Crye Precision, LLC et al v. Duro Textiles, LLC
Filing
82
OPINION & ORDER: This action arises from a continuing dispute between the licensor and owner of a patented camouflage pattern, plaintiffs Crye Precision LLC (Crye Precision) and Lineweight LLC (Lineweight) (collectively Crye), and a former licensee, defendant Duro Textiles, LLC (Duro). On July 23, 2015, Crye moved to dismiss all twelve counterclaims asserted by Duro pursuant to Fed. R. Civ. P. 12(b)(1) & 12(b)(6). For the reasons that follow, Cryes motion is granted.... (Signed by Judge Denise L. Cote on 10/28/2015) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
:
CRYE PRECISION LLC and LINEWEIGHT
:
LLC,
:
:
Plaintiffs,
:
:
-v:
:
DURO TEXTILES, LLC,
:
:
Defendant.
:
:
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APPEARANCES
For plaintiffs:
Robert A. Horowitz
Lauren B. Grassotti
Justin A. MacLean
GREENBERG TRAURIG, LLP
200 Park Avenue
New York, NY 10166
For defendant:
Jonathan G. Graves
COOLEY LLP
One Freedom Square
Reston Town Center
11951 Freedom Drive
Reston, VA 20190
Erin M. Estevez
COOLEY LLP
1299 Pennsylvania Avenue, N.W., Suite 700
Washington, DC 20004
Celia Goldwag Barenholtz
COOLEY LLP
1114 Avenue of the Americas
New York, NY 10036
15cv1681 (DLC)
OPINION & ORDER
DENISE COTE, District Judge:
This action arises from a continuing dispute between the
licensor and owner of a patented camouflage pattern, plaintiffs
Crye Precision LLC (“Crye Precision”) and Lineweight LLC
(“Lineweight”) (collectively “Crye”), and a former licensee,
defendant Duro Textiles, LLC (“Duro”).
On July 23, 2015, Crye
moved to dismiss all twelve counterclaims asserted by Duro
pursuant to Fed. R. Civ. P. 12(b)(1) & 12(b)(6).
For the
reasons that follow, Crye’s motion is granted.
BACKGROUND
The Court presumes familiarity with the facts and
procedural history of this case.
See Crye Precision LLC v. Duro
Textiles LLC, --- F. Supp. 3d ---, 2015 WL 3751658, at *1-*5
(S.D.N.Y. June 16, 2015) (“June 2015 Opinion”).
In the June
2015 Opinion, this Court granted in part cross motions to
dismiss.
Id. at *13.
Specifically, the June 2015 Opinion
dismissed Crye’s unjust enrichment claim and its breach of
contract claim insofar as it sought injunctive relief.
*5-*9.
Id. at
The Opinion also dismissed Duro’s counterclaims seeking
declaratory judgment of invalidity of Crye’s patents, its
counterclaim seeking a declaratory judgment of unenforceability
with respect to U.S. Design Patent No. D592,861 (the “‘861
Patent”), and its state law counterclaims.
2
Id. at *9-*13.
The
parties were granted leave to serve amended pleadings.
Id. at
*13.
Crye filed the current Amended Complaint on June 25.
The
Amended Complaint includes its original breach of contract
action, this time seeking only money damages for Duro’s breach
of the non-compete provision of its 2012 license agreement with
Crye, as well as two additional causes of action for trade dress
infringement and unfair competition. 1
On July 9, Duro filed its Answer and Counterclaims to the
Amended Complaint containing the same twelve counterclaims as
its prior pleading.
The first four are for declaratory judgment
of non-infringement of four patents held by Crye.
The Fifth
through the Eighth Counterclaims are for declaratory judgment of
invalidity of each of those four patents.
The Ninth
Counterclaim seeks a declaratory judgment of unenforceability
with respect to the ‘861 Patent.
The Tenth through Twelfth
Counterclaims are state law claims for tortious interference
with prospective advantage, unfair competition, and trade libel.
The following facts are asserted in Duro’s counterclaims
and taken from documents integral to those claims unless
otherwise noted.
For purposes of ruling on Crye’s motion, the
Crye’s two breach of contract claims unrelated to the
camouflage pattern known as Scorpion W2 (the Fourth and Fifth
Claims for Relief in the Amended Complaint) were remanded to
state court on June 29, 2015.
1
3
facts are viewed in the light most favorable to Duro.
See
Tsirelman v. Daines, 794 F.3d 310, 313 (2d Cir. 2015).
Plaintiff Lineweight is the purported owner and Crye is the
purported exclusive licensee of four patents (“Crye Patents”).
The Crye Patents are generally directed to camouflage patterns,
and Crye claims proprietary rights in the color palette, shapes,
and placement of shapes in a camouflage pattern known as
MULTICAM.
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
Scorpion W2 is a camouflage pattern
that Duro manufactures for and sells to the U.S. Government.
The letter alleged that the pattern is covered and protected by
Crye’s intellectual property, including the Crye 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 patent.”
The letter
demanded that BISM cease the use and sale of this fabric printed
The letter referred to an “Operation Camouflage Pattern,”
which, according to Duro, is the Scorpion W2 pattern.
2
4
by Duro.
On February 27, 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.
On April 22, Crye provided Duro with a covenant not to sue
Duro or its customers for infringement of the Crye Patents “to
the extent Duro and its customers manufacture and sell Scorpion
W2 for the U.S. government . . . with the authorization or
consent of the U.S. government” (the “Covenant”).
The Covenant
reserves Crye’s right to “maintain any claim, including but not
limited to a claim for patent or copyright infringement, against
Duro or its customers based on their manufacturer and/or sale of
Scorpion W2 . . . other than for the U.S. government . . . .”
On May 6, Duro responded by letter that the Covenant falls short
of the standard set forth in Already, LLC v. Nike, Inc., 133 S.
Ct. 721, 727 (2013).
Specifically, Duro pleads that the
Covenant does not apply to commercial sales by Duro and its
customers of Scorpion W2 fabrics, does not state that it is
irrevocable and unconditional, does not apply to all claims or
demands, and does not cover close variations or colorable
imitations of Scorpion W2.
Duro thus contends that there is a
substantial actual and justiciable controversy between Duro and
Crye as to the alleged infringement, validity, and
5
enforceability of the Crye Patents that warrants the issuance of
a declaratory judgment.
DISCUSSION
Crye moves to dismiss Duro’s counterclaims seeking a
declaratory judgment of invalidity, unenforceability, and noninfringement of the Crye Patents as moot pursuant to Rule
12(b)(1); and to dismiss its state law counterclaims of tortious
interference, unfair competition, and trade libel as
inadequately pled pursuant to Rule 12(b)(6).
These two sets of
counterclaims are addressed in turn.
I. Declaratory Judgment Counterclaims
Crye first moves to dismiss all of Duro’s declaratory
judgment counterclaims pursuant to Fed. R. Civ. P. 12(b)(1) on
the ground that they are rendered moot by the Covenant.
The
mootness doctrine is derived from “Article III of the
Constitution,” which “grants the Judicial Branch authority to
adjudicate ‘Cases' and ‘Controversies.’
In our system of
government, courts have no business deciding legal disputes or
expounding on law in the absence of such a case or controversy.”
Already, LLC, 133 S. Ct. at 726 (citation omitted).
Resolution
of that question in the context of a declaratory judgment claim
“depends upon the existence of a substantial controversy,
between parties having adverse legal interests, of sufficient
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immediacy and reality to warrant the issuance of a declaratory
judgment.”
Dow Jones & Co., Inc. v. Ablaise Ltd., 606 F.3d
1338, 1345 (Fed. Cir. 2010) (citation omitted); see also Nike,
Inc. v. Already, LLC, 663 F.3d 89, 95 (2d Cir. 2011).
“[A] court may not adjudicate a difference or dispute of a
hypothetical or abstract character or one that is academic or
moot.”
Matthews Int’l Corp. v. Biosafe Eng’g LLC, 695 F.3d
1322, 1328 (Fed. Cir. 2012) (citation omitted); see also In re
Methyl Tertiary Butyl Ether (MTBE) Prod. Liab. Litig., 725 F.3d
65, 105 (2d Cir. 2013).
Rather, a justiciable controversy
exists “only where a dispute is definite and concrete, touching
the legal relations of parties having adverse legal interests,
and will admit of specific relief through a decree of a
conclusive character, as distinguished from an opinion advising
what the law would be upon a hypothetical state of facts.”
Matthews Int’l Corp., 695 F.3d at 1328 (quoting MedImmune, Inc.
v. Genentech, Inc, 549 U.S. 118, 127 (2007)).
In evaluating
whether a justiciable controversy exists, the “totality of the
circumstances” must be considered.
Nike, Inc., 663 F.3d at 95;
see also Sandoz Inc. v. Amgen Inc., 773 F.3d 1274, 1277 (Fed.
Cir. 2014).
The voluntary cessation exception to the mootness doctrine
recognizes that “a defendant cannot automatically moot a case
simply by ending its unlawful conduct once sued.”
7
Already, LLC,
133 S. Ct. at 727.
As such, a party “claiming that its
voluntary compliance moots a case bears the formidable burden of
showing that it is absolutely clear the allegedly wrongful
behavior could not reasonably be expected to recur.”
Id.
(citation omitted); see also Holland v. Good, 758 F.3d 215, 22324 (2d Cir. 2014).
Based on the facts alleged in Duro’s counterclaims and the
terms of the Covenant, Duro’s declaratory judgment counterclaims
are now moot.
The Covenant reads as follows:
Consistent with 28 U.S.C. § 1498, Crye Precision LLC
and Lineweight LLC (collectively, “Crye”) hereby
covenant not to sue Duro Textiles, LLC (“Duro”) or its
customers for infringement of U.S. Design Patent Nos.
D487,848, D592,861, D560,915, or D572,909 (“Crye
Patents”) to the extent Duro and its customers
manufacture and sell Scorpion W2 for the U.S.
government (including a contractor or subcontractor to
the U.S. government) with the authorization or consent
of the U.S. government.
Duro alleges in its pleading that “[a]ll of Duro’s sales of
Scorpion W2 are for the government, under the authorization and
consent of the government.”
As such, the Covenant, by including
the manufacture and sale of Scorpion W2 “for the U.S.
government,” expressly covers Duro’s (and its customers’) past
and current sales.
The plain language ensures that any
enforcement by Crye against Duro’s Government sales, such as the
letters sent to Duro’s customers, will not recur.
LLC, 133 S. Ct. at 727.
8
See Already,
In its pleading, Duro asserts that the Covenant is
inadequate to bar Duro’s counterclaims since the Covenant does
not apply to commercial sales by Duro and its customers of
Scorpion W2 fabrics, does not state that it is irrevocable and
unconditional, does not apply to all claims or demands, and does
not cover close variations or colorable imitations of Scorpion
W2.
In its motion papers, Crye amended the Covenant to (1) be
irrevocable and unconditional; (2) include colorable imitations
or close variations of Scorpion W2; and (3) apply to all claims
or demands for patent infringement.
Duro acknowledges that
these amendments to the Covenant leave “only the failure to
cover commercial sales at issue.”
Duro argues that because the Covenant does not cover
commercial sales of Scorpion W2 fabric, and because Duro plans
to sell Scorpion W2 commercially in the future, the Covenant is
too narrow to render the counterclaims moot.
unpersuasive.
This argument is
Given that the Covenant encompasses all of Duro’s
current conduct, it is incumbent on Duro “to indicate that it
engages in or has sufficiently concrete plans to engage in
activities not covered by the covenant” to avoid a finding of
mootness.
Already, LLC, 133 S. Ct. at 728.
Duro, however,
admits that commercial sales cannot commence without permission
from the Government and that the Government has not yet
authorized printers to sell Scorpion W2 to the commercial
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market.
See Organic Seed Growers & Trade Ass’n v. Monsanto Co.,
718 F.3d 1350, 1359 (Fed. Cir. 2013) (finding no justiciable
controversy where the declaratory judgment plaintiffs did not
allege that they were engaged in activities outside the scope of
defendant’s disclaimer not to sue).
Duro argues that it has “sufficiently concrete plans” to
sell Scorpion W2 commercially.
Specifically, Duro points to its
history selling MULTICAM to the commercial market, claims that
the Government “has indicated it will allow the printers” to
sell Scorpion W2 commercially “once its needs are met,” and
states that it is “awaiting only the government’s permission to
begin those sales.”
Even if it were appropriate to consider
these representations of counsel, see Kulhawik v. Holder, 571
F.3d 296, 298 (2d Cir. 2009) (“An attorney’s unsworn statements
in a brief are not evidence.”), it remains unclear when the
Government might authorize Duro to sell Scorpion W2
commercially, and until it does Duro is not exposed to any
patent infringement claims from Crye. 3
As such, until the
Government provides Duro with authorization to sell Scorpion W2
Duro relies on two cases to show that a covenant failing to
cover future sales does not divest a court of jurisdiction. See
Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 1294,
1299 (Fed. Cir. 2009); ICOS Vision Sys. Corp. v. Scanner Techs.
Corp., 699 F. Supp. 2d 664, 670 (S.D.N.Y. 2010). These cases,
however, involved already existing products that could be sold
freely. In contrast, Duro is barred from engaging in commercial
sales of Scorpion W2 without Government authorization.
3
10
commercially, any declaratory judgment ruling on the Crye
Patents would be an “opinion advising what the law would be upon
a hypothetical state of facts.”
Matthews Int’l Corp., 695 F.3d
at 1328; see also Benitec Australia, Ltd. v. Nucleonics, Inc.,
495 F.3d 1340, 1345-49 (Fed. Cir. 2007) (holding that the
possibility of future activity that would be subject to a patent
infringement claim was too uncertain to create a justiciable
controversy).
Accordingly, Crye’s declaratory judgment counterclaims are
dismissed.
If the Government authorizes Duro to sell Scorpion
W2 commercially, and circumstances warrant, Duro may refile
these counterclaims.
II. 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.
Crye
moves to dismiss Duro’s three state law counterclaims pursuant
to Fed. R. Civ. P. 12(b)(6).
Specifically, Crye argues that
Duro has not adequately alleged bad faith for all three
counterclaims, and that Duro has failed to state a claim for
unfair competition and trade libel.
“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.”
Crye Precision LLC, 2015 WL
11
3751658, at *9.
“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 v.
Harlequin Enterprises Ltd., 751 F.3d 64, 68 (2d Cir. 2014).
“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 misconduct alleged.”
Parkcentral Global Hub Ltd. v. Porsche Auto. Holdings SE, 763
F.3d 198, 208 (2d Cir. 2014) (citation omitted).
As in its previous pleading, the basis for Duro’s three
state law 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
the merits.
Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d 1254,
1260 (Fed. Cir. 2008) (citation omitted).
As was true for the state law claims at issue in the June
2015 Opinion, bad faith is not adequately pled here.
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The June
2015 Opinion explained that various suggestions of bad faith
proffered by Duro did not constitute bad faith under the
governing case law, and that analysis is incorporated here.
Crye Precisions LLC, 2015 WL 3751658, at *12-*13.
Duro adds in its current pleading that the infringement
letters were in bad faith because “three of the four listed
patents . . . include vertically oriented lines or elements that
are entirely missing from the OCP/Scorpion W2 pattern –- no
reasonable litigant could reasonably expect to succeed on patent
infringement claims based on any of these three patents.”
A
design patent is infringed “if, in the eye of an ordinary
observer, giving such attention as a purchaser usually gives,
two designs are substantially the same, if the resemblance is
such as to deceive such an observer, inducing him to purchase
one supposing it to be the other, the first one patented is
infringed by the other.”
Apple Inc. v. Samsung Electronics Co.,
786 F.3d 983, 999 (Fed. Cir. 2015) (citation omitted).
Here,
the patterns are not so dissimilar that no reasonable litigant
could expect to succeed on a patent infringement claim.
Duro, moreover, has not adequately alleged subjective bad
faith.
“[S]ubjective bad faith only requires proof that the
lack of objective foundation for the claim was either known or
so obvious that it should have been known by the party asserting
the claim.”
Kilopass Tech., Inc. v. Sidense Corp., 738 F.3d
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1302, 1310 (Fed. Cir. 2013) (citation omitted).
Duro’s
counterclaims do not state that Crye knew or should have
obviously known that its claims lacked an objective foundation.
Finally, Duro alleges bad faith because Crye omitted from
its enforcement letters that, for the Crye “‘848 Patent, the
U.S. Government has a fully paid-up license that flows to its
contractors.”
Duro does not explain in its opposition to this
motion how this cryptic allegation reflects an omission of
material importance or otherwise suggests Crye’s bad faith.
Without further information, this allegation does not
demonstrate that no reasonable litigant could reasonably expect
Crye to succeed on the merits of the claims in its enforcement
letters, or that Crye knew or should have obviously known that
its claims had no objective foundation. 4
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 arguments that Duro’s pleading fails to state
a claim for unfair competition and trade libel under New York
law.
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CONCLUSION
Crye’s July 23, 2015 motion is granted.
Duro’s declaratory
judgment claims are denied without prejudice and its state law
counterclaims are dismissed with prejudice.
SO ORDERED:
Dated:
New York, New York
October 28, 2015
__________________________________
DENISE COTE
United States District Judge
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