Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-01935/USCOURTS-azd-2_06-cv-01935-1/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:271 Patent Infringement

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Cingular Wireless LLC and Ericsson Inc.,

Plaintiffs, 

vs.

Freedom Wireless, Inc., 

Defendant. 

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No. CV06-1935 PHX JAT

ORDER

Pending before the Court is Defendant's Motion to Dismiss the Complaint for Lack

of Subject Matter Jurisdiction (Doc. # 29) pursuant to Rule 12(b)(1) of the Federal Rules of

Civil Procedure. 

I. BACKGROUND

Defendant Freedom Wireless, Inc. ("Freedom Wireless"), a development and

technology company based in Phoenix, Arizona, owns patents on systems and methods for

providing prepaid wireless telephone services. Plaintiff Cingular Wireless LLC ("Cingular"),

based in Atlanta, Georgia, provides prepaid wireless services to end-user customers using a

system supplied by Plaintiff Ericsson, Inc. ("Ericsson"), a company based in Plano, Texas.

Before using Ericsson's system, Cingular based its prepaid wireless services on a different

system provided by Boston Communications Group, Inc. ("BCGI"). 

On March 30, 2000, Freedom Wireless commenced a patent action against BCGI and

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several wireless carriers using the BCGI system, including Cingular, alleging infringement

of Freedom Wireless' United States Patents, numbers 5,722,067 ("the '067 Patent") and

6,157,823 ("the '823 Patent") (collectively, "patents-in-suit"). See Freedom Wireless, Inc.

v. Boston Comm. Group, Inc., No. CV-00-12234-EFD (D. Mass.) ("Freedom Wireless I").

The trial was bifurcated, with the issue of infringement first tried to a jury and the issue of

patent enforceability subsequently tried to the court. The jury returned a verdict in favor of

Freedom Wireless on May 20, 2005. Following unsuccessful mediation during the bench

trial, the district court found the patents-in-suit enforceable. After all parties appealed to the

Federal Circuit Court of Appeals, Freedom Wireless and BCGI entered into global settlement

negotiations, with BCGI serving as the intermediary between Freedom Wireless and the

wireless carrier defendants. In the resulting settlement agreement, Freedom Wireless

released any patent infringement claims based on the wireless carriers' (including Cingular)

use of BCGI-based systems. Further, the judgments entered as a result of both the jury and

bench trials were vacated. 

Approximately one month after settlement was reached, Plaintiffs Cingular and

Ericsson filed the present action for a declaratory judgment that no valid and enforceable

claim of the patents-in-suit is infringed by Plaintiffs. Subsequently, Defendant Freedom

Wireless filed an action against Plaintiffs alleging infringement of the patents-in-suit, as well

as a third patent referred to as "'851," in the Eastern District of Texas. Defendant also filed

a separate suit against Alltel Communications, Inc., Comverse, Inc. and VeriSign, Inc. in the

same court regarding the same patents. Thereafter, Defendant filed the pending motion to

dismiss for lack of subject matter jurisdiction, alleging that no actual controversy existed on

the date Plaintiffs filed their Complaint. Finally, Defendant filed two additional actions

against Plaintiff Ericsson and several of its wireless carriers based on the same three patents,

both in the Eastern District of Texas. All four actions are assigned to the Honorable T. John

Ward. 

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II. LEGAL STANDARD

The Declaratory Judgment Act provides that "[i]n a case of actual controversy within

its jurisdiction...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). The

phrase "actual controversy" refers to "cases and controversies" that are justiciable under

Article III of the Constitution. Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240 (1937).

Plaintiffs carry the burden to prove the existence of an actual controversy such that subject

matter jurisdiction exists. Cardinal Chem. Co. v. Morton Int'l Inc., 508 U.S. 83, 95 (1993).

Until 2007, courts used a two-prong "reasonable apprehension" test developed by the

Federal Circuit Court of Appeals in patent declaratory judgment actions to determine whether

an actual controversy exists. See Teva Pharm. USA, Inc. v. Pfizer, Inc., 395 F.3d 1324, 1330

(Fed. Cir. 2005). Under that test, an actual controversy exists upon evidence of "an explicit

threat or other action by the patentee which creates a reasonable apprehension" that the

declaratory judgment plaintiff faces an imminent infringement suit and "present activity by

the declaratory judgment plaintiff which could constitute infringement, or concrete steps

taken with the intent to conduct such activity." See Teva, 395 F.3d at 1332. 

However, the Supreme Court, in MedImmune, Inc. v. Genetech, Inc., 127 S.Ct. 764

(2007), rejects the two-prong test used to determine justiciability in patent declaratory

judgment actions. See SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1380 (Fed.

Cir. 2007) (finding that the MedImmune decision "represents a rejection of our reasonable

apprehension of suit test."); Teva Pharm., Inc. v. Novartis Pharm., Inc., 482 F.3d 1330, 1334

(Fed. Cir. 2007) ("MedImmune...finds that our declaratory judgment test for noninfringement or invalidity conflicts with [the Court's] precedent") (internal quotations

omitted). Instead, the Supreme Court looked to the totality of the circumstances, and

emphasized that an Article III dispute "be 'definite and concrete, touching the legal relations

of parties having adverse legal interests'; and that it be 'real and substantial' and 'admi[t] of

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specific relief through a decree of a conclusive character, as distinguished from an opinion

advising what the law would be upon a hypothetical state of facts.'" MedImmune, 127 S.Ct.

at 771 (quoting Aetna, 300 U.S. at 240-41); Novartis, 482 F.3d at 1336-37. "Basically, the

question in each case is whether the facts alleged, under all the circumstances, show that

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, 127

S.Ct. at 771 (quoting Maryland Cas. Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273

(1941)). Additionally, the Supreme Court stated that Article III "d[oes] not require, as a

prerequisite to testing the validity of the law in a suit for injunction, that the plaintiff bet the

farm, so to speak, by taking the violative action" when faced with a genuine threat of

enforcement to penalize a private action. Id. at 772. 

Recognizing that MedImmune involved a legal relationship between a patent holder

and a licensee, the Federal Circuit, in SanDisk, nonetheless found the MedImmune standard

applicable in cases involving no legal relationship. SanDisk 480 F.3d at 1380. The SanDisk

court further stated that Article III jurisdiction exists where the patent holder "takes a position

that puts the declaratory judgment plaintiff in the position of either pursuing arguably illegal

behavior or abandoning" that which it asserts a right to do. SanDisk, 480 F.3d at 1381. The

SanDisk court held "that where a patentee asserts rights under a patent based on [a] certain

identified ongoing or planned activity of another party, and where that party contends that

it has the right to engage in the accused activity without license," there exists a case or

controversy under Article III. Id. 

The SanDisk court supported its position by citing, inter alia, IMS Health, Inc. v.

Vality Tech. Inc., 5 F. Supp. 2d 454 (E.D. Pa. 1999). In IMS Health, the court upheld

declaratory judgment jurisdiction where the defendant "had not indicated it was going to file

suit but had taken positions and made demands such that the declaratory judgment plaintiff

justifiably believed" a future action might take place. SanDisk, 480 F.3d at 1381 (citing IMS

Health, 59 F. Supp. 2d 454 (E.D. Pa. 1999)). Additionally, in a pre-MedImmune decision

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Although not dispositive for the purposes of establishing a "case or controversy" in

the pending action, the fact that Defendant did sue Plaintiffs for alleged infringement of the

patents-in-suit reflects the reasonableness of Plaintiffs' belief that Defendant intended to

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not cited by the SanDisk court, but which the Court finds persuasive, the Federal Circuit

found that a plaintiff must show "'more than the nervous state of mind of a possible

infringer," in order to invoke declaratory judgment jurisdiction, "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) (citing Phillips Plastics Corp. v. Kato Hatsujuou

Kabushiki Kaisha, 57 F.3d 1051, 1053-54 (Fed. Cir. 1995). In Vanguard, a prior lawsuit

brought by the defendant against the declaratory judgment plaintiff, based on the same

technology, "ha[d] shown a willingness to protect that technology." Id. at 1255 (internal

quotations omitted).

III. SUBJECT MATTER JURISDICTION 

As the SanDisk court instructs, an actual controversy exists when a patent holder takes

a position or asserts rights under a patent based on identified activities of another party.

Based on the following facts, the Court finds that an actual controversy existed at the time

Plaintiffs filed their Complaint. First, Defendant had previously initiated legal action against

Plaintiff Cingular regarding use of the patents-in-suit. Such a lawsuit indicates an assertion

of rights and a willingness to pursue litigation regarding the patents-in-suit. Second, in 2004,

Defendant learned that Plaintiff Cingular had terminated its use of BCGI's prepaid wireless

system and moved its subscribers onto a similar but more modern system provided by

Plaintiff Ericsson. Third, after the Freedom Wireless I jury trial but before the final

settlement, Defendant's agent stated in a press release "[t]his verdict sends a message to these

defendants and any others who have been infringing on these patents that Freedom Wireless

will pursue its rights to the fullest." (Doc.#1 at 6, Exhibit D). Such a statement further

supports a general willingness to actively protect Defendant's intellectual property against

alleged infringement.1

 

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initiate legal proceedings against them. See BP Chems. Ltd. v. Union Carbide Corp., 4 F.3d

975, 980 (Fed. Cir. 1993) ("Although it is the situation at the time the suit was filed that

establishes the existence vel non of an actual controversy, subsequent events can reinforce

the correctness of the conclusion."). 

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The Court finds that the assertion of rights, evidenced through a prior lawsuit between

the same parties regarding the same technology, coupled with Defendant's knowledge of the

relationship between Plaintiffs, and solidified through the express press release statement

indicating an intent to sue alleged patent infringers, presents enough evidence to establish the

case or controversy required for declaratory judgment jurisdiction. Plaintiffs' claim relates

to existing and documented prepaid wireless patents owned by Defendant, as well as to

Plaintiffs' own prepaid wireless system and current business practices for an existing

subscriber base. Due to the potential conflict between Defendant's patents and Plaintiffs'

business models, the alleged validity or infringement of the patents-in-suit does, in the

opinion of this Court, create a "substantial" dispute, particularly relating to Cingular, which

depends upon the legality of Ericsson's system in providing services to its subscribers. See

MedImmune, 127 S.Ct. at 771. The Plaintiffs' own belief that they maintain the right to

freely engage in the use of their existing prepaid wireless system completes the test by

providing the "adverse legal interests" required. Id. 

 Further, the SanDisk court also identifies "case or controversy" as a situation where

a plaintiff finds itself in the position of either pursuing arguably illegal behavior or

abandoning that which it claims a right to do. SanDisk, 480 F.3d at 1381. Here, the

juxtaposition of Defendant's prior litigation regarding the same patents-in-suit against BCGI

and Cingular, Defendant's knowledge of Cingular's shift to the Ericsson system, and

Defendant's public statement expressing intent to sue similarly situated infringers reasonably

put the Plaintiffs in the predicament described by the SanDisk court. If Plaintiffs continue

business as usual, maintaining the existing system of prepaid wireless distribution to

customers, they would do so with a looming threat of litigation under the assumption that

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Defendant suspected infringement. Alternatively, the totality of the circumstances might

have compelled Plaintiffs to abandon a prepaid wireless system or distribution strategy into

which they had invested significant resources, including technology capital, marketing efforts

and customer acquisition. Summarily, the reasonable belief that Defendant intended to sue

Plaintiffs for infringement of the prepaid wireless system patents-in-suit threatens the

continuity of Plaintiffs' respective businesses without declaratory judgment relief. The Court

does not believe that in similar circumstances a declaratory judgment plaintiff must wait until

the patentee makes an express threat of litigation or initiates an infringement suit to clear the

cloud of doubt placed over the plaintiff, particularly when such a threat of litigation places

substantial investments at risk and puts end-users in jeopardy of losing stability of service.

IV. COURT’S DISCRETION

Defendant alternatively asks the Court to use its discretion and decline to exercise

jurisdiction. "The Declaratory Judgment Act provides that a court 'may declare the rights and

other legal relations of any interested party[.]'" MedImmune, 127 S.Ct. at 776 (emphasis in

original). "This text has long been understood 'to confer on federal courts unique and

substantial discretion in deciding whether to declare the rights of litigants.'" Id. (quoting

Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995)). Even if an actual controversy exists,

a court may still choose to decline jurisdiction. EMC Corp. v. Norand Corp., 89 F.3d 807,

810 (Fed. Cir. 1996) (citing Public Serv. Comm'n v. Wycoft Co., 344 U.S. 237, 241 (1952)).

However, a district court does not enjoy unlimited discretion regarding jurisdiction

in declaratory judgment actions. Wilton, 515 U.S. at 289. For example, a court cannot

decline declaratory judgment jurisdiction solely as "a matter of whim or personal

disinclination." EMC, 89 F.3d at 813 (citation omitted). Nor can a court decline jurisdiction,

without any other reasons, "merely because a parallel patent infringement suit was

subsequently filed in another district." Id. The EMC court noted that generally, a court may

dismiss a declaratory judgment action "based on a 'reasoned judgment whether the

investment of time and resources will be worthwhile.'" Id. at 814 (quoting Serco Servs. Co.,

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L.P. v. Kelley Co., Inc., 51 F.3d 1037, 1039 (Fed. Cir. 1995). Although courts generally

favor the forum of the first filed action, "considerations of judicial and litigant economy, and

the just and effective disposition of disputes" may require otherwise. Genetech, Inc. v. Eli

Lilly and Co., 998 F.2d 931, 937 (Fed. Cir. 1993).

The Court first considers the balance of convenience to the litigants. Defendant

maintains its principal place of business in Phoenix, Arizona, which favors litigation in this

Court, but Plaintiff Ericsson has its principal place of business in Plano, Texas, favoring

adjudication in the Eastern District of Texas. Additionally, all four of the pending actions

in Texas, although filed subsequent to this one, involve the same patents-in-suit, while three

of the pending actions involve Plaintiff Ericsson. Therefore, the other actions in Texas will

require the presence of the parties, counsel, witnesses and inventors regardless of this

dispute's location, which weighs in favor of discretionary dismissal. 

Defendants also request dismissal based on inequitable conduct, stating that Plaintiffs

have not met the purpose of the Declaratory Judgment Act. Because the Court finds

appropriate declaratory judgment jurisdiction, not an anticipatory lawsuit, the purpose of the

Act has been met. See BP Chem. Ltd. v. Union Carbide Corp., 4 F.3d 975, 977 (Fed. Cir.

1993) ("The purpose of the Act is to enable a person who is reasonably at legal risk because

of an unresolved dispute, to obtain judicial resolution...without having to await the

commencement of legal action by the other side."). Defendant alleges "forum-shopping," but

based on a presumption that both parties have made an attempt to position their suits

geographically, the Court gives little weight to the parties' efforts to secure a favorable

forum. Defendant also points to Plaintiffs' "inequitable" use of allegedly confidential

statements made during Freedom Wireless I settlement negotiations in support of the present

declaratory judgment action. However, both parties have referenced such statements, and

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The Court declines to decide the admissibility of the statements made during

settlement negotiations, since a case or controversy was found without evidence of the

disputed statements or the "standstill agreement." 

3

Defendant also references the Eastern District of Texas' adoption of special rules for

patent infringement actions, which streamline discovery, claim construction and other pretrial matters. While any United States District Court, including this one, can afford all parties

the timeliness, fairness, justice and competence required to resolve their patent disputes, the

Court is persuaded that the Eastern District of Texas' special rules will most efficiently

promote sound judicial administration. 

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continue to dispute their admissibility, so the Court puts little weight into this argument.2

Finally, the Court addresses the "principles of sound judicial administration" in

determining whether to invoke its discretion. See EMC, 89 F.3d at 813. Again, the Court

notes the four pending cases before Judge Ward in the Eastern District of Texas, all

predicated upon alleged infringement of the patents-in-suit.3

 While Plaintiffs note that

various motions to dismiss or transfer are pending in that court, this Court does not have the

foresight to judge the outcome of those motions. As it stands, the weight of judicial economy

favors adjudication in Texas. The opportunity for inconsistent judgments between the four

pending cases weighs on this Court, the risk of which favors discretionary dismissal.

Additionally, four lawsuits regarding the same patents and three lawsuits regarding the same

system will result in duplicative efforts, both by the courts and the litigants, if maintained in

separate districts. The certainty of wasted resources weighs strongly in favor of dismissal.

See Lonza Inc. v. Rohm and Haas, Inc., 951 F. Supp. 46, 50 (S.D.N.Y. 1997) ("[T]here is

simply no reason why the patent issues in dispute should be litigated in two different fora.").

On balance, the Court finds the weight of the arguments in favor of discretionary

dismissal, allowing the present dispute to find resolution in the Eastern District of Texas.

Although the purpose of the Declaratory Judgment Act is met, the convenience of litigation

remains in favor of the Texas action, and an inconsistent judgment could place the parties in

the unfavorable and inefficient position of relitigating the validity or infringement of the

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patents-in-suit. Principally, the expectation of duplicative efforts and proceedings between

all of the pending actions, if maintained in separate courts, prompts the Court to respectfully

decline the exercise of declaratory judgment jurisdiction. 

IV. CONCLUSION

Based on the foregoing,

IT IS ORDERED that Defendant's Motion to Dismiss Complaint for lack of subject

matter jurisdiction (Doc.# 29) is GRANTED. 

IT IS FURTHER ORDERED that this matter is DISMISSED and the Clerk of the

Court shall enter judgment accordingly. 

DATED this 26th day of June, 2007.

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