Case4:11-cv-00597-CW Document24 Filed05/23/11 Page1 of 7
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`
`SANDISK CORPORATION,
`Plaintiff,
`
` v.
`MOBILE MEDIA IDEAS LLC,
`Defendant.
` /
`
`No. C 11-00597 CW
`ORDER DENYING
`DEFENDANT’S
`MOTION TO DISMISS
`(Docket No. 10)
`
`Plaintiff SanDisk Corporation seeks a declaratory judgment of
`invalidity, unenforceability and non-infringement of nineteen
`patents owned by Defendant Mobile Media Ideas LLC (MMI). MMI moves
`to dismiss SanDisk’s action for lack of subject matter
`jurisdiction. SanDisk opposes the motion. The motion will be
`decided on the papers. Having considered the papers submitted by
`the parties, the Court DENIES MMI’s motion.
`BACKGROUND
`This declaratory judgment action concerns U.S. Patent Nos.
`6,427,078; 5,812,954; 5,490,170; 5,557,541; 5,841,979; 5,914,941;
`6,002,390; 6,125,143; 6,385,386; 6,393,430; 6,441,828; 6,446,080;
`6,549,942; 6,975,732; 7,190,971; 7,313,647; 7,349,012; 6,725,155;
`and 7,111,069, all of which are allegedly owned by MMI.
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`Case4:11-cv-00597-CW Document24 Filed05/23/11 Page2 of 7
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`On April 16, 2010, MMI allegedly invited SanDisk to enter into
`patent license negotiations regarding the patents-in-suit, which
`MMI believed were infringed by SanDisk’s digital media players. On
`multiple occasions since then, MMI allegedly has accused SanDisk
`and its customers of infringing the patents-in-suit and invited
`SanDisk to discuss potential licensing arrangements.
`On January 27, 2011, an MMI employee emailed SanDisk, stating,
`“Because Sandisk continues to offer products that make use of at
`least some of MMI’s patents, your products remain unlicensed
`leaving both Sandisk and its customers with patent infringement
`liability.” Lippetz Decl., Ex. B.
`SanDisk initiated this action on Wednesday, February 9, 2011.
`On February 15, 2011, another MMI employee emailed a SanDisk
`employee, stating,
`MMI offered SanDisk a license under certain MMI patents
`which we understand are utilized in SanDisk’s media
`player products, and we proposed the meeting for last
`Wednesday to discuss that further. A few hours prior to
`that meeting, however, MMI was informed that SanDisk had
`previously obtained a license under those patents from
`the prior owner. Therefore, there was no need to get
`together and the meeting was cancelled.
`In light of this, MMI does not intend to assert its
`current portfolio of patents against SanDisk’s current
`line of products. And because there is no dispute
`between the parties, there is no reason for SanDisk to
`continue pursuing its action against MMI and we will
`cooperate with you in the withdrawal of your complaint.
`Horn Decl., Ex. A.
`In his declaration, MMI’s CEO Lawrence Horn states,
`MMI has no basis to sue SanDisk for infringement of any
`of the patents identified in the Complaint based on any
`of SanDisk’s media player products as they currently
`exist. Instead, as to seventeen of the nineteen patents
`identified in the Complaint, SanDisk obtained a license
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`Case4:11-cv-00597-CW Document24 Filed05/23/11 Page3 of 7
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`from the prior owner, allowing it to use the patented
`technology. As to the remaining two patents identified
`in the Complaint, SanDisk’s current products do not
`infringe those patents.
`Horn Decl. ¶ 3. MMI now “stipulates and covenants that it will not
`sue SanDisk, now or in the future, for infringement of any of the
`patents identified in SanDisk’s Complaint filed in this action on
`February 10, 2011 [sic], based upon past or current versions of
`SanDisk’s media player products.” Horn Decl. ¶ 4.
`LEGAL STANDARD
`Subject matter jurisdiction is a threshold issue which goes to
`
`the power of the court to hear the case. Federal subject matter
`jurisdiction must exist at the time the action is commenced. GAF
`Building Materials Corp. v. Elk Corp. of Dallas, 90 F.3d 479, 483
`(Fed. Cir. 1996). To sustain subject matter jurisdiction in the
`declaratory judgment context, an “actual controversy” must exist.
`Janssen Pharmaceutica, N.V. v. Apotex, Inc., 540 F.3d 1353, 1359
`(Fed. Cir. 2008). When such a controversy is lacking, dismissal is
`appropriate under Rule 12(b)(1) because the district court lacks
`subject matter jurisdiction over the claim. Fed. R. Civ. P.
`12(b)(1).
`
`BACKGROUND
`MMI argues that, because of its covenant not to sue, SanDisk
`does not present an actual controversy and this action must be
`dismissed for lack of subject matter jurisdiction. SanDisk
`contends that, because MMI’s covenant does not include a promise
`not to sue SanDisk’s customers, an actual controversy remains.
`The Declaratory Judgment Act permits a federal court to
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`Case4:11-cv-00597-CW Document24 Filed05/23/11 Page4 of 7
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`“declare the rights and other legal relations” of parties to “a
`case of actual controversy.” 28 U.S.C. § 2201. Before passage of
`the Act, “competitors were victimized by patent owners who engaged
`in extrajudicial patent enforcement with scare-the-customer-and-run
`tactics that infected the competitive environment of the business
`community with uncertainty and insecurity and that rendered
`competitors helpless and immobile so long as the patent owner
`refused to sue.” Teva Pharm. USA, Inc. v. Novartis Pharm. Corp.,
`482 F.3d 1330, 1336 n.2 (Fed. Cir. 2007) (citations, internal
`quotation and editing marks omitted). The Act “was intended ‘to
`prevent avoidable damages from being incurred by a person uncertain
`of his rights and threatened with damage by delayed adjudication.’”
`Cat Tech LLC v. Tubemaster, Inc., 528 F.3d 871, 879-80 (Fed. Cir.
`2008).
`The “actual controversy” requirement of the Act is the same as
`the “case or controversy” requirement of Article III of the United
`States Constitution. Teva, 482 F.3d at 1337. To determine whether
`an actual controversy exists, a court must consider whether “all
`the circumstances” demonstrate “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) (citation and internal quotation marks omitted). Exercise
`of declaratory judgment jurisdiction is discretionary. Cat Tech
`LLC, 528 F.3d at 883.
`A patentee’s covenant not to sue may preclude a declaratory
`judgment action. Revolution Eyeware, Inc. v. Aspex Eyeware, Inc.,
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`Case4:11-cv-00597-CW Document24 Filed05/23/11 Page5 of 7
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`556 F.3d 1294, 1296-98 (Fed. Cir. 2009). “Whether a covenant not
`to sue will divest the trial court of jurisdiction depends on what
`is covered by the covenant.” Id. at 1297.
`MMI’s covenant not to sue is not sufficient to extinguish the
`actual controversy in this case. By only addressing SanDisk, MMI’s
`covenant does not eliminate the possibility that SanDisk’s
`customers may face a patent infringement lawsuit by MMI. In the
`face of this uncertainty, SanDisk’s relationships with its
`customers could suffer, causing harm to SanDisk’s business. MMI
`contends that there can be no controversy as to SanDisk’s customers
`because it has never sued or contacted them. However, in
`correspondence to SanDisk, MMI accused SanDisk’s customers of
`patent infringement and indicated that they are susceptible to
`liability. Although MMI may not have interacted with SanDisk’s
`customers, its statements to SanDisk evince “an assertion of rights
`and a willingness to pursue litigation” regarding the patents-in-
`suit. Cingular Wireless v. Freedom Wireless, Inc., 2007 WL
`1876377, at *3 (D. Ariz.).
`MMI contends that, while its covenant not to sue does not
`expressly pertain to SanDisk’s customers, it affords them
`protection from suit based on the patent exhaustion doctrine. MMI
`cites TransCore LP v. Electric Transaction Consultants Corp., in
`which the Federal Circuit held that an alleged infringer had a
`defense of patent exhaustion1 because it purchased the accused
`
`1 “The longstanding doctrine of patent exhaustion provides
`that the initial authorized sale of a patented item terminates all
`patent rights to that item.” Quanta Computer, Inc. v. LG Elecs.,
`Inc., 553 U.S. 617, 625 (2008).
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`Case4:11-cv-00597-CW Document24 Filed05/23/11 Page6 of 7
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`product from an entity that the patentee had covenanted not to sue
`as part of a settlement. 563 F.3d 1271, 1276-77 (Fed. Cir. 2009).
`The court explained that, because the covenant was unconditional,2
`it authorized sales of the accused product for the purposes of
`patent exhaustion. Id. at 1276. Absent a sale, however, the
`patent exhaustion doctrine does not apply and a SanDisk customer
`may be exposed to liability. Quanta, 553 U.S. at 625.
`Furthermore, patent exhaustion is an affirmative defense for which
`the alleged infringer has the burden of proof. ExcelStor Tech.,
`Inc. v. Papst Licensing GMBH & Co. KG, 541 F.3d 1373, 1376 (Fed.
`Cir. 2008); Monsanto Co. v. Scruggs, 459 F.3d 1328, 1334 (Fed. Cir.
`2006) (referring to patent exhaustion as an affirmative defense).
`Although MMI insists that its covenant as to SanDisk equally
`shields SanDisk’s customers, MMI’s unexplained reluctance to
`promise expressly not to sue them raises concern. Thus, because
`MMI’s covenant does not eliminate all uncertainty for SanDisk’s
`customers, it does not end the controversy in this case.
`The Court concludes that, considering the totality of the
`circumstances, “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, 549
`U.S. at 127. Until MMI expressly covenants not to sue SanDisk’s
`customers for infringement of any of the patents-in-suit based upon
`past or current versions of SanDisk’s media player products, this
`
`2 The settlement agreement provided that the patentee “agrees
`and covenants not to bring any demand, claim, lawsuit, or action
`against . . . for future infringement . . . .” TransCore, 563 F.3d
`at 1276.
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`Case4:11-cv-00597-CW Document24 Filed05/23/11 Page7 of 7
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`case will not be dismissed.
`CONCLUSION
`For the foregoing reasons, MMI’s motion to dismiss is DENIED.
`(Docket No. 10.)
`A case management conference will be held on May 31, 2011 at
`2:00 p.m.
`IT IS SO ORDERED.
`
`Dated: 5/23/2011
`
`
`CLAUDIA WILKEN
`United States District Judge
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