Leviton Manufacturing Co., Inc. v. Pass & Seymour, Inc.

Filing 244

MEMORANDUM OPINION. Here, the ultimate dispute is not merely a declaratory judgment for invalidity, but whether defendant breached the parties agreement, which would entitle plaintiff to damages.Ordered by Judge Brian M. Cogan on 11/30/2019. (Cogan, Brian)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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LEVITON MANUFACTURING CO., INC.,
:
:
Plaintiff,
:
: MEMORANDUM
-against: OPINION
:
PASS & SEYMOUR, INC.,
: 17-cv-46 (BMC)
:
Defendant.
:
:
:
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COGAN, District Judge.
This is a patent and breach of contract case. Should defendant fail to prove invalidity of
plaintiff’s patent, the parties have stipulated to the amount of damages plaintiff is owed. Based
on this stipulation, defendant contends that plaintiff is no longer entitled to a jury trial because
the only issue remaining for trial is its counterclaim for a declaratory judgment deeming
plaintiff’s patent invalid. The parties agree that, but for the stipulation, this would be a jury case.
The Court thus had to decide whether this stipulation vitiates plaintiff’s right to a jury
trial. Because the Court determined it did not, the Court denied defendant’s motion to strike the
jury demand. This opinion explains the basis of that ruling.
BACKGROUND
Plaintiff produces electronical wiring devices, including ground-fault circuit interrupters
(GFCIs). Back in May 2012, plaintiff sued defendant for infringement of one particular GFCI,
U.S. Patent No. 7,463,124 (“the ‘124 patent”). Several months after litigating the patent suit, the
parties entered into a Settlement and License Agreement for the ‘124 patent (“the agreement”).
Under this agreement, defendant would pay plaintiff royalties for any products that “would

infringe” on plaintiff’s products “in the absence of the license(s) granted.” Plaintiff claims
defendant’s products infringe upon its products and seeks damages in the amount of unpaid
royalties due to defendant’s alleged breach of the agreement.
In respect to this alleged breach of contract, defendant has raised a declaratory judgment
counterclaim for invalidity as to the ‘124 patent. To narrow the issues for trial and for the sake
of judicial economy, the parties have stipulated if plaintiff’s patent is held to be valid, defendant
is in breach of the agreement and required to pay an agreed upon amount of damages. 1
DISCUSSION
I.

Plaintiff’s Right to a Jury Trial
The Seventh Amendment guarantees the right to trial by jury “[i]n suits at common law,

where the value in controversy shall exceed twenty dollars.” “[T]he thrust of the Amendment
was to preserve the right to jury trials as it existed in 1791.” Granfinanciera, S.A. v. Nordberg,
492 U.S. 33, 41 (1989). When deciding whether a jury trial is required, the court must engage in
a two-step analysis: (1) the court must first compare the action to the 18th century action brought
in the English courts prior to the merger of law and equity. Chauffeurs, Teamsters & Helpers v.
Terry, 494 U.S. 558, 565 (1990); and (2) it must examine the remedy sought to determine
whether it is legal or equitable in nature. Id. The court then “balance[s] the two, giving greater
weight to the latter.” Germain v. Connecticut Nat’l Bank, 988 F.2d 1323, 1328 (2d Cir. 1993).
A. Character of the Underlying Dispute
A federal court “may declare the legal rights or other legal relations of any interested
party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. §

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The Court ordered the parties are prohibited from mentioning this stipulation to the jury.
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2201(a). The Declaratory Judgment Act preserves the right to trial by jury. Beacon Theatres,
Inc. v. Westover, 359 U.S. 500, 504 (1959). Thus, “[a]ctions for declaratory judgments are
neither legal nor equitable, and courts have therefore had to look to the kind of action that would
have been brought had Congress not provided the declaratory judgment remedy.” Gulfstream
Aerospace Corp. v. Mayacamas Corp., 485 U.S. 271, 284 (1988); accord American Safety
Equipment Corp. v. J.P. Maguire Co., 391 F.2d 821, 824 (2d Cir. 1968) (“A declaratory
judgment action is a statutory creation … neither legal or equitable … the courts have looked to
the basic nature of the suit in which the issues involved would have arisen if Congress had not
created the Declaratory Judgment Act.”).
In In re Lockwood, 50 F.3d 966, 974 (Fed. Cir.), vacated as moot, 515 U.S. 1182 (1995),
the Federal Circuit found a declaratory judgment action by a potential infringer should be
considered “as a suit for patent infringement in which the affirmative defense of invalidity has
been pled[.]” The Lockwood Court looked to the nature of patent actions in the eighteenth
century and found that “[i]n the eighteenth-century England, allegations of patent infringement
could be raised in both actions at law and suits in equity,” and “[t]he choice of forum and
remedy, and thus of the method of trial, was left with the patentee.” Id. at 975. The Federal
Circuit reasoned that “[u]nder both English and American practice … it was the patentee who
decided in the first instance whether a jury trial on the factual questions relating to validity would
be compelled,” and so the patentee retained the option of a jury trial even when “the validity of
his patents comes before the court in a declaratory judgment action for invalidity rather than as a
defense in an infringement suit.” Id. at 976.
Although the Supreme Court vacated Lockwood as moot after Lockwood withdrew its
jury demand, Lockwood’s analysis “has been neither supplanted or questioned.” Tegal Corp. v.
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Tokyo Electron American, Inc., 257 F.3d 1331, 1340 (Fed. Cir. 2001). In Tegal, the Court
recognized, “[i]f the patentee sought an injunction and an accounting, the patentee went to a
court of equity. If, however, the patentee sought only damages, a court of law was used.” Id.
Thus, declaratory judgment actions have no inherently legal or equitable nature, but take on the
character of the underlying dispute. See, e.g., Starr Int’l Co. v. Am. Int’l Group, Inc., 623 F.
Supp. 2d 497, 502 (S.D.N.Y. 2009) (quoting In re Rosenman & Colin, 850 F.2d 57, 60 (2d Cir.
1988).
In this case, had defendant not brought a declaratory judgment counterclaim, the issue at
trial would be whether defendant breached its agreement with plaintiff by selling products that
allegedly infringed upon plaintiff’s ‘124 patent. Despite defendant’s counterclaim for a
declaratory judgment of invalidity, the underlying dispute in this case arises from this alleged
breach. Specifically, defendant intends to argue at trial it “did not breach the parties’ 2012
agreement because the asserted claims are invalid.” Defendant’s invalidity counterclaim
amounts to a defense to an action by plaintiff to enforce a contract, because the payout of
royalties under the parties’ agreement forms the crux of this dispute. See Settlement Funding,
LLC v. AXA Equitable Life Ins. Co., 09-cv-8685, 2011 WL 1097635, at *2 (S.D.N.Y. March 21,
2011) (“Here, without a declaratory judgment procedure, AXA’s claims would appear as
defenses to an action by SF to enforce a contract, because the payout of Policy benefits under the
parties’ agreement was the heart of this dispute.”).
Thus, plaintiff cannot be deprived of the right to a jury trial merely because defendant
chose to argue in the form of a counterclaim for declaratory judgment. Cf. Beacon Theatres, Inc.,
359 U.S. at 504 (“[I]f Beacon would have been entitled to a jury trial in a treble damages suit
against Fox it cannot be deprived of that right merely because Fox took advantage of the
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availability of declaratory relief to sue Beacon first.”); Pfizer Inc. v. Novopharm Ltd., 2001 WL
477163, at *4 (N.D. Ill. May 3, 2001) (“[The] holding does not deprive the patentee of a right it
would otherwise have merely because the alleged infringer has sought declaratory relief.”).
B. Remedy Sought
“[A] plaintiff seeking damages has a right to a jury trial on all issues pertinent to the
awards of damages.” Chan v. Schatz, 280 F. Supp. 3d 546, 549 (S.D.N.Y. 2017) (citing Felter v.
Columbia Pictures Television, Inc., 523 U.S. 340, 352 (1998). On the other hand, a plaintiff
seeking only injunctive relief does not have a right to a jury trial. City of Monterey v. Del Monte
Dunes at Monterey, Ltd., 526 U.S. 687, 726 n.1 (1999). Because plaintiff seeks damages, not
injunctive relief as a remedy, it maintains the right to a jury trial.
The parties do not dispute that but for the stipulation, plaintiff would have a right to a
jury trial. The question is whether the stipulation vitiated that right because it is the Court, not
the jury, which will include the amount of damages in a judgment (if plaintiff establishes
liability) by virtue of the stipulation. Even if the Court is responsible for implementing the
stipulation, the issue of patent invalidity is inextricably intertwined with whether plaintiff
receives any damages as a remedy. On one hand, plaintiff will receive no money if its patent is
found invalid because there has been no breach, but on the other, plaintiff is entitled to a
substantial amount if its patent is found valid.
The fact remains that however the damages are arrived at in this case, it remains a case
primarily about substantial damages, and the stipulation is merely a way to streamline the case to
get there, if liability is established. The parties could have included in their damage stipulation
that the right to a jury trial is withdrawn, but they did not. The Court is not inclined to augment
the stipulation through a back-door motion to strike the jury demand.
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Plaintiff neither seeks nor will it be satisfied with merely an equitable remedy, such as an
injunction, in this case. Its ultimate goal is damages. No matter how defendant attempts to
recharacterize the remedy sought in this case, plaintiff vigorously seeks damages for defendant’s
alleged breach of the agreement, which the Supreme Court has held is “historically legal.” Atlas
Roofing Co., Inc. v. Occupational Safety & Health Review Comm’n, 430 U.S. 442, 459 (1977)
(“[S]uits for damages for breach of contract … were suits at common law … decided by a
jury.”). Contrary to defendant’s contention, plaintiff’s stipulation to an amount of damages
should its patent be found valid, is not akin to “withdrawing” or “abandoning” its claims for
damages. In the event of a verdict for plaintiff, the final order and judgment in this case will
certainly order defendant to pay plaintiff damages.
None of the cases cited by defendant require a different result. In In re Tech Licensing
Corp., 423 F.3d 1286, 1288-90 (Fed. Cir. 2005), the plaintiff “withdrew its claim for damages for
past infringement and notified the district court that it would only seek injunctive relief against
future infringement.” Id. at 1287. Thus, “[o]nce TLC withdrew its claim for damages, all of the
claims asserted by either party that remain[ed] to be tried [were] indisputably equitable in
nature.” Id. at 1287. Unlike in In re Tech, plaintiff maintains an active claim for breach of
contract, does not seek an injunction, and it is far from clear the remaining claim is “indisputably
equitable in nature.” The district court cases defendant cites are equally unconvincing. 2

2

In Abbott Labs v. Mathilda and Terence Kennedy Inst. of Rheumatology Trust, 11-cv-2541, 2012 WL 3965148, at
*2 (S.D.N.Y. Sept. 11, 2012), the patentee’s competing claim for declaratory judgment, the sole issue for trial,
“[did] not seek damages for patent infringement.” Moreover, although the court stayed the patentee’s remaining
counterclaims that sought damages for unpaid royalties for an alleged breach of contract, this stayed claim pertained
to a separate patent unrelated to the parties’ competing declaratory judgments at trial. Thus, the declaratory
judgment determination and issue of unpaid royalties were separate and distinct issues, never intertwined, so the
parties’ competing declaratory judgments had no real impact on the patentee’s claim for unpaid royalties.
MedImmune, Inc. v. Genentech, Inc., 535 F. Supp. 2d 1020 (C.D. Cal. 2008), is also inapposite. There, the alleged
infringer paid royalties to the patentee, under protest, so the patentee could not seek damages as a remedy. Thus, the
MedImmune court held no jury trial existed on the contract claim when the patentee “raise[d] no factual issues as to
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II.

Messa v. Goord Supports Plaintiff’s Right to a Jury Trial
During the motion hearing, defendant cited Messa v. Goord, 652 F.3d 305, 308 (2d Cir.

2011), arguing the right to a jury trial depends upon “the nature of the issue, rather than the
character of the overall action.” However, Messa actually further supports plaintiff’s right to a
jury trial on the ultimate issue in this case: whether defendant breached the agreement, thereby
entitling plaintiff to royalties.
In Messa, the Court addressed whether there was a right to a jury trial on factual disputes
regarding an inmate’s failure to exhaust his administrative remedies, as required by the Prison
Litigation Reform Act, 42 U.S.C. § 1997e(a), when bringing a claim under 42 U.S.C. § 1983.
Although the Court recognized the Seventh Amendment’s guarantee of the right to “the ultimate
determination of issues of fact by the jury,” it found the right did not extend to “threshold
issue[s] that courts must address to determine whether litigation is being conducted in the right
forum at the right time.” Id. at 309 (citations omitted). Denying Messa the right to a jury trial on
the exhaustion issue, a preliminary matter, the Court held “the factual disputes relating to
exhaustion [were] not intertwined with the merits of Messa’s underlying excessive force claim.”
Id. Also, the claims pertaining to Messa’s failure to exhaust his administrative remedies were
dismissed without prejudice so he could refile the case upon exhaustion. Id. at 308. Thus, the
issue “of judicial administration was not bound up with the merits of the underlying dispute” and
did not interfere with the right to a jury’s resolution of the merits of the ultimate dispute of
whether defendants used excessive force.

the existence or amount of infringement damages or lost royalties: it readily concedes that no claim for damages is
even possible because the contract had not been breached.” Id. at 1023.

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Unlike Messa, the preliminary issue of patent invalidity in this case is inextricably
intertwined with the merits of plaintiff’s underlying breach of contract case for damages.
Whether plaintiff receives any damages depends entirely on whether its patent is found to be
either valid or invalid. Whereas the Court in Messa did not interfere with Messa’s right to a jury
for the underlying § 1983 claim and ultimate issue, depriving plaintiff the right to a jury trial on
the invalidity issue would not only interfere, but eviscerate plaintiff’s right to present to the jury
the merits of its breach of contract case. Thus, Messa reaffirms that the Seventh Amendment
guarantees the right to a jury for resolving the merits of the ultimate dispute. Id. at 310 (citing
Markman v. Westview Instruments, 517 U.S. 370, 377 (1996). Here, the ultimate dispute is not
merely a declaratory judgment for invalidity, but whether defendant breached the parties’
agreement, which would entitle plaintiff to damages.

Digitally signed by Brian
M. Cogan
____________________________________
U.S.D.J.

Dated: Brooklyn, New York
November 30, 2019

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