ONTEL PRODUCTS CORPORATION v. S.C. CHANG INC.
OPINION. Signed by Judge Joseph E. Irenas on 8/31/2015. (dmr)
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
ONTEL PRODUCTS CORPORATION, and
HONORABLE JOSEPH E. IRENAS
CIVIL ACTION NO. 14-7008
S.C. CHANG, INC.,
BESHADA FARNESE LLP
By: Donald A. Beshada, Esq.
108 Wanaque Avenue
Pompton Lakes, New Jersey 07442
EPSTEIN DRANGEL LLP
By: Robert L. Epstein, Esq. (pro hac vice)
Ashly E. Sands, Esq. (pro hac vice)
60 East 42nd Street, Suite 2410
New York, NY 10165
Counsel for Plaintiffs
BALDASSARE & MARA, LLC
By: Jennifer Mara, Esq.
570 Broad Street, Suite 900
Newark, New Jersey 07102
PROCOPIO, CORY, HARGREAVES & SAVITCH, LLP
By: Raymond K. Chan, Esq. (pro hac vice)
12544 High Bluff Drive, Suite 300
San Diego, California 92130
Counsel for Defendant S.C. Chang Inc.
IRENAS, Senior District Judge:
Plaintiffs Ontel Products Corporation (“Ontel”) and
Funtastic Limited (“Funtastic”) brought this action against
Defendant S.C. Chang Inc. (“S.C. Chang” or “Defendant”) alleging
infringement of United States Patent No. 8,151,577 (the “’577
Patent”), titled “Frozen Beverage Device.”
Pending before the Court is S.C. Chang’s second motion to
dismiss under Fed. R. Civ. P. 12(b)(1).1
Defendant argues that
the Court lacks subject matter jurisdiction over this action
because Plaintiffs lack standing.
For the reasons stated
herein, Defendant’s motion will be GRANTED.
The ‘577 Patent, which Plaintiffs attached to their
pleadings, was issued on April 10, 2012, to Alfio Bucceri, and
assigned to Hydro-Turbine Developments Pty Ltd (“HydroTurbine”), an Australian entity.
(‘577 Patent, Ex. A to Amend.
Plaintiff Ontel, a New Jersey corporation in the
business of designing, developing and merchandizing consumer
products, sells a frozen beverage container named “Slushy
Magic,” designed in accordance with the claims of the ‘577
Ontel filed the instant lawsuit against S.C. Chang on
Defendant filed its first motion to dismiss in December 2014, after which
Plaintiffs filed an Amended Complaint.
the grounds that Defendant allegedly sells a product called
“Super Slush Cup,” which infringes on the ‘577 Patent.
According to the declaration of S.C. Chang sales manager
David Chang, attached to Defendant’s first motion to dismiss,
this dispute seems to have begun in October 2011, when HydroTurbine sent S.C. Chang a letter warning that S.C. Chang was
“producing, selling, and/or using frozen beverage devices and
methods, which, based on information obtained, are the same or
substantially similar to the Hydro-Turbine frozen beverage
services and methods.”2
(Oct. 31, 2011, Warning Ltr., Ex. A to
Hydro-Turbine stated that Hydro-Turbine had
applied for a patent on the relevant invention and reserved the
rights to pursue litigation against S.C. Chang after patent
On February 10, 2012, counsel for Ontel sent a “follow up
warning letter” to S.C. Chang “with the permission of Hydro
Turbine Developments PTY LTD and Blizzie Freezer Products LLC.”3
Defendant included a copy of this letter as Exhibit A to Mr. Chang’s
declaration. (See Chang Decl.) Defendant did not attach these documents to
its second motion to dismiss. However, the Court will consider the
attachments to the original motion, which shed some light on the
relationships between the parties now at issue.
3 Blizzie Freezer Products LLC, a California-based entity, appears to be an
affiliate of Hydro-Turbine. Defendant attached to its original motion to
dismiss the electronic search records from the U.S. Patent and Trademark
Office showing that the trademark “Blizzie” belongs to Hydro-Turbine. In an
August 11, 2011, press release, attached to the Chang Declaration, Blizzie
Freezer Products announced an agreement with Ontel under which Ontel would
distribute the “Slushy Magic” products via direct response television and
retail distribution. (Blizzie Press Release, Ex. E to Chang Decl.)
(Feb. 10, 2012, Ltr., Ex. B to Chang Decl.)
Ontel stated that
it “is the exclusive U.S. licensee” of Hydro-Turbine’s rights in
the pending “Frozen Beverage Device” patent application and that
it believed S.C. Chang’s “Super Slush Cup” product infringed on
the claims in that pending application.
Mr. Chang’s declaration states that, following negotiations
between Hydro-Turbine and S.C. Chang, S.C. Chang agreed to cease
sales of its Super Slush Cups as of February 29, 2012.
Decl. ¶ 5)
Thereafter, S.C. Chang purchased “Slushy Magic”
units from Blizzie Freezer Products in September 2012 for resale
to S.C. Chang’s customers, and entered into an agreement with
Hydro-Turbine and Blizzie Freezer Products to distribute the
“Slushy Magic” product in the “fair and show channel.”
S.C. Chang/Blizzie Invoice, Ex. C to Chang Decl.; Sep. 27, 2012,
email and ltr. confirming distribution arrangement, Ex. D to
During oral argument on the instant motion, which the Court
held on August 18, 2015, the parties explained that the present
litigation revolves around the “Super Slush Cup” units S.C.
Chang sold prior to agreeing to cease such sales in February
Ontel, as the sole plaintiff, filed the initial Complaint
in this case.
(Compl., Docket No. 1)
In the Complaint, Ontel
claimed to have had “exclusive rights in and to the ‘577 Patent
throughout the period of Defendant’s infringing and unlawful
acts” and to still have such exclusive rights.
(Id. at ¶ 12)
Defendant, arguing that the Complaint did not include a
single factual allegation describing how Ontel acquired rights
to the ‘577 patent from Hydro-Turbine, filed a motion to dismiss
for lack of standing.
(Docket No. 8)
amended its Complaint to include Funtastic, a foreign
corporation based in Australia that allegedly owns “all right,
title and interest in and to the ‘577 Patent,” as a second
(Amend. Compl. ¶¶ 4, 15)
The Amended Complaint does
not explain how Funtastic acquired such rights from HydroTurbine.
Plaintiffs repeat in the Amended Complaint that Ontel
has held exclusive rights to the patent throughout the relevant
time period, (id. at ¶ 16), but do not detail in the pleadings
how Ontel obtained those rights from either Funtastic or HydroTurbine.
Defendant filed the present motion to dismiss for lack
of standing as to both Plaintiffs soon thereafter.
In their opposition to the instant motion, Plaintiffs
provide additional details about the entities at issue.
Plaintiffs claim that Hydro-Turbine became a wholly-owned
subsidiary of Funtastic in November 2013 and that Hydro-Turbine
“granted Funtastic any and all exclusive rights in and to the
‘577 Patent as of said date.”
Opp.”) at 4)
(Plaintiffs’ Opposition (“Pls.’
Plaintiffs attach a public filing with the
Australian Securities & Investments Commission (“ASIC”) showing
that Funtastic is now the ultimate holding company of HydroTurbine.
(Funtastic ASIC filing, Ex. A to Drangel Decl.)
Further, Plaintiffs’ counsel states that he has “reviewed
documents that confirm that through November, 2013, Plaintiff
Ontel had been granted exclusive rights to the ‘577 Patent by
Hydro and on or after November, 2013, Plaintiff Ontel had been
granted exclusive rights to the ‘577 Patent by Plaintiff
(Drangel Decl. ¶ 4, attached to Pls.’ Opp.)
Finally, Plaintiffs state that if the Court were still not
satisfied, they could amend the Complaint once again to include
Hydro-Turbine as a party.
(Pls.’ Opp. at 9)
S.C. Chang argues that Plaintiffs have not cured the
standing defect present in the initial Complaint because the
Amended Complaint explains neither how Funtastic acquired rights
to the ‘577 Patent from Hydro-Turbine, nor how Ontel obtained
exclusive rights to the patent from either Funtastic or HydroTurbine.
(Motion to Dismiss (“MTD”) at 1)
During oral argument, Plaintiffs only further confused the
ownership of the ‘577 patent.
S.C. Chang submitted a page from
the U.S. Patent & Trademark Office (“USPTO”) assignment database
showing that, as of May 13, 2015, another entity named Chill
Factor Global Pty. Ltd. (“Chill Factor”) is the assignee of the
Plaintiffs acknowledged that Chill Factor is the
current assignee, and explained that Chill Factor is the same
entity as Funtastic.
Plaintiffs also stated that they could
submit further documentation as to the relevant parties’ rights
to the ‘577 Patent if the Court so desires.
Federal Rule of Civil Procedure 12(b)(1) provides that a
party may bring a motion to dismiss for lack of subject matter
Standing being a jurisdictional matter, a motion
to dismiss for lack of standing is properly brought pursuant to
(3d Cir. 2007).
Ballentine v. United States, 486 F.3d 806, 810
If a plaintiff lacks standing at the time a
suit is brought, the Court does not have subject matter
jurisdiction and must dismiss the case.
Jurisdictional challenges under Rule 12(b)(1) come in two
forms: motions that attack the complaint on its face and motions
that attack the existence of subject matter jurisdiction in
fact, apart from any pleadings.
Mortensen v. First Federal Sav.
& Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977).
On a facial
challenge, the Court presumes all allegations in the complaint
to be true.
By contrast, no such presumption applies on a
factual attack, where the Court is “free to weigh the evidence
and satisfy itself as to the existence of its power to hear the
Further, the plaintiff has the burden of proving
that subject matter jurisdiction exists.
brings both facial and factual challenges to Plaintiffs’
(MTD at 7)
With regards to standing in patent litigation, “a patent
grant bestows the legal right to exclude others from making,
using, selling, or offering to sell the patented invention in
the United States, or importing the invention.”
Microsoft Corp., 499 F.3d 1332, 1339 (Fed. Cir. 2007).
Patent Act provides this exclusionary right to a “patentee.”
See 35 U.S.C. § 281 (“A patentee shall have remedy by civil
action for infringement of his patent.”)
“The word ‘patentee’
includes not only the patentee to whom the patent was issued but
also the successors in title to the patentee.”
35 U.S.C. §
The Federal Circuit has described “three general categories
of plaintiffs encountered when analyzing the constitutional
standing issue in patent infringement suits.”
Morrow, 499 F.3d
First are plaintiffs who hold “all or substantially
all rights to the patents” and can sue in their name alone.
Second are “exclusive licensees” who “hold some
exclusionary rights and therefore are entitled to join the
patent owner in enforcing those rights.”
Id. at 1341.
those who hold no exclusionary rights and may not participate as
a party to an infringement suit.
Id. at 1339.
As mentioned above, Defendant brings both facial and
factual challenges to Plaintiffs’ standing.
that, in light of the USPTO listing Hydro-Turbine, and then
Chill Factor, as the ‘577 Patent’s assignees, neither Funtastic
nor Ontel has pled sufficient facts to explain how they obtained
rights to the patent.
Funtastic does not describe how it
acquired “all right, title and interest in and to the ‘577
Patent” from Hydro-Turbine.
(MTD at 8)
Ontel fails to describe
how it acquired the “exclusive rights” in the patent that would
allow it to sue either on its own or with the patent’s ultimate
(MTD at 10)
These are mere “legal conclusions,”
according to the Defendant, and do not suffice to establish
(Id. at 8)
For these reasons, S.C. Chang asserts
that Plaintiffs cannot survive a facial challenge.
The Court rejects Defendant’s facial attack on the
Plaintiffs have alleged that, “[a]t the time of
filing this lawsuit and at all times thereafter, Plaintiff
Funtastic has owned all right, title and interest in and to the
(Amend. Compl. ¶ 15)
They allege further that
“Ontel has held exclusive rights in and to the ‘577 Patent
throughout the period of Defendant’s infringing and unlawful
(Id. ¶ 16)
These allegations do not necessarily
conflict with Hydro-Turbine being the “assignee” of the ‘577
Patent according to the April 2012 patent documents.
the generous standard of review associated with a facial attack
on the pleadings, the Court finds that the Amended Complaint
adequately alleges Plaintiffs’ standing to enforce their rights
in the ‘577 Patent.
See Adidas AG v. Under Armour, Inc., No.
14-130-GMS, 2015 WL 3764829, at *3 (D. Del. June 15, 2015)
(finding an allegation that a plaintiff “is the exclusive
licensee in the United States” for the asserted patents
sufficient to establish standing even though the complaint also
stated that a second plaintiff “is the owner by assignment of
all right, title, and interest in and to” the relevant patents)
(emphasis in original).
However, the discussion does not end here.
brings a factual attack on the Amended Complaint, which places a
heavier burden on Plaintiffs.
Defendant argues that the USPTO
listed Hydro-Turbine as the assignee of the ‘577 during the
relevant time period, and Funtastic did not automatically
acquire all rights to the patent by becoming the parent company
In addition, Defendant claims the evidence
shows Ontel, at a minimum, lacks standing to sue without joining
the true owner of the patent.
The Court addresses each
Plaintiff’s standing in turn.
With regards to Funtastic, Plaintiffs argue that the ASIC
documents regarding Funtastic becoming the parent company of
Hydro-Turbine prove Funtastic is the “one hundred percent (100%)
owner of Hydro,” and that the evidence obtained during discovery
will confirm Funtastic’s standing.
Defendant argues that
Funtastic did not derive rights in the ‘577 Patent by virtue of
becoming Hydro-Turbine’s parent.
The Court agrees with Defendant.
structure does not overcome the requirement that even between a
parent and a subsidiary, an appropriate written assignment is
necessary to transfer legal title [of a patent] from one to the
Abraxis Bioscience, Inc. v. Navinta LLC, 625 F.3d 1359,
1366 (Fed. Cir. 2010).
In Abraxis, the Federal Circuit found
that AstraZeneca had no legal title – and therefore could not
assign title – to patents held by its subsidiaries before those
subsidiaries specifically transferred title to their parent
Id. at 1365-66; see also Sanofi-Aventis Deutschland
GmbH v. Glenmark Pharm. Inc., USA, No. 07-CV-5855(DMC-JAD), 2011
WL 2609855, at *3 (D.N.J. June 30, 2011) (noting that defendant
was correct in pointing out that a corporate party’s being
“affiliated with or in a parent-subsidiary relationship with the
patent owner or exclusive licensee is not sufficient to confer
Here, documents showing that Funtastic became HydroTurbine’s holding company in June 2013 do not prove that HydroTurbine assigned rights in the ‘577 Patent to Funtastic at that
time or at any time thereafter.
The new corporate structure did
not automatically transfer title in the patent from subsidiary
That a recent search of the USPTO assignment
database indicates Hydro-Turbine assigned rights in the patent
to Chill Factor in May 2015 further undermines Funtastic’s claim
to rights in the patent.
Plaintiffs’ mere allegation that Funtastic “has owned all
right, title and interest in and to” the patent, along with the
ASIC documents, are not sufficient to withstand Defendant’s
factual attack on Funtastic’s standing.
The assurance that
discovery will prove Funtastic has standing does not save
Plaintiffs’ case at this juncture.
Plaintiffs, not Defendant,
are in control of the documents necessary to establish standing,
and, on Defendant’s present motion, Plaintiffs have the burden
of proving jurisdiction exists.
Based on the evidence
presented, the Court is not satisfied that they have done so.4
Plaintiffs assert, in the alternative, that “the case law supports that the
parent company of a wholly-owned subsidiary that owns a patent has standing
to sue for an injunction.” (Pls.’ Opp. at 8) In support of this argument,
Plaintiffs cite to Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574 (Fed.
Cir. 1991). (Id.) However, while the Federal Circuit did note in Arachnid
that a party with equitable ownership of a patent may sue for equitable
relief – as opposed to money damages, which requires actual title to the
patent – that case did not find that a parent entity has equitable ownership
of its subsidiary’s patents. The case did not even involve entities with a
Neither is the Court satisfied that Ontel has standing to
bring this infringement action, either on its own or with
Plaintiffs have presented no evidence from which the
Court can infer that Ontel is an exclusive licensee holding all
rights in and to the ‘577 Patent.
In fact, Ontel’s February
2012 warning letter to Defendant stated that Ontel contacted
Defendant “with the permission of Hydro-Turbine,” and that Ontel
is the “exclusive U.S. licensee of Hydro’s rights” in the
(Feb. 10, 2012, Warning Ltr., Ex. B to Chang Decl.)
This indicates that Ontel did not hold all
substantial rights in the ‘577 Patent, and would therefore lack
standing to sue for infringement on its own.
In light of the Court’s findings above, Ontel has not
overcome standing concerns by joining Funtastic to the
An exclusive licensee without all substantial
rights to a patent must join the patentee to satisfy prudential
Morrow, 499 F.3d at 1340.
Plaintiffs have failed to prove that Funtastic holds title to
the ‘577 Patent, the addition of Funtastic to the Amended
Complaint does not save Ontel’s standing.
parent/subsidiary relationship. Plaintiffs otherwise cite to no authority
stating that a parent automatically acquires equitable ownership in its
Request to Amend the Complaint
Plaintiffs’ opposition requests an opportunity, if the
Court were to find that Plaintiffs have not proven Funtastic and
Ontel’s standing, to amend the complaint once again to “allege
additional facts and/or add Hydro-Turbine as a party to the
Amended Complaint so there is no question that any and all
indispensable parties are part of the Action.”
(Pls.’ Opp. at
A plaintiff may amend its complaint after a responsive
pleading has been filed “with the opposing party's written
consent or the court's leave.”
Fed. R. Civ. P. 15(a)(2).
court should freely give leave when justice so requires.”
Defendant has rightly challenged jurisdiction based on a
confusing record regarding the ownership and rights in the ‘577
However, this does not appear to be a case in which
further amendment of the complaint would be futile.
will therefore allow Plaintiffs to file a motion for leave to
file a second amended complaint; a copy of the proposed amended
complaint shall be attached to the motion.
For the reasons set forth above, the Court will GRANT
Defendant’s motion to dismiss Plaintiffs’ Amended Complaint.
Plaintiffs shall be permitted to file a motion for leave to file
a second amended complaint.
An appropriate order accompanies
Date: August 31, 2015
s/ Joseph E. Irenas
Joseph E. Irenas, S.U.S.D.J.
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