Adobe Systems Incorporated v. Kelora Systems LLC

Filing 41

ORDER by Judge Claudia Wilken GRANTING DEFENDANTS 23 MOTION TO DISMISS. (ndr, COURT STAFF) (Filed on 12/7/2011)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 ADOBE SYSTEMS INCORPORATED, 5 6 7 8 9 No. C 11-3938 CW Plaintiff, ORDER GRANTING DEFENDANT’S MOTION TO DISMISS (Docket No. 23) v. KELORA SYSTEMS LLC, Defendant. ________________________________/ United States District Court For the Northern District of California 10 11 Plaintiff Adobe Systems Incorporated brings this action 12 against Defendant Kelora Systems, LLC seeking a declaratory 13 judgment of non-infringement, invalidity and intervening rights as 14 to all or part of U.S. Patent No. 6,275,821 (’821 patent). 15 moves to dismiss for lack of subject matter jurisdiction. 16 considered the parties’ submissions and oral arguments, the Court 17 GRANTS Kelora’s motion to dismiss. 18 19 Kelora Having BACKGROUND Kelora is the owner of the ’821 patent, which claims methods 20 related to executing a guided parametric search. 21 Complaint (1AC) ¶ 12. 22 programs for computers and electronics, including such 23 technologies as Acrobat, Flash and PostScript. 24 Adobe also provides web hosting and other merchandising and data 25 analytics services, such as through its Omniture business. 26 27 28 First Amended Adobe develops and sells many software Id. at ¶ 10. Id. On November 8, 2010, Kelora filed an action in the Western District of Wisconsin, Kelora v. Target, asserting infringement of the ’821 patent. 2 more than ten defendants, including OfficeMax, Incorporated, 3 retailers whom Kelora alleged infringed the ’821 patent by using 4 the patented search methods on their retail websites. 5 did not name or refer to Adobe in the Wisconsin action. 6 Adobe alleges that Kelora’s allegations against OfficeMax rest “at 7 least in part” on OfficeMax’s use of technology provided by Adobe. 8 Id. 9 produced by Kelora in Kelora v. Target, Wolff Decl. ¶ 4, Ex. E, 10 United States District Court For the Northern District of California 1 and states that Kelora purports to accuse the Adobe technology 11 licensed by OfficeMax in this chart, Opp., at 2. 12 claim chart does not refer to or mention Adobe or any other third- 13 party provider. 14 that its technology covers all steps contained in the claim chart, 15 nor has it provided evidence that it does. 16 stated that it provides its licensees with the core functionality 17 for the accused technology. 18 clients, rather than providing them the licensed technology, Adobe 19 maintains it on Adobe’s own servers and processes searches on the 20 clients’ websites itself, and that Kelora’s accusations thus 21 implicate not just Adobe’s technology but also its own actions. 22 Id. at ¶ 13.1 In the complaint, Kelora named Id. Kelora However, Adobe submits a copy of the claim chart for the ’821 patent However, the Adobe has also made no claim in its complaint At the hearing, Adobe Adobe also stated that, for some Kelora has also sent letters to at least thirty-two other 23 entities, alleging infringement of the ’821 patent. 24 Decl. ¶ 3. 25 allegations against these entities, whom Adobe describes as Id.; Wolff In Adobe’s complaint, it states that Kelora’s 26 27 28 1 The Wisconsin action was subsequently transferred to this Court and assigned No. C11-1548. 2 1 “purported licensees” of Adobe technology, are based on the use of 2 technology that appears to have been provided “at least in part” 3 by Adobe. 4 these “purported licensees” are actual licensees of Adobe 5 technology. 6 to four Adobe licensees. 7 In these letters, Kelora states that the company to whom the 8 letter is addressed has infringed the ’821 patent through its use 9 of parametric search on its website. 1AC, at ¶ 13. At the hearing, Adobe clarified that Adobe has provided copies of letters sent by Kelora See Wolff Decl. ¶ 3, Exs. A, B, C, D. None of the letters refers United States District Court For the Northern District of California 10 to Adobe or any other specific provider of search functionality. 11 See Wolff Decl. ¶ 3, Exs. C, D. 12 indemnification demands from some of its licensees who have been 13 approached or sued by Kelora. 14 allege that it has a legal obligation to provide indemnification 15 to its licensees or provide evidence that it does. 16 hearing, Adobe stated that its contracts with its licensees 17 contain terms that legally oblige Adobe to indemnify its licensees 18 against claims such as those brought by Kelora. 19 Adobe has received Wolff Decl. ¶ 3. Adobe did not At the On August 11, 2011, in Kelora v. Target, C11-1548,2 OfficeMax 20 filed a third-party complaint against Adobe, alleging that 21 OfficeMax had, through its predecessor company, contracted with an 22 23 24 25 26 27 2 A court may consider “matters of judicial notice” without converting a motion to dismiss into a motion for summary judgment. United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Facts are judicially noticeable if they are “capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably questioned.” Id. The publicly available docket entries in Kelora v. Target are thus subject to judicial notice. 28 3 1 entity now owned by Adobe, for various search tools and 2 professional services, which serve the basis of Kelora’s suit 3 against OfficeMax. 4 No. 335, ¶¶ 6-9. 5 that Adobe had a duty to defend and indemnify OfficeMax for its 6 expenses in defending against Kelora’s action and for any 7 settlement or judgment arising therefrom, under the terms of 8 certain agreements between OfficeMax and Adobe. 9 OfficeMax further alleged that Adobe has not agreed fully to Third-Party Complaint in C11-1548, Docket In the third-party complaint, OfficeMax alleged Id. at ¶¶ 13-14. United States District Court For the Northern District of California 10 indemnify and defend OfficeMax from Kelora’s lawsuit. 11 ¶ 10. 12 stating that on August 5, 2011, Adobe “accepted the tender of 13 defense and indemnity from OfficeMax regarding the infringement 14 claims” and that OfficeMax acknowledged this on August 8, 2011. 15 Wolff Decl. ¶ 2. 16 Adobe had done so pursuant to a legal obligation to indemnify 17 OfficeMax. 18 its third-party complaint against Adobe without prejudice. 19 On August 10, 2011, Adobe filed this action under the 20 Declaratory Judgment Act, 28 U.S.C. § 2201, “so that Adobe may 21 ascertain its rights regarding the ’821 patent.” 22 seeks declaratory judgment that Adobe technology does not infringe 23 on the ’821 patent, and of invalidity and intervening rights. 24 Kelora now moves to dismiss Adobe’s complaint, arguing that the 25 Court lacks subject matter jurisdiction over it because there is 26 no substantial controversy between itself and Adobe. Id. at Adobe has submitted a declaration in the instant case Notably, the declaration does not state that On November 30, 2011, OfficeMax voluntarily dismissed 27 28 4 1AC ¶ 22. Adobe 1 2 LEGAL STANDARD Subject matter jurisdiction is a threshold issue which goes 3 to the power of the court to hear the case. 4 matter jurisdiction must exist at the time the action is 5 commenced. 6 Equalization, 858 F.2d 1376, 1380 (9th Cir. 1988). 7 court is presumed to lack subject matter jurisdiction until the 8 contrary affirmatively appears. 9 Tribes, 873 F.2d 1221, 1225 (9th Cir. 1989). Federal subject Morongo Band of Mission Indians v. Cal. State Bd. of A federal Stock W., Inc. v. Confederated United States District Court For the Northern District of California 10 Dismissal is appropriate under Rule 12(b)(1) when the 11 district court lacks subject matter jurisdiction over the claim. 12 Fed. R. Civ. P. 12(b)(1). 13 1ACial attack on the sufficiency of the pleadings to establish 14 federal jurisdiction, or allege an actual lack of jurisdiction 15 which exists despite the formal sufficiency of the complaint. 16 Thornhill Publ'g Co. v. Gen. Tel. & Elecs. Corp., 594 F.2d 730, 17 733 (9th Cir. 1979); Roberts v. Corrothers, 812 F.2d 1173, 1177 18 (9th Cir. 1987). 19 actual lack of jurisdiction, the plaintiff “must furnish 20 affidavits or other evidence necessary to satisfy its burden of 21 establishing subject matter jurisdiction.” 22 Union High Sch., 343 F.3d 1036, 1039 n.2 (9th Cir. 2003). 23 24 A Rule 12(b)(1) motion may either be a Once the defendant has introduced evidence of an Savage v. Glendale DISCUSSION The Declaratory Judgment Act, in accordance with Article III 25 of the Constitution, requires an “actual controversy” before the 26 Court “may declare the rights and other legal relations of any 27 interested party seeking such declaration.” 28 A plaintiff may establish that jurisdiction is proper only where 5 28 U.S.C. § 2201(a). 1 “the facts alleged, under all the circumstances, show that there 2 is a substantial controversy, between parties having adverse legal 3 interests, of sufficient immediacy and reality to warrant the 4 issuance of a declaratory judgment.” 5 Genentech, Inc., 549 U.S. 118, 127 (2007) (citing Md. Casualty Co. 6 v. Pacific Coal & Oil Co., 312 U.S. 270 (1941)). 7 legal interest” requires a “dispute as to a legal right--for 8 example, an underlying legal cause of action that the declaratory 9 defendant could have brought or threatened to bring.” MedImmune, Inc. v. This “adverse Arris Group United States District Court For the Northern District of California 10 Inc. v. British Telecommunications PLC, 639 F.3d 1368, 1374 (Fed. 11 Cir. 2011). 12 “unique and substantial discretion in deciding whether to declare 13 the rights of litigants.” 14 (internal citations omitted). 15 Under the “all the circumstances” test, courts have MedImmune, Inc., 549 U.S. at 136 “Prior to MedImmune, the Federal Circuit generally required 16 that a declaratory judgment plaintiff in a patent dispute 17 demonstrate: ‘(1) conduct by the patentee that created a 18 ‘reasonable apprehension’ of suit on the part of the declaratory 19 judgment plaintiff and (2) present activity by the declaratory 20 judgment plaintiff that could constitute infringement or 21 ‘meaningful preparation’ to conduct potentially infringing 22 activity.’” 23 2011 WL 4915847, at *2 (N.D. Cal.) (quoting Prasco, LLC v. Medicis 24 Pharm. Corp., 537 F.3d 1329, 1336 (Fed. Cir. 2008). 25 MedImmune requires courts to eschew bright-line rules for 26 exercising declaratory jurisdiction, numerous decisions have found 27 that the factors included in the Federal Circuit's previous two- 28 part test remain relevant to the ‘all the circumstances’ Proofpoint, Inc. v. Innova Patent Licensing, LLC, 6 “Although 1 analysis.” 2 MedImmune decision “lowered the bar for a plaintiff to bring a 3 declaratory judgment action in a patent dispute.” 4 Nanya Technology Corp., 2008 WL 3539503, at *3 (N.D. Cal.) 5 (quoting Frederick Goldman, Inc. v. West, 2007 WL 1989291, at *3 6 (S.D. N.Y.)) (internal formatting omitted). 7 has more recently held that, while MedImmune did relax the prior 8 rule, “declaratory judgment jurisdiction will not arise merely on 9 the basis that a party learns of the existence of an adversely Id. This Court has previously recognized that the Fujitsu Ltd. v. The Federal Circuit United States District Court For the Northern District of California 10 held patent, or even perceives that such a patent poses a risk of 11 infringement, in the absence of some affirmative act by the 12 patentee” directed at the specific plaintiffs. 13 Molecular Pathology v. United States PTO, 653 F.3d 1329, 1344, 14 1348 (Fed. Cir. 2011). Adobe argues that declaratory jurisdiction is appropriate 15 Ass'n for 16 because (1) Kelora’s claims against Adobe’s licensees exposes 17 Adobe itself to claims for direct and indirect infringement; and 18 (2) Kelora’s claims against Adobe’s licensees triggers a duty by 19 Adobe to defend and indemnify them against Kelora’s claims. 20 I. Jurisdiction Based on Exposure to Liability 21 In order to establish an “actual controversy” based on 22 23 enforcement activity by a patent holder, the plaintiff seeking 24 declaratory judgment must show that the patent holder took some 25 affirmative acts directed at that plaintiff, not just broad and 26 widespread enforcement activity. 27 Pathology, 653 F.3d at 1344-48; see also Proofpoint, 2011 WL See Ass’n for Molecular 28 7 1 4915847, at *3 (relying on Ass’n for Molecular Pathology to find 2 no affirmative acts supporting declaratory judgment jurisdiction 3 where there were no allegations that the patent holder “claimed a 4 right to a royalty from [the supplier], sent [the supplier] a 5 cease-and-desist letter, or communicated with [the supplier’s] 6 employees”). Here, Adobe has not alleged that Kelora has 7 communicated with Adobe at all before Adobe instituted this suit. 8 9 Further, while Kelora contacted some Adobe customers, the evidence United States District Court For the Northern District of California 10 that Adobe has put forward shows that Kelora did not mention Adobe 11 in those third-party communications or state that Adobe’s products 12 were the basis for the enforcement actions against those third 13 parties. 14 not directly contact the plaintiff, the patentee’s demand letters In the cases cited by Adobe, although the patentee did 15 to the plaintiff’s clients specifically referred to the plaintiff 16 or its products by name and identified the products and services 17 18 provided by the plaintiff as the infringing items. 19 Group, Inc., 639 F.3d at 1377 (describing in depth how “BT 20 explicitly and repeatedly singled out Arris’ products used in 21 Cable One’s network to support its infringement contentions” 22 before finding that, under all of the circumstances, there was a 23 See Arris dispute between Arris and BT sufficient to constitute a case or 24 controversy); D&R Communications, LLC v. Garrett, 2011 WL 2418246, 25 26 at *4 (D. N.J.) (finding jurisdiction based on Garrett’s letters 27 to D&R’s clients alleging that D&R products and services violated 28 Garrett’s patent); Microsoft Corp. v. Phoenix Solutions, Inc., 741 8 1 F. Supp. 2d 1156, 1157-61 (C.D. Cal. 2010) (finding an actual 2 controversy between Phoenix and Microsoft where “Phoenix 3 specifically alleges that the Tellme IVR system provided by 4 Microsoft to American Express infringes the patents-in-suit”); 5 Arrowhead Industrial Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 6 736 (Fed. Cir. 1988) (letters to a customer “citing Arrowhead and 7 only Arrowhead and saying Arrowhead is not licensed”). 8 9 Further, in cases where a court found a controversy based on United States District Court For the Northern District of California 10 infringement claims made against a declaratory plaintiff’s 11 customers, the defendant asserted infringement claims against the 12 customers based on facts which, if proven, would compel the 13 conclusion that the plaintiff itself had also directly infringed. 14 While Adobe stated at the hearing that it provided its customers 15 with all of the technology that Kelora alleges is infringing, this 16 was not alleged in the complaint or demonstrated by the evidence 17 18 that Adobe submitted with its opposition. 19 the claims chart produced by Kelora in Kelora’s case against 20 OfficeMax and says that Kelora’s claims are based on the search 21 techniques that OfficeMax uses on its website, Adobe does not make 22 clear which steps on the claims chart are performed using Adobe’s 23 While Adobe points to technology and states that Kelora’s accusations rest “in part on 24 the alleged use . . . of Adobe technology.” Opp. at 5. 25 26 Accordingly, Adobe has not made a showing that a finding of 27 infringement on the part of OfficeMax or any of its other 28 customers would necessarily imply that Adobe has also infringed, 9 1 or, conversely, that a finding that Adobe’s products do not 2 infringe would necessarily imply that its customers do not use 3 Adobe’s products in an infringing way. 4 5 6 Adobe has also not made allegations or presented evidence sufficient to support a finding that there is a controversy as to its liability for contributory infringement. “To establish 7 contributory infringement, a patent owner must show: ‘(1) that 8 9 there is direct infringement, 2) that the accused infringer had United States District Court For the Northern District of California 10 knowledge of the patent, 3) that the component has no substantial 11 noninfringing uses, and 4) that the component is a material part 12 of the invention.’” 13 (quoting Fujitsu Ltd. v. Netgear Inc., 620 F.3d 1321, 1326 (Fed. 14 Cir. 2010)). Proofpoint, 2011 WL 4915847, at *5 n.4 Adobe has not alleged, or pointed to allegations, 15 that its products cannot be used without infringing the ’821 16 patent and there is no indication that Adobe had the requisite 17 18 knowledge or intent for indirect infringement. 19 Inc. v. Data Drive Thru, Inc., 645 F. Supp. 2d 830, 839 (N.D. Cal. 20 2009) (“The Federal Circuit held there was no indication that 21 Microchip had contributed to or induced infringement by its 22 customers, because there was no evidence that Microchip's 23 See Ours Tech., technology could not be used without infringing Chamberlain's 24 patent or that Microchip had the required level of intent to cause 25 26 and encourage the alleged infringement.”) (citing Microchip Tech. 27 Inc. v. Chamberlain Group, Inc., 441 F.3d 936, 944 (Fed. Cir. 28 2006)). 10 1 However, given Adobe’s representations at the hearing that it 2 does in fact provide, and in some cases, continue to maintain all 3 of the technology that Kelora alleges is infringing, it appears 4 that Adobe will be able truthfully to amend its complaint to 5 remedy these deficiencies. 6 II. Jurisdiction based on Duty to Indemnify 7 Adobe argues that it has a separate basis for jurisdiction 8 based on its duty to indemnify its licensees against Kelora’s 9 claims. Adobe bases its argument that indemnity is an alternative United States District Court For the Northern District of California 10 basis for declaratory judgment on the Federal Circuit’s language 11 in Arris, in which the court stated, 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 that, where a patent holder accuses customers of direct infringement based on the sale or use of a supplier's equipment, the supplier has standing to commence a declaratory judgment action if (a) the supplier is obligated to indemnify its customers from infringement liability, or (b) there is a controversy between the patentee and the supplier as to the supplier's liability for induced or contributory infringement based on the alleged acts of direct infringement by its customers. Arris, 639 F.3d at 1375. However, in that case, the court did not reach the issue of subject matter jurisdiction based on indemnification obligations, because it found that jurisdiction under the second prong. Id. At least one court has found subject matter jurisdiction where there was a clear legal obligation to indemnify customers. See WS Packaging Group, Inc. v. Global Commerce Group, 505 F. Supp. 2d 561, 566-67 (E.D. Wis. 2007) (declaratory action plaintiff had a clear obligation to indemnify customers under the Wisconsin UCC and there was imminent personal threat of lawsuits against plaintiff’s clients). However, courts have been unwilling 11 1 to find jurisdiction where there have been “mere allegations of 2 indemnity obligations,” instead of a clear legal obligation. 3 Proofpoint, 2011 WL 4915847, at *5 (declining to find an actual 4 controversy where plaintiff “has not alleged the existence of a 5 valid agreement nor described its supposed obligations,” but has 6 only indicated that the prosecution activities have “spawned 7 indemnity ‘requests’”). 8 (“Microchip has not produced any agreement indemnifying a customer 9 against infringement of the patents-in-suit.”); Ours Technology, See also Microchip, 441 F.3d at 944 United States District Court For the Northern District of California 10 Inc., 645 F. Supp. 2d at 839 (declining to find an actual 11 controversy where “the court has been provided with no agreement 12 or other written document evidencing a legal basis for the 13 [customers] to have been indemnified by OTI” and thus the fact 14 that OTI agreed to indemnify them “fails to carry any weight, let 15 alone enough weight to create an adverse legal interest”). 16 Here, Adobe has not alleged or demonstrated that it has any 17 legal obligation to indemnify OfficeMax or any other customer. 18 Thus, even though Adobe had agreed to indemnify OfficeMax, it may 19 have volunteered to do so, without a legal obligation. 20 Accordingly, the indemnification demands do not give rise to 21 subject matter jurisdiction by themselves. 22 stated at the hearing that it is contractually obliged to 23 indemnify its licensees, it appears that Adobe will be able to 24 easily remedy this deficiency. 25 26 However, because Adobe CONCLUSION For the foregoing reasons, Kelora’s motion to dismiss (Docket 27 No. 23) is GRANTED with leave to amend. 28 on Kelora a second amended complaint within seven days of the date 12 Adobe may file and serve 1 of this Order. 2 amended complaint within seven days thereafter. 3 motion to dismiss will be decided on the papers. 4 Kelora may file a motion to dismiss the second Any subsequent IT IS SO ORDERED. 5 6 7 Dated: 12/7/2011 CLAUDIA WILKEN United States District Judge 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13

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