Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_02-cv-01109/USCOURTS-azd-2_02-cv-01109-0/pdf.json

Nature of Suit Code: 840
Nature of Suit: Trademark
Cause of Action: 15:1121 Trademark Infringement

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

True Center Gate Leasing, Inc., an

Arizona corporation, 

Plaintiff, 

vs.

Sonoran Gate, L.L.C., an Arizona limited

liability company; K-Zell Metals, Inc.,

an Arizona corporation; Donald

Kammerzell and Barbara Kammerzell,

husband and wife; and Mike O’Connor,

an individual, 

Defendants.

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No. CV-02-1109-PHX-DGC

ORDER

In the only claims remaining in this case, Plaintiff True Center Gate Leasing, Inc.

(“True Center”) seeks a declaratory judgment that two patents held by Defendant K-Zell

Metals, Inc. (“K-Zell”) are invalid. K-Zell recently has covenanted not to sue True Center

or its customers for infringement of the two patents based on past or present acts or

products. The Court concludes that this covenant eliminates the case or controversy

required for jurisdiction over the declaratory judgment claims and therefore will dismiss this

action.

I. Background.

True Center and K-Zell make st arting gates for horse racing tracks. True Center has

been in the business for several decades. K-Zell acted as a contractor for True Cent er for

several years, fabricating parts for and sometimes assembling True Center starting gates.

Case 2:02-cv-01109-DGC Document 196 Filed 11/18/05 Page 1 of 11
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K-Zell subsequently began manufacturing starting gates on its own. 

On June 14, 2002, True Center filed this action against K-Z ell and additional

defendants asserting claims for false advertising, trademark dilut ion and infringement,

breach of fiduciary duty, conspiracy, breach of contract, violation of the trade secrets act,

slander, and conversion. Doc. #1. Each of these claims and all defendants other than

K-Zell have been eliminated from this case by summary judgment. Doc. #139. 

After the lawsuit was filed, K-Zell obtained two patents from the United States

Patent and Trademark Office (“PTO”) – Patent No. 6,508,201 (“201 patent”) and No.

6,637,094 (“ 094 p atent”). True Center thereafter amended its complaint to assert two claims

for declaratory judgment, one seeking a declarat ion that the 201 patent is invalid and the

other seeking a declaration that the 094 patent is invalid. Docs. ##57, 70. True Center

alleges that the patents embody prior art created and used for years by True Center in the

manufacture of horse race starting gates and t hat K-Zell engaged in inequitable conduct

before the PTO when it failed to disclose this prior art while seeking the patents. 

K-Zell argued during pre-trial lit igation of this case that the Court did not have

jurisdiction over the patent validity claims because there was no actual controversy

between True Center and K-Zell concerning the patents. The Court rejected this argument,

holding that True Center had adequately alleged and presented sufficient evidence that

K-Z ell t hreatened True Center with claims of patent infringement. Docs. ##56, 139. The

Court accordingly denied K-Zell’s requests that the declaratory judgment claims be

dismissed. Id.

A bench trial on patent validity began on November 1, 2005. Shortly before trial,

K-Zell stated in filings to the Court and on the record during a final pretrial conference that

it was covenanting not to sue True Center or its customers for infringement of the 201 and

094 patents arising out of any products or acts existing on or before November 1, 2005.

K-Zell argued t hat this covenant eliminated any actual controversy between the parties

and therefore required dismissal of the declaratory judgment claims for lack of jurisdiction.

The Court heard oral argument on this issue on the morning of the first day of trial and

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took the matter under advisement. Each of the parties had provided briefing on these

jurisdictional matters. Docs. ##178, 181-83. Following additional analysis and at the start

of the second day of trial, the Court held that the covenant not to sue did eliminate the

required case or controversy and that dismissal of the action was therefore required. T his

order sets forth the Court’s rationale. 

II. Analysis.

The Unit ed St ates Constitution provides that federal courts have jurisdiction only

over actual cases or controversies. U.S. Const. art. III, § 2, cl. 2; see Anderson v . United

States, 344 F.3d 1343, 1349 (Fed. Cir. 2003) (“Article III, section 2 of the United States

Const it ution limits federal judicial power to the resolution of actual ‘cases’ or

‘controversies.’”). Moreover, Congress has made clear that federal declarat ory judgment

jurisdiction extends only to an “actual controversy” between interested parties. 28 U.S.C.

§ 2201(a); see Gen-Probe, Inc. v . Vysis, Inc., 359 F.3d 1376, 1379 (Fed. Cir. 2004) (“The

Declaratory Judgment Act only sup p orts jurisdiction in the event of an ‘actual

cont roversy .’ This requirement effectuates Article III of the Constitution, which only

authoriz es t he federal judiciary to hear justiciable cases and controversies.”) (citations

omitted); Medimmune, Inc. v. Centocor, Inc., 409 F.3d 1376, 1378-79 (Fed. Cir. 2005)

(“Paralleling Article III of the Constitution, the [Declaratory Judgment] Act ‘requires an

actual controversy between the parties before a federal court may exercise jurisdiction over

an action for declaratory judgment.’”) (quoting Teva Pharms. USA, Inc. v. Pfizer, Inc.,

395 F.3d 1324, 1331 (Fed. Cir. 2005)). Thus, “ [t]he existence of a sufficiently concrete

dispute between the parties remains . . . a jurisdictional predicate to the vitality of” a

declaratory judgment case. Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d

1054, 1058 (Fed. Cir. 1995). “[T]he ‘act ual controversy must be extant at all stages of

review, not merely at the time the complaint is filed.’” Id. (quoting Preiser v. Newkirk, 422

U.S. 395, 401 (1975)). As the party seeking declaratory relief, True Center must “‘establish

t hat jurisdiction over its declaratory judgment action existed at, and has continued since,

the [declaratory judgment claims were] filed.’” Id. (quoting Int’l Med. Prosthetics Res.

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Assocs. v. Gore Enter. Holdings, Inc., 787 F.2d 572, 575 (Fed. Cir. 1986)).

The Federal Circuit has recognized a two-part test for determining the justiciability

of a declaratory judgment claim concerning patent invalidity:

T here must be both (1) an explicit threat or other action by the patentee,

which creates a reasonable apprehension on behalf of the declaratory

p laint iff that it will face an infringement suit, and (2) present activity which

could constitute infringement or concrete step s t aken with the intent to

conduct such activity.

Id. (quoting B.P. Chems. Ltd. v. Union Carbide Corp., 4 F.3d 975, 978 (Fed. Cir. 1993))

(emphasis in original); see Medimmune, 409 F.3d at 1379 (stating that the two-part test

focuses on the conduct of both the patentee and the declaratory plaintiff “[t]o keep watch

over the subtle line between an ‘abstract question’ and ‘a controversy contemplated by

t he Declaratory Judgment Act’”) (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S.

270, 273 (1941)). T he Court must determine, therefore, whether K-Zell’s covenant not to

sue eliminates one or both of these required grounds for jurisdiction. 

A. The Covenant Not to Sue.

The Court questioned K-Zell’s counsel in some detail on t he record on November

1, 2005. Counsel confirmed, with the president of K-Zell present, that K-Zell will not sue

True Center or its customers for infringement of the 201 or 094 patents arising out of any

past or present acts or products. K-Zell stated that this covenant applied to acts occurring

or products in existence on or before November 1, 2005. 

The Federal Circuit has held that a patentee defending against an action for a

declaratory judgment of invalidity can divest the trial court of jurisdiction by implementing

such a covenant not to sue. See Super Sack, 57 F.3d at 1058-60. This is because the

covenant eliminates the first requirement of justiciability set forth above – that the

declarat ory plaintiff have a reasonable apprehension that it will face an infringement suit.

Id. (“Because Chase can have no reasonable apprehension that it will face an infringement

suit on the ‘796 and ‘652 patents with respect to past and present products, it fails t o

satisfy the first part of our two-part test of justiciability.”). 

T he Federal Circuit recently has made clear that the declaratory plaintiff must have

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not only a reasonable apprehension of an infringement suit, but of an “imminent”

infringement suit. Teva Pharms., 395 F.3d at 1333 (“Teva must be able to demonstrate that

it has a reasonable apprehension of imminent suit.”) (emphasis in original). “This

requirement of imminence reflects the Article III mandate that the injury in fact be

‘concrete,’ and ‘actual or imminent, not conjectural or hypothetical.’” Id. (quoting Steelco

v. Citizens for a Better Env ’t, 523 U.S. 83, 101 (1998)). K-Zell’s covenant not to sue clearly

eliminates any reasonable app rehension True Center might have of an imminent

infringement suit. As a result, the first requirement of justiciability is not satisfied and this

Court lacks subject matter jurisdiction over True Center’s declaratory judgment claims.

True Center argues that the covenant will not protect it from an infringement suit

based on the 201 and 094 patents arising out of future acts or product s. True enough, but

the Federal Circuit has held that fear of such future litigation is not sufficient to invoke the

Court’s declaratory judgment jurisdiction. This is because the second part of the test for

justiciability requires that the putative infringer’s “present activity” place it at risk of

infringement liability. Super Sack, 57 F.3d at 1060 (emphasis in original). A lawsuit based

on future activity is, of course, not based on “present activity,” and the fear of such a suit

therefore does not satisfy the second requirement. “The residual possibility of a future

infringement suit based on . . . future acts is simply too speculative a basis for jurisdiction

over [a claim] for declaratory judgments of invalidity.” Id. 

K-Zell’s covenant not to sue thus eliminates both elements of t he t wo-part test for

jurisdiction over True Center’s declaratory judgment claims. As a result, “[t]he only proper

course for [this Court is] to dismiss the case for lack of jurisdiction.” Id. 

B. True Center’s Cardinal Chemical Argument.

T rue Center argues that this case is unique and not subject to the Federal Circuit

rule recognized in Super Sack. True Center emphasiz es t hat K-Zell is a former contractor

for True Center, that the parties have a longstanding relationship, that True Center

developed and perfected the gate design now found in the 201 and 094 patents, and that

K-Zell wrongfully appropriated that design from the public domain and fraudulently

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obtained t he patents covering it. True Center further argues that the mere existence of the

patents has a damaging effect on True Center, discouraging customers and contractors

from doing business with True Center and imposing a cloud of possible infringement

liability over all of True Center’s business. True Center argues that the covenant not to

sue does not eliminate this ongoing injury from K-Zell’s fraudulently procured patents. 

True Center has cited no authority directly supporting this argument . T rue Center

relies primarily on a particular sentence in the Supreme Court’s decision in Cardinal

Chemical Co. v . Morton International, Inc., 508 U.S. 83 (1993): “Merely the desire to

avoid the threat of a ‘scarecrow patent’ in Learned Hand’s phrase, may therefore be

sufficient to establish jurisdiction under the Declaratory Judgment Act.” Id. at 96 (footnote

omitted). True Center argues that K-Zell has two “scarecrow patents” that damage True

Center’s business.

The Court cannot accept True Center’s broad reading of Cardinal Chemical. The

Supreme Court held in that case that the Federal Circuit should not maintain a per se policy

of dismissing declaratory judgment counterclaims for invalidity every time a lower court

finds non-infringement. T he Court noted that “[a] party seeking a declaratory judgment

of invalidity presents a claim indep endent of the patentee’s charge of infringement.” Id.

As a result, the Court held that declaratory judgment counterclaims for invalidity needed

to be analyzed on their own facts and not automatically dismissed p ursuant t o a per se rule.

Although the opinion in Cardinal Chemical includes the “scarecrow patent”

sentence relied on by True Center, the Sup reme Court did not purport to alter the test for

justiciability of declaratory judgment claims of invalidity. This reality has been recognized

by the Federal Circuit: “Cardinal does not revolutionize the justiciability of declarat ory

judgment actions attacking a patent’s validity[.]” Super Sack, 57 F.3d at 1060; see Institut

Pasteur v. Simon, 332 F. Supp. 2d 755, 758 (E.D. Pa. 2004) (“nothing in Cardinal

‘undermines the Federal Circuit’s decisions on declaratory justiciability at the trial court

level’”) (quoting Super Sack, 57 F.3d at 1060; alterations omitted). Plaintiffs must st ill

satisfy the two-part test for justiciability set forth above, see Super Sack, 57 F.3d at 1058,

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1

Section 256 provides, in pertinent part:

Whenever through error a p erson is named in an issued patent as the

inventor, or through error an inventor is not named in an issued patent and

such error arose without any deceptive intention on his part, the Director

may, on application of all parties and assignees, with proof of facts and such

other requirements as may be imposed, issue a certificat e correcting such

error.

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something True Center cannot do after K-Zell’s covenant not to sue.

True Center argues that the 201 and 094 pat ent s p lace a cloud of litigation over True

Center’s business, that K-Zell is simply seeking, by it s covenant, to avoid a determination

of its patents’ validity, and that the covenant therefore does not eliminate t he p rosp ect of

real injury to True Cent er. T he Federal Circuit has held, however, that such concerns do

not provide a sufficient basis for jurisdiction over a declaratory judgment claim of patent

invalidity. See Teva Pharms., 395 F.3d at 1331-34. As Teva Pharmaceuticals exp lained,

only a reasonable apprehension of an imminent infringement suit gives rise to the kind of

controversy necessary to support jurisdiction over such a claim. Id.

The Court concludes that T rue Center’s “scarecrow patent” argument, although

vigorously asserted, does not provide a basis for subject matter jurisdiction over it s

invalidity claims. Applicable federal law makes clear that True Center must face an

imminent threat of an infringement suit based on its present activity. Because K-Zell’s

covenant not to sue has eliminated that threat, the invalidity claims must be dismissed.

C. True Center’s Supplemental Memorandum Regarding Jurisdiction.

Following the Court’s announcement of its decision from the bench, True Center

filed a sup plemental memorandum on subject matter jurisdiction and K-Zell filed a

response. Docs. ##186, 188. True Center contends that the Court should look beyond the

traditional two-part jurisdictional test for declaratory judgment claims of invalidity and

construe its causes of action as “inventorship disputes” under 35 U.S.C. § 256. Doc. #186

at 2-5 (citing Fina Oil Chem. Co. v . Ewen, 123 F.3d 1466 (Fed. Cir. 1997); Chou v. Univ. of

Chicago, 254 F.3d 1347 (Fed. Cir. 2001)). 1 K-Zell argues that True Center’s reliance on Fina

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Oil and Chou is misplaced because those cases involved claims to correct or affirm

inventorship under § 256, not claims of patent invalidity. Doc. #188 at 1-5. K-Zell further

argues that because True Center seeks a declaration that the 201 and 094 p at ents are

invalid under 35 U.S.C. §§ 102 and 103, the Federal Circuit’s traditional two-part

jurisdictional test applies. Id. at 3-5 (citing Institut Pasteur, 332 F. Supp. 2d at 758; BP

Chems., Ltd. v. Union Carbide Corp., 4 F.3d 975 (Fed. Cir. 1993)).

The Court agrees with K-Zell. In Chou, a graduate student sued her former

p rofessor and the university she attended for correction of inventorship under § 256. 254

F.3d at 1353. T he Federal Circuit held that although the plaintiff was obligated to assign

her inventions to the university, she nonetheless had st anding to sue for correction of

invent orship under § 256. The holding in Chou has no application to this case because

T rue Cent er has not brought a claim for correction of inventorship under § 256. Docs. ##1,

57, 70. Moreover, Clay Puett, t he p erson T rue Center alleges is the true inventor of the

starting gates depicted in the 201 and 094 patents, is not a party to this action.

In Fina Oil, the plaintiff sought a declarat ion t hat the inventors were properly

named in the patent at issue in accordance with 35 U.S.C. § 116. 123 F.3d at 1470.

Applying the well-pleaded complaint rule, the Federal Circuit looked to the corresponding

suit that the defendant would have brought, i.e., an act ion for correction of inventorship

under 35 U.S.C. § 256. Id. The Federal Circuit found that an actual controversy exist ed

because the p laint iff owned the patent at issue and had a reasonable apprehension that the

defendant would bring a § 256 action. Because those fact s are not present in this case,

Fina Oil has no bearing on the Court’s ruling t hat it lacks jurisdiction over True Center’s

invalidity claims. See Institut Pasteur, 332 F. Supp. 2d at 758 (“Fina Oil does not alter the

BP Chemicals two-pronged test for determining whether an act ual controversy exists in

cases involving a declaratory judgment of patent invalidity.”); Teva Pharms., 395 F.3d at

1335-56 (stating that the holding in Fina Oil follows t he Federal Circuit’s traditional twopart jurisdictional test and “in no way suggests that the traditional test does not address

the Article III requirement of an actual case or controversy”).

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2

 True Center moved to amend the complaint for a third time more than three years

after it filed suit and more than three months after the Court granted summary judgment in

defendants’ favor on all but the declaratory judgment claims. See Docs. ##139, 165. The

Court denied this attempt by True Center to expand the case yet again.

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True Center also argues t hat K-Zell’s last-minute issuance of a covenant not to sue

is a flagrant abuse of the judicial system and that the dismissal of this action on the second

day of trial is unfair. Doc. #186 at 8-9. The jurisdictional inquiry, however, focuses on

judicial power, not fairness. See Hercules, Inc. v. United States, 516 U.S. 417, 430 (1996)

(“[W]e are constrained by our limited jurisdiction and may not entertain claims ‘based

merely on equitable considerations.’”) (cit at ion omitted). What is more, dismissal of the

remaining claims in this case is not unfair. This is not a case where the plaintiff sought

from the start to establish the invalidity of patents and invested substantial resources in

that effort only to have t he rug pulled out from under it by a last-minute covenant not to

sue. True Center has been largely unsuccessful in its claims against K-Zell and others and

has sought rep eatedly to expand and modify those claims throughout the course of this

litigation. True Center commenced this action before the 201 and 094 patents were even

issued, alleging federal false advertising and trademark violations and a host of state law

claims against K-Zell and others. See Doc. #1. True Cent er ultimately lost all of these

claims. Nearly a year after filing suit, True Center unsuccessfully sought to exp and the

case by moving t o add several more state law claims against defendants.2 See Docs. ##33,

56. True Center eventually was permitted to add declaratory judgment claims concerning

the alleged invalidity of the K-Zell patents, but these claims were added only after much

litigation on other claims. 

All of the claims in this case have come from True Cent er. K-Zell has litigated and

overcome the vast majority of claims asserted by True Cent er. K-Zell has never counterclaimed for infringement of the 201 and 094 patents. K-Zell instead has argued from the

inception of the invalidit y claims that True Center does not face and has never faced a

t hreat of infringement litigation. The fact that K-Zell made this fact unmistakably clear by

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issuing a pre-trial covenant not to sue does not strike the Court as unfair. 

D. Attorneys’ Fees.

True Cent er’s declaratory judgment claims include a prayer for relief seeking

at t orneys’ fees under 35 U.S.C. § 285, a provision that permits courts to award fees to

prevailing part ies in “exceptional” patent cases. True Center has not asserted a separate

claim for attorneys’ fees, but merely includes a request for such fees in its prayer for relief

on the declaratory judgment claims. 

True Center’s prayer for attorney s’ fees does not provide an independent basis for

jurisdict ion. See Sony Elecs., Inc. v. Soundview Techs., Inc., 375 F. Supp. 99, 101 (D. Conn.

2005). Like the declaratory judgment claimant in Sony, True Cent er has not asserted a

separate claim for fees and does not contend that K-Zell initiated an infringement action

in bad faith (as noted above, K-Zell has initiated no infringement action against True

Center). True Center’s fee request is simply a remedy sought for the declaratory judgment

claims over which the Court has no subject mat t er jurisdiction. See id. (“[T]he attorneys’

fees issue that Sharp seeks to litigate here is it self based on the substantial patent question

of Soundview’s inequitable conduct, as to which this Court has determined that no actual

controversy exists.”); Tunik v. Merit Sys. Protection Bd., 407 F.3d 1326, 1331 (Fed. Cir.

2005) (stating that “‘an interest in at t orney’s fees is, of course, insufficient to create an

Article III case or controversy where none exists on the merits of the underlying claim’”)

(quoting Lewis v. Cont’l Bank Corp., 494 U.S. 472, 480 (1990)).

Moreover, even if the Court possessed jurisdiction to address True Center’s fee

request, it would conclude that True Center is not a “prevailing p arty” within the meaning

of § 285. In addition to the fact that True Center has been unsuccessful on most of its

claims in this case, the case is being dismissed for lack of subject matter jurisdiction. No

judicial relief has been accorded T rue Cent er on any of its claims. “‘[T]o be a prevailing

party, one must receive at least some relief on the merits, which alters . . . the legal

relationships of the parties.’” In re Columbia Univ. Patent Litig., 343 F. Supp. 2d 35, 49 (D.

Mass. 2004) (quoting Inland Steel Co. v. LTV Steel Co., 364 F.3d 1318, 1320 (Fed. Cir.

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2004)). Because True Center has received no such relief, it is not a prevailing party within

the meaning of the attorneys’ fee stat ut e. As the district court in Columbia University

explained:

While Columbia’s covenant not to sue is a form of voluntary conduct that

accomp lishes the major part of what the plaintiffs sought to achieve in these

lawsuits, they have received no relief from the court on the merits of their

claims. They are, therefore, not prevailing parties for the purposes of § 285.

Id. (citing Inland Steel). 

E. Conclusion.

The covenant not to sue implemented by K-Zell, which t he Court finds to be binding

on K-Zell, eliminates any reasonable apprehension of an imminent infringement suit against

True Center on the basis of True Center’s present activity. The covenant therefore

eliminat es both requirements for subject matter jurisdiction over True Center’s remaining

declaratory judgment claims and this case must be dismissed.

IT IS ORDERED:

1. The remaining eleventh and twelfth causes of action of the second

supplemental complaint (Doc. #70) are dismissed for lack of jurisdiction.

2. All pending motions are denied as moot.

3. The Clerk of Court shall terminate this action.

DATED this 16th day of November, 2005.

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