Opinion
CV-N-99-0533-PMP (PHA)
March 15, 2002
I. INTRODUCTION
Before the Court for consideration are Motions to Dismiss, Transfer or Stay Proceedings filed in both of the above- referenced cases.
In Case CV-N-99-0397-PMp (PHA), Defendant Lemelson Medical, Education Research Foundation ("Lemelson") filed a Motion to Dismiss, Transfer or Stay Proceedings (Doc. #31) filed on October 15, 1999. On November 1, 1999, Plaintiffs Symbol Technologies, Inc. ("Symbol"), Accu — Sort Systems, Inc. ("Accu — Sort"), Intermec Technologies Corp. ("Intermec"), Metrologic Instruments, Inc. ("Metrologic"), PSC Inc. ("PSC"), Teklogix Corp. ("Teklogix") and Zebra Technologies, Corp. ("Zebra") (collectively "Plaintiffs") filed their Opposition to Lemelson's Motion to Dismiss, Transfer or Stay Proceedings (Doc. #33). Lemelson filed a Reply on November 12, 1999 (Doc. #34).
In Case CV-N-99-0533-PMP (PHA), Defendant Lemelson Medical, Education Research Foundation filed a Motion to Dismiss, Transfer or Stay Proceedings (Doc. #31) filed on December 17, 1999. On January 10, 2000, Plaintiff Cognex Corporation ("Cognex") filed its Opposition to Lemelson's Motion to Dismiss, Transfer or Stay Proceedings (Doc. #33). Lemelson filed a Reply on January 28, 2000 (Dcc. #35).
Both of these cases were reassigned to the undersigned on December 3, 1999. Because these cases are related and will be consolidated by the Court, the foregoing Motions are being considered together in this single Order.
II. FACTUAL BACKGROUND
Plaintiffs are engaged in the business of designing, manufacturing and selling bar code scanners and related products. Plaintiffs claim that their customers have been threatened with numerous lawsuits by Lemelson arising from their use of Plaintiffs' products in their own business endeavors. Plaintiffs have brought the present lawsuit arguing that they will be forced to indemnify their customers if the Lemelson patents have been infringed upon and could be subject to direct lawsuits by Lemelson in the future. Plaintiffs claim they have already received numerous requests for indemnification by various customers.
Lemelson claims it is the owner by assignment of about one hundred eighty-five (185) unexpired patents and numerous pending patent applications of Jerome H. Lemelson. The patents at issue generally involve machine vision and automatic identification ("Auto-ID"). Machine vision is described as use of a computer system to analyze images obtained by means of a camera or scanner. Auto-ID is a type of machine vision commonly seen as bar code reading technology. Machine vision and Auto-ID are widely used by manufacturers and some of these manufacturers constitute Plaintiffs' customers.
Lemelson claims in defending its patents that it will only pursue process claims and not apparatus claims against any alleged infringer. Process claims are described by Lemelson as involving the use of machine vision or Auto-ID in a manufacturing process, while apparatus claims involve the actual equipment used in such process. Process claims are directed at Plaintiffs' customers while apparatus claims would be directed at Plaintiffs themselves. Lemelson argues that manufacturers who use machine vision and Auto-ID are direct infringers, while Plaintiffs, because they supply the parts of an overall bar code scanning system, are at best only contributory infringers. Lemelson has instituted process claims against manufacturers of automobiles, computers, semiconductors, and electronic products but has thus far not made any direct claims against Plaintiffs.
Lemelson currently has two pending actions in the District of Arizona (Lemelson Foundation Partnership v. Intel, et al., Case No. CIV 98-1413 PHX PGR(HRH) and Lemelson Foundation Partnership v. Lucent Technologies, et al., Case No. CIV 99-0377 PHX RGS(HRH)), which it claims involve the same patents at issue in this case. Plaintiffs argue however, that the Arizona cases also involve different patents, products and technologies not at issue in this dispute.
III. STANDARD FOR MOTION TO DISMISS
The Declaratory Judgment Act permits a federal court to "declare the rights and other legal relations of any interested party seeking such declaration..." 28 U.S.C.A. § 2201(a) (1994); See Societe de Conditionnement en Aluminium v. Hunter Engineering Co., 655 F.2d 938, 942 (9th Cir. 1981). Generally in order to show that there is an actual case or controversy, "a party is required to show that, under all the circumstances of the case, there is a substantial controversy between parties having adverse legal interests, and the controversy is of sufficient immediacy and reality to warrant declaratory relief." Hal Roach Studios, Inc. v. Richard Feiner and Company, Inc., 896 F.2d 1542, 1555 (9th Cir. 1990) (citing Societe de Conditionnement, 65s F.2d at 942). The requirements of a case or controversy are no less strict under the Declaratory Judgment Act than in other cases. See Cardinal Chemical Co. v. Morton International, Inc., 508 U.S. 83, 94 (1993) (citation omitted). At the trial court level, the party seeking a declaratory judgment has the burden of establishing an actual case or controversy. See Id. at 95 (citing Aetna Life Ins. Co. v. Haworth, 300 13.5. 227, 240-241 (1937)). A plaintiff may establish an actual controversy by the totality of circumstances. See Spectronics Corp. v. H.B. Fuller Co., 940 F.2d 631, 634 (Fed. Cir. 1991) (citations omitted). "In ruling on a motion to dismiss for lack of subject matter jurisdiction, we may consider not only the facts alleged in the plaintiff's well-pleaded complaint, but also any other evidence submitted on the issue." Dow Chemical Co. v. Viskase Corp., 892 F. Supp. 991, 992 (N.D. ill. 1995) (citing Field Container Co. v. Somerville Packaging Corp., 842 F. Supp. 338, 341, n. 3 (N.D. ill. 1994).
In considering a motion to dismiss for failure to state a claim, the factual allegations of Plaintiffs' Complaint must be presumed to be true, and this Court must draw all reasonable inferences in favor of Plaintiffs. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). The issue is not whether Plaintiffs will ultimately prevail, but whether they are entitled to offer evidence in support of their claims. See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). Consequently, the Court may not grant a motion to dismiss for failure to state a claim, "unless it apPHArs beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The Court does not, however, necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations in Plaintiffs' Complaint. See Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).
IV. DISCUSSION
Lemelson argues in its Motion to Dismiss, Transfer or Stay Proceedings that there is no case or controversy between the parties. Lemelson also argues that if subject matter jurisdiction is found, this Court in its discretion should decline to exercise it. In the alternative, Lemelson contends that this Court should either transfer the case to the District of Arizona or stay all proceedings pending the conclusion of ongoing cases in that District. Finally, Lemelson asserts that Plaintiffs' fourth cause of action for laches fails to state a claim upon which relief can be granted. For the reasons set forth below this Court concludes that the present dispute meets the requirements for a case or controversy, the case should not be transferred to another district or stayed at this time and Plaintiffs' fourth cause of action fails to state a claim upon which relief can be granted.
In order to satisfy the case or controversy requirement in a patent case seeking declaratory relief there are generally two requirements. First, Defendant's conduct must create a reasonable apprehension in Plaintiffs that the Defendant will initiate suit if the alleged infringing activity continues. Second, Plaintiffs must actually have either produced the device or have prepared to produce the device that is allegedly infringing. See Arrowhead Industrial Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1988). The test is objective and applies to the facts that existed when the Complaint was filed. See Id. (citation omitted). To meet the first prong of the test it is sufficient that reasonable apprehension of a lawsuit be created in Plaintiffs' customers. See Id. "[A] course of conduct on the part of the defendant which would cause a reasonable man to fear that he or his customers face an infringement suit or the threat of one is sufficient." Grafon Corp. v. Hausermann, 602 F.2d 781, 784 (7th Cir. 1979) (citation omitted).
As to the first prong, various customers of Plaintiffs have a reasonable apprehension of a potential lawsuit brought by Lemelson. In a form letter dated February 18, 1998, and purportedly sent to some of Plaintiffs' customers, Lemelson specifically stated "[t]he purpose of this letter is to give your company notice of infringement.., and to offer it a license under those patents on very favorable terms." (Pls.' Opp'n to Def's. Mot. to Dismiss, Ex. A). Language such as "[t]o encourage prompt settlement..." and "[p]lease understand that a lawsuit for infringement of the Lemelson patents will be filed at or before conclusion of the Ford litigation, unless a license agreement is accepted...", conveys a specific threat of litigation sufficient to find reasonable apprehension. Later letters are substantially similar, and while they omit a specific threat of litigation, such a threat is implied. In both sets of letters Lemelson makes reference to the fact that as many as one hundred companies have already received licenses and that in the aggregate such companies have paid many millions of dollars for such licenses. Also found in the letters is a reference to how many lawsuits have been filed by Lemelson and against what specific companies. Use of such language conveys a message that Lemelson actively pursues its claims of infringement and that unless a licensing agreement is reached between the parties, litigation would be forthcoming. The letters serve to show that Lemelson had effectively Declded that there had been infringement and that it intended to file a lawsuit. See EMC Corp. v. Norand, 89 F.3d 807, 812 (Fed. Cir. 1996).
While Lemelson specifically states that it will not pursue any claims of past or present infringement against Plaintiffs, such a statement does not preclude Lemelson from pursuing such claims in the future. (Def's. Mot. to Dismiss, p. 6). More importantly, Plaintiffs are at a substantial risk of having to indemnify their customers for costs associated with the infringement of any Lemelson patent. In this case the fear of indemnification is reasonable. Viking Injector Co. Inc. v. Chemtron Inc., 29 U.S.P.Q.2d 1547, 1549 (M.D. Pa. 1993). Plaintiffs do not merely have a substantial economic interest in the dispute, since indemnification is a legal obligation. Dow Chemical, 892 F. Supp. at 997. Plaintiffs include numerous affidavits with their Opposition describing contractual obligations to indemnify or defend their customers.
Specifically, Symbol states that it has received numerous requests for indemnity both written and oral. In his Declaration, Leonard H. Goldner states that Symbol has agreed to defend and indemnify customers as stated in specific agreements or pursuant to Symbol's standard indemnity provision. (Decl. of Leonard H. Goldner, p. 3,¶ 9). Symbol claims that it has expressly agreed to indemnify three customers and has confirmed that it will fulfill its indemnity obligation to ten others. (See Id. at p. 3, ¶ 9, 10). Symbol has also received indemnity requests from three customers who have settled with Lemelson and are now seeking contribution from Symbol. (See Id. at p. 3, ¶ 11). Lemelson acknowledges that it has sent inquiry letters to sixty-four of Symbol's customers, that it has licensed twenty-nine and has sued seven in pending lawsuits in the District of Arizona. (Def's. Mo. to Dismiss, p. 16).
In a Declaration by Steven M. Luscinski, Accu — Sort claims it has received fifty customer requests for defense and indemnity while not acknowledging that it is required to indemnify any of its customers. (Decl. of Steven Luscinski, p. 2, ¶ 5, 6). Paragraph six of Accu — Sort's standard agreement however, states that it will "defend, at its expense, and [I] pay the cost and damages incurred in settlement or awarded as a result of any action under such claim..." (Decl. of Steven Luscinski, Ex. A) Thus there is still a question of whether Accu — Sort would be required to indemnify its customers. Lemelson has licensed six of Accu — Sort's customers, sued two in the Arizona proceedings and twenty customers were sent letters. (Def's. Mo. to Dismiss, p. 10).
Intermec states that it will defend and indemnify customers pursuant to its standard agreement. (Decl. of M. Michael Carpenter, p. 2,¶ 5). It has received numerous requests for indemnification and has honored an indemnification request by Southwest Airlines. (See Id. at p. 3, ¶ 8). Two companies, Micromotion and Furniture International Inc., have stopped all acquisitions of Intermec products until the present dispute is concluded. (See Id. at p. 3, ¶ 10). Lemelson has already licensed forty-eight of Intermec's customers, sued seven in the Arizona lawsuit and has sent letters to forty-six. (Def's. Mo. to Dismiss, p. 14, 15).
Metrologic is similar. It also has agreed to indemnify its customers pursuant to its standard indemnity provision. (Decl. of Nancy A. Smith, p. 2, ¶ 5). It has received six formal requests for indemnification and has affirmed its responsibility for its indemnity obligations. (See Id. at p. 2, ¶ 6). Lemelson has already licensed four of Metrologic's customers and has contacted three more. (Def's. Mo. to Dismiss, p. 11).
PSC has received sixteen written requests for indemnification as well as a number or oral requests. (Decl. of Elizabeth J. McDonald, p. 2, ¶ 5) Six customers have been licensed thus far by Lemelson and inquiry notices have been sent to five. (Def's. Mo. to Dismiss, p. 11, 12).
Teklogix has also agreed to indemnify its customers as part of its standard terms and conditions of sale. (Decl. of Constance L. Crosby, p. 1, ¶ 4). It has received ten requests for indemnification. (See id. at p. 2, ¶ 5). Two customers have been licensed by Lemelson and inquiry notices have been sent to four. (Def's. Mo. to Dismiss, p. 12).
The last Plaintiff, Zebra has received more than seven requests for indemnification and all requests have been based upon Zebra's standard indemnity provision. (Decl. of John Kindsvater, p. 2, ¶ 6). Lemelson has licensed four customers, sent inquiry notices to two and three are presently Defendants in the Arizona proceedings. (Def's. Mo. to Dismiss, p. 13).
This Court also finds that some Cognex customers have a reasonable apprehension of suit by Lemelson sufficient to warrant the conclusion that this case presents an actual case or controversy, thereby allowing this Court to retain jurisdiction over the matter. In his Declaration, Michael L. Steir states that Cognex has agreed to indemnify its customers against patent infringement claims and that Cognex has received numerous requests for indemnification from its customers. (Decl. of Michael L. Steir, p. 3, ¶ 9, p. 4, ¶ 11, 12, p. 5 ¶ 14). Cognex has received requests from Westvaco and Gould Electronics for indemnity in the amounts of $250, 966.00 and $46,071.00, respectively. (Id. at p. 5, ¶ 15). Cognex also claims that Lemelson has caused it to lose sales and business in other ways. (Id. at p. 6, ¶ 16, p. 7, ¶ 17). Lemelson acknowledges that it has licensed nineteen of Cognex's customers, that five Cognex customers are defendants in pending litigation in Arizona and that Lemelson has contacted other Cognex customers in writing. (Def's. Mot. to Dismiss, p. 8-11).
The second prong of the test requiring that Plaintiffs must actually have either produced the device or have prepared to produce the device that is allegedly infringing, is only in issue with regard to Zebra. Lemelson does not dispute, with the exception of Zebra, that Plaintiffs' products are infringing. Zebra, is the leading manufacturer of bar code label printing systems and also sells hand-held bar code scanners. Lemelson claims that Zebra has not demonstrated that its products could constitute infringement of the applicable Lemelson patents. While it is less certain that bar code label printing systems could infringe upon the Lemelson patents, Zebra also sells hand-held bar code scanners which could infringe. As such Zebra has adequately demonstrated that its products could infringe.
Lemelson argues that this Court should in its discretion decline to hear the merits of this case. None of the arguments made by Lemelson however, are sufficiently persuasive. Lemelson presents no evidence in support of its claim that the present dispute is merely a public relations tool brought by Plaintiffs. Lemelson's claim that only a small percentage of Plaintiffs' customers have been "threatened" does not alone justify preventing Plaintiffs from seeking relief in this Court. 28 U.S.C.A. § 1404(a) states, "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought." 28 U.S.C.A. § 1404(a) (1993). While not addressing the issue of whether this dispute could have been properly brought in the District of Arizona, this Court is unpersuaded that the transfer of this matter to that district would be of any direct benefit to the parties.
The remaining issue presented to this Court is whether the fourth count of Plaintiffs' Complaint fails to state a claim upon which relief can be granted. It is unnecessary to go into a lengthy analysis of the pertinent case law since the same issue was Declded by this Court in 1997. In Ford Motor Co. v. Lemelson, 42 U.S.P.Q.2d 1706 (1997), the Honorable Lloyd D. George, Senior United States District Judge, held that "Lemelson's use of the continuation applications process may have exploited an open area of patent practice, [but] the court should not intervene in equity to regulate what Congress has not." Id. at 1707. It is therefore improper to introduce the equitable doctrine of laches into the statutory scheme of continuation practice. Id. at 1709. This Court agrees with the Declsion and reasoning in Ford Motor. Thus plaintiffs' fourth count fails to state a claim upon which relief can be granted.
V. CONCLUSION
IT IS THEREFORE ORDERED that Lemelson's Motions to Dismiss, Transfer or Stay Proceedings (Doc. #31 in CV-N-99-0397-PMP (PHA) and Doc. #31 in CV-N-99-0533-PMP (PHA)) are hereby GRANTED in part and DENIED in part. Lemelson's Motions to Dismiss for lack of subject matter jurisdiction are hereby DENIED. Lemelson's Motions to transfer the cases to the District of Arizona or to stay the cases pending the conclusion of two lawsuits in the District of Arizona are hereby DENIED. Lemelson's Motion to Dismiss for failure to state a claim with regard to the fourth count in CV-N-99-0397-PMP (PHA) is hereby GRANTED. Lemelson's Motion to Dismiss for failure to state a claim with regard to the fifth count in CV-N-99-0533-PMP (PHA) is hereby GRANTED.
In its Opposition, Cognex repeatedly refers to Lemelson's Motion to Dismiss the fourth count of the complaint. Lemelson's Motion to Dismiss however, refers only to the fifth count of the Complaint. This court will thus interpret Cognex's Opposition as referring to only the fifth count.
IT IS FURTHER ORDERED that CV-N-99-0397-PMP(PHA) shall be consolidated with CV-N-99-0533-PMP(PHA) this Court having found the issues in such cases to be substantially similar. CV-N-99-10 0397-PMP(PHA) shall serve as the base file for all further matters and future filings.