Sidi Spaces LLC v. CGS Premier Incorporated

Filing 28

ORDER granting 18 Motion to Dismiss Counts/Claims. Signed by Judge David G Campbell on 7/25/2016.(DGC, nvo)

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1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 Sidi Spaces, LLC, Plaintiff, 10 11 ORDER v. 12 No. CV-16-01670-PHX-DGC CGS Premier, Inc. 13 Defendant. 14 15 16 Before initiating this suit, Plaintiff sent Defendant a letter asserting various 17 contract and tort claims, and indicating that Plaintiff was “looking into” possible patent 18 infringement claims. 19 notification” within the meaning of Wis. Stat. § 100.197. The Court holds that it was not. 20 I. The Court must decide whether this letter was a “patent Background. 21 On December 4, 2013, Plaintiff Sidi Spaces, LLC and Defendant CGS Premier, 22 Inc. entered a License and Sales Agreement (“Agreement”) whereby Plaintiff granted 23 Defendant the exclusive right to manufacture and sell mobile stores using its patented 24 BizBox design. Doc. 1-1 at 10-19. Defendant agreed to pay royalties on each BizBox it 25 sold and to refrain from selling these products below a specified minimum price. Id. at 26 11-12. Defendant also agreed that Plaintiff would retain “exclusive ownership rights to 27 the [BizBox] design and all other intellectual property rights . . . with respect to the 28 [BizBox].” Id. at 13. 1 On April 22, 2016, Plaintiff sent a letter to Defendant explaining that it had 2 retained counsel “to take all legal action necessary to get [Defendant] to cease and desist 3 from breaching the parties’ agreements” and “to recover damages for these breaches.” 4 Doc. 6-1 at 3. The letter stated that Plaintiff was aware of “numerous instances where 5 [Defendant’s] design and/or manufacturing of trailers . . . was in direct violation of the 6 [Agreement].” Id. The letter claimed that “[Defendant’s] employees . . . have been 7 involved in stealing designs by copying measurements and other specifications from 8 BizBox products to build . . . knock-offs.” Id. 9 The letter included additional detail about Plaintiff’s contract claims, and also 10 described a claim for tortious interference with business relations. Id. at 3-5. The 11 penultimate paragraph stated: 12 13 14 15 We are also looking into the serious concerns [Plaintiff] has regarding multiple counts of patent infringement. If the Company takes additional action for patent infringement, there is a strong possibility that all products sold by [Defendant] to its clients that infringe the BizBox 20 year Utility Patent will represent illegal sales. As such, these units may be removed from the possession of your clients. 16 Id. at 5. The letter concluded by demanding an initial payment of $1,766,000 to satisfy 17 Plaintiff’s contract and tort claims. Id. at 5. 18 Defendant responded to this demand letter on April 27, 2016. Doc. 6-2 at 2-6. 19 Defendant asserted that the letter was a patent notification, subject to the requirements of 20 Wis. Stat. § 100.197. Id. at 3-4. Defendant informed Plaintiff that, in its view, the letter 21 violated § 100.197 because it failed to include certain required information and made 22 certain false, misleading, or deceptive statements. Id. Defendant demanded that Plaintiff 23 cure these deficiencies within 30 days. Id. Plaintiff made no effort to do so. Doc. 6, ¶ 8. 24 Plaintiff subsequently initiated this action, asserting the contract and tort claims 25 outlined in its demand letter. 26 § 100.197. Doc. 6, ¶¶ 4-5. Plaintiff moves to dismiss the counterclaim. Doc. 18. The 27 motion has been fully briefed (Docs. 21, 23) and no party has requested oral argument. Doc. 1-1 at 4-9. 28 -2- Defendant counterclaimed under 1 II. Analysis. 2 Section 100.197 applies to “patent notifications” – written communications that 3 “attempt in any manner to enforce or assert rights in connection with a patent or pending 4 patent.” 5 including (1) the number of each patent subject to the notification; (2) a copy of each 6 such patent; (3) the name and address of the owner of the patent; (4) “[a]n identification 7 of each claim of each patent or pending patent being asserted and the target’s product, 8 service, process, or technology to which that claim relates”; (5) “[f]actual allegations and 9 an analysis setting forth in detail the person’s theory of each claim identified”; and (6) an 10 identification of all pending or completed judicial and administrative proceedings related 11 to such patent. § 100.197(2)(a). Such a notification must not include false, misleading, 12 or deceptive information. § 100.197(2)(b). § 100.197(1)(a). A patent notification must include certain information, 13 This statute, passed in 2014, has not yet been subject to judicial interpretation, and 14 the parties disagree as to its scope. Plaintiff argues that the statute does not apply to its 15 demand letter because the letter did not set forth any patent claim or demand payment for 16 such a claim. Doc. 18 at 5. Defendant contends that the statute does not require “an 17 overt statement that a patent right is being enforced or asserted,” and that a reference to a 18 potential patent claim is sufficient to bring a communication within the statute’s purview. 19 Doc. 21 at 5. 20 Plaintiff has the better argument. The statute does not apply to every 21 communication that refers to possible patent violations; it applies to communications that 22 seek “to enforce or assert [patent] rights.” Thus, the statute applies to communications 23 that “state positively” a patent claim, or attempt “[t]o invoke or enforce” a patent claim, 24 or attempt “to compel a person to pay damages” or provide other relief to discharge such 25 a claim. See Black’s Law Dictionary (10th ed. 2014) (defining “assert” as “[t]o state 26 positively” or “[t]o invoke or enforce a legal right”); id. (defining “enforce” as “[t]o give 27 force or effect to (a law, etc.)” or “to compel a person to pay damages for not complying 28 with (a contract)”). -3- 1 This reading is reinforced by § 100.197’s purpose. The statute was designed to 2 combat “patent trolling,” Doc. 18-1 at 15, the practice of “assert[ing] patents against 3 numerous potential infringers, relying on the high cost of threatened litigation to extract 4 quick settlements.” Paul R. Gugliuzza, Patent Trolls and Preemption, 101 Va. L. Rev. 5 1579, 1581 (2015). This purpose is served by applying the statute to communications 6 seeking to pressure the recipient into settling a patent claim, but it provides no basis for 7 applying the statute to communications that do not seek settlement of a patent claim. 8 This reading is reinforced by the language of paragraph 2(A). This provision 9 requires a patent notification letter to identify, among other things, “each claim . . . being 10 asserted” and the “[f]actual allegations and an analysis” underlying these claims. 11 § 100.197(2)(a) (emphasis added). This language presupposes that the author of the 12 patent notification has developed, and is asserting, a legal theory of patent infringement. 13 It is unclear how a person could satisfy these requirements if he had concerns about 14 possible patent infringement but was unsure whether these concerns gave rise to a legally 15 cognizable claim. 16 communications that simply express concerns about possible infringement, but stop short 17 of asserting a claim or demanding relief. This suggests that § 100.197 was not intended to apply to 18 Plaintiff’s demand letter did not “state positively” that Plaintiff had any right to 19 enforce its patents against Defendant. It stated only that Plaintiff was “looking into” the 20 existence of such a right. Doc. 6-1 at 5. Nor did the letter seek to compel Defendant to 21 pay damages or provide other relief related to any patent claim. Id. The Court concludes 22 that it was not an attempt to enforce or assert patent rights within the meaning of 23 § 100.197. 24 25 26 27 28 -4- 1 2 3 IT IS ORDERED that Plaintiff’s motion to dismiss Defendant’s counterclaim (Doc. 18) is granted. Dated this 25th day of July, 2016. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -5-

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