Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_10-cv-02470/USCOURTS-azd-2_10-cv-02470-0/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 28:1338 Patent Infringement

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

MechoShade Systems, Inc., 

Plaintiff, 

vs.

Draper, Inc.; Electronic Solutions, Inc.;

and Hunter Douglas, Inc.,

Defendants. 

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No. CV-10-02470-PHX-NVW

ORDER

Before the Court is Defendants’ Rule 12 Motion to Dismiss the First Amended

Complaint, Stay, or Transfer Pursuant to 28 U.S.C. § 1404(a) (Doc. 21). The Court set this

motion for oral argument, but upon further reflection, determined that the motion could be

appropriately decided on the briefs alone.

The Court will grant the motion and dismiss this case without prejudice in favor of

previously filed actions in Colorado and Indiana. The intent of this order is to leave it to the

Colorado and Indiana courts, where these claims were first filed, to determine whether either

or both of those actions should be litigated in a different forum.

I. Backgrounds

Plaintiff MechoShade Systems, Inc., is a New York corporation that manufactures

window coverings at a facility in Arizona. It owns patents developed by one of its principal

officers, Joel Berman, that relate to these window coverings. One such patent is U.S. patent

Case 2:10-cv-02470-NVW Document 35 Filed 04/27/11 Page 1 of 7
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number 6,164,428, titled “wrap spring shade operator,” which describes a mechanism within

a window shade mounting bracket intended to ensure smooth raising and lowering of

manually operated roll-up window shades. The Court will refer to this as the “bracket

patent.” Another patent is U.S. patent number 7,417,397, titled “automated shade control

method and system,” which describes a digitally controlled, motor-driven window shade

system that automatically raises or lowers the shades based on an algorithm that can respond

to weather conditions, building temperature, and so forth. The Court will refer to this as the

“automation patent.”

Defendant Draper, Inc., is an Indiana corporation with its principal place of business

in Indiana. Draper competes with MechoShade in the window covering market. In late

August 2010, MechoShade’s Berman contacted persons at Draper and accused Draper of

wrongdoing with respect to MechoShade’s intellectual property. According to Berman, he

discussed Draper’s possible infringement of both the bracket patent and the automation

patent. Draper, other the other hand, says it discussed only the bracket patent with Berman.

In any event, on September 1, 2010, Draper and MechoShade executed a “Rule 408

Settlement Negotiation Agreement.” The agreement’s recitals state, in relevant part:

Berman and MechoShade have raised several issues they want

to discuss with Draper.

While Draper is not clear on the issues, it agrees to discuss said

issues with MechoShade and Berman.

In the process of Settlement Discussion, Draper, MechoShade,

and Berman anticipate exchanging confidential information and

providing information that may be prejudicial during any

litigation between them.

(Doc. 1-1 at 2.) The agreement therefore goes on to establish procedures for exchanging

confidential information. The agreement does not prohibit either side from suing the other,

but states that “Settlement Discussions shall not be used for any purpose and litigation

between the Parties.” (Id. at 3.) MechoShade alleges that it and Draper subsequently entered

into an oral agreement not to sue each other without reasonable warning. Exactly when this

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oral agreement arose is not specified.

MechoShade alleges that, for the first few weeks of September 2010, it and Draper

had substantive discussions about Draper’s products. Although no party’s narrative is

explicit on this subject, it appears that these discussions with Draper involved both the

bracket patent and the automation patent, and revealed that Draper markets automated

window shade systems made by Defendant Electronic Solutions, Inc., which refers to itself

as “ESI.” ESI is a Colorado corporation with its principal place of business in Colorado. It

is also a wholly-owned subsidiary of Defendant Hunter Douglas, Inc., a Delaware

corporation with its principal place of business in New Jersey.

Berman contacted ESI on September 21, 2010, and accused it of infringing the

automation patent. The record is not clear about what happened after this. According to ESI,

Berman then began contacting ESI’s potential customers and threatening legal action based

on the automation patent. MechoShade seems to deny this, and instead alleges that,

sometime around September 27, 2010, Draper asked MechoShade to prepare detailed claim

charts comparing Draper’s products with the claims of both the bracket and automation

patents. The record does not disclose whether ESI likewise asked for such claim charts.

Nonetheless, MechoShade claims that it then began an intensive study of Draper’s products

as part of its effort to prepare claim charts.

After Draper requested claim charts from MechoShade, apparently neither Draper nor

ESI had any contact with MechoShade until November 10, 2010. On that date, Draper filed

a declaratory judgment action against MechoShade in the Southern District of Indiana, asking

the court to declare that Draper does not infringe MechoShade’s bracket patent or trade dress,

and that MechoShade’s bracket patent is invalid. See Draper, Inc. v. MechoShade Sys., Inc.

et al., No. 1:10-cv-1443-SEB-TAB (S.D. Ind.). Also on that date, ESI, Hunter Douglas, and

Draper filed a declaratory judgment action against MechoShade in the District of Colorado,

asking the court to declare that they do not infringe MechoShade’s automation patent, and

that MechoShade’s automation patent is invalid. See Elec. Solutions, Inc. et al. v.

MechoShade Sys., Inc., No. 1:10-cv-02750-WDM-MJW (D. Colo.).

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On November 12, 2010, MechoShade filed this lawsuit against Draper, ESI, and

Hunter Douglas, which will be referred to collectively as “Defendants.” MechoShade asserts

causes of action for patent infringement (both the bracket and automation patents), trade

dress infringement, unfair competition, false advertising, and breach of contract (i.e., the

Rule 408 Settlement Negotiation Agreement and the oral contract not to sue). Defendants

moved to dismiss, stay, or transfer this case in light of the previously filed cases in Colorado

and Indiana. The motion has been fully briefed, and is now ripe for ruling.

II. Analysis

The federal courts have embraced “the general principle [of] avoid[ing] duplicative

litigation” amongst themselves. Colo. River Water Conservation Dist. v. United States, 424

U.S. 800, 818 (1976). One way the courts realize this principle is through the “first-to-file

rule,” meaning that when two cases in two districts raise substantially the same issues among

substantially the same parties, “[t]he general rule favors the forum of the first-filed action.”

Micron Tech., Inc. v. MOSAID Techs., Inc., 518 F.3d 897, 904 (Fed. Cir. 2008). Therefore,

this Court “has discretion to transfer, stay, or dismiss the second case in the interest of

efficiency and judicial economy.” Cedars-Sinai Med. Ctr. v. Shalala, 125 F.3d 765, 769 (9th

Cir. 1997).

Federal Circuit law controls the first-to-file rule in patent cases such as this, where an

action for infringement and a declaratory judgment action for non-infringement are pending

in different districts. Elecs. for Imaging, Inc. v. Coyle, 394 F.3d 1341, 1345–46 (Fed. Cir.

2005); Lab. Corp. of Am. v. Chiron Corp., 384 F.3d 1326, 1331 (Fed. Cir. 2004). The

Federal Circuit’s overriding concern in this area of law is to ensure that “the case will be

heard [in] or transferred to the most convenient or suitable forum” and thereby “reduce the

incentives for a race to the courthouse.” Micron, 518 F.3d at 905. Accordingly, “[t]he trial

courts have discretion to make exceptions to [the first-to-file rule] in the interest of justice

or expediency, as in any issue of choice of forum.” Id. at 904.

The Federal Circuit in Micron specifically directed the district courts to examine the

factors normally considered when faced with a motion to transfer under 28 U.S.C. § 1404(a).

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Id. at 904–05. This calls for a renvoi-like return to regional circuit law because the Federal

Circuit derives factors to consider under § 1404(a) from the law of the regional circuit. See,

e.g., In re Vistaprint Ltd., 628 F.3d 1342, 1344 (Fed. Cir. 2010); In re Acer Am. Corp., 626

F.3d 1252, 1254 (Fed. Cir. 2010). In addition, Federal Circuit cases regarding the first-to-file

rule have also endorsed considering “a party’s intention to preempt another’s infringement

suit,” Micron, 518 F.3d at 904, “the possibility of consolidation with related litigation,” id.,

whether the parties were in the midst of extra-judicial negotiations, EMC Corp. v. Norand

Corp., 89 F.3d 807, 814 (Fed. Cir. 1996), abrogated on other grounds by MedImmune, Inc.

v. Genentech, Inc., 549 U.S. 118 (2007), and whether “forum shopping alone motivated the

choice of sites for the first suit,” Kahn v. Gen. Motors Corp., 889 F.2d 1078, 1081 (Fed. Cir.

1989).

The foregoing reflects a multi-factor test typical of modern American law. However,

the Federal Circuit has left unanswered an important question: which court should consider

these factors? This question deserves a definite answer because, just as “the general

principle [of] avoid[ing] duplicative litigation,” Colo. River Water Conservation Dist., 424

U.S. at 818, is mocked if more than one court considers the same substantive suit, it is

similarly mocked if more than one court considers which court should consider the

substantive suit. Yet if the second-filed (or as is the case here, third-filed) court can weigh

the factors, such wasteful duplication of resources would frequently result because many

patent holders (as declaratory judgment defendants) will file a § 1404(a) motion to transfer

with the first-filed court and then hedge their bets (as natural plaintiffs) by filing a Micronbased motion — likewise invoking § 1404(a) — with the second-filed court.

The question of which court should consider the § 1404(a) and other factors similarly

deserves an answer because Congress has written the federal transfer statutes to

accommodate puts and not calls, so to speak. This Court cannot order courts of another

district to transfer their cases here. This Court could enjoin the parties from litigating

elsewhere, see generally Lab. Corp., 384 F.3d at 1327–33 (discussing injunctions against

proceeding in a different forum), but the wisdom of exercising that authority as a substitute

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The fact that there are, in a sense, two first-filed courts is not troubling. The Court

agrees with Defendants’ argument that each of these suits is an analytically distinct action,

rather than MechoShade’s claim that the bracket patent and automation patent are so closely

related that two lawsuits necessarily create piecemeal litigation. The bracket patent addresses

the problem of jerky operation in manually adjusted window blinds. The automation patent

sets up an elaborate system of computer-directed, motor-controlled window blinds that

predict and respond to changes in sunlight, weather, and so forth. The only thing these

patents have in common is window blinds. Thus, the Indiana action is the first-filed action

with respect to the bracket patent, and the Colorado action is first-filed with respect to the

automation patent. The Court expresses no opinion on whether consolidating both cases (in

Arizona or otherwise) would nonetheless promote judicial economy.

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for § 1404(a) is questionable. Unusual cases may exist where the second-filed court could

appropriately issue such an injunction — a particularly egregious and oppressive instance of

forum shopping, for example — but the usual case should be left to the procedure established

by § 1404(a). Otherwise, “‘[t]he administration of justice would be chaotic indeed,’”

Genentech, Inc. v. GlaxoSmithKline LLC, No. 5:10-cv-04244-JF/PVT, 2010 WL 4923954,

at *4 (N.D. Cal. Dec. 1, 2010) (quoting Nat’l Equip. Rental, Ltd. v. Fowler, 287 F.2d 43,

46–47 (2d Cir. 1961) (alteration in original)), as multiple district courts consider the same

factors and inevitably, in some instances, arrive at incompatible conclusions.

The Court therefore concludes that in a “first-to-file” dispute, the second-filed court

should defer any analysis of § 1404(a) or other transfer factors to the first-filed court.

Although unusual circumstances may justify departing from this principle, this case presents

no such unusual circumstances. The Court will therefore defer to the Colorado and Indiana

courts.1

 By so doing, the Court does not mean to suggest that Arizona is the wrong place for

this litigation. The Court merely concludes that the question should not be decided here.

IT IS THEREFORE ORDERED that “Defendants’ Rule 12 Motion to Dismiss the

First Amended Complaint, Stay, or Transfer Pursuant to 28 U.S.C. § 1404(a)” (Doc. 21) is

GRANTED.

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IT IS FURTHER ORDERED that this case is DISMISSED without prejudice in favor

of the Colorado and Indiana actions.

DATED this 26th day of April, 2011.

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