Crye Precision, LLC et al v. Duro Textiles, LLC
OPINION & ORDER...Cryes April 3 motion is granted. Duros April 24 motion is granted in part: Cryes Fourth Cause of Action, for unjust enrichment, is dismissed. Duros First through Fourth Counterclaims, seeking declaratory judgment of non-infringem ent, remain, so the Court continues to have jurisdiction over the action, as discussed above. If either side desires to amend its pleadings pursuant to Fed. R. Civ. P. 15(a)(2), it must do so by June 24. No further opportunity to amend will be grant ed. And, as noted above, by June 24, Crye and Duro shall each submit a two-page letter addressing whether Cryes Second and Third Causes of Action should be remanded for lack of supplemental jurisdiction. (Signed by Judge Denise L. Cote on 6/16/2015) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
CRYE PRECISION LLC and LINEWEIGHT
DURO TEXTILES, LLC,
Robert A. Horowitz
Lauren B. Grassotti
Justin A. MacLean
GREENBERG TRAURIG, LLP
200 Park Avenue
New York, NY 10166
Michael J. Schaengold
Paul F. McQuade
GREENBERG TRAURIG, LLP
2101 L Street, N.W., Suite 1000
Washington, D.C. 20037
Jonathan G. Graves
One Freedom Square
Reston Town Center
11951 Freedom Drive
Reston, VA 20190
Erin M. Estevez
1299 Pennsylvania Avenue, N.W., Suite 700
Washington, DC 20004
OPINION & ORDER
Celia Goldwag Barenholtz
1114 Avenue of the Americas
New York, NY 10036
DENISE COTE, District Judge:
This lawsuit arises from a dispute between a licensor of a
patented camouflage pattern and its former licensee.
pleadings include the licensor’s claims for breach of contract
and counterclaims seeking a declaration that plaintiffs’ patents
in the camouflage pattern are invalid.
This Opinion addresses two pending motions.
On April 3,
2015, plaintiffs Crye Precision LLC (“Crye Precision”) and
Lineweight LLC (“Lineweight”) (collectively “Crye”) moved
pursuant to Fed. R. Civ. P. 12(b)(6) to dismiss eight of the
twelve counterclaims asserted by defendant Duro Textiles, LLC
Crye’s motion became fully submitted on May 1 and is
Among other things, Duro has failed to plausibly plead
that plaintiffs’ patents are invalid or to plead with
particularity that Crye engaged in inequitable conduct.
On April 24, Duro moved pursuant to Fed. R. Civ. P.
12(b)(1) to dismiss two of the four causes of action asserted in
Duro’s motion became fully submitted on May
15 and is granted in part.
Crye’s claim for unjust enrichment
is barred by 28 U.S.C. § 1498(a).
Crye’s claim for breach of
contract is not barred by Section 1498(a) to the extent that
Crye is pursuing a claim for damages as opposed to injunctive
The following facts are drawn from the pleadings and the
documents attached thereto.
(2d Cir. 2005).
See Yung v. Lee, 432 F.3d 142, 146
For purposes of ruling on Duro’s motion, those
facts are construed in favor of Crye.
See Conyers v. Rossides,
558 F.3d 137, 143 (2d Cir. 2009) (“Where, as here, the case is
at the pleading stage and no evidentiary hearings have been
held, . . . in reviewing the grant of a motion to dismiss under
Rule 12(b)(1) we must accept as true all material facts alleged
in the complaint and draw all reasonable inferences in the
plaintiff’s favor.” (citation omitted)).
For purposes of ruling
on Crye’s motion, they are viewed in the light most favorable to
See Keiler v. Harlequin Enters. Ltd., 751 F.3d 64, 68 (2d
Cir. 2014) (noting that when deciding a motion to dismiss under
Rule 12(b)(6), a court must “accept all factual allegations
(but not legal conclusions) as true and draw all reasonable
inferences in favor of the [nonmovant]”).
MULTICAM and Crye’s Licensing
Over a decade ago, Crye developed a camouflage pattern
known as MULTICAM for use on fabric.
Crye claims proprietary
rights in the color palette, shapes, and placement of shapes in
MULTICAM is the subject of at least one U.S. design
patent, Design Patent No. D592,861 (“‘861 Patent”). 1
Crye licenses printers to print and sell MULTICAM on fabric
that is sold to companies that manufacture uniforms and other
equipment in fulfillment of orders placed by or on behalf of the
U.S. Department of Defense (“Government Sales”).
licenses printers to print and sell MULTICAM on fabric that is
sold to companies that manufacture uniforms and other equipment
for commercial sale (“Commercial Sales”).
In 2006, U.S. Army Special Operations units adopted
In 2010, MULTICAM was selected as the standard issue
camouflage pattern for all U.S. soldiers deployed to
In 2008, Crye and Duro entered into a two-year license
This agreement granted Duro the exclusive right to
Additionally, the MultiCam® trademark is a registered
trademark. The design patent and registered trademark are owned
by Lineweight, of which Crye Precision is the sister company,
enjoying the exclusive right to sublicense the design patent and
According to Duro’s counterclaim pleading, in addition to
the ‘861 Patent, Lineweight is the purported owner and Crye is
the purported exclusive licensee of U.S. Design Patent Nos.
D487,848 (“‘848 Patent”), D560,915 (“‘915 Patent”), and D572,909
(“‘909 Patent”) (collectively, with the ‘861 Patent, “Crye
Patents”), which are generally directed to camouflage patterns.
print and sell MULTICAM products in the United States in
connection with both Government Sales and Commercial Sales.
In 2010, the U.S. Army insisted that Crye license
additional printers to print MULTICAM for Government Sales.
response, Crye developed a network of printers, including Duro,
which it appointed for two-year terms as non-exclusive licensees
authorized to print and sell MULTICAM products in connection
with Government Sales.
Duro remained Crye’s exclusive licensee
for Commercial Sales.
Crye’s 2012 Agreement with Duro
Subsequently, in a 2012 agreement (“2012 Agreement”), Crye
appointed Duro for another two-year term as a non-exclusive
licensee authorized to print and sell MULTICAM products in
connection with Government Sales.
Duro retained exclusive
rights with respect to Commercial Sales.
Pursuant to Section
3(h) of the 2012 Agreement, Duro agreed not to “make any
products that are similar to MULTICAM through color palette,
pattern or arrangement or placement of any elements incorporated
Pursuant to Section 7(c), Duro further agreed
that it would not “at any time during or after this Agreement”
commit “any act or assistance to any act, which may infringe or
lead to the infringement of any of Crye’s proprietary rights.”
According to Section 14(g), Duro acknowledged that any
breach of its obligations under the 2012 Agreement “with respect
to the proprietary rights or confidential information of Crye
will cause Crye irreparable injury for which there are
inadequate remedies at law, and therefore Crye will be entitled
to equitable relief in addition to all other remedies provided
by this Agreement or available at law.”
And pursuant to Section
9(f), Duro’s obligations under Sections 3, 7, and 14 (among
others) “shall survive termination or expiration of this
III. Events After the Expiration of the 2012 Agreement
In 2014, upon expiration of the 2012 license agreements
with its various licensees, Crye entered into new non-exclusive
license agreements with various printers.
Under the new
agreements, Crye authorized its licensees to print and sell
MULTICAM products in connection with both Government Sales and
Commercial Sales (Duro no longer retained exclusive rights with
respect to Commercial Sales).
Duro rejected the new license
After efforts to negotiate a new license agreement
with Duro failed, Crye formally notified Duro that the 2012
Agreement had expired as of April 10, 2014.
Around May 2014, the U.S. Army announced its intention to
switch the standard issue camouflage pattern from MULTICAM to a
camouflage pattern known as Scorpion W2.
According to Crye,
Scorpion W2 uses MULTICAM’s color palette, shapes, and placement
of shapes, and its overall appearance is virtually
indistinguishable from MULTICAM’s.
Beginning in late 2014 or early 2015, Duro began printing
and selling Scorpion W2 fabric for, and with the authorization
and consent of, the U.S. Government.
Because Scorpion W2 fabric
is a product “similar to MULTICAM through color palette, pattern
or arrangement or placement of any elements incorporated in
MULTICAM,” Crye alleges that Duro’s printing and sale of
Scorpion W2 fabric breaches Sections 3(h) and 7(c) of the 2012
Crye’s Original Action
Crye filed a complaint dated November 11, 2014 in this
Court in case number 14cv9012 (DLC).
That complaint was
directed at Duro’s printing and sale of MULTICAM fabric after
the expiration of the 2012 Agreement and included claims for
breach of contract, trademark infringement, and patent
The patent infringement claim was directed
exclusively to Duro’s Commercial Sales of MULTICAM and
explicitly excluded Duro’s Government Sales.
According to Crye, having received assurances from Duro
that it did not print any MULTICAM fabric after expiration of
the 2012 Agreement and that any sales of MULTICAM fabric after
expiration of that agreement were consistent with its rights
upon termination of the agreement, on January 12, 2015, Crye
amended its complaint to eliminate claims related to the
printing of MULTICAM fabric (except to recover unpaid license
fees) and instead focused on Duro’s sales of Scorpion W2 in
alleged breach of Section 3(h) of the expired 2012 Agreement.
According to Crye, because Crye’s understanding was that Duro
was printing and selling Scorpion W2 only for the U.S.
Government, Crye elected not to include a claim for patent
infringement in its amended complaint, presumably because Crye
was aware that such a claim would be barred by 28 U.S.C.
§ 1498(a) (“Section 1498”), discussed below.
On January 29, 2015, Duro filed a motion to dismiss Crye’s
amended complaint pursuant to Fed. R. Civ. P. 12(b)(1) for lack
of subject matter jurisdiction.
Duro’s motion was premised on
the ground that pursuant to Section 1498, Crye’s claims directed
to Duro’s manufacture and sale of Scorpion W2 products for the
benefit of the Government could be brought only against the
Government in the Court of Federal Claims.
Duro also moved to
dismiss on the ground that Crye had failed to plead sufficient
facts to support its allegations of diversity jurisdiction.
As Crye advised in a February 5 letter, it appeared based
on Duro’s affidavit submitted in support of the motion to
dismiss that there was not complete diversity of citizenship
between the members of plaintiff and defendant limited liability
On February 17, Crye filed a notice of voluntary
dismissal without prejudice.
Crye’s Current Action
Crye filed the instant Complaint, dated February 17, 2015,
in New York state court.
Like the amended complaint in the
original action, Crye’s Complaint is directed primarily at
Duro’s printing and sale of Scorpion W2 fabric in alleged breach
of Section 3(h) of the 2012 Agreement.
According to Crye, in
light of Duro’s representation in its motion to dismiss the
original action that all of its sales of Scorpion W2 fabric were
Government Sales, the Complaint does not include a claim for
Crye’s Complaint pleads four causes of action.
and Fourth relate to Duro’s sales of Scorpion W2 fabric.
First Cause of Action is for breach of contract and alleges
that, since 2014, Duro has fulfilled or intends to fulfill
orders of Scorpion W2 fabric for Government Sales, in violation
of the 2012 Agreement, specifically Sections 3(h) and 7(c), the
obligations of which survived the 2012 Agreement’s expiration.
Crye seeks injunctive relief pursuant to Section 14(g) of the
Crye’s Fourth Cause of Action is for unjust
enrichment owing to Duro’s sale of Scorpion W2 fabric without
Crye’s authorization, and requests restitution.
The Second and Third Causes of Action, both for breach of
contract, relate to Duro’s sales of MULTICAM.
The Second Cause
of Action alleges that Duro has not responded to Crye’s request
to inspect Duro’s books and records, as provided for in the 2012
And the Third Cause of Action alleges that Duro has
not made payments on outstanding invoices in violation of a
provision that accelerated all outstanding invoices on
expiration of the 2012 Agreement.
Crye’s overall prayer for
relief requests both an injunction and damages.
On January 19, 2015, Crye sent a letter to one of Duro’s
customers, Blind Industries and Service of Maryland (“BISM”).
The BISM letter conveyed that Crye was aware that BISM had been
purchasing fabric printed with the Scorpion W2 pattern from
printers including Duro. 2
The letter alleged that the pattern is
covered and protected by Crye’s intellectual property, including
Crye’s patents, and that BISM’s continued use and sale of the
fabric constitutes a direct infringement under 35 U.S.C. § 271,
which provides that “whoever without authority makes, uses,
offers to sell, or sells any patented invention . . . infringes
The letter referred to an “Operation Camouflage Pattern,”
which, according to Duro, is the Scorpion W2 pattern.
The letter demanded that BISM cease the use and
sale of this fabric printed by Duro.
On February 27, 2015, Crye sent letters to two more Duro
customers, American Apparel, Inc. (“American Apparel”) and
Propper International (“Propper”), containing the same notices,
allegations, and demands as the BISM letter.
Crye does not have
a contractual relationship with BISM, American Apparel, or
In response, when, on March 6, Duro filed in state court
its Answer and Counterclaims to Crye’s Complaint, Duro alleged
that the Scorpion W2 pattern, printed on fabric by Duro and sold
by Duro to customers like BISM, American Apparel, and Propper,
does not infringe any valid claim of the Crye Patents.
contends a controversy exists between Duro and Crye as to
alleged infringement, validity, and enforceability of the Crye
Patents that warrants the issuance of a declaratory judgment.
Duro’s pleading contains twelve counterclaims.
four are for declaratory judgment of non-infringement of each of
the four Crye Patents.
The Fifth through the Eighth
Counterclaims are for declaratory judgment of invalidity of each
of the four Crye Patents.
The Ninth Counterclaim seeks a
declaratory judgment of unenforceability with respect to the
And the Tenth through Twelfth Counterclaims are
state law claims for tortious interference with prospective
advantage, unfair competition, and trade libel, respectively.
On March 6, 2015, Duro removed this litigation to federal
court pursuant to 28 U.S.C. § 1454, which provides that “[a]
civil action in which any party asserts a claim for relief
arising under any Act of Congress relating to patents . . . may
be removed to the district court of the United States for the
district and division embracing the place where the action is
Duro’s notice of removal contends that this Court has
jurisdiction over the action under 28 U.S.C. § 1338, which
provides that “[t]he district courts shall have original
jurisdiction of any civil action arising under any Act of
Congress relating to patents.”
According to Duro, supplemental
jurisdiction over the state law claims exists under 28 U.S.C.
Once removed, the case was accepted as related to Crye’s
dismissed, original action.
Subsequently, Crye moved to dismiss
Duro’s Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh,
and Twelfth Counterclaims for failure to state a claim upon
which relief can be granted, and Duro moved to dismiss Crye’s
First and Fourth Causes of Action for lack of subject matter
An April 10, 2015 Scheduling Order required Duro to provide
the U.S. Government notice of its motion to dismiss for lack of
subject matter jurisdiction, and afforded the Government an
opportunity to be heard by allowing it to enter a submission by
No such submission was made.
This Opinion first addresses Duro’s motion.
It then turns
Subject Matter Jurisdiction over Crye’s First and Fourth
Causes of Action
Duro argues that Section 1498(a) divests this Court of
subject matter jurisdiction over the First and Fourth Causes of
Action in Crye’s Complaint.
“A case is properly dismissed for
lack of subject matter jurisdiction under Rule 12(b)(1) when the
district court lacks the statutory or constitutional power to
A plaintiff asserting subject matter
jurisdiction has the burden of proving by a preponderance of the
evidence that it exists.”
Mastafa v. Chevron Corp., 770 F.3d
170, 177 (2d Cir. 2014) (citation omitted).
potential application to Crye’s First and Fourth Causes of
Action are addressed in turn.
Crye’s First Cause of Action
Contrary to Duro’s protestation, Section 1498(a) does not
preclude Crye’s First Cause of Action, which is not for patent
infringement, but for breach of contract.
Whenever an invention described in and covered by a
patent of the United States is used or
manufactured . . . for the United States without
license of the owner thereof or lawful right to use or
manufacture the same, the owner’s remedy shall be by
action against the United States in the United States
Court of Federal Claims . . . . For the purposes of
this section, the use or manufacture of an invention
described in and covered by a patent of the United
States by a contractor, a subcontractor, or any
person, firm, or corporation for the Government and
with the authorization or consent of the Government,
shall be construed as use or manufacture for the
28 U.S.C. § 1498(a) (emphasis added).
By its terms, the statute
provides a process to remedy the unlicensed or otherwise
unlawful use or manufacture of a patented invention.
words, it provides a process for bringing a patent infringement
Reading Section 1498(a) to apply to patent infringement
claims only is supported by the statute’s implementing Federal
Acquisition Regulation (“FAR”), which provides:
Pursuant to 28 U.S.C. [§] 1498, the exclusive remedy
for patent . . . infringement by or on behalf of the
Government is a suit for monetary damages against the
Government in the Court of Federal Claims. There is
no injunctive relief available, and there is no direct
cause of action against a contractor that is
infringing a patent . . . with the authorization or
consent of the Government (e.g., while performing a
48 C.F.R. § 27.201-1(a) (emphasis added).
The FAR goes on to
say that the Government may authorize and consent to a
contractor’s use or manufacture of patented inventions by
inserting in a government contract a clause that reads in part:
The entire liability to the Government for
infringement of a United States patent shall be
determined solely by the provisions of the indemnity
clause, if any, included in this contract . . . , and
the Government assumes liability for all other
infringement to the extent of the authorization and
consent hereinabove granted.
Id. § 52.227-1(a) (emphasis added).
Relevant caselaw also supports reading Section 1498(a) as
applying to patent infringement claims only.
Circuit 3 has said that Section 1498(a) applies
when (1) an invention claimed in a United States
patent; (2) is used or manufactured by or for the
United States, meaning each limitation is present in
the accused product or process; and (3) the United
States has no license or would be liable for direct
infringement of the patent right for such use or
manufacture if the United States was a private party.
Zoltek Corp. v. United States, 672 F.3d 1309, 1319 (Fed. Cir.
2012) (emphasis added) (citation omitted); see also W.L. Gore &
The Federal Circuit has exclusive jurisdiction over appeals in
“any civil action arising under, or in any civil action in which
a party has asserted a compulsory counterclaim arising under,
any Act of Congress relating to patents,” 28 U.S.C.
§ 1295(a)(1), and “[a] district court must . . . follow Federal
Circuit precedent in a case arising under the patent laws,”
Foster v. Hallco Mfg. Co., 947 F.2d 469, 475 (Fed. Cir. 1991).
See Rates Tech. Inc. v. Speakeasy, Inc., 685 F.3d 163, 174 n.9
(2d Cir. 2012).
Assocs. v. Garlock, Inc., 842 F.2d 1275, 1283 (Fed. Cir. 1988),
abrogated on other grounds by eBay Inc. v. MercExchange, L.L.C.,
547 U.S. 388, 391-94 (2006), as recognized in Zoltek, 672 F.3d
at 1319 (“The government has graciously consented, in the
[Section 1498(a)] statute, to be sued in the Claims Court 4 for
reasonable and entire compensation, for what would be
infringement if by a private person.” (emphasis added)).
The history of Section 1498(a) further supports this
Congress enacted a precursor to Section 1498(a) in
direct response to a Supreme Court ruling that patent
infringement was a tort for which the Government had not waived
See Zoltek, 672 F.3d at 1315.
later amended the section to shield from liability government
contractors in order “to stimulate contractors to furnish what
was needed . . . without fear of becoming liable themselves for
infringements to inventors or the owners or assignees of
Richmond Screw Anchor Co. v. United States, 275 U.S.
331, 345 (1928) (emphasis added).
“To accomplish this
governmental purpose, Congress exercised the power to take away
“Congress changed the title of the Claims Court and it is now
the United States Court of Federal Claims.” Hercules Inc. v.
United States, 516 U.S. 417, 423 n.5 (1996).
the right of the owner of the patent to recover from the
contractor for infringements.”
Id. (emphasis added). 5
Despite Duro’s characterization, Crye’s First Cause of
Action is not a claim for patent infringement against the
Government masquerading as a contract claim.
In a related
context, the Second Circuit has advised that if a plaintiff’s
rights depend on, for example, state contract law, “the fact
that a patent . . . is incidentally involved” does not transform
the case into a patent infringement action.
See Wells v.
Universal Pictures Co., 166 F.2d 690, 691 (2d Cir. 1948)
(declining to find federal “arising under” jurisdiction); see
also RX Data Corp. v. Dep’t of Soc. Servs., 684 F.2d 192, 196
(2d Cir. 1982) (“[E]ven an infringement claim will not invoke
Against this reading of the statute, Duro cites Robishaw Eng’g
Inc. v. United States, where a District Court in Virginia stated
that, “[i]n ascertaining which actions are implicitly barred by
§ 1498, courts must carefully distinguish cases in which the
government’s use of patents and its possession of patent
licenses are merely incidental issues, from cases in which such
issues are the gravamen of the action.” 891 F. Supp. 1134, 1144
(E.D. Va. 1995). Robishaw was an Administrative Procedure Act
action against the Government seeking a declaratory judgment
that the U.S. Army’s position in negotiations for a license
under the plaintiff’s patents was “arbitrary, capricious, an
abuse of discretion, and contrary to law.” Id. at 1138-39. The
court granted the Government’s motion to dismiss, reasoning
that, “[b]ecause neither the APA nor § 1498 waives the
government’s sovereign immunity so as to permit Robishaw’s suit,
there is no jurisdiction to entertain the claim.” Id. at 1147.
On its face this reasoning does not block Crye’s state law
claims against a non-governmental party for a purported breach
of a contractual duty.
federal jurisdiction when the claim is merely incidental to a
primary dispute . . . under state law.”).
And according to the
Federal Circuit, “that patent issues are relevant to resolution
of a contract dispute cannot possibly convert a suit for breach
of contract into one arising under the patent laws.”
Sinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1579 (Fed. Cir. 1993)
(citation omitted); see also Wawrzynski v. H.J. Heinz Co., 728
F.3d 1374, 1380 (Fed. Cir. 2013) (“Despite [defendant]’s
strenuous efforts to construe the complaint to favor its theory
of the case, and despite the fact that the patent is referenced
in the complaint, a close review of [plaintiff]’s complaint,
including its counts and requested relief, confirms that
[plaintiff] did not intend to assert his patent against
Crye may well wish to pursue its rights against the
Government under the patent laws, but it has not done so in its
First Cause of Action.
Crye’s First Cause of Action against
Duro alleges breach of contract.
Separate and apart from any
duties that Duro may have under the patent laws, under the 2012
Agreement Duro voluntarily incurred an independent obligation to
Crye by contracting not to “make any products that are similar
to MULTICAM through color palette, pattern or arrangement or
placement of any elements incorporated in MULTICAM.” 6
But characterizing Crye’s First Cause of Action as a breach
of contract claim beyond the reach of Section 1498(a) is
possible only to the extent that this claim seeks damages, as
opposed to an injunction for breach of patent rights.
14(g) of the 2012 Agreement, while it contemplates equitable
relief, explicitly limits itself to breaches of obligations
“with respect to the proprietary rights” of Crye. 7
injunction under Section 14(g), in other words, presupposes an
infringement of Crye’s patent rights, and transforms what could
otherwise be a pure contract claim into one for patent
infringement, which would bring the First Cause of Action within
Section 1498(a)’s ambit.
Although the body of the Complaint’s
First Cause of Action appears dedicated exclusively to obtaining
as its remedy an injunction, the Complaint’s prayer for relief
seeks “[d]amages, including lost profits, from Duro’s sales of
Scorpion W2 fabric and/or Products.”
Hence, Crye’s Complaint is
This observation is not intended as a ruling regarding the
extent to which Duro’s contractual obligations survived the
expiration of the 2012 Agreement.
Although Crye describes its proprietary rights as including
trademark rights, Crye does not claim that Duro has infringed
construed as seeking contract damages under the First Cause of
Action, and to that extent the motion to dismiss is denied.
According to Duro, if Section 1498(a) does not apply in
cases like this one, plaintiffs can bypass its strictures by
simply omitting from their complaints claims for patent
infringement and instead bringing actions that sound in
This argument is question begging; it has force only
if one accepts the premise (rejected above), that Section
1498(a) is meant to apply outside the context of patent
Crye’s Fourth Cause of Action
Although Crye’s First Cause of Action, for breach of
contract, is not barred by Section 1498(a), that section does
block Crye’s Fourth Cause of Action, for unjust enrichment.
This is not a quintessential unjust enrichment claim “whe[re]
the defendant receive[d] requested goods or services without
paying any compensation therefor.”
S.S. Silberblatt, Inc. v. E.
Harlem Pilot Block-Bldg. 1 Hous. Dev. Fund Co., 608 F.2d 28, 37
(2d Cir. 1979).
In this case, if Duro’s enrichment from the
sale of Scorpion W2 fabric is “unjust,” it is because that
enrichment infringed one of Crye’s rights, and such a right
could derive only from the contract -- in which case the unjust
enrichment claim cannot stand, see Beth Israel Med. Ctr. v.
Horizon Blue Cross & Blue Shield of N.J., 448 F.3d 573, 586-87
(2d Cir. 2006) (noting unjust enrichment claim can lie only in
absence of express agreement) -- or from the patent laws -- in
which case the unjust enrichment claim is really a patent
infringement claim, which, as discussed above, is subject to
Indeed, if an unjust enrichment claim like
Crye’s were permitted to survive a Section 1498(a) challenge,
plaintiffs bringing patent infringement claims could simply
style them as claims for unjust enrichment to avoid the statute.
Accordingly, Duro’s motion to dismiss Crye’s Fourth Cause of
Action is granted. 8
Subject Matter Jurisdiction over Other Claims
Of course, separate and apart from any motions made by the
parties, this Court has an independent duty to ensure that it
has subject matter jurisdiction over the action.
Craft, Inc., 749 F.3d 107, 111 (2d Cir. 2014).
See In re Indu
The parties dispute both whether Section 1498(a) represents a
jurisdictional bar or an affirmative defense and whether that
question is governed by Second Circuit or Federal Circuit law.
Anticipating a ruling that Section 1498(a) provides an
affirmative defense rather than a jurisdictional blockade, Duro
argues in the alternative that it is entitled to summary
judgment on that properly pled affirmative defense. The Court
need not resolve these disputes. With respect to Crye’s First
Cause of Action, Section 1498(a) may not apply. If Section
1498(a) sets a jurisdictional bar, this Court lacks subject
matter jurisdiction over Crye’s Fourth Cause of Action. If,
alternatively, the statute provides an affirmative defense, Duro
is entitled to summary judgment on it. The result is the same
either way: Crye’s Fourth Cause of Action is dismissed from the
under which Duro removed this action provides that “the district
court shall remand all claims that are . . . no[t] within the
original or supplemental jurisdiction of the district court.”
28 U.S.C. § 1454(d)(1).
Duro’s patent law counterclaims are within this Court’s
See 28 U.S.C. § 1338(a).
jurisdiction exists “over all other claims that are so related
to claims in the action within [the Court’s] original
jurisdiction that they form part of the same case or controversy
under Article III of the United States Constitution,” 28 U.S.C.
§ 1367(a), in other words, they “derive from a common nucleus of
Delaney v. Bank of Am. Corp., 766 F.3d 163,
170 (2d Cir. 2014) (citation omitted).
“In determining whether
two disputes arise from a common nucleus of operative fact,
[courts] have traditionally asked whether the facts underlying
the federal and state claims substantially overlap . . . .”
Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 335 (2d
Cir. 2006) (citation omitted).
Here, the facts underlying Duro’s patent law counterclaims
do indeed substantially overlap with the facts underlying Crye’s
First Cause of Action, for breach of contract.
things, Duro’s patent law counterclaims and Crye’s First Cause
of Action call for analysis of the similarity vel non of
MULTICAM and Scorpion W2.
The parties have not yet addressed whether the Court has
subject matter jurisdiction over other claims in this action.
Accordingly, by June 24, 2015, Crye and Duro shall each submit a
two-page letter addressing whether Crye’s Second and Third
Causes of Action should be remanded to state court under 28
U.S.C. § 1454(d)(1) for lack of supplemental jurisdiction.
Crye moves to dismiss Duro’s counterclaims seeking
declaratory judgment of invalidity of the Crye Patents; its
counterclaim seeking a declaratory judgment of unenforceability
with respect to the ‘861 Patent; and its state law
These three categories are addressed in turn.
Counterclaims for Declaratory Judgment of Invalidity
“A motion to dismiss counterclaims under Rule 12(b)(6) is
decided under the same standard applied to a motion to dismiss
the claims of a complaint.”
Raine v. Paramount Pictures Corp.,
No. 97cv3553 (DLC), 1998 WL 655545, at *5 (S.D.N.Y. Sept. 24,
“To survive a motion to dismiss under Rule 12(b)(6), a
complaint must allege sufficient facts which, taken as true,
state a plausible claim for relief.”
Keiler, 751 F.3d at 68
“A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the
Parkcentral Global Hub Ltd. v. Porsche
Auto. Holdings SE, 763 F.3d 198, 208 (2d Cir. 2014) (citation
This now-well-rehearsed plausibility pleading
standard derives from the Supreme Court’s decisions in Bell Atl.
Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal,
556 U.S. 662 (2009).
See E.E.O.C. v. Port Auth. of N.Y. & N.J.,
768 F.3d 247, 253-54 (2d Cir. 2014).
Duro’s counterclaims seeking declaratory judgment of
invalidity of Crye’s Patents can be dismissed with reference to
the pleading standard alone, as they allege without more that
each of Crye’s Patents is “invalid for failure to satisfy one or
more of the conditions of patentability set forth in Title 35 of
the United States Code, including but not limited to 35 U.S.C.
§§ 102, 103, 112 and/or 171,” and that “on information and
belief, Crye contends that [its] Patent is valid.”
conclusory allegations of invalidity are unsupported by any
Although Duro refers to, for example, 35
U.S.C. §§ 102-03, which set forth the “novelty” and “non-obvious
subject matter” conditions for patentability, Duro does not
identify any prior art that anticipates or renders obvious
In short, Duro’s pleading does not “assert
nonconclusory factual matter sufficient to nudge its claims
across the line from conceivable to plausible.”
N.Y. & N.J., 768 F.3d at 254 (citation omitted).
Port Auth. of
Duro argues that the plausibility pleading standard should
not apply to its patent invalidity counterclaims.
is rejected for the reasons set forth by the Honorable Paul A.
Engelmayer in Orientview Techs. LLC v. Seven For All Mankind,
LLC, No. 13cv538 (PAE), 2013 WL 4016302, at *5-7 (S.D.N.Y. Aug.
There, the counterclaimant had argued, as does Duro,
that holding invalidity counterclaims to the Twombly/Iqbal
plausibility standard would be inconsistent with the Local
Patent Rules, which create a process for disclosing the
specifics of the invalidity claim.
See S.D.N.Y. Local Patent
Rules 7-8, available at http://www.nysd.uscourts.gov/
As Judge Engelmayer explained, “[a]lthough
some superfluity may result, the Local Patent Rules and the
[Twombly/Iqbal] pleading standard are not inconsistent.
the absence of any directive that claims of invalidity . . .
should be measured under a different standard than almost all
other claims in this Circuit are, the Court declines to do so.”
Id. at *6; see also Regeneron Pharm., Inc. v. Merus B.V., No.
14cv1650 (KBF), 2014 WL 2795461, at *2 (S.D.N.Y. June 19, 2014)
(“This Court has found no basis in Second Circuit precedent to
treat patent cases differently from other cases . . . to which
Duro also argues that its counterclaims for declaratory
judgment of invalidity should be treated as affirmative defenses
and thus not held to the Twombly/Iqbal standard.
runs directly counter to the Federal Circuit’s teaching in
Multiform Desiccants, Inc. v. Medzam, Ltd., which noted that
“[t]he Supreme Court in Cardinal Chem. Co. v. Morton Int’l,
Inc., 508 U.S. 83 (1993) drew a dispositive distinction between
an affirmative defense and a counterclaim for a declaratory
133 F.3d 1473, 1481 (Fed. Cir. 1998).
Duro had the
opportunity to raise invalidity as a defense but chose to assert
it as a counterclaim for declaratory judgment.
will be held to the pleading standard governing counterclaims.
Counterclaim for Declaratory Judgment of
Duro seeks a declaratory judgment of unenforceability of
the ‘861 Patent due to alleged inequitable conduct committed
during its prosecution.
“[W]hether inequitable conduct has been
adequately pleaded is a question of Federal Circuit law because
it pertains to or is unique to patent law. . . .
conduct . . . must be pled with particularity under Rule 9(b).”
Exergen Corp. v. Wal-Mart Stores, 575 F.3d 1312, 1326 (Fed. Cir.
2009) (citation omitted).
As the Federal Circuit has held:
[T]o plead the “circumstances” of inequitable conduct
with the requisite “particularity” under Rule 9(b),
the pleading must identify the specific who, what,
when, where, and how of the material misrepresentation
or omission committed before the PTO. 9 Moreover,
The PTO, or USPTO, refers to the United States Patent and
Trademark Office. See Otokoyama Co. v. Wine of Japan Imp.,
although “knowledge” and “intent” may be averred
generally, a pleading of inequitable conduct under
Rule 9(b) must include sufficient allegations of
underlying facts from which a court may reasonably
infer that a specific individual (1) knew of the
withheld material information or of the falsity of the
material misrepresentation, and (2) withheld or
misrepresented this information with a specific intent
to deceive the PTO.
Id. at 1328-29.
With respect to identifying the specific “how”
of a material omission,
identify[ing] the particular claim limitations, or
combination of claim limitations, that are supposedly
absent from the information of record . . . [is]
necessary to explain both “why” the withheld
information is material and not cumulative, and “how”
an examiner would have used this information in
assessing the patentability of the claims.
Id. at 1329-30.
According to Duro’s counterclaim, the named inventors, in
order to obtain the patent, intentionally deceived the USPTO by
failing to disclose information related to the functional
aspects of the subject of the patent, because “a design visible
in its ultimate end use that is primarily functional is not
patentable” as a design patent under 35 U.S.C. § 171.
alleges that the inventors intentionally withheld, for example,
the fact that the MULTICAM pattern was developed to effectively
limit the visual signature of a person operating across a very
wide range of physical environments and seasons.
Inc., 175 F.3d 266, 269 (2d Cir. 1999).
Duro’s pleading fails, however, to explain why the
allegedly withheld information is not cumulative.
The PTO had
in its possession the title of the ‘861 Patent -- Substrate with
Camouflage Pattern -- and the only claim for the patent states,
“The ornamental design for a camouflage pattern applied to
substrate, as shown and described.”
It is the very essence of
camouflage “to effectively limit the visual signature” of that
which it shrouds.
See Webster’s II New Riverside University
Dictionary 222 (1994) (defining camouflage as “concealment of
personnel or material,” “a means of concealment”).
information allegedly withheld -- that MULTICAM is camouflage -is cumulative of information that the PTO examiner already had.
And, in fact, the examiner for the ‘861 Patent cited as prior
art references at least three issued design patents, held by
unrelated third parties, in camouflage patterns.
In the absence
of an explanation “‘why’ the withheld information is material
and not cumulative, and ‘how’ an examiner would have used this
information in assessing the patentability of the claims,”
Exergen, 575 F.3d at 1329-30, Duro’s counterclaim based on
inequitable conduct must be dismissed.
State Law Counterclaims
Duro’s Tenth, Eleventh, and Twelfth Counterclaims assert
state law claims for tortious interference with prospective
business advantage, unfair competition, and trade libel,
The basis for these three claims is Crye’s
transmission of the letters to Duro’s customers.
The Federal Circuit has explained that
[f]ederal patent law . . . preempts state-law tort
liability when a patentee in good faith communicates
allegations of infringement of its patent. As a
result, bad faith must be alleged and ultimately
proven, even if bad faith is not otherwise an element
of the tort claim.
Bad faith includes separate objective and
subjective components. . . . [T]he bad faith
standard . . . cannot be satisfied in the absence of a
showing that the claims asserted were objectively
baseless. To be objectively baseless, the
infringement allegations must be such that no
reasonable litigant could reasonably expect success on
Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d 1254,
1260 (Fed. Cir. 2008) (citation omitted). 10
It is difficult to find bad faith adequately pleaded.
itself, Crye’s transmission of the letters to Duro’s customers
does not constitute an act taken in bad faith in light of the
Duro sees inconsistency in Crye’s invocation of patent law to
preempt Duro’s state law counterclaims and Crye’s own assertion
of state law contract claims in its Complaint. There is no
inconsistency, however. By contracting with Crye, Duro both
exposed itself to duties separate and apart from those that it
may owe under the patent laws and entitled Crye to sue for the
breach of those duties. By contrast, no contract governs the
relationship between Crye and Duro’s customers, such as the
three to which Crye sent infringement notices. Crye undertook
no special obligations with respect to these entities, and its
actions in sending them infringement notices are explicitly
sanctioned by the patent laws, as explained below.
Federal Circuit’s holding in Virginia Panel Corp. v. MAC Panel
A patentee that has a good faith belief that its
patents are being infringed violates no protected
right when it so notifies infringers. . . . That
applies even to warning a company . . . , that, at
least in its role as a supplier to the United States,
could not be subject to liability or enjoined from
practicing the claimed invention.
While section 1498 clearly restricts a patentee’s
remedies against government contractors’ infringing
acts, it does not make those acts non-infringing and
it certainly does not prohibit the sending of
infringement notices to government contractors. . . .
Moreover, . . . the Federal Acquisition
Regulations (FAR) explicitly contemplate that
patentees will send infringement notices directly to
133 F.3d 860, 869-70 (Fed. Cir. 1997) (citation omitted).
Duro attempts to distinguish Virginia Panel on the ground
that, there, the plaintiff had a basis for believing that the
recipients of the notices of infringement could be subject to
patent law liability for their actions.
Here, however, as
Crye’s letters complain only about Government Sales that would
be covered by Section 1498, Crye has no basis to believe that it
could actually bring an infringement action against the
recipients of the letters.
But, as reflected in the passage
quoted above, Virginia Panel explicitly blessed the transmission
of infringement notices even where Section 1498 would block a
direct infringement action against the recipient.
Virginia Panel aside, Duro contends to have sufficiently
pled bad faith by alleging that Crye’s letters to American
Apparel and Propper International “misleadingly stated that Crye
had recently filed a lawsuit against Duro in the Federal Courts
of New York based on Duro’s printing of . . . Scorpion W2,
without informing American Apparel and Propper International
that Crye had voluntarily dismissed the referenced federal court
action ten days before the date of the letter.”
allegation does not represent “bad faith” of the type envisioned
in Dominant Semiconductors: infringement allegations so
objectively baseless that no “reasonable litigant could
reasonably expect success on the merits.”
524 F.3d at 1260
In its opposition to Crye’s motion to dismiss, Duro
purports to find bad faith in aspects of Crye’s infringement
notices that Duro did not point to in its counterclaim pleading.
But “a party is not entitled to amend its [pleading] through
statements made in motion papers . . . .”
Wright v. Ernst &
Young LLP, 152 F.3d 169, 178 (2d Cir. 1998) (citation omitted).
Nor are Duro’s tardy allegations of bad faith persuasive.
First, Duro notes that each infringement notice includes an
exhibit that lists Crye’s intellectual property covering
Scorpion W2 as including not only the four issued design
patents, but also trademarks, and registration and application
numbers from the Copyright Office.
According to Duro, the
notices misleadingly suggest to the recipient that their sales
of Scorpion W2 infringe all of these assets.
But despite what
is included in the exhibit to the notices, the notices
themselves allege infringement of the patents only.
Second, Duro contends that Crye cannot in good faith allege
that Scorpion W2 infringes the MULTICAM design patent because
the Scorpion W2 pattern appears to be nearly identical to an
original Scorpion pattern, which itself was prior art to the
But “there is no ‘practicing the prior art’
defense to literal infringement,” Tate Access Floors, Inc. v.
Interface Architectural Res., Inc., 279 F.3d 1357, 1365 (Fed.
Cir. 2002), so the closeness of Scorpion W2 to any prior art,
even had it been properly pled, would not imply the bad faith
necessary for Duro’s state law counterclaims to avoid
The question of obviousness goes to the validity of
a patent, not to the issue of infringement.
Id. at 1366.
Crye’s April 3 motion is granted.
is granted in part:
Duro’s April 24 motion
Crye’s Fourth Cause of Action, for unjust
Because Duro’s state law counterclaims, including its Eleventh
Counterclaim, for unfair competition, are preempted and fail to
allege the requisite bad faith, there is no need to address
Crye’s independent argument that Duro’s pleading fails to state
a claim for unfair competition under New York law.
enrichment, is dismissed.
Duro’s First through Fourth
Counterclaims, seeking declaratory judgment of non-infringement,
remain, so the Court continues to have jurisdiction over the
action, as discussed above.
If either side desires to amend its pleadings pursuant to
Fed. R. Civ. P. 15(a)(2), it must do so by June 24.
opportunity to amend will be granted.
And, as noted above, by
June 24, Crye and Duro shall each submit a two-page letter
addressing whether Crye’s Second and Third Causes of Action
should be remanded for lack of supplemental jurisdiction.
New York, New York
June 16, 2015
United States District Judge
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