, 511 F.3d at 551-52 (citations omitted). Second, "the customer-suit exception gives later-filed manufacturer declaratory suits priority over earlier-filed infringement suits against the manufacturer's customers." Delphi Corp. v. Auto. Techs. Int'l, Inc., 2008 WL 2941116, *4 (E.D. Mich. July 25, 2008) (citing Katz v. Lear Siegler, Inc., 909 F.2d 1459, 1463 (Fed. Cir. 1990)). "`At the root of the preference for a manufacturer's declaratory judgment action is the recognition that, in reality, the manufacturer is the true defendant in the customer suit.'" Delphi, 2008 WL 2941116 at *4 (quoting Codex Corp. v. Milgo Elec. Corp., 553 F.2d 735, 737-38 (1st Cir. 1977)).
As Judge Quist has explained,
The rule promotes the conservation of resources and the comprehensive disposition of litigation by avoiding duplication of time and effort, interference in another court's affairs, conflicting results, and piecemeal resolution of issues that call for a uniform result. See Sutter Corp. v. P P Indus., Inc., 125 F.3d 914, 917 (5th Cir. 1997).Versus Technology, Inc. v. Hillenbrand Indus., Inc., 2004 WL 3457629, *5 (W.D. Mich. Nov. 23, 2004). Specifically, in a patent contest, "by bringing both patent claims before one court, the possibility of inconsistent judgments should be substantially minimized, if not removed." Id. (citation omitted); see also Adams Respiratory Therapeutics, Inc. v. Perrigo Co., 2007 WL 4284877, *2 (W.D. Mich. Dec. 3, 2007) (Quist, J.) ("going forward with both actions simultaneously would waste judicial resources and present the possibility of conflicting rulings or judgments") (citing PDL Biopharma, Inc. v. Sun Pharm. Indus., Ltd., 2007 WL 2261386, *2 (E.D. Mich. Aug. 6, 2007)).
The parties and claims in the two actions need not be identical; "there need be only substantial overlap for the actions to be duplicative and thus to implicate the first-to-file rule." Allen v. Rohm Haas Co. Ret. Plan, 2006 WL 1980174, *1 (W.D. Ky. July 10, 2006) (Charles Simpson, J.) (citing Fuller v. Abercrombie Fitch Stores, Inc., 370 F. Supp.2d 686, 688 (E.D. Tenn. 2005) (Richard Allan Edgar, C.J.)). See also Thomas Betts Corp. v. Hayes, 222 F. Supp.2d 994, 996 (W.D. Tenn. 2002) (Donald, J.) and Plating Resources, Inc. v. UTI Corp., 47 F. Supp.2d 899, 903 (N.D. Ohio 1999) (Gwin, J.).
The first-to-file rule today is "not hard and fast", for it is a discretionary equitable doctrine. See American Modern Home Ins. v. Insured Accounts Co., 704 F. Supp. 128, 129 (S.D. Ohio 1988). The rule should be applied, however, unless there are "`sound reasons that would make it unjust or inefficient to continue the first-filed action.'" Veteran Med. Prods., Inc. v. Bionix Dev. Corp., 2006 WL 2644985, *3 (W.D. Mich. Sept. 14, 2006) (Quist, J.) (quoting Genentech, Inc. v. Eli Lilly Co., 998 F.2d 931, 938 (Fed. Cir. 1993)). Such reasons may be the convenience and availability of witnesses, or the absence of jurisdiction in the first-filed forum over all necessary or desirable parties. Id. But only "rare or extraordinary circumstances, inequitable conduct or forum shopping" should prevent application of the rule. Wynne v. Commemorative Air Force, 2006 WL 2486562, *2 (S.D. Ohio Aug. 28, 2006) (Thomas Rose, J.) (citing American Modern Home Ins. v. Insured Accounts Co., 704 F. Supp. 128, 129 (S.D. Ohio 1988) (Herman Weber, J.)).
Cf. Smith v. SEC, 129 F.3d 356, 361 (6th Cir. 1997), where our Circuit sitting en banc stated: "When a federal court is presented with such a duplicative suit, it may exercise its discretion to stay the suit before it, to allow both suits to proceed, or, in some circumstances, to enjoin the parties from proceeding in the other suit." Id. at 361 (citing Kerotest Mfg. Co. v. C-O-Two Fire Equip. Co., 342 U.S. 180, 183-84 (1952)). "In weighing these three options, courts often proceed . . . under the rule of thumb that the entire action should be decided by the court in which an action was first filed." Smith, 129 F.3d at 561 (citation to Fifth Circuit decision omitted).
"`[A]s a principle of sound judicial administration, the first suit should have priority', absent special circumstances," Kahn v. GMC, 889 F.2d 1078, 1081 (Fed. Cir. 1989), and SPEC has not carried its burden of showing circumstances so special or extraordinary as to justify departure from the first-filed rule here. See Portfolio Techs., Inc. v. Intellx, Inc., 2005 WL 1189604, *4 (W.D. Mich. May 19, 2005) (Miles, J.) ("Generally, the plaintiff in the second-filed suit `bears the burden of showing any special circumstances which justify a divergence from the first-to-file rule.'") (quoting Central States, S.E. S.W. Areas Pension Fund v. Paramount Liquor Co., 34 F. Supp.2d 1092, 1094 (N.D. Ill. 1999)). The plaintiff in all three earlier-filed Nevada actions is PRPG, named as the defendant here. All three of the earlier-filed Nevada actions, as amended, sue SPEC, which is the plaintiff here. And all three of the earlier-filed Nevada actions revolve around the validity of the same two patents that are at issue here, PRPG's `087 and `814 patents.
The fact that SPEC's customers are parties in the earlier-filed actions is of little or no consequence. As Judge Quist reasoned in a similar situation, "while the distributors are present only in the MDNC action, they are only peripheral to the main dispute between [patentholder] and [manufacturer of allegedly infringing device] because their involvement is limited to purchasing and/or reselling the accused device rather than manufacturing it." Versus Technology, Inc. v. Hillenbrand Indus., Inc., 2004 WL 3457629, *8 (W.D. Mich. Nov. 23, 2004).
SPEC filed the instant action in July 2008, about two months after PRPG filed the Nevada actions against SPEC's customers. PRPG sued SPEC's customers precisely and only because of their actions in purchasing and/or using the alleged infringing products, and from their inception the Nevada actions.
In an effort to avoid these facts, SPEC places extraordinary and unwarranted emphasis on the fact that the three Nevada actions — filed in May 2008 — did not initially name SPEC as a defendant. SPEC asserts that because PRPG did not amend its Nevada complaints to include SPEC itself until October 2008, the Nevada actions effectively were not filed before the instant action (July 2008). SPEC extensively argues that under case law interpreting Fed.R.Civ.P. 15(c)(1)(C), the amended Nevada complaints cannot "relate back" to the date of the filing of the original Nevada complaints. See SPEC's Opp at 12-14 (citing Mallinckrodt Med., Inc. v. Nycomed Imaging AS, 49 U.S.P.Q.2d 1474, 1477-78 (E.D. Mo. 1998)).
Even assuming arguendo that the amended Nevada complaints cannot relate back to the date the original Nevada complaints were filed, that is of no avail to SPEC. It was perfectly clear from the original complaints that PRPG's Nevada actions raised the same central issues that SPEC belatedly seeks to raise again in the instant action: the validity and infringement of these same two patents-in-suit. That makes the Nevada actions the first-filed actions vis-a-vis the instant action.
The court recognizes the possibility that PRPG — the defendant here — may have had the first-to-file rule in mind when it initiated the Nevada actions. But as Judge Richard Enslen recently stated,
Although the first-to-file rule may have been in defense counsel's contemplation when the first suit was filed, this is not a sufficient equitable basis for departing from the rule when either party has a valid basis for filing suit. [While] the rule has the natural tendency to encourage a race to the courthouse, . . . merely participating in such a race is not a sufficient reason to depart from the rule.X-Rite, Inc. v. Volk, 2008 WL 1913926, *2 (W.D. Mich. Apr. 28, 2008).
Finally, as this court was drafting this opinion, the U.S. District Court for the District of Nevada issued an order in PRPG v. SPEC Int'l, Inc. NOVA Gaming, LLC, No. 2:08-cv-663-PMP-LRL, 2008 WL ___ ___, * — (D. Nev. Dec. 30, 2008) (Hon. Philip M. Pro, U.S.D.J.), one of the three earlier-filed actions. The Nevada court dismissed PRPG's amended complaint without prejudice. First, the Nevada court stated, with no specific discussion of jurisdictional facts in the record, that SPEC and Nova did not have sufficient contacts with Nevada to permit the exercise of general or specific jurisdiction. Id., slip op. at 2-3. Second, the Nevada court held that venue there was not proper under 28 U.S.C. § 1400(b), which provides that "[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." Id., slip op. at 3 (citing FED. R. CIV. P. 12(b)(3)). Third, the Nevada court asserted that the instant action (filed July 2008) is the "first-filed" action because although PRPG filed the Nevada actions regarding the same two patents in May 2008, PRPG did not formally name SPEC as a defendant in Nevada until October 2008. Id., slip op. at 3.
With due respect to the Nevada court, for the reasons stated above, PRPG's original Nevada complaints directly and clearly implicated the same issues that SPEC tries to raise again here (validity and infringement of the patents-in-suit). The amendment of the Nevada complaints to add SPEC as a defendant was not needed to render these actions very closely related — easily sufficiently related to trigger the first-filed rule, with the Nevada actions being the first filed. The first-filed rule calls for this court to decline to entertain this action.
This court could have dismissed this action without prejudice, as courts have sometimes done pursuant to the first-filed rule. See, e.g., Nartron Corp. v. Quantum Research Group, Ltd., 473 F. Supp.2d 790 (E.D. Mich. 2007) (David Lawson, J.) (invoking first-filed rule to dismiss action that sought declaratory judgment regarding patent infringement). The more common practice in this district, though, is transferring the later-filed action to the district in which the related actions are pending, see, e.g., EBW, Inc. v. Environ Prods., Inc., 1996 WL 550020 (W.D. Mich. July 8, 1996) (Miles, J.) (transferring declaratory-judgment patent action to district in which earlier-filed related action was pending), and the court will do so. The District of Nevada still has two actions pending that raise the identical patent issues which SPEC seeks to raise again here, and it is well equipped to handle this action as well.
The two actions still pending in the District of Nevada involve other alleged customers of PRPG. Each defendant is entitled to a separate jurisdictional analysis, and the Nevada court may well have personal jurisdiction and proper venue as to those defendants.
This disposition obviates the need to address the defendant's motion to dismiss for lack of personal jurisdiction. Cf. MCS Music America, Inc. v. Napster, Inc., 2007 WL 726835, *2 n. 5 (M.D. Tenn. Mar. 6, 2007) (after ordering transfer of case to California district court pursuant to the first-filed rule, court stated, "Personal jurisdiction issues and/or issues about preemption are for the California court to determine."); Versus Technology, Inc. v. Hillenbrand Indus., Inc., 2004 WL 3457629, *9 (W.D. Mich. Nov. 23, 2004) (Quist, J.) ("In light of the transfer, the Court will leave the decision on the Hillenbrand Defendants' motions to dismiss and Visonic's motion to dismiss for lack of personal jurisdiction to the MDNC."). There is also no need to address the defendant's alternative motion for transfer of venue. See City of Columbus v. Hotels.com, LP, 2007 WL 2029036, *5 (S.D. Ohio July 10, 2007) ("Magistrate Judge Abel's application of the first-to-file rule was neither clearly erroneous nor contrary to law. * * * [T]ransfer to the Northern District of Ohio is proper. There is no need to address Plaintiffs' [views on] . . . transfer . . . pursuant to 28 U.S.C. § 1404(a).").
ORDER
The defendant's motion to dismiss, transfer or stay the complaint pursuant to the first-filed rule [document #7] is GRANTED in part and DENIED in part.
This case is TRANSFERRED to the U.S. District Court for the District of Nevada as closely related to two earlier-filed actions: PRPG v. SPEC Cadillac Jack, Inc., No. 2:2008-cv-660 (D. Nev.) and PRPG v. SPEC Video Game Technologies, Inc., No. 2:2008-cv-662 (D. Nev.)
The defendant's motion to dismiss the complaint without prejudice for lack of personal jurisdiction [document #7-2] is DENIED without prejudice as moot.
The defendant's motion for transfer of venue pursuant to 28 U.S.C. § 1404 [document #7-3] is DENIED without prejudice as moot.
This is not an appealable order. See Dearth v. Mukasey, 516 F.3d 413, 416 (6th Cir. 2008) (Suhrheinrich, Rogers, D.J. Bell) (while an appeal could lie from dismissal without prejudice of an action, "`It is settled that an order granting a transfer or denying a transfer is interlocutory and not appealable.'") (quoting Lemon v. Druffel, 253 F.3d 680, 683 (6th Cir. 1958) (citing Norwood v. Kirkpatrick, 349 U.S. 29, 33 (1955))).
See also Blue Ash Dev., Inc. v. Polan, No. 94-6324, 74 F.3d 1240, 1996 WL 1828 (6th Cir. Jan. 2, 1996) (p.c.) (Krupansky, Batchelder, Moore); Kothe v. City of Elyria, No. 89-3853, 887 F.2d 1087, 1989 WL 123239, *1 (6th Cir. Oct. 17, 1989) (p.c.) (Jones, Guy, D.J. Wm. Bertlesman) ("An order regarding transfer from one district court to another is not appealable absent a 28 U.S.C. § 1292(b) certification.") (citing Lemon, 253 F.2d at 683).
Cf. Jenkins v. Widnall, No. 99-3918, 211 F.3d 1269, 2000 WL 553957, *3 (6th Cir. Apr. 28, 2000) (p.c.) (C.J. Martin, Merritt, Siler) ("an order transferring a case from the district court to the Court of Federal Claims is generally not appealable") (citation to Fifth Circuit omitted).