Great Lakes Manufacturing Inc v. Londerville Steel Enterprises Inc

Filing 58

ORDER signed by Chief Judge William C Griesbach on 11/2/2018 Granting 53 Motion to Dismiss. Plaintiff's claims are dismissed with prejudice, and Londerville's claims for declaratory relief are dismissed without prejudice. The Clerk of Court shall enter judgment accordingly. (cc: all counsel) (Griesbach, William) (Main Document 58 replaced on 11/2/2018) (mac).

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

GREAT LAKES MANUFACTURING, INC.,
Plaintiff,
v.

Case No. 17-C-1421

LONDERVILLE STEEL ENTERPRISES, INC.,
Defendant.

ORDER GRANTING PLAINTIFF’S MOTION TO DISMISS

Plaintiff Great Lakes Manufacturing, Inc. (GLM) filed this lawsuit on October 17, 2017,
claiming that Defendant Londerville Steel Enterprises, Inc. (Londerville) infringed patents belonging
to GLM. In its response, Londerville filed counterclaims seeking a declaratory judgment that
Londerville did not infringe the patents-in-suit and/or that the patents-in-suit are invalid. This matter
is before the court on GLM’s motion pursuant to Federal Rules of Civil Procedure 41(a)(2) and
12(c) to dismiss its claims against Londerville with prejudice because the covenant not to sue offered
by GLM extinguished any case or controversy between the parties and consequently eliminated this
court’s subject matter jurisdiction to hear Londerville’s declaratory judgment counterclaim. ECF
No. 53. For the reasons that follow, GLM’s motion will be granted.
BACKGROUND
On October 17, 2017, GLM filed this lawsuit against Londerville alleging that Londerville
infringed U.S. Patent Nos. 6,209,942 and 6,468,008, the patents-in-suit.

Londerville filed

counterclaims seeking a declaratory judgment on non-infringement and/or invalidity of the patents-insuit. GLM later filed an amended complaint that added two defendants, both of whom are

Londerville customers and both of whom consented to judgment in favor of GLM. ECF Nos. 41,
50. Their consent judgments apply “until the date upon which the Patents-In-Suit expire or every
claim is declared invalid or unenforceable by a decision of a court or other government agency of
competent jurisdiction.” Id.
Having concluded that “the total amount of damages due to Londerville’s alleged
infringement is substantially less than the costs of continuing with this litigation,” combined with the
fact that the “patents-in-suit will expire in 2019,” GLM sought to settle the case with Londerville.
Pl.’s Mot. to Dismiss at 2, ECF No. 53. After attempts at settlement bore no fruit, GLM filed its
motion to dismiss the case with prejudice on October 19, 2018. In conjunction with its motion,
GLM proffered the following covenant not to sue: “GLM now hereby covenants that it will not
assert any claim of U.S. Patent Nos. 6,209,942 and 6,468,008”—the patents-in-suit—“against
Londerville Steel Enterprises, Inc., based on past or future infringement by any existing or future
product made, used, sold, offered for sale, or imported by Londerville.” Id. at 3–4.
ANALYSIS
Pursuant to Rule 41, “an action may be dismissed at the plaintiff’s request only by court
order, on terms the court considers proper.” Fed. R. Civ. P. 41(a)(2). Where a defendant has
pleaded a counterclaim prior to a plaintiff’s motion to dismiss, however, “the action may be
dismissed over the defendant’s objection only if the counterclaim can remain pending for independent
adjudication. Unless the order states otherwise, a dismissal under this paragraph (2) is without
prejudice.” Id. Here, GLM argues that Londerville’s counterclaim cannot remain pending for
independent adjudication because the covenant not to sue eliminated any controversy between the
parties, depriving this court of subject matter jurisdiction.
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In accordance with Article III of the Constitution, the Declaratory Judgment Act requires
the existence of an actual controversy between the parties before a federal court can constitutionally
assume jurisdiction. See 28 U.S.C. § 2201(a). “Subject matter jurisdiction in declaratory judgment
actions exists when ‘the facts alleged, under all the circumstances, show that there is a substantial
controversy, between the parties having adverse legal interests, of sufficient immediacy and reality
to warrant the issuance of a declaratory judgment.’” Creative Compounds, LLC v. Starmark Labs.,
651 F.3d 1303, 1316 (Fed. Cir. 2011) (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118,
127 (2007)). “The purpose of the Declaratory Judgment Act . . . in patent cases is to provide the
allegedly infringing party relief from uncertainty and delay regarding its legal rights.” Micron Tech.
Inc. v. Mosaid Techs., Inc., 518 F.3d 897, 902 (Fed. Cir. 2008) (citations omitted). “The concept
of adverse legal interests requires that there be a dispute as to a legal right, such as an underlying
legal cause of action that the declaratory defendant could have brought or threatened to bring, if not
for the fact that the declaratory plaintiff had preempted it.” Creative Compounds, 651 F.3d at 1316.
A covenant not to sue for patent infringement may divest the trial court of subject matter
jurisdiction over claims that a patent is invalid when the covenant eliminates any case or controversy
between the parties. Dow Jones & Co., Inc. v. Ablaise Ltd., 606 F.3d 1338, 1346 (Fed Cir. 2010)
(“[A] covenant not to sue for patent infringement divests the trial court of subject matter jurisdiction
over claims that the patent is invalid, because the covenant eliminates any case or controversy
between the parties.”). But not every covenant not to sue has such an effect. “Whether a covenant
not to sue will divest the trial court of jurisdiction depends on what is covered by the covenant.”
Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 1294, 1297 (Fed. Cir. 2009).

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Londerville’s main contention is that the covenant not to sue is not broad enough to eliminate
the controversy between the parties because it does not cover Londerville’s customers. Londerville
points to the fact that it has already lost two of its customers after they were added to this case by
GLM who thereafter consented to judgment in favor of GLM. In addition, Londerville’s Operations
Manager stated that “at least a handful” of customers have expressed a concern about potential
lawsuits, that at least fifteen customers that previously purchased one or both of the allegedly
infringing products from Londerville have not made subsequent purchases since the onset of this
lawsuit, and that at least fifteen potential customers who were provided quotes for one or both of
the allegedly infringing products by Londerville after this lawsuit began have not purchased those
products. Aff. of Zane Roberts, ¶¶ 4–6, ECF No. 56.
GLM cites several Federal Circuit cases holding that an economic injury absent a legal
interest is not sufficient to grant standing. “‘Without an underlying legal cause of action, any adverse
economic interest that the declaratory plaintiff may have against the declaratory defendant is not a
legally cognizable interest sufficient to confer declaratory judgment jurisdiction.’” Creative
Compounds, 651 F.3d at 1316 (quoting Microchip Tech. Inc. v. Chamberlain Grp., Inc., 441 F.3d
936, 943 (Fed. Cir. 2006)). “While economic injury may confer standing in cases challenging
government action, we have not held that economic injury alone is sufficient to confer standing in
patent cases seeking a declaratory judgment.” Arris Grp., Inc. v. British Telecomms. PLC, 639 F.3d
1368, 1374 (Fed Cir. 2011). “MedImmune did not abandon this rule. To the contrary, MedImmune
adopted an ‘adverse legal interest’ requirement.” Id.
Here, Londerville’s interest would seem to be no greater than the economic interest that have
been found insufficient to confer standing. The covenant not to sue GLM has executed prevents
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GLM from asserting any infringement claim arising from the patents-in-suit against Londerville
“based on past or future infringement by any existing or future product made, used, sold, offered for
sale, or imported by Londerville.” Pl.’s Mot. to Dismiss at 3–4, ECF No. 53. Although GLM has
involved two of Londerville’s customers in this case, Londerville does not cite any agreement under
which it is obligated to indemnity its customers. Like the declaratory judgment plaintiff in Creative
Compounds, LLC v. Starmark Laboratories, given the “absence of an indemnity agreement” between
Londerville and its customers, Londerville would seem to have “at most, only an economic interest
in clarifying its customers’ rights” under GLM’s patents. 651 F.3d at 1316.
This court addressed a similar issue in WS Packaging Group, Inc. v. Global Commerce
Group, LLC, 505 F. Supp. 2d 561 (E.D. Wis. 2007). Although Londerville does not point to any
obligation it might have to indemnify its customers, the court noted in WS Packaging that such an
obligation may arise under Wisconsin law:
By virtue of Wisconsin’s adoption of the UCC, a [seller’s] customer without an
indemnification contract could nevertheless hold [the seller] liable for infringement
if [a patent holder] decided to bring suit against that customer. See Wis. Stat.
§ 402.312(3) (“Unless otherwise agreed a seller who is a merchant regularly dealing
in goods of the kind warrants that the good shall be delivered free of the rightful
claim of any 3rd person by way of infringement or the like . . . .”).
Id. at 566. The court also noted in WS Packaging that “[b]eyond the injury that might arise from
having to indemnify its customers, [the seller] faces the loss of its customer base and reputation in
these circumstances.” Id. To be sure, unlike the defendant in WS Packaging, Londerville does not
assert that GLM has a “habit of threatening to sue (or actually suing) the customers of allegedly
infringing vendors or manufacturers, presumably as a means of pressuring the parties to cease their
activities or sign a license agreement.” Id. GLM sued two of Londerville’s customers in this case

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in response to Londerville’s defense that it did not directly infringe. That said, however, GLM has
already obtained two consent judgments against two of Londerville’s customers, and the looming
threat of a lawsuit hanging over Londerville’s customers like the sword of Damocles has resulted
in the diminishment of Londerville’s customer base and made others weary of purchasing its products
that allegedly infringe GLM’s patents. See Aff. of Zane Roberts, ¶¶ 4–8, ECF No. 56.
Notwithstanding these considerations, however, I conclude that this is not a case that should
continue. “Declaratory judgment is a remedy committed to judicial discretion.” A. L. Mechling
Barge Lines, Inc. v. United States, 368 U.S. 324, 331 (1961); see also Allstate Ins. Co. v.
Charneski, 286 F.2d 238, 244 (7th Cir. 1960) (Declaratory relief under the federal act is “expressly
discretionary. Such relief is permissive and not absolute.”). Indeed, “even where a case presents an
actual controversy, a court may refuse to grant declaratory relief for prudential reasons.” Alcan
Aluminium Ltd. v. Oregon Dept. of Revenue, 724 F.3d 1294, 1298 (7th Cir. 1984) (citing Int’l
Harvester Co. v. Deere & Co., 623 F.2d 1207, 1217 (7th Cir. 1980)).
In this case, the patent at issue is due to expire within the next year. Thus, whatever threat
Londerville’s customers might face is due to disappear likely before a final determination as to
infringement or validity of the patents-in-suit would be reached. Even in the short term, Londerville
can alleviate any concerns its customers may have in buying its products by expressly agreeing to
indemnify them for any liability they could incur to GLM for infringement. Given GLM’s
determination not to pursue the current action, it seems unlikely that it would take further action
against Londerville’s customers. Londerville’s hope to ultimately prevail and obtain costs and actual

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attorneys’ fees is not enough to justify the judicial resources continuation of the case would require.
Under these circumstances, it seems prudent, even assuming a justiciable controversy remains, to
dismiss Londerville’s claim for declaratory relief.
CONCLUSION
For the foregoing reasons, GLM’s motion to dismiss (ECF No. 53) is GRANTED. GLM’s
claims are dismissed with prejudice, and Londerville’s claims for declaratory relief are dismissed
without prejudice. The Clerk of Court is directed to enter judgment accordingly.
SO ORDERED this 2nd day of November, 2018.
s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court

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