Key Source International v. CeeColor Industries, LLC et al

Filing 66

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS by Judge William Alsup [granting 58 Motion to Dismiss for Lack of Jurisdiction] (whasec, COURT STAFF) (Filed on 11/30/2012)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 KEY SOURCE INTERNATIONAL, 11 For the Northern District of California United States District Court 10 12 13 Plaintiff, No. C 12-01776 WHA v. 14 CEECOLOR INDUSTRIES, LLC, ALAN KIPUST, SITKA SPRUCE SECURITY, LLC, and DOES 1 through 1000, 15 Defendants. ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS / 16 17 INTRODUCTION 18 In this declaratory relief patent action, defendants move for dismissal for lack of personal 19 jurisdiction, lack of subject-matter jurisdiction and failure to state a claim. For the reasons stated 20 below, the motion is GRANTED. 21 22 STATEMENT Plaintiff Key Source International is a family-owned business in Oakland, California that 23 has been marketing and selling computer keyboards for sixty years. Plaintiff asserts that it 24 brings this action to “clear the air as to the legality of certain patents so that commerce and 25 industry can go forward uninterrupted, without any patent cloud created by ‘patent trolling’ 26 defendants” CeeColor Industries, LLC, Alan Kipust and Sitka Spruce Security, LLC. Plaintiff 27 alleges that the patent enforcement rights that are in dispute were assigned by Alan Kipust, the 28 inventor, to Sitka and then presumably to CeeColor. Plaintiff also alleges that defendants CeeColor and Sitka are shell Delaware corporations that engage in so-called patent trolling. 1 Plaintiff alleges that defendants do not engage in any known manufacturing and certainly do not 2 engage in manufacturing under the patent in dispute (Compl. ¶¶ 1, 2, 4, 5, 9 and 12). 3 Defendants sent an infringement letter to plaintiff along with a copy of an infringement 4 suit filed in the District Court of Delaware against plaintiff. The infringement letter 5 demanded money to settle a dispute over the patent purportedly owned by defendant CeeColor. 6 Plaintiff alleges that the infringement letter and suit in Delaware were a sham. Plaintiff asserts 7 that it operates its business under three patents for which it has both implied and actual 8 protections. Accordingly, plaintiff seeks declaratory relief (Compl. ¶¶ 9–10). 9 While the facts are simple, this action has had a strange procedural history (Dkt. No. 57). In April 2012, this civil action was filed for declaratory relief of invalidity, non-infringement 11 For the Northern District of California United States District Court 10 and unenforceability. Defendants moved to dismiss for lack of personal jurisdiction and lack 12 of subject-matter jurisdiction. Defendants also moved to transfer to the District of Delaware, 13 where as previously mentioned, our defendants had already filed an infringement suit against 14 our plaintiff. This action was held in abeyance to determine if the Delaware action was going 15 to move forward. 16 The District Court of Delaware, however, dismissed our defendant CeeColor’s 17 infringement suit against our plaintiff for lack of personal jurisdiction. This resolved the transfer 18 issue. Defendants now move to dismiss plaintiff’s declaratory relief claim for (1) lack of 19 personal jurisdiction, (2) lack of subject-matter jurisdiction, and (3) failure to state a claim. 20 ANALYSIS 21 Rule 12(b)(2) governs dismissal for lack of personal jurisdiction. In patent actions, 22 the Federal Circuit precedent determines whether there is personal jurisdiction over defendants. 23 There are two requirements: (1) the forum state has a long-arm statute that permits service 24 of process and (2) asserting jurisdiction does not violate defendants’ due process rights. 25 “Because California’s long-arm jurisdictional statute is coextensive with the limits of due 26 process, the two inquiries collapse into a single inquiry: whether jurisdiction comports 27 with due process.” Inamed Corp. v. Kuzmak, 249 F.3d 1356, 1359–60 (Fed. Cir. 2001). 28 2 1 In the landmark decision, International Shoe Co. v. Washington, the Supreme Court held 2 that “due process requires only that . . . [defendants] have certain minimum contacts with the 3 forum state such that the maintenance of the suit does not offend traditional notions of fair play 4 and substantial justice.” 326 U.S. 310, 316 (1945). jurisdiction. General jurisdiction exists if a defendant has “substantial” or “continuous and 7 systematic” contacts with the forum state. Helicopteros Nacionales de Colombia, S.A. v. Hall, 8 466 U.S. 408, 414 (1984). Specific jurisdiction exists if: (1) the defendants have performed 9 some act or consummated some transaction within the forum or otherwise purposely availed 10 himself of the privileges of conducting activities in the forum; (2) the claim arises out of or 11 For the Northern District of California Moreover, personal jurisdiction is of two varieties: general jurisdiction and specific 6 United States District Court 5 results from the defendants’ forum-related activities; and (3) the exercise of jurisdiction is fair 12 and reasonable. Bancroft & Masters, Inc. v. Augusta Nat’l, Inc., 223 F.3d 1082, 1086 (9th Cir. 13 2000). 14 Additionally, the Federal Circuit has held that letters threatening suit for patent 15 infringement sent to the alleged infringer by themselves do not suffice to create personal 16 jurisdiction. Avocent Huntsville Corp. v. Aten Int’l. Co., Ltd., 552 F.3d 1324, 1333 (Fed. Cir. 17 2009). 18 1. 19 Defendants contend that general jurisdiction does not exist over any of them. 20 Both defendant corporations are incorporated in Delaware. Defendants also state that they 21 do not reside in California, are not domiciled in California and do not maintain an office or 22 conduct business in California (Br. 6). Plaintiff has not challenged any of these contentions. 23 Accordingly, it is clear that general jurisdiction is not proper. GENERAL JURISDICTION. SPECIFIC JURISDICTION. 24 2. 25 Defendants also argue that specific jurisdiction does not exist over any of them. 26 Plaintiff contends that “[w]hen a patent troll whose sole business is engaging in licensing 27 and litigation activities, files suit, sends out demand letters and makes settlement demand 28 3 1 phone calls, and directs those activities into the Northern District of California, said conduct 2 is sufficient to establish personal jurisdiction . . . ” (Sur-reply Br. 2). 3 The Federal Circuit case law is clear that infringement letters warning of suit and 4 telephone calls regarding licensing agreements are not sufficient to establish personal 5 jurisdiction. Radio Sys. Corp. v. Accession, Inc., 638 F.3d 785, 791 (Fed. Cir. 2011). 6 The Federal Circuit has noted that “in many patent declaratory judgment actions, the alleged 7 injury arises out of the threat of infringement as communicated in an infringement letter, and 8 the patentee may have little contact with the forum beyond this letter.” In this situation, the 9 Federal Circuit has held: 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 While such letters themselves might be expected to support an assertion of specific jurisdiction over the patentee because the letters are purposefully directed at the forum and the declaratory judgment action arises out of the letters, we have held that, based on policy considerations unique to the patent context, letters threatening suit for patent infringement sent to the alleged infringer by themselves do not suffice to create personal jurisdiction. This is because to exercise jurisdiction in such a situation would not comport with fair play and substantial justice. Principles of fair play and substantial justice afford a patentee sufficient latitude to inform others of its patent rights without subjecting itself to jurisdiction in a foreign forum. . . . Thus, for the exercise of personal jurisdiction to comport with fair play and substantial justice, there must be other activities directed at the forum and related to the cause of action besides the letters threatening an infringement suit. 18 Avocent, 552 F.3d at 1333 (citations and quotations omitted) (emphasis added). The “other 19 activities” identified in Avocent include “initiating judicial or extra-judicial patent enforcement 20 within the forum, or entering into an exclusive license agreement or other undertaking which 21 imposes enforcement obligations with a party residing or regularly doing business in the forum.” 22 Ibid. (emphasis added). 23 Plaintiff relies on two decisions to support its contention that personal jurisdiction is 24 proper. Both decisions fall short to displace clear and controlling Federal Circuit case law. 25 First, Wistron Corporation v. Phillip M. Adams & Assocs., LLC, 2011 WL 1654466 26 (N.D. Cal. April 28, 2011) (Chen, J.), is distinguishable. In that action, the court placed a great 27 deal of weight on the fact that the defendant had an exclusive licensing agreement with 28 Hewlett-Packard Company, a California corporation, and therefore had an obligation to 4 1 enforce the patent. The exclusive licensing agreement with a California corporation established 2 sufficient contacts with the forum state. These are not our facts. Our defendants are not alleged 3 to have an exclusive licensing agreement with a California corporation. 4 Second, plaintiff also cites Pharmanet, Inc. v. DataSci, LLC, 2009 WL 396180 (D.N.J. 5 Feb. 17, 2009) (Brown, J.), for the proposition that preparing and filing a lawsuit against a 6 resident company in the forum state is sufficient to establish personal jurisdiction. This decision 7 is not on point. The Federal Circuit has stated that “[w]e made clear in Avocent that enforcement 8 activities taking place outside the forum state do not give rise to personal jurisdiction in the 9 forum, and that decision is controlling. . . .” Radio Sys. Corp., 638 F.3d at 792. Moreover, the proposition that filing suit against a resident of the forum state is 11 For the Northern District of California United States District Court 10 insufficient to find personal jurisdiction is also supported by Juniper Networks, Inc. v. SSL 12 Servs., LLC, 2009 WL 3837266 (N.D. Cal. Nov. 16, 2009) (Armstrong, J.), aff’d, 2010 WL 13 5140471 (Fed. Cir. Dec. 13, 2010). The Juniper decision held that suing a California resident 14 in a Texas district court is insufficient to confer personal jurisdiction because the enforcement 15 activities took place in Texas. So too here. In this action, the enforcement activities, i.e., the 16 infringement suit, took place in Delaware, not California. Accordingly, plaintiff has failed to 17 identify “other activities” beyond sending the infringement letter, and thus has not established 18 that specific jurisdiction exists over defendants. 19 In a last-ditch attempt, plaintiff requests that it be allowed jurisdictional discovery to 20 determine if there is personal jurisdiction. Specifically, plaintiff seeks to shore up its jurisdiction 21 allegations by showing that defendants sent infringement letters into the forum state in bad faith. 22 This request is denied. The June 6 order allowed for limited discovery on the issue of personal 23 jurisdiction. Each side was allowed two three-hour depositions and ten narrowly framed 24 document requests (Dkt. No. 49). Plaintiff argues that “[p]revious jurisdictional discovery 25 ordered by this court and promulgated by plaintiff KSI was completely rebuffed by all 26 defendants.” If this were true, plaintiff should have met and conferred with opposing counsel 27 and raised this issue much sooner, as limited discovery closed July 27, rather than raising the 28 5 1 issue for the first time in its sur-reply brief. Accordingly, this order finds that additional 2 jurisdictional discovery is not justified. 3 Moreover, this order also takes notice of the procedural history of this action. 4 Plaintiff was sued in the District Court of Delaware over a patent for which it now seeks 5 declaratory relief for here. Plaintiff moved to have the Delaware action dismissed because it 6 contended that Delaware did not have personal jurisdiction over it. The Delaware action was 7 so dismissed. This is problematic for two reasons. 8 9 First, plaintiff had a chance to seek declaratory relief in the Delaware action and instead decided to roll the dice by having that action dismissed on personal jurisdiction grounds. Whether plaintiff considered the necessary requirement of establishing personal jurisdiction 11 For the Northern District of California United States District Court 10 over the defendants in this action is a mystery. This problem, however, was of plaintiff’s own 12 creation. Second, in the Delaware action, plaintiff protested that Delaware did not have personal 13 jurisdiction over it and now requests that defendants be haled into this forum without 14 demonstrating personal jurisdiction. Plaintiff cannot have it both ways. Plaintiff is required 15 to demonstrate that personal jurisdiction exists over each defendant here. Plaintiff has failed 16 to do so. As a result, plaintiff’s declaratory relief action is DISMISSED. 17 Because this order finds that personal jurisdiction is not proper, defendants’ arguments 18 regarding lack of subject-matter jurisdiction and failure to state a claim will not and need not be 19 decided. Additionally, in its opposition, plaintiff sought to amend its complaint to allege a claim 20 for violation of California Business & Professions Code Section 17200. First, plaintiff cannot 21 amend its complaint in its opposition. Second, this request is now moot given plaintiff’s failure 22 to establish personal jurisdiction over defendants. 23 24 25 26 27 28 6 1 2 3 CONCLUSION For the reasons mentioned above, defendants’ motion to dismiss is GRANTED. The Clerk shall close the file. 4 5 IT IS SO ORDERED. 6 7 Dated: November 29, 2012. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 8 9 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 7

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