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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IN THE UNITED STATES DISTRICT COURT

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FOR THE DISTRICT OF ARIZONA

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Sidi Spaces, LLC,
Plaintiff,

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ORDER

v.

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No. CV-16-01670-PHX-DGC

CGS Premier, Inc.

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Defendant.

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Before initiating this suit, Plaintiff sent Defendant a letter asserting various

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contract and tort claims, and indicating that Plaintiff was “looking into” possible patent

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infringement claims.

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notification” within the meaning of Wis. Stat. § 100.197. The Court holds that it was not.

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I.

The Court must decide whether this letter was a “patent

Background.

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On December 4, 2013, Plaintiff Sidi Spaces, LLC and Defendant CGS Premier,

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Inc. entered a License and Sales Agreement (“Agreement”) whereby Plaintiff granted

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Defendant the exclusive right to manufacture and sell mobile stores using its patented

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BizBox design. Doc. 1-1 at 10-19. Defendant agreed to pay royalties on each BizBox it

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sold and to refrain from selling these products below a specified minimum price. Id. at

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11-12. Defendant also agreed that Plaintiff would retain “exclusive ownership rights to

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the [BizBox] design and all other intellectual property rights . . . with respect to the

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[BizBox].” Id. at 13.

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On April 22, 2016, Plaintiff sent a letter to Defendant explaining that it had

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retained counsel “to take all legal action necessary to get [Defendant] to cease and desist

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from breaching the parties’ agreements” and “to recover damages for these breaches.”

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Doc. 6-1 at 3. The letter stated that Plaintiff was aware of “numerous instances where

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[Defendant’s] design and/or manufacturing of trailers . . . was in direct violation of the

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[Agreement].” Id. The letter claimed that “[Defendant’s] employees . . . have been

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involved in stealing designs by copying measurements and other specifications from

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BizBox products to build . . . knock-offs.” Id.

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The letter included additional detail about Plaintiff’s contract claims, and also

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described a claim for tortious interference with business relations. Id. at 3-5. The

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penultimate paragraph stated:

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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.

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Id. at 5. The letter concluded by demanding an initial payment of $1,766,000 to satisfy

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Plaintiff’s contract and tort claims. Id. at 5.

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Defendant responded to this demand letter on April 27, 2016. Doc. 6-2 at 2-6.

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Defendant asserted that the letter was a patent notification, subject to the requirements of

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Wis. Stat. § 100.197. Id. at 3-4. Defendant informed Plaintiff that, in its view, the letter

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violated § 100.197 because it failed to include certain required information and made

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certain false, misleading, or deceptive statements. Id. Defendant demanded that Plaintiff

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cure these deficiencies within 30 days. Id. Plaintiff made no effort to do so. Doc. 6, ¶ 8.

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Plaintiff subsequently initiated this action, asserting the contract and tort claims

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outlined in its demand letter.

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§ 100.197. Doc. 6, ¶¶ 4-5. Plaintiff moves to dismiss the counterclaim. Doc. 18. The

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motion has been fully briefed (Docs. 21, 23) and no party has requested oral argument.

Doc. 1-1 at 4-9.

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Defendant counterclaimed under

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II.

Analysis.

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Section 100.197 applies to “patent notifications” – written communications that

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“attempt in any manner to enforce or assert rights in connection with a patent or pending

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patent.”

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including (1) the number of each patent subject to the notification; (2) a copy of each

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such patent; (3) the name and address of the owner of the patent; (4) “[a]n identification

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of each claim of each patent or pending patent being asserted and the target’s product,

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service, process, or technology to which that claim relates”; (5) “[f]actual allegations and

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an analysis setting forth in detail the person’s theory of each claim identified”; and (6) an

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identification of all pending or completed judicial and administrative proceedings related

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to such patent. § 100.197(2)(a). Such a notification must not include false, misleading,

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or deceptive information. § 100.197(2)(b).

§ 100.197(1)(a).

A patent notification must include certain information,

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This statute, passed in 2014, has not yet been subject to judicial interpretation, and

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the parties disagree as to its scope. Plaintiff argues that the statute does not apply to its

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demand letter because the letter did not set forth any patent claim or demand payment for

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such a claim. Doc. 18 at 5. Defendant contends that the statute does not require “an

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overt statement that a patent right is being enforced or asserted,” and that a reference to a

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potential patent claim is sufficient to bring a communication within the statute’s purview.

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Doc. 21 at 5.

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Plaintiff has the better argument.

The statute does not apply to every

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communication that refers to possible patent violations; it applies to communications that

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seek “to enforce or assert [patent] rights.” Thus, the statute applies to communications

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that “state positively” a patent claim, or attempt “[t]o invoke or enforce” a patent claim,

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or attempt “to compel a person to pay damages” or provide other relief to discharge such

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a claim. See Black’s Law Dictionary (10th ed. 2014) (defining “assert” as “[t]o state

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positively” or “[t]o invoke or enforce a legal right”); id. (defining “enforce” as “[t]o give

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force or effect to (a law, etc.)” or “to compel a person to pay damages for not complying

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with (a contract)”).

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This reading is reinforced by § 100.197’s purpose. The statute was designed to

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combat “patent trolling,” Doc. 18-1 at 15, the practice of “assert[ing] patents against

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numerous potential infringers, relying on the high cost of threatened litigation to extract

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quick settlements.” Paul R. Gugliuzza, Patent Trolls and Preemption, 101 Va. L. Rev.

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1579, 1581 (2015). This purpose is served by applying the statute to communications

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seeking to pressure the recipient into settling a patent claim, but it provides no basis for

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applying the statute to communications that do not seek settlement of a patent claim.

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This reading is reinforced by the language of paragraph 2(A). This provision

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requires a patent notification letter to identify, among other things, “each claim . . . being

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asserted” and the “[f]actual allegations and an analysis” underlying these claims.

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§ 100.197(2)(a) (emphasis added). This language presupposes that the author of the

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patent notification has developed, and is asserting, a legal theory of patent infringement.

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It is unclear how a person could satisfy these requirements if he had concerns about

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possible patent infringement but was unsure whether these concerns gave rise to a legally

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cognizable claim.

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communications that simply express concerns about possible infringement, but stop short

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of asserting a claim or demanding relief.

This suggests that § 100.197 was not intended to apply to

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Plaintiff’s demand letter did not “state positively” that Plaintiff had any right to

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enforce its patents against Defendant. It stated only that Plaintiff was “looking into” the

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existence of such a right. Doc. 6-1 at 5. Nor did the letter seek to compel Defendant to

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pay damages or provide other relief related to any patent claim. Id. The Court concludes

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that it was not an attempt to enforce or assert patent rights within the meaning of

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§ 100.197.

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IT IS ORDERED that Plaintiff’s motion to dismiss Defendant’s counterclaim
(Doc. 18) is granted.
Dated this 25th day of July, 2016.

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