University of Kentucky Research Foundation, Inc. v. Niadyne, Inc.
MEMORANDUM OPINION & ORDER: (1) The University of Kentucky Research Foundation's Motion to Remand (R. 6 ) is GRANTED; (2) Niadyne's Motion Requesting Leave to File Surreply or Alternatively Strike Plaintiff/Counterclaim Defendant's Reply Memorandum in Support of Motion to Remand (R. 13 ) is DENIED, as moot; (3) The University of Kentucky's Research Foundation's request for attorney's fees and costs is DENIED; and (4) This case is REMANDED to the Franklin Circuit Court and STRICKEN from the Court's active docket. Signed by Judge Gregory F. Van Tatenhove on 11/5/2013.(AKR)cc: COR, Franklin Circuit Clerk
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
UNIVERSITY OF KENTUCKY
RESEARCH FOUNDATION, INC.,
Civil No.: 13-16-GFVT
The University of Kentucky Research Foundation brought suit in state court claiming that
Niadyne breached their licensing agreement in failing to sufficiently report sales and pay
royalties on products that utilize certain patented niacin molecules possessing cosmetic and
medicinal skin repairing properties. Niadyne, however, has added a wrinkle to what UKRF
claims to be a facially simple breach of contract action. Several months after filing its original
answer, Niadyne entered an amended answer that asserted counterclaims for declaratory
judgment of noninfringement based on patent exhaustion and patent misuse. [R. 1-2 at 27-29].
Niadyne then removed the case to federal court on the grounds of federal question jurisdiction.
[R. 1]. UKRF now moves this Court to remand the case to state court because there is no federal
question, removal is untimely, and immunity bars Niadyne’s counterclaims. [R. 6]. The Court,
having reviewed the record and considered the motions of the parties, now GRANTS the
University of Kentucky Research Foundation’s Motion and REMANDS this case to Franklin
The University of Kentucky Research Foundation is a non-profit corporation controlled
by the University of Kentucky and chartered to promote education and research. UKRF owns
the rights to the so-called Jacobson Patents on certain niacin molecules with skin repairing
properties that are used in cosmetic and medicinal creams. Niadyne is a corporation “involved in
the discovery of uniquely efficacious molecules that penetrate the skin to address unmet health
care needs.” [R. 1-4 at 6]. On June 10, 1998, UKRF and Niadyne entered into a licensing
agreement, wherein UKRF granted Niadyne an exclusive license for the aforementioned
molecular technology in exchange for Niadyne’s promise to commercially develop and pay
royalties on it. Of particular importance to this claim, Paragraph 4.1 of the agreement stated that
the “LICENSEE” shall pay UKRF “a royalty in the amount of two percent (2%) of the Net Sales
Price” of products and processes it used, leased, or sold.” [R. 1-4 at 22-23]. Under the
agreement, the “LICENSEE” includes Niadyne and any of its affiliates or subsidiaries. [R. 1-4 at
18]. In addition, the licensing agreement required Niadyne to provide UKRF semi-annual
reports of transactions involving the patented molecular technology in order to enable UKRF to
conduct an accounting of the royalties due them. [R. 1-4 at 8-9].
After the parties entered into this licensing agreement and its later amendment, UKRF
claims that, through a series of merger transactions, Niadyne became affiliated with StriVectin
Operating Company and Catterton Partners. In the view of UKRF, Niadyne permitted both of
these affiliates to use the patented molecular technology in the sale of products and processes
without disclosing or paying royalties from their transactions, which violates the license
agreement. Further, UKRF claims that Niadyne engaged in the bulk sale of licensed products to
StriVectin using artificially low transfer pricing, resulting in under-reporting of royalties.
Altogether, UKRF claims that Niadyne’s breach of the licensing agreement has resulted in over
two million dollars in unpaid royalties from the products and processes incorporating the
Not surprisingly, Niadyne characterizes these events differently. According to Niadyne,
it “sells patented molecule products in bulk to third-party aggregators who incorporate the
patented molecule as an ingredient in a formulation to arrive at the finished skin care products
that are sold and delivered to StriVectin by the third-party aggregator.” [R. 9 at 1]. In other
words, Niadyne claims that it engaged in an arms-length transaction for the sale of bulk molecule
products to another company, who then used them to create a product that was purchased and
subsequently sold by StriVectin. In Niadyne’s view, StriVectin’s sale of its skin care products is
down stream of Niadyne’s initial sale of the bulk molecule products to the third-party aggregator
and so no royalty must be paid under the licensing agreement. Thus, Niadyne argues that when
it reported to UKRF all authorized sales of molecule products to third-party manufacturers and
paid the required royalties on those sales, UKRF’s patent and license rights were exhausted, such
that it was entitled to no additional accounting or royalties.
On October 31, 2011, general counsel for UKRF sent a letter to Niadyne addressing this
difference of opinion. [R. 9-1 at 1-2]. The express purpose of the letter was to “begin a dialogue
with Niadyne in connection with the license agreement between UKRF and Niadyne, Inc.” [Id. at
1]. The letter went on to specify UKRF’s concerns that Niadyne had not been paying royalties to
UKRF, as required under the license agreement. The record also contains a second letter from
UKRF’s outside counsel dated January 6, 2012, which suggests the dialogue had not gone well.
[R. 9-1 at 3-4]. The express purpose of this letter was to “demand immediate correction of
[Niadyne’s] defaults under the License Agreement dated June 10, 1998 between UKRF and
Niadyne.” [R. 9-1 at 3]. The letter specified that Niadyne had breached the license agreement by
failing to pay royalties and bring to market and exploit the intellectual property rights as required
under the agreement. The letter concludes, “[i]f Niadyne fails to take immediate actions to
correct its defaults, UKRF will pursue all available rights and remedies under the license
agreement and otherwise, including without limitation terminating the License Agreement and
filing a legal action for an accounting and damages.” [Id.]
True to their word, UKRF filed suit in Franklin Circuit Court on June 20, 2012, alleging
breach of the license agreement under state contract law. [R. 1-4 at 5]. Niadyne countered with
a motion to dismiss, which was denied on November 14, 2012. [R. 1-3 at 1-10]. Subsequently,
on November 26, 2012, Niadyne filed its answer to the complaint and the parties commenced
discovery pursuant to the scheduling order entered by the state court. [R. 1-3 at 1; R. 1-2 at 52].
On March 1, 2013, Niadyne filed a motion for leave to amend its answer, which UKRF did not
contest. [R. 1-2 at 1, 9]. In its amended answer, Niadyne brought, among other things,
counterclaims for declaratory judgment of noninfringement based on patent exhaustion and
patent misuse. [R. 1-2 at 21-29]. On March 26, 2013, nine (9) months after the original
complaint was filed but less than thirty (30) days after the amended answer was filed, Niadyne
removed this case to federal court. [R. 1]. UKRF has now countered with the motion to remand
that is presently pending. [R. 6].
UKRF argues that remand is warranted in this case because neither the complaint nor the
counterclaim raises a federal question sufficient to support federal jurisdiction, and even if either
did, remand would be required because Niadyne’s removal was untimely. As these two
arguments are ultimately interrelated, the Court shall consider them jointly.
“Federal courts are courts of limited jurisdiction, possessing only that power authorized
by Constitution and statute.” Gunn v. Minton, 133 S. Ct. 1059, 1064 (2013) (quoting Kokkonen v.
Guardian Life Ins. Co. of America, 511 U.S. 375, 377 (1994)) (internal quotation marks
omitted). Pursuant to 28 U.S.C. § 1331, Congress has opened the doors of the federal courts to
“all civil actions arising under the Constitution, laws, or treaties of the United States.” 28 U.S.C.
§ 1331. In addition, Congress has also granted to federal courts statutory original jurisdiction to
hear “any civil action arising under any Act of Congress relating to patents.” 28 U.S.C. § 1338.
When a claim is brought in state court over which a federal court would have original
jurisdiction on these grounds, the case may be removed to federal court under 28 U.S.C. § 1441,
so long as removal is effectuated in accordance with the procedure outlined in § 1446. 28 U.S.C.
§ 1441 (“any civil action brought in a State court of which the district courts of the United States
have original jurisdiction, may be removed by the defendant or the defendants, to the district
court of the United States for the district and division embracing the place where such action is
In making jurisdictional determinations, the Supreme Court has interpreted the phrase
“arising under” in § 1331 and § 1338(a) to have the identical meaning such that the Court’s
precedents for each may be used interchangeably. Gunn, 133 S. Ct. at 1064, (citing Christianson
v. Colt Industries Operating Corp., 486 U.S. 800, 808–809 (1988)). To determine whether a
claim “arises under” federal law so as to provide jurisdiction under these statutory provisions,
courts employ the “well-pleaded complaint” rule. Roddy v. Grand Trunk W. R.R. Inc., 395 F.3d
318, 322 (6th Cir. 2005) (citing Loftis v. United Parcel Serv., Inc., 342 F.3d 509, 514 (6th Cir.
2003)). Under this rule, “[f]ederal jurisdiction exists only when a federal question is presented
on the face of the plaintiff's properly pleaded complaint.” Id. at 322 (citing Caterpillar, Inc. v.
Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987)). AThe well-pleaded
complaint rule recognizes that the plaintiff is the master of his complaint. Accordingly, if the
plaintiff chooses to bring a state law claim, that claim generally cannot be >recharacterized= as a
federal claim for the purpose of removal.@ Id. (citations omitted).
Niadyne argues that it may remove this case to federal court because federal patent
claims are at issue and federal courts have exclusive jurisdiction over such claims. In its motion
to remand, UKRF maintains that its claims are for breach of the licensing agreement, and
therefore its suit is a general state law breach of contract action that only happens to involve a
dispute over patents. Further, UKRF states that Niadyne’s counterclaims are not relevant to the
jurisdictional analysis. Of course, in reviewing a motion to remand, the defendant bears the
burden of showing that removal was proper. Rogers v. Wal-Mart, 230 F.3d 868, 871 (6th Cir.
2000). Any doubts regarding federal jurisdiction should be construed in favor of remanding the
case to state court. Shamrock Oil & Gas Corp. v. Sheets, 313 U.S. 100, 109 (1941); Walsh v.
American Airlines, Inc., 264 F. Supp. 514, 515 (E.D. Ky. 1967).
It has long been noted that a case does not automatically “arise under” federal law simply
because a patent is implicated in an action. See Gunn, 133 S. Ct. at 1068 (2013) (quoting New
Marshall Engine Co. v. Marshall Engine Co., 223 U.S. 473, 478 (1912) (“As we recognized a
century ago, ‘[t]he Federal courts have exclusive jurisdiction of all cases arising under the patent
laws, but not of all questions in which a patent may be the subject-matter of the controversy.’”).
The Sixth Circuit has distinguished “between a patent claim which arises under federal statutes
relating to patents and which requires the court to interpret the validity and scope of a particular
patent within section 1338, and a contract claim in which patent issues are merely incidentally
implicated.” Boggild v. Kenner Products, Div. of CPG Products Corp., 853 F.2d 465, 468 (6th
Cir. 1988) (emphasis in original). In the latter circumstance, “[a] case does not arise under the
patent laws merely because questions of patent law may arise in the course of interpreting a
contract.” Id. at 468 (6th Cir. 1988) (Combs v. Plough, Inc., 681 F.2d 469, 470 (6th Cir.1982)
UKRF’s complaint goes to some lengths to carefully frame its complaint in terms of
claims for breach of contract rather than for patent infringement. Starting from the face of the
complaint, all four counts are labeled as “Breach of License Agreement.” [R. 1-4 at 12-13].
Substantively, in these counts, UKRF is alleging that Niadyne has breached the license
agreement for: (1) failing to pay all the royalties as required by Paragraph 4.1; (2) failing to
provide true and accurate reports pertinent to a royalty accounting as required under Paragraph
5.2; and (3) failing to use due diligence to develop and market products incorporating the
molecular technology as required under Paragraph 8.4. [Id.] UKRF also included a contractual
indemnity claim pursuant to Section 10.01 of the license agreement. [R. 1-4 at 13-14].
Noteably, each of these claims are tied to violations of particular provisions of the license
agreement. Also, the underlying issue of each of these claims, as extrapolated from the facts of
the complaint and characterized by UKRF in its Reply, is whether StriVectin and Catterton
Partners are affiliates for the purposes of the license agreement, such that Niadyne was required
to pay royalties and give an accounting for their transactions involving the patented molecular
technology. Thus, while patents are certainly involved in these claims, the action stated by
UKRF in its complaint is actually one for breach of contract, which arises under and would be
resolved according to state contract law rather than federal patent law.
Niadyne does not seem to fully dispute this analysis, conceding, “UKRF is correct in
stating that Niadyne has not claimed that UKRF asserted a claim of patent infringement against
Niadyne in the original complaint, although UKRF’s factual allegations…clearly implicate the
patent laws.” [R. 9 at 6]. Instead, Niadyne’s primary argument is that it has essentially created
federal jurisdiction by asserting counterclaims for a declaratory judgment that it did not infringe
on UKRF’s patent rights. Specifically, Niadyne seeks a court determination to verify its belief
that when it made payments on the transactions with third-party aggregators, it exhausted
UKRF’s patent and license rights, and UKRF’s demands for further royalties constitute an
exploitation of the Jacobson Patents in a manner that violates patent laws. These counterclaims,
Niadyne maintains, do arise under federal patent law and give this Court jurisdiction.
Until quite recently, such an argument would not have been available to Niadyne. It was
long settled that, “a case is not within our ‘arising under’ jurisdiction if the assertion of
noninfringement is merely a defense to a state contract action brought by a licensor to enforce a
license agreement.” Cordis Corp. v. Medtronic, Inc., 835 F.2d 859, 862 (Fed. Cir. 1987) (citing
C.R. Bard, Inc. v. Schwartz, 716 F.2d 874, 879 (Fed.Cir. 1983)). The Supreme Court expressly
extended that rule to the context of a counterclaim. In Holmes Grp., Inc. v. Vornado Air
Circulation Sys., Inc., which is somewhat factually similar to this case, the defendant argued
“that the well-pleaded-complaint rule, properly understood, allows a counterclaim to serve as the
basis for a district court's ‘arising under’ jurisdiction.” 535 U.S. 826, 830 (2002). The Supreme
Court disagreed. Justice Scalia, writing for a majority of the Court, recognized that under the
well-pleaded complaint rule, “whether a case arises under federal patent law cannot depend upon
the answer.” Id. at 831 (citing The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25 (1913))
(internal quotation marks omitted). In the Court’s view, if a case could become removable upon
the strength of a counterclaim, the plaintiff would no longer be the master of the complaint and
the removal jurisdiction of the federal judiciary would be radically expanded. Thus, the Supreme
Court held that a “counterclaim-which appears as part of the defendant's answer, not as part of
the plaintiff's complaint-cannot serve as the basis for ‘arising under’ jurisdiction. Id. As a result,
district courts have traditionally remanded cases where the basis for federal question jurisdiction
was, like Niadyne’s, found only in the declaratory judgment counterclaim. See, e.g., Green Edge
Enterprises, L.L.C. v. Int'l Mulch Co., Inc., No. 4:09 CV 120 DDN, 2009 WL 882090 (E.D. Mo.
Mar. 30, 2009).
However, in 2011, Congress passed the Leahy-Smith America Invents Act, which
included “the so-called Holmes Group fix,” that had the effect of abrogating Holmes Grp., Inc. v.
Vornado Air Circulation Sys., Inc. by allowing counterclaims arising under federal patent law to
provide grounds for federal removal jurisdiction. Joe Matal, A Guide to the Legislative History
of the America Invents Act: Part II of II, 21 Fed. Circuit B.J. 539 (2012) (citing H.R. No. 112-98,
at 81 (2011); Leahy-Smith American Invents Act, sec. 19, 125 Stat. at 332; 157 Cong. Rec.
S1378 (daily ed. Mar. 8, 2011) (statement of Senator Kyl)). Specific to this case, the Act created
28 U.S.C. § 1454, which provides in relevant part that, “[a] civil action in which any party
asserts a claim for relief arising under any Act of Congress relating to patents, plant variety
protection, or copyrights may be removed to the district court of the United States for the district
and division embracing the place where the action is pending.” 28 U.S.C. § 1454(a) (emphasis
added). Though less than a handful of courts have had occasion to consider Section 1454, and
none on this particular issue, the text, legislative history, and scholarship agree that this statute
modifies federal court jurisdiction so that intellectual property counterclaims arising under
federal law will not be remanded simply because they are counterclaims. In other words, by
enacting Section 1454, Congress has broadened federal court removal jurisdiction to better
ensure that whenever claims arise under federal patent law, they are removable, irrespective of
who asserted them. Thus, Niadyne’s counterclaim for declaratory judgment may serve as the
basis for federal removal jurisdiction so long as it arises under federal patent law.
The task of discerning whether Niadyne’s counterclaims arise under federal law is
complicated by the fact that they are counterclaims for declaratory judgment. In determining
whether a claim for declaratory judgment arises under federal law, courts have adapted the wellpleaded complaint rule to more appropriately apply to the declaratory judgment context. The
Sixth Circuit has characterized this modified rule as follows:
In determining whether there is federal subject matter jurisdiction for declaratory
judgment actions: It is the character of the threatened action, and not of the
defense, which will determine whether there is federal-question jurisdiction in the
District Court. In other words, the court examines the declaratory defendant's
hypothetical well-pleaded complaint to determine if subject matter jurisdiction
ABB Inc. v. Cooper Indus., LLC, 635 F.3d 1345, 1349 (Fed. Cir. 2011) (citing Pub. Serv.
Comm'n of Utah v. Wycoff Co., 344 U.S. 237, 248 (1952); Franchise Tax Bd. of State of Cal. v.
Constr. Laborers Vacation Trust for S. California, 463 U.S.1, 16-19 (1983); Skelly Oil Co. v.
Phillips Petroleum Co., 339 U.S. 667, 671–72 (1950)); see also Speedco, Inc. v. Estes, 853 F.2d
909, 912 (Fed.Cir. 1988) (applying, under Skelly Oil, “the well-pleaded complaint rule not to the
declaratory judgment complaint, but to the action that the declaratory defendant would have
In evaluating Niadyne’s declaratory judgment counterclaim under this rule, the relevant
focus is not on Niadyne’s claim for declaratory judgment, but on the hypothetical complaint
expressing the threatened action that UKRF (the declaratory defendant) would have brought
against Niadyne (the declaratory judgment plaintiff). Niadyne seeks a declaration that it did not
infringe on UKRF’s patent rights. Niadyne claims that such a declaration is necessary because
UKRF has demonstrated assertiveness in attempting to enforce its alleged patent rights.
Specifically, Niadyne references threatening actions taken by UKRF, including two letters in
which “UKRF asserted its rights and threatened termination as a prelude to this litigation.” [R. 9
at 7 (citing the letters attached as exhibits at R. 9-1)]. Further, once UKRF initiated the
litigation, Niadyne interpreted the facts of the complaint to state, “in essence that such finished
product sales by Niadyne’s bulk product customers are infringement of UKRF’s patent rights.”
[R. 9 at 3]. Based on these facts, Niadyne argues the hypothetical coercive complaint that UKRF
would have asserted and which prompted Niadyne’s claim for declaratory judgment, would be
for patent infringement. Were Niadyne correct, “[i]t is well-established that a claim for
infringement arises under federal law.” ABB Inc., 635 F.3d at 1350 (Fed. Cir. 2011).
Though UKRF forcefully responds that the declaratory judgment counterclaims do not
arise under federal law and that they do not constitute an actual controversy involving
infringement,1 the Court need not wander any further into that particular legal morass. Niadyne
has set forth the facts that it believes raises a federal question and makes this case removable.
Even assuming Niadyne is correct, as shall be explained, the fact that Niadyne had actual notice
of this information more than thirty days prior to its removal, requires remand anyway.
It is not enough to simply arrive at federal court with a federal claim – a removing party
must also be on time. Setting forth the procedural rules governing remand, 28 U.S.C §1446(b)
states in part that, “[t]he notice of removal of a civil action or proceeding shall be filed within 30
days after the receipt by the defendant, through service or otherwise, of a copy of the initial
pleading setting forth the claim for relief upon which such action or proceeding is based….” 28
U.S.C. § 1446(b)(1). However, “if the case stated by the initial pleading is not removable, a
UKRF cites ABB Inc., 635 F.3d 1345 and Speedco, Inc., 853 F.2d at 913 for the proposition that courts may refuse
jurisdiction over a declaratory judgment claim for patent infringement upon a finding that there is no actual
controversy surrounding infringement, and the dispute is really about contract interpretation.
notice of removal may be filed within 30 days after receipt by the defendant, through service or
otherwise, a copy of an amended pleading, motion, order, or some other paper from which it may
first be ascertained that the case is one which is or has become removable.” § 1446(b)(3).
Thus, the threshold question for the Court is when did the thirty-day removal clock begin
to begin to run? In exploring the answer to that question in the unpublished yet oft-cited case of
Holston v. Carolina Freight Carrier Corporation, the Sixth Circuit stated:
We hold that § 1446(b) starts the thirty-day period running from the date that a
defendant has solid and unambiguous information that the case is removable, even
if that information is solely within its own possession.
936 F.2d 573, 1991 WL 112809 at *3 (6th Cir. 1991) (table). In reaching that conclusion, the
court made clear that it is the defendant’s “notice of facts that lead to a possibility of removal”
that triggers the beginning of the thirty-day countdown, rather than the defendant’s receipt of a
statement containing information about removability from another source, such as the plaintiff or
the court. Id.
Districts courts, guided at least in part by this rule, have decided several cases that are
instructive to the present dispute. In Nobles v. George T. Underhill & Associates, the defendant
failed to remove a state law action to federal court, though a pending bankruptcy proceeding
would have given it the grounds to do so. No. 3:09-CV-225-S, 2010 WL 1542516 (W.D. Ky.
Apr. 16, 2010). The defendant argued that, though he had known about the bankruptcy suit at
the time the state law action was filed, because the complaint was silent on that matter, the thirty
days did not begin to run until the bankruptcy proceeding was mentioned in the plaintiff’s
deposition. Having discussed Holston, the court disagreed stating, “[t]he defense had prior
knowledge of the bankruptcy action, and knew (or should have known) that the case was
removable. Certainly the fact of removability was ‘intelligently ascertainable’ at the time the
complaint was filed.” Id. at *3 (quoting 14C Charles Allen Wright et al., Federal Practice and
Procedure § 3731, at 562-67 (4th ed. 2009)). The court went on to note that, “[t]o allow a
defendant to dither for years on end waiting for discovery to finally ‘reveal’ a fact that it already
knew would seriously undercut the interests in comity and efficiency that are the reason for
having a time limit for removal in the first place.” Id.
In Campbell v. EPI Healthcare, a court in this district applied the guidance of Holston to
a similar factual situation. No. 08-401-ART, 2009 WL 395498 (E.D. Ky. Feb. 18, 2009). The
defendant in that case was a state agency which, because it had undertaken certain tasks,
qualified as an agent of the federal government. Though this fact and the circumstances of the
case created removal jurisdiction under § 1442, the defendant did not initially remove the action.
During the course of discovery, a dispute arose in which the state court ordered the defendant to
turn over certain documents, which federal regulation did not permit the defendant to do. The
defendant argued that removal was not appropriate until after the court ruled in favor of
compelling discovery because only then did the need arise to assert the defense provided under
federal regulations. The district court disagreed, finding that the relevant trigger for the statutory
clock was not the ruling of the state court, but when the defendant knew that the case could be
removed. Id. at *3. (“In other words, this dispute was ripe the minute KCHFS knew it was
acting as a federal agency when performing the survey, and, in turn, was going to decline to turn
over the survey under federal regulations and law—October 15, 2008. At that point, it could
arguably assert a ‘colorable federal defense’ under the regulations.”). Thus, despite the federal
issue that was present in the case, the court remanded the case to state court due to untimely
Perhaps the most factually similar case to the somewhat unique circumstances at hand is
Tabor v. Willey, No. 01-1002 MJM, 2001 WL 34152085 (N.D. Iowa May 3, 2001). In Tabor,
the plaintiff filed a state court complaint for liable, which the defendant moved to dismiss.
Months after the defendant lost on this motion, he amended his answer to assert immunity as a
federal defense and subsequently removed the case to federal court. The court, in considering
the plaintiff’s motion to remand, assumed for the purposes of the opinion that the defendant had
sufficiently asserted a basis for federal removal jurisdiction and dealt with whether the removal
was timely filed. The defendant asked the court to find that the thirty day clock under Section
1446 began to run upon the granting of the amended answer because that was the first order
whereby it could be ascertained that the case had become removable. The court rejected this
argument finding that the defendant’s “request to amend his answer was not in response to any
facts unascertainable at the time of his initial answer.” Id. at *3. Referencing Holston, the court
found that the defendant had solid and unambiguous information that the case was removable at
time of the filing of the initial pleading, and “[i]f the case is removable now, it was removable
then.” Id. Thus, the court started the clock at the time of the filing of the original pleading and
remanded the case back to state court on the basis of untimely removal.
Turning to the instant matter, Niadyne claims that this case became removable after the
state court granted its motion to amend the answer, in which Niadyne first asserted its federal
claim. However, it is not the state of the record or the actions of the court that are the relevant
focus of the Section 1446(b) analysis, but the actual knowledge of Niadyne. The thirty-day
clock began to run when Niadyne attained “solid and unambiguous information” that the case
was removable – that is to say, when Niadyne had solid and unambiguous information that it
could assert a claim for declaratory judgment on the federal issue of patent noninfringement. See
Holston, 936 F.2d 573, 1991 WL 112809 at *3. As previously discussed, Niadyne’s own brief
expressly reveals that it had such knowledge long before it moved to amend its answer.
Specifically, in showing that UKRF had demonstrated sufficient “assertiveness” to support a
declaratory judgment action, Niadyne states as follows:
In this case UKRF’s complaint is relevant to demonstrate its assertiveness in
bringing litigation to enforce its rights under the patent license agreement and
threatening termination of Niadyne’s rights. In addition, the factual allegations
contained in UKRF’s complaint are also relevant to show that it is attempting to
enforce it rights so as to impermissibly extract a second royalty from Niadyne.
UKRF’s conduct clearly establishes its “assertiveness,” whether or not expressly
pled in the context of a patent infringement claim. In addition, by way of letters
dated October 31, 2011, and January 6, 2012, UKRF asserted its rights and
threatened termination as a prelude to the instant litigation. See Exhibit 1. Such
acts, coupled with UKRF’s demand letters and separate threats of termination,
support this Court’s subject matter jurisdiction over Niadyne’s declaratory
[R. 9 at 7].
If these facts constitute sufficient grounds for the declaratory judgment counterclaims
(which Niadyne argues and the Court has assumed), and Niadyne had solid and unambiguous
notice of this information at the time of the filing of the complaint (which is clear from
Niadyne’s own brief), then the thirty-day removal clock began to run on June 26, 2012, the date
Niadyne received the complaint. Niadyne has set forth no new information that came to light
between this date and the time in which it moved to amend its complaint that would make the
case any more removable. Thus, the procedural clock began to run upon Niadyne’s receipt of the
complaint, and the window for removal expired thirty days later. Because Niadyne did not
remove the case for nearly nine months after it had solid and unambiguous information that the
case was removable, it is now time barred from doing so under the procedural requirements of
Despite this result, Niadyne argues that it may still remain in federal court under the
timing exceptions provided under Section 1454. In general, removal of patent cases under
Section 1454 is to be done in “accordance with section 1446;” however, the statute provides for
two “special rules.” 28 U.S.C. § 1454(b). First, under Section 1454, removal may be effectuated
by either party. 28 U.S.C. § 1454(b)(1). Second, and relevant to this portion of the analysis,
“the time limitations contained in section 1446(b) may be extended at any time for cause
shown.” 28 U.S.C. § 1454(b)(2). Thus, in applying the timing rules of Section 1454, courts
must first assess timeliness under Section 1446, and then, if that procedure is violated, determine
whether the removing party has shown cause to justify this delay. Niadyne argues that even if it
is too late under Section 1446, in amending its answer to include counterclaims for declaratory
judgment of patent noninfringement, over which this court has exclusive jurisdiction, it
essentially created cause for extending the time for removal under Section 1454.
Niadyne’s argument is supported neither by the language of the statute nor basic logic.
“Cause shown” cannot, as Niadyne suggests, simply be that the removing party has asserted a
patent claim and federal courts are the exclusive forums of such claims. The reason for this
seems obvious. Section 1454 is principally about the removal of patent claims, and so if
Congress had shared Niadyne’s view, it would have simply removed all time limitations. Since
it did not, Niadyne’s argument on this point cannot be accepted because it is inconsistent with
the statute. Further, that Niadyne has a federal patent claim in its amended answer only justifies
removal under the statute, and does not account for the delay in effectuating that removal. In
rejecting a similar argument, two of the few courts to have construed this provision of Section
1454 have stated, “[w]hile Defendants’ explanation certainly demonstrates to the Court how the
Defendants could have timely filed, it does not demonstrate to the Court why these individual
Defendants did not timely file. SnoWizard, Inc. v. Andrews, No. 12-2796, 2013 WL 3728410 at
*5 (E.D. La. July 12, 2013) (quoting Benesmart, Inc. v. Total Financial Group, LLC, No. 12–
2645, 2012 WL 6020340 (E.D. La. Dec. 3.2012)). Niadyne expressed the reason it did not
timely file its counterclaim, not in its notice of removal, but in its motion to the state court for
leave to amend its answer. Therein, Niadyne admitted that, “the failure to file the proposed
counterclaims in the original Answer was caused by oversight, inadvertence, or excusable
neglect.” [R. 1-2 at 10]. Though the statute does not appear to create an incredibly high bar for
an extension, “at a minimum the standard imposes some burden on the removing party to justify
why its tardiness should be excused.” SnoWizard, 2013 WL 3728410 at *6. As Niadyne’s
excuse for delay does not constitute cause even under this standard, it may not benefit from the
special time extending rules of Section 1454.
Niadyne should not consider its important patent claims as having been unceremoniously
swept out of federal court over a harmless foul or on a technicality. There are enduring and
important policy considerations that undergird the procedural rules that fatally wounded
Niadyne’s removal attempt. As an initial matter, allowing a case to be litigated for an extensive
period of time in state court only to permit removal very late in the day unnecessarily
transgresses the important notions of conservation of resources and judicial economy. Further,
because the removal statutes govern the movement of a case between state and federal courts,
strict enforcement has always been necessary to safeguard the notions of comity and federalism.
Shamrock Gas & Oil Corp. at 108-09; Bragg v. Kentucky RSA # 9-10, Inc., 126 F. Supp.2d 448,
450 (E.D. Ky. 2001)
Finally, and perhaps most relevant to this case, courts must not allow removing parties to
forge statutes like Section 1454 into a jurisdictional sword, with which they may gain a tactical
advantage over their adversary. For example, here Niadyne seemed satisfied to litigate its claims
in state court until it lost its motion to dismiss. Thereafter, it sought to amend and remove the
case to federal court, perhaps to try its hand there. The timing provisions of Sections 1446 and
1454 are important because they limit the ability of the Defendant to test the waters in one forum
and, finding them inhospitable, move to another forum that might be more sympathetic to its
views. See Tabor v. Willey, C01-1002 MJM, 2001 WL 34152085 at *4 (N.D. Iowa May 3,
2001) (quoting Wilson v. Intercollegiate (Big Ten) Conference Athletic Assoc., 668 F.2d 962, 965
(7th Cir. 1982) (“The purpose of the 30–day limitation is twofold: to deprive the defendant of the
undeserved tactical advantage that he would have if he could wait and see how he was faring in
state court before deciding whether to remove the case to another court system; and to prevent
the delay and waste of resources involved in starting a case over in a second court after
significant proceedings, extending over months or even years, may have taken place in the first
court.”). Whether or not this was the specific motivation of Niadyne, such abuse of the
jurisdictional rules are another justification for insisting on strict adherence to the timing
procedures of removal.
These policy concerns do not vanish simply because a patent claim is implicated. It is
unquestionably clear from its statutes that Congress intends patent claims to find their way to
federal court. However, there can also be no doubt that where such claims are not removed in
accordance with the proper procedure, the federal courthouse doors are closed to them. Section
1454 provides any party the power to remove patent claims, but expressly states that those claims
must “arise under” federal law and must be brought in accordance with the timing provisions of
Section 1446 unless excused by cause shown. Niadyne has asserted a counterclaim for
declaratory judgment of patent noninfringement, which it claims arises under federal patent law.
However, even if it does, Niadyne knew that its counterclaim could have been asserted – thereby
making the case removable to federal court – at the time of UKRF’s initial pleading. Thirty days
passed without Niadyne effectuating removal, and now, with Niadyne having shown no cause
justifying its delay, its belated removal is improper. This court is, as a result, rendered without
jurisdiction to decide the instant dispute. See 28 U.S.C. § 1447(c); Page v. City of Southfield, 45
F.3d 128, 131-132 (6th Cir. 1995) (citations omitted); Holston, 936 F.2d 573, 1991 WL 112809
at *2 (citing United States ex rel. Walker v. Gunn, 511 F.2d 1024 (9th Cir. 1975)). Therefore,
UKRF’s motion shall be granted, and the case remanded to the Franklin Circuit Court.
Before remanding this case to state court, the Court must address two additional matters
raised by the parties. In its motion to remand, UKRF requests this Court to not only send the
case back to state court, but to also order Niadyne to pay attorney’s fees and costs due to
improper removal. A party may be sanctioned for its removal under 28 U.S.C. 1447(c), which
states, “[a]n order remanding the case may require payment of just costs and any actual
expenses, including attorney fees, incurred as a result of the removal.” 28 U.S.C.A. § 1447.
However, a district court “may award attorney's fees under § 1447(c) only where the removing
party lacked an objectively reasonable basis for seeking removal.” Martin v. Franklin Capital
Corp., 546 U.S. 132, 141 (2005). This is decisively not the case here. This case has not only
involved the difficult issues of patent jurisdiction, but also implicated the interpretation of a
relatively new statute, Section 1454, that has only been considered by a handful of courts, none
of which are situated in this circuit. Thus, it cannot be said that Niadyne had no objectively
reasonable basis for seeking removal, and UKRF’s request for attorney’s fees and costs will be
Finally, the parties have disputed whether UKRF’s counterclaims are barred by the
Eleventh Amendment. Their contentions on this point prompted a subsequent round of briefing
as to whether UKRF’s reply raised new arguments, which Niadyne has moved to strike. The
Court does not reach this issue and shall deny Niadyne’s motion to strike as moot. Once again,
to be clear, this Opinion addresses whether Niadyne’s counterclaims allow this Court to assume
federal removal jurisdiction. Finding that, for procedural reasons, it does not, the Court simply
does not have the power to address the general viability of Niadyne’s counterclaims for
declaratory judgment of patent noninfringment.
Accordingly, and for the reasons articulated above, it is hereby ORDERED as follows:
The University of Kentucky Research Foundation’s Motion to Remand [R. 6] is
Niadyne’s Motion Requesting Leave to File Surreply or Alternatively Strike
Plaintiff/Counterclaim Defendant’s Reply Memorandum in Support of Motion to Remand [R.
13] is DENIED, as moot;
The University of Kentucky’s Research Foundation’s request for attorney’s fees
and costs is DENIED; and
This case is REMANDED to the Franklin Circuit Court and STRICKEN from
the Court’s active docket.
This 5th Day of November, 2013.
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