Broadsign International, LLC v. T-Rex Property AB
Filing
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MEMORANDUM OPINION AND ORDER: re: 14 MOTION to Dismiss for Lack of Jurisdiction filed by T-Rex Property AB. For the foregoing reasons, T-Rex's motion to dismiss the complaint for lack of subject matter jurisdiction is granted. Plaintiff may m ove for leave to file a further Amended Complaint. Any such motion must be filed no later than 21 (twenty-one) days from the date of this Memorandum Opinion and Order, (i.e., by January 31, 2018), and must be accompanied by a proposed Second Amended Complaint, a blacklined comparison of the proposed Second Amended Complaint to the Amended Complaint, showing all changes, and a memorandum of law. The motion will be briefed in accordance with the schedule set forth in S.D.N.Y. Local Civil Rule 6.1( b). Failure to make such a timely motion, or the denial of the motion as futile, will result in dismissal of the Amended Complaint in its entirety for lack of subject matter jurisdiction, without further advance notice. The pre-trial conference currently scheduled for January 12, 2018, at 10:45 a.m. is adjourned sine die. Docket Entry No. 14 is resolved. SO ORDERED., ( Motions due by 1/31/2018.) (Signed by Judge Laura Taylor Swain on 1/10/2018) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------x
BROADSIGN INTERNATIONAL, LLC,
Plaintiff,
-v-
No. 16 CV 04586-LTS
T-REX PROPERTY AB,
Defendant.
-------------------------------------------------------x
MEMORANDUM OPINION AND ORDER
Plaintiff BroadSign International, Inc. (“Plaintiff” or “BroadSign”) brings this
action against Defendant T-Rex Property AB (“Defendant” or “T-Rex”), seeking a declaratory
judgment of non-infringement of U.S. Patent No. RE39,470 (“the ‘470 patent”), U.S. Patent No.
7,382,334 (“the ‘334 patent”), and U.S. Patent No. 6,420,603 (“the ‘603 patent”) (collectively,
the “Patents-in-Suit”), as well as a declaratory judgment that BroadSign has intervening rights
with respect to the ‘470 patent.
The Court has jurisdiction of this action pursuant to 35 U.S.C. §§ 271, et seq., and
28 U.S.C. §§ 1331, 1338, 2201, and 2202.
Defendant moves pursuant to Federal Rule of Civil Procedure 12(b)(1) to dismiss
each of Plaintiff’s claims for lack of subject matter jurisdiction. T-Rex asserts that there is no
case or controversy between BroadSign and T-Rex.
The Court has reviewed thoroughly all of the parties’ submissions and arguments.
For the following reasons, the motion to dismiss is granted.
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BACKGROUND
The following recitation of facts is drawn from the Amended Complaint (Docket
Entry No. 10, Amended Complaint (“Am. Compl.”)), and from affidavits and exhibits submitted
by both parties in connection with this motion practice.1
Plaintiff supplies “hardware and software solutions to operators of networks of
digital displays.” (Am. Compl. ¶ 10.) Defendant is the “assignee and owner of the right, title,
and interest in and to the Patents-in-Suit,” which concern the control and coordination of digital
displays. (Am. Compl. ¶¶ 8, 9.) Over the last several years, T-Rex has sued “at least five” of
BroadSign’s customers, which are various entities that make, use, or sell complete digital
signage systems, “for [direct] patent infringement on one or more of the Patents-In-Suit.” (Am.
Compl. ¶ 11.) As a result, Plaintiff has received “numerous requests for indemnification” from
its customers, who have identified provisions of their respective license agreements that support
their requests. (Declaration of Sandra Beauchesne in Opp’n to Def.’s Mot. to Dismiss
(“Beauchesne Decl.”), Docket Entry No. 23, ¶¶ 13, 20, Ex. D, I, J.)
On June 21, 2016, BroadSign contacted T-Rex to request a meeting with T-Rex to
discuss a potential business agreement after T-Rex had initiated lawsuits against BroadSign’s
customers. (Beauchesne Decl. ¶ 15.) In those lawsuits, T-Rex identified as allegedly directly
infringing products which were, at least in part, sold and delivered by BroadSign.2
1
“‘[W]here jurisdictional facts are placed in dispute, the court has the power and
obligation to decide issues of fact by reference to evidence outside the pleadings, such as
affidavits,’ in which case ‘the party asserting subject matter jurisdiction has the burden of
proving by a preponderance of the evidence that it exists.’” Winfield v. City of New
York, No. 15CV5236-LTS-DCF, 2016 WL 6208564, at *3 (S.D.N.Y. Oct. 24, 2016)
(citations omitted).
2
For example, in an action against Health Media Network (“HMN”), T-Rex did not
identify BroadSign by name in the complaint, but “HMN’s counsel advised BroadSign
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BroadSign asserts that the parties have “had direct discussions and in-person
meetings in which T-Rex has demanded that BroadSign take a license to the [P]atents-in-[S]uit”
to stop T-Rex’s suits against BroadSign’s customers. (Am. Compl. ¶ 15.) On June 28, 2016,
BroadSign’s President and CEO, as well as its outside patent consultant, traveled to Sweden and
met with T-Rex’s principals. (Beauchesne Decl. ¶ 15.) No agreement was reached during that
meeting. (Id.) The parties continued communicating via email, phone, and Skype throughout
the following weeks. (Declaration of Mats Hylin in Supp. of Mot. to Dismiss (“Hylin Decl.”),
Docket Entry No. 27, ¶¶ 11-14.) While the negotiations were ongoing in late June 2016, but
before the parties had reached any agreement that T-Rex would not initiate suit against any
additional BroadSign customers, T-Rex informed BroadSign that it had sued another of
BroadSign’s customers. (Hylin Decl. Exhibit C.) The parties continued their discussions after
this notification.
On July 9, 2016, T-Rex sent a draft license agreement to BroadSign, under which,
“in exchange for an undetermined payment by BroadSign, T-Rex would give BroadSign a fully
paid[-]up[,] non-exclusive license to practice [the Patents-In-Suit],” as well as “‘all other Patents
that are now owned or controlled by T-Rex on the United States and Canada . . .’,” and which
would protect BroadSign’s customers “to the extent they operate digital display systems
consisting of BroadSign’s products.” (Beauchesne Decl. ¶ 16 (citing Exhibit P, Docket Entry
that’ HMN’s [allegedly infringing] platform for its digital advertising network is the
software that it has licensed from BroadSign.’” (Beauchesne Decl. ¶ 7.) In its suit
against JCDecaux, T-Rex specifically alleges that BroadSign’s “Showscreens,” the
“Mallscape network,” “digital billboards,” and “digital airport advertising network,
including the Prestige network” infringe each of the three Patents-In-Suit. (Beauchesne
Decl. ¶ 9.) BroadSign sold the hardware and software comprising these products to
JCDecaux. (Id.)
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No. 23-43).) The accompanying email stated that T-Rex was “[amenable] to receiving edits and
input from BroadSign concerning the licensing agreement.” (Hylin Decl., ¶ 15.) Plaintiff asserts
Defendant sent that agreement “without prior discussion [between the parties] of a license.”
(Beauchesne Decl. ¶ 16.) T-Rex alleges that BroadSign requested the draft agreement and that
BroadSign’s CEO threatened to sue T-Rex. (Hylin Decl. ¶¶ 3, 10.) Plaintiff proffers that
BroadSign interpreted the proposed license agreement as a “demand[] by T-Rex that BroadSign
take a license to the [P]atents-in-[S]uit to prevent [the initiation of] further patent infringement
actions against BroadSign’s customers.” (Am. Compl. ¶ 16.) Plaintiff allegedly considered the
proposed license agreement, “coupled with” the news of a[n additional,] recently-filed patent
infringement action against yet another BroadSign customer3, to be “a veiled threat that if
BroadSign did not take a license, T-Rex would continue to sue BroadSign's customers and
perhaps BroadSign itself.” (Beauchesne Decl. ¶¶ 17-18.)
BroadSign communicated its dissatisfaction with this course of events in a July
17, 2016, email, to which T-Rex responded, apologizing for potential misunderstandings and
seeking further “constructive dialogue.” (Hylin Decl. ¶ 16, Ex. F.) Communications between
the parties ended shortly thereafter. (Hylin Decl. ¶ 16.) BroadSign filed this action for
declaratory judgment on September 15, 2016.
3
Since the parties first initiated their discussions on June 21, 2016, T-Rex has sued at least
two additional BroadSign customers, bringing the total number of suits to seven.
(Beauchesne Decl. ¶ 4.)
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DISCUSSION
Motion to Dismiss Standard
Federal Rule of Civil Procedure 12(b)(1) authorizes dismissal of a complaint for
lack of subject matter jurisdiction “when the district court lacks the statutory or constitutional
power to adjudicate it.” Arar v. Ashcroft, 532 F.3d 157, 168 (2d Cir. 2008) (vacated on other
grounds) (internal citations and quotation marks omitted). “The Court’s first inquiry must be
whether it has the constitutional or statutory authority to adjudicate a case. If there is no subject
matter jurisdiction, the Court lacks power to consider the action further.” ICOS Vision Sys.
Corp., N.V. v. Scanner Techs. Corp., 699 F. Supp. 2d 664, 668 (S.D.N.Y. 2010) (citation
omitted).
In reviewing a motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(1), “the court must take all facts alleged in the complaint as true and draw all reasonable
inferences in favor of plaintiff.” Morrison v. National Australia Bank Ltd., 547 F.3d 167, 170
(2d Cir. 2008) (quoting Natural Res. Def. Council v. Johnson, 461 F.3d 164, 171 (2d Cir. 2006)).
However, “[a] plaintiff asserting subject matter jurisdiction has the burden of proving by a
preponderance of the evidence that it exists,” Morrison, 547 F.3d at 170 (quoting Makarova v.
United States, 201 F.3d 110, 113 (2d Cir. 2000)), and such a showing may not be “made by
drawing from the pleadings inferences favorable to the party asserting” subject matter
jurisdiction. Morrison, 547 F.3d at 170 (quoting APWU v. Potter, 343 F.3d 619 623 (2d Cir.
2000)). In determining whether subject matter jurisdiction of the claims exists, the court “may
consider evidence outside the pleadings.” Morrison, 547 F.3d at 170.
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Declaratory Judgment Jurisdiction
Declaratory relief is “intended to … settle legal rights and remove uncertainty and
insecurity from legal relationships without awaiting a violation of the right or a disturbance of
the relationships.” Nat’l Union Fire Ins. Co. of Pittsburgh v. Int’l Wire Group, Inc., No. 02 Civ.
10338, 2003 WL 21277114, at *4, 2003 U.S. Dist. LEXIS 9193, at *4 (S.D.N.Y. June 2, 2003)
(citations and internal quotation marks omitted). When establishing declaratory judgment
subject matter jurisdiction, “the question in each case is whether the facts alleged, under all the
circumstances, show that there is a substantial controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”
MedImmune Inc. v. Genentech Inc., 549 U.S. 118, 127 (2007) (citations and quotation marks
omitted). MedImmune effectively “lower[ed] the bar for a plaintiff to bring a declaratory
judgment action in a patent dispute” from the previous “reasonable apprehension test.” ICOS
Vision Sys. Corp., N.V. v. Scanner Techs. Corp., 699 F. Supp. 2d 664, 668 (S.D.N.Y. 2010).
Still, a patentee must “affirmatively engage in ‘conduct that can be reasonably inferred as
demonstrating intent to enforce a patent’” in order for a declaratory judgment plaintiff to
establish jurisdiction. Id. (quoting Hewlett–Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1363
(Fed. Cir. 2009)).
There is no bright-line rule for whether a dispute is “a case of actual controversy”
between parties as required by the Declaratory Judgment Act. Prasco LLC v. Medicis Pharm.
Corp., 537 F.3d 1329, 1336 (Fed. Cir. 2008). When considering whether a direct, “substantial
controversy” in a patent dispute exists “consider[ing] all of the circumstances,” courts have
weighed: “whether there has been prior litigation between the parties or brought by the defendant
on related technology, whether the defendant has refused to sign a covenant not to sue or stay
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litigation, and whether the defendant has made a direct or implied threat to assert its rights
against the declaratory judgment plaintiff.” ICOS Vision Sys. Corp., N.V. v. Scanner Techs.
Corp., 699 F. Supp. 2d 664, 667 (S.D.N.Y. 2010). Courts have also considered the nature and
extent of communication between the parties and a patentee’s aggressive enforcement strategy,
even in the absence of direct threats. See Arris Group v. British Telecomm., 639 F.3d 1368,
1378 (Fed. Cir. 2011); Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 737–38
(Fed. Cir. 1988). Courts, however, may be skeptical that a patentee’s litigation enforcement
strategy is in fact “aggressive” if it “appears to involve suing . . . users, not . . . suppliers.” See
Microsoft Corp. v. DataTern, Inc., 755 F.3d 899, 906-07 (Fed. Cir. 2014)
A defendant’s suits against a plaintiff’s customers are insufficient by themselves
to establish a case or controversy between the supplier-plaintiff and the patent holder-defendant.
See Microsoft, 755 F.3d at 904. Suits against a supplier’s customers may support jurisdiction if
either “(a) the supplier is obligated to indemnify its customers from infringement liability, or (b)
there is a controversy between the patentee and the supplier as to the supplier’s liability for
induced contributory infringement based on the alleged acts of direct infringement by its
customers.” Arris Group, 639 F.3d at 1375. Customer requests for indemnification, without an
obligation to indemnify, do not suffice to support jurisdiction, however. See Microsoft, 755 F.3d
at 904. The elements of contributory infringement require that “a patent holder must show . . .
that (a) the supplier’s product was used to commit acts of direct infringement; (b) the product’s
use constituted a material part of the invention; (c) the supplier knew its product was especially
made or especially adapted for use in an infringement of the patent; and (d) the product is not a
staple article or commodity of commerce suitable for substantial noninfringing use.” Arris
Group, 639 F.3d at 1376 (quotation marks and citations omitted).
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Whether the Jurisdictional Standard Is Met Here
Plaintiff asserts that it initiated this action both “because T-Rex has sued several
of [its] customers[,] accusing the products BroadSign sold to them of infringing the [P]atents-in[S]uit and because direct communications between BroadSign and T-Rex made it apparent that
T-Rex is adverse to BroadSign.” (Pl. Opp. Br., Docket Entry No. 21, at 1.) Defendant asserts
that Plaintiff “fails to identify a direct dispute between it[self] and T-Rex,” also fails to “assert
that it is obligated to indemnify its customers,” and “does not adequately allege that BroadSign
may be liable for induced or contributory infringement based on its customers’ direct
infringement.” (Def. Opening Br., Docket Entry No. 15, at 3.)
The Court, having reviewed the parties’ proffers and arguments, finds that, even
“tak[ing] all facts alleged in the complaint as true and draw[ing] all reasonable inferences in
favor of plaintiff,” Plaintiff has not met its “burden of proving by a preponderance of the
evidence that [subject matter jurisdiction] exists.”4 See Morrison, 547 F.3d at 170. Plaintiff has
failed to “show that there is a substantial controversy, between [itself and Defendant]” and that
they are “parties having adverse legal interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.” See MedImmune, 549 U.S. at 127.
First, Plaintiff fails to adequately plead that there is a direct, “substantial
controversy” here. Plaintiff does not allege in the Amended Complaint nor assert in its motion
papers that there has been “prior litigation between the parties or brought by the defendant on
4
The Court recognizes that a court is empowered to resolve disputed material issues of fact
in addressing a motion to dismiss a complaint for lack of subject matter jurisdiction, and
that the parties’ versions of the events relevant to this dispute conflict in significant ways.
However, because, as explained below, Plaintiff’s proffers are insufficient to support
jurisdiction even if they are taken as true, no material factual conflicts need be addressed
to resolve this motion practice.
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related technology” against Plaintiff. See ICOS Vision Sys. Corp., N.V, 699 F. Supp. 2d at 667.
Even if T-Rex did “demand” that Plaintiff consider the license agreement it proposed “to prevent
[the initiation of] further patent infringement actions against BroadSign’s customers,” as Plaintiff
asserts, (see Am. Compl. ¶ 16), there is no indication of any discussion or threat of litigation
against Plaintiff. See ICOS Vision Sys. Corp., N.V., 699 F. Supp. 2d at 667. Nor, drawing all
reasonable inferences in favor of Plaintiff, do Defendant’s actions constitute an “aggressive
enforcement strategy” warranting a finding of subject matter jurisdiction here, as Defendant’s
strategy “appears to involve suing . . . users,” including BroadSign’s customers, “not . . .
suppliers,” such as BroadSign. See Microsoft Corp., 755 F.3d at 906-07.
Second, BroadSign fails to establish that a justiciable controversy between
Plaintiff and Defendant is framed by T-Rex’s suits against Plaintiff’s customers. Plaintiff does
not allege that it is obligated to indemnify its customers, despite its receipt of “numerous requests
for indemnification” from its customers in which the customers identified provisions of their
respective license agreements that support their requests. (Beauchesne Decl. ¶¶ 13, 20, Ex. D, I,
J.) Such “requests for indemnification,” without an allegation of Plaintiff’s “obligation to
indemnify, do not create jurisdiction.” See Microsoft, 755 F.3d at 904.
Moreover, BroadSign has not alleged facts sufficient to support a claim that
“there is a controversy between the” parties “as to [BroadSign’s] liability for induced
contributory infringement based on the alleged acts of direct infringement by its customers.” See
Arris Group, 639 F.3d at 1375. Taking the facts alleged in the light most favorable to Plaintiff
and without additional facts, BroadSign has sufficiently pled that T-Rex could establish the first
two elements of a contributory infringement cause of action—that BroadSign’s “product was
used to commit acts of direct infringement” by BroadSign’s customers and that the use of the
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product by BroadSign’s customers “constituted a material part of the invention.” See id. at 1376.
Plaintiff, however, has failed to allege facts indicating that T-Rex could establish the two
remaining elements of the cause of action, as nothing in the Amended Complaint or the proffered
averments suggests that BroadSign “knew its product was especially made or especially adapted
for use in an infringement of the [Patents-in-Suit]” or that “the [software] is not a staple article or
commodity of commerce suitable for substantial noninfringing use.” See id. Thus, T-Rex’s suits
against Plaintiff’s customers are insufficient to establish a case or controversy as to a potential
contributory infringement claim against Plaintiff BroadSign.
Despite T-Rex’s suits against BroadSign’s customers and the provision of a draft
licensing agreement, T-Rex’s alleged actions are not indicative of “adverse legal interests” as to
BroadSign. See MedImmune 549 U.S. at 127. Plaintiff has not shown that a “substantial
controversy” between itself and Defendant exists, and thus has not met its burden of proving by a
preponderance of the evidence that subject matter jurisdiction exists. See Morrison, 547 F.3d at
170; MedImmune 549 U.S. at 127.
CONCLUSION
For the foregoing reasons, T-Rex’s motion to dismiss the complaint for lack of
subject matter jurisdiction is granted.
Plaintiff may move for leave to file a further Amended Complaint. Any such
motion must be filed no later than 21 (twenty-one) days from the date of this Memorandum
Opinion and Order, (i.e., by January 31, 2018), and must be accompanied by a proposed Second
Amended Complaint, a blacklined comparison of the proposed Second Amended Complaint to
the Amended Complaint, showing all changes, and a memorandum of law. The motion will be
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briefed in accordance with the schedule set forth in S.D.N.Y. Local Civil Rule 6.1(b). Failure to
make such a timely motion, or the denial of the motion as futile, will result in dismissal of the
Amended Complaint in its entirety for lack of subject matter jurisdiction, without further
advance notice.
The pre-trial conference currently scheduled for January 12, 2018, at 10:45 a.m. is
adjourned sine die.
Docket Entry No. 14 is resolved.
SO ORDERED.
Dated: New York, New York
January 10, 2018
/s/ Laura Taylor Swain .
LAURA TAYLOR SWAIN
United States District Judge
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