Tactical Software v. Dig! CV-03-166-M 10/16/03
UNITED STATES DISTRICT COURT
DISTRICT OF NEW HAMPSHIRE
Tactical Software, LLC,
Plaintiff
v. Civil No. 03-166-M
Opinion No. 2003 DNH 176
Dial International, Inc.,
Defendant
O R D E R
Tactical Software designs and markets, among other things, a
product called "Serial I/P" - computer software known as a COM
port redirector. Dig! International is a provider of data
communications hardware and software and the holder of U.S.
Patent no. 6, 047, 319 (the "''319 Patent") . See Exhibit 3 to
defendant's memorandum.1 According to Digi, the '319 patent
"relates to the use of software on a host computer, for
connecting multiple terminals, communication ports or serial
ports of a multiport device server or terminal server across a
1 Unless otherwise indicated, numbered exhibits are
attached to the affidavit of Cole Fauver, counsel for Digi,
submitted with defendant's memorandum in support of its motion to
dismiss (document no. 6), while lettered exhibits are attached to
the affidavit of Liisa Walsh, president of Tactical, submitted
with plaintiff's memorandum in opposition to motion to dismiss
(document n o . 7).
general purpose network." Exhibit L, Complaint in patent
infringement suit filed by Digi against Tactical, at para. 9.
In or about 2001, corporate counsel for Digi contacted
Tactical, advising Tactical of the existence of the '319 patent,
encouraging Tactical to "review the claims in the ['319] patent
in view of the technology employed in [Tactical's] Serial I/P COM
Port Redirector software," expressing Digi's willingness to
license that technology to Tactical for a reasonable royalty, and
stating that it assumed Tactical would respond within "fourteen
(14) days as to whether [it was] willing to negotiate a license."
Exhibit 4. Eventually, the parties began negotiating Tactical's
possible licensing of that technology. But, Tactical came to
believe that Digi was threatening patent enforcement litigation,
so it filed this declaratory judgment action seeking, among other
things, a judicial declaration that its products do not infringe
the '319 patent and/or that the '319 patent is invalid.
Digi moves to dismiss Tactical's complaint claiming that, at
the time Tactical filed suit, there was no actual "case or
2
controversy" between the parties and, therefore, this court lacks
subject matter jurisdiction.2
Standard of Review
"When faced with a motion to dismiss for lack of subject
matter jurisdiction. Rule 12(b)(1), Fed. R. Civ. P., the party
asserting jurisdiction has the burden to establish by competent
proof that jurisdiction exists." Stone v. Dartmouth College, 682
F. Supp. 106, 107 (D.N.H. 1988) (citing O'Toole v. Arlington
Trust C o .,
681 F.2d 94, 98 (1st Cir. 1982)). Conseguently, in
response to Digi's motion to dismiss on grounds that there is no
justiciable case or controversy. Tactical bears the burden of
demonstrating that such a case or controversy actually exists.
See Shell Oil Co. v. Amoco Corp.,
970 F.2d 885, 887 (Fed. Cir.
1992) ("To constitute an actual controversy, the plaintiff has
the burden of establishing by a preponderance of the evidence.
2 As noted above, shortly after Tactical filed this
declaratory judgment action, Digi responded by filing a patent
infringement suit against Tactical in the United States District
Court for the District of Minnesota. See Exhibit L. That fact
does not, however, alter the court's inguiry, which must focus on
whether there was an actual case or controversy between the
parties as of the date on which Tactical filed this suit.
3
inter alia, that it has a reasonable apprehension that it will be
sued.") (footnote omitted).
In determining whether the party asserting the existence of
subject matter jurisdiction has met its burden, the court "may
consider whatever evidence has been submitted, such as the
depositions and exhibits submitted in [the] case." Aversa v .
United States, 99 F.3d 1200, 1210 (1st Cir. 1996). See also
Cedars-Sinai Medical Ctr. v. Watkins,
11 F.3d 1573, 1584 (Fed.
Cir. 1993) ("In establishing the predicate jurisdictional facts,
a court is not restricted to the face of the pleadings, but may
review evidence extrinsic to the pleadings, including affidavits
and deposition testimony.").
Discussion
I. Governing Law.
In support of its motion to dismiss, Digi says that when
Tactical filed this action, there was no actual case or
controversy between the parties and, therefore, the court may not
properly exercise subject matter jurisdiction under the federal
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Declaratory Judgment Act. That statute provides, in pertinent
part, that:
In a case of actual controversy within its
iurisdiction, . . . any court of the United States,
upon the filing of an appropriate pleading, may declare
the rights and other legal relations of any interested
party seeking such declaration, whether or not further
relief is or could be sought.
28 U.S.C. § 2201(a) (emphasis supplied). Digi claims that, while
the parties exchanged several letters during negotiations aimed
at licensing Digi's technology to Tactical, "Digi had not once
threatened Tactical with a lawsuit." Defendant's memorandum at
1. Conseguently, Digi says there was "no controversy between the
parties when Tactical filed this action - only ongoing
invitations by Digi to license the '319 patent." Id. at 6. And,
says Digi, "[a]bsent a justiciable controversy, this Court lacks
jurisdiction over the subject matter of Tactical's Complaint, and
should dismiss it." Id.
Digi is, at least in part, correct - there must be an actual
case or controversy between the parties in order for one of them
to properly invoke the Declaratory Judgment Act. As the court of
appeals for this circuit has observed, "[a] federal court will
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not start up the machinery of adjudication to repel an entirely
speculative threat." PHC, Inc. v. Pioneer Healthcare, Inc., 75
F.3d 75, 79 (1st Cir. 1996). See also Soectronics Corp. v. H.B.
Fuller Co.,
940 F.2d 631, 633-34 (Fed. Cir. 1991) ("[t]he
existence of an actual controversy is an absolute predicate for
declaratory judgment jurisdiction."). Consequently, the question
presented by Digi's motion to dismiss is whether the letters it
sent to Tactical, when viewed in the context of its other conduct
toward Tactical (as well as other alleged infringers of the '319
patent), may properly be viewed as threatening litigation, or
whether Tactical's asserted perception of such a threat was
merely speculative. See generally Arrowhead Industrial Water,
Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1988).
Tactical can meet its burden of demonstrating an actual
"case or controversy" by satisfying each prong of a two-part
test:
As applied to declarations of patent rights and
relationships, for an actual controversy more is
required than the existence of an adversely held
patent. Thus in patent litigation there has evolved a
pragmatic two-part test for determining declaratory
justiciability. There must be both (1) an explicit
threat or other action by the patentee, which creates a
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reasonable apprehension on the part of the declaratory
plaintiff that it will face an infringement suit, and
(2) present activity which could constitute
infringement or concrete steps taken with the intent to
conduct such activity.
BP Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 978 (Fed. Cir.
1993). Importantly, however, a defendant need not explicitly
threaten litigation for a plaintiff to develop a reasonable
apprehension of litigation.
The reasonableness of a party's apprehension is judged
using an objective standard. An examination of the
totality of the circumstances must be made to determine
whether there is a controversy. Although the best
evidence of a reasonable apprehension of suit comes in
the form of an express threat of litigation, an express
threat is not reguired. To invoke the court's
declaratory judgment jurisdiction, a plaintiff must
show more than the nervous state of mind of a possible
infringer, but does not have to show that the patentee
is poised on the courthouse steps.
Vanguard Research, Inc. v. PEAT, Inc., 304 F.3d 1249, 1254-55
(Fed. Cir. 2002) (citations and internal guotation marks
omitted).
II. The Record Evidence.
With regard to the second prong of the Federal Circuit's
two-part test - present activity which could constitute
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infringement - that element is plainly met insofar as Digi has
alleged that Tactical is actively engaged in conduct that
infringes the '319 patent. See, e.g.. Exhibit J ("Tactical
Software's Serial I/P COM Port Redirector software infringes at
least claims 1, 5, 6, 8, 15, and 16 of the '319 patent.").
In support of its assertion that it has also met its burden
with regard to the first prong of that test - "reasonable
apprehension" of suit at the time it filed this declaratory
judgment action - Tactical points to the following. In November
2000, Digi filed a patent infringement suit against Stallion
Technologies, Inc., alleging infringement of the '319 patent
based, in part, on Stallion's production of COM port redirector
software. See Exhibit B. Then, in July, 2001, Digi filed a
patent infringement suit against Lantronix, Inc., alleging
infringement of the '319 patent based, in part, on Lantronix's
sale of COM port redirector software. See Exhibit A. Tactical
says it became aware of both suits shortly after they were filed
(in fact, in the Lantronix litigation. Tactical was identified a
a supplier to Lantronix of various products, including it's COM
port redirector software, "Serial I/P").
In September, 2001, Digi wrote to Tactical, provided
Tactical with a copy of the '319 patent, suggested that Tactical
review the '319 patent "in view of the technology employed in
your serial I/P COM Port Redirector software," and expressed its
willingness to license the '319 technology to Tactical. Exhibit
4. By letter dated January 14, 2002, Tactical responded to Digi,
denying that its Serial I/P product infringed the '319 patent and
suggesting that the '319 patent might well be invalid. Exhibit
6. Then, in connection with its suit against Lantronix, Digi
subpoenaed Tactical, seeking, among other things, the source code
for its Serial I/P software. Exhibit C, reguest for production
number 5. It also took the deposition of Tactical's president,
Liisa Walsh, under Fed. R. Civ. P. 30(b)(6). Exhibit D.
Soon after that deposition, Digi ended its suits against
Stallion and Lantronix (presumably by virtue of settlement) and
outside litigation counsel for Digi contacted Tactical, writing:
"As you are no doubt aware, Digi recently concluded its legal
actions against Lantronix and Stallion regarding infringement of
the '319 patent. Now that these litigations are resolved, we
need to focus on the infringing activity of Tactical Software."
Exhibit H (emphasis supplied). Later in that letter, Digi's
counsel asserted that: "Tactical Software's product materials, as
well as the recent deposition testimony of Liisa Walsh, confirm
that Tactical Software is infringing the '319 patent in most, and
perhaps all, customer applications. . . . Please let me know
immediately if your client is prepared to discuss a license under
the '319 patent." Id.
Subseguently, counsel for Tactical contacted counsel for
Digi asking that he identify which of Tactical's products
allegedly infringe the '319 patent. Exhibit I. In a letter
bearing the caption "Subject to Fed. R. Evid. 408," Digi's
counsel responded.3 Specifically, counsel asserted that
Tactical's Serial I/P COM port redirector software "infringes at
least claims 1, 5, 6, 8, 15 and 16 of the '319 patent . . .
Tactical Software's other products may also be implicated by the
3 Rule 408 of the Federal Rules of Evidence relates to
the admissibility at trial of settlement negotiations and
provides, among other things, that "[e]vidence of conduct or
statements made in compromise negotiations is . . . not
admissible." Presumably, then, counsel for Digi wished to make
clear that: (1) he viewed his letter as an "offer to compromise"
Digi's infringement claims against Tactical; and (2) nothing
contained in that letter would (or, perhaps more accurately,
should) be admitted against Digi in any subseguent patent
litigation between the parties.
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'319 patent, to the extent they provide for control of remote
serial ports as if the port[s] were local." Exhibit J. Tactical
says its counsel did not immediately respond to Digi's letter
and, instead, investigated Digi's claims and located additional
prior art that Tactical believed invalidated the '319 patent.
In March, 2003, counsel for Digi again contacted Tactical,
seeking a response to Digi's allegations of patent infringement
and its invitation to discuss the terms of a licensing agreement.
Exhibit K. Believing that it was "readily apparent that Digi
would file a lawsuit if Tactical did not pay money," plaintiff's
memorandum at 6, Tactical initiated this declaratory judgment
action. Then, in May of 2003, Digi filed a patent infringement
suit against Tactical in the United States District Court for the
District of Minnesota, alleging that Tactical infringes the '319
patent.
Viewing the record evidence as a whole. Tactical was
justified in having a "reasonable apprehension" that, if it did
not agree to license the '319 technology from Digi, it would
likely be the target of patent infringement litigation. First,
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Tactical was aware that Digi was aggressively pursuing those
entities it believed were infringing the '319 patent - Digi had,
at a minimum, filed (and recently concluded) patent infringement
actions against Stallion and Lantronix.
Additionally, in its letter of February 6, 2003, counsel for
Digi: (1) invoked Digi's recent legal actions against Lantronix
and Stallion and said, "we [now] need to focus on the infringing
activity of Tactical Software"; (2) in so doing, specifically
accused Tactical of infringing the '319 patent; and (3)
discounted any claims that Tactical might raise regarding prior
art and the potential invalidity of the '319 patent. Exhibit H.4
Subseguently, in his letter of February 18, counsel for Digi
identified exactly which claims of the '319 Digi alleged were
infringed by Tactical's Serial I/P COM port redirector software.
Exhibit J. He concluded that letter by saying, "We do not have a
specific license proposal at this time. Terms will depend on how
4 It is, perhaps, worth noting, that Digi contacted
Tactical through Digi's outside litigation counsel, Robins,
Kaplan, Miller & Ciresi, LLP, not its in-house counsel. It was
that law firm that represented Digi in its lawsuits against both
Stallion and Lantronix.
12
your client sells the products and sales volume, which we are
prepared to discuss." Id.
Digi places substantial weight on the concluding sentence of
that letter. While it is correct in pointing out that the "offer
of a patent license does not create an actual controversy,"
Phillips Plastics v. Kato Hatsuiou Kabushiki Kaisha, 57 F.3d
1051, 1053 (Fed. Cir. 1995), and that when licensing negotiations
are ongoing, "a litigation controversy normally does not arise
until the negotiations have broken down,"
id., those points are
not entirely persuasive. First, as discussed above, the court
must consider the totality of the circumstances surrounding the
parties' relationship to determine whether it has ripened into an
actual case or controversy.
Moreover, pointing to the fact that the parties continue to
negotiate Tactical's possible licensing of the '319 patent's
technology is not particularly compelling since the presence of
ongoing negotiations does not necessarily preclude the conclusion
that there is a case or controversy. For example, at least as of
May 30, 2003 - the date on which Digi filed its patent
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infringement complaint against Tactical - there has been an
actual case or controversy between these parties, notwithstanding
any ongoing settlement or licensing negotiations. Additionally,
Digi's repeated charges (prior to its initiation of the
infringement action) that Tactical's products infringe the '319
patent are sufficient to give rise to an actual case or
controversy. See, e.g., Findwhat.com v. Overture Services, Inc.,
2003 WL 402649 (S.D.N.Y. 2003) (concluding that although the
parties had been engaged in licensing negotiations, defendant's
express charge of patent infringement distinguished the case from
Phillips, supra, and created a justiciable case or controversy).
Finally, Digi asserts that its recent history of
aggressively pursuing alleged infringers of the '319 patent is
not material to the inguiry into the existence of an actual case
or controversy. The court disagrees. Plainly, Digi's recent
litigation against at least two other alleged infringers of the
'319 patent is part of the overall factual landscape that the
court must consider when determining whether the "totality of
circumstances" gave rise to a reasonable apprehension of
litigation on the part of Tactical. Moreover, the facts
14
underlying the cases Digi cites in support of its position are
readily distinguishable from those present in this case. For
example, in Premo Pharm. Labs., Inc. v. Pfizer Pharm., Inc., 465
F. Supp. 1281 (S.D.N.Y. 1979), the plaintiff in that declaratory
judgment action sought to establish its "reasonable apprehension"
of litigation based largely on defendant's history of having
filed 38 patent infringement suits within the prior 18 years.
The court rejected that argument, noting that even if the
defendant "has been a litigious plaintiff, its record in past
suits does not by itself show that it has charged infringement of
the patents challenged in this suit."
Id. at 1283-84 (emphasis
supplied). Here, however, Digi has, very recently, aggressively
enforced what it perceives to be its rights under the very patent
in guestion in this case.
Likewise the district court's opinion in Waters Corp. v.
Hewlett-Packard Co., 999 F. Supp. 167 (D. Mass. 1998), provides
little support for Digi's position. There the court noted that,
" [c]onsidering that [defendant] owns more than 4,400 patents, the
fact that it has sued on eight unrelated patents in 23 years
hardly establishes litigiousness sufficient to convert licensing
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negotiations into a threat of suit." Id., at 173 (emphasis
supplied). Again, the facts in this case are readily
distinguishable and little more need be said on that point.
Digi's conduct toward Tactical (as well as other alleged
infringers of the '319 patent), particularly the tone and subject
matter of the letters from its counsel (which specifically
accused Tactical of infringing the '319 patent), is plainly
sufficient to warrant Tactical's conclusion that, if it did not
accede to Digi's proposal that it license the '319 patent's
technology (on terms dictated by Digi), Digi would file a patent
infringement suit. See, e.g.. Arrowhead Indus. Water, 846 F.2d
at 736 ("If defendant has expressly charged a current activity of
the plaintiff as an infringement, there is clearly an actual
controversy, certainty has rendered apprehension irrelevant, and
one need say no more.").
Taken as a whole, Digi's conduct left the unmistakable
impression that Tactical faced a choice: agree to license the
'319 patent's technology from Digi or face a patent infringement
suit. Notwithstanding Digi's claims to the contrary, that
16
implied threat is sufficiently clear and unambiguous to warrant
the conclusion that an actual case or controversy existed between
the parties when Tactical initiated this declaratory judgment
action. In short, as in Pioneer Healthcare, "[n]o competent
lawyer advising [plaintiff] could fail to tell it that, based on
the threatening letters and the surrounding circumstances, a
[federal] suit was a likely outcome." Pioneer Healthcare, 75
F.3d at 79. See also EMC Corp. v. Norand Corp.,
89 F.3d 807, 812
(Fed. Cir. 1996) ("An objective reader of [defendant's] letter
could only conclude that [defendant] had already decided
[plaintiff] was infringing its patents and that [defendant]
intended to file suit unless it could obtain satisfaction without
having to sue.").
Conclusion
Digi's recent conduct demonstrates a present intent to
aggressively pursue those parties it believes are infringing the
'319 patent and its willingness to pursue patent litigation if
extra-judicial negotiations fail. Having successfully dealt with
both Stallion and Lantronix, Digi turned its attention to
Tactical. And, by (repeatedly) accusing Tactical of infringing
17
the '319 patent and demanding that Tactical promptly respond to
its proposal to negotiate a license agreement, Digi's conduct was
sufficient to create a justiciable "case or controversy" between
the parties; a party in Tactical's position could not have helped
but reasonably conclude that if it did not (or could not) agree
to the terms of a licensing agreement with Digi, it would find
itself on the receiving end of a patent infringement suit.
Accordingly, the court has subject matter jurisdiction over
Tactical's claims under the Declaratory Judgment Act. To the
extent the court is vested with discretion not to exercise that
jurisdiction, see 28 U.S.C. § 2201(a), it declines to exercise
that discretion.
For the foregoing reasons, and for the reasons set forth in
plaintiff's memorandum, defendant's motion to dismiss (document
no. 6) is denied.
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SO ORDERED.
Steven J. McAuliffe
United States District Judqe
October 16, 2003
cc: Arnold Rosenblatt, Esq.
Daniel J. Bourque, Esq.
Edward A. Haffer, Esq.
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