Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-00651/USCOURTS-cand-3_04-cv-00651-14/pdf.json

Parties Involved:
Sproqit Technologies, Inc.
Counter-claimant
Visto Corporation
Counter-claimant

Document Text:

United States District Court

For the Northern District of California

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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

VISTO CORPORATION,

Plaintiff,

v.

SPROQIT TECHNOLOGIES, INC.

Defendant.

___________________________________/

No. C-04-0651 EMC

ORDER GRANTING PLAINTIFF’S

MOTION TO DISMISS BASED ON

COVENANT NOT TO SUE; AND

FINDING MOOT PLAINTIFF’S

MOTION TO DISMISS AND

DEFENDANT’S MOTION FOR

PROTECTIVE ORDER

(Docket Nos. 192, 213)

Plaintiff Visto Corporation has moved the Court to dismiss the entire case, both its claims

and Defendant Sproqit Technologies, Inc.’s counterclaims. According to Visto, the case should be

dismissed because it has extended to Sproqit a covenant not to sue and accordingly there is no case

or controversy. Having considered the parties’ briefs and accompanying submissions, the Court

hereby GRANTS the motion to dismiss.

I. FACTUAL & PROCEDURAL BACKGROUND

On July 17, 2006, Visto filed a motion to dismiss the entire case. See Docket No. 192. In

the motion, Visto argued in part that the Court should dismiss Sproqit’s counterclaims because there

is no case or controversy and accordingly no subject matter jurisdiction. According to Visto, there is

no case or controversy because it is willing to waive damages for past infringement and Sproqit is a

defunct business. Sproqit opposed the motion to dismiss and, in support of its opposition, Sproqit

submitted a declaration from its president Gerald Trooien. In the declaration, Mr. Trooien stated,

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inter alia, that “[o]nce this case is litigated to a successful conclusion Sproqit will resume

commercial operations, marketing its technology and products as superior solutions that are free of

any claim of infringement.” Trooien Decl. ¶ 6.

On August 30, 2006, the Court held a hearing on Visto’s motion to dismiss as well as

Sproqit’s motion for a protective order (to defer the deposition of Mr. Trooien). See Docket No.

213. During the hearing, the Court indicated that it would defer ruling on the motion to dismiss in

order to give Visto an opportunity to depose Mr. Trooien. Visto declined to take the deposition of

Mr. Trooien and instead extended to Sproqit a covenant not to sue. Relying on Super Sack Mfg.

Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1058 (Fed. Cir. 1995), Visto argued that, in light of

the covenant not to sue, the case should be dismissed on the basis of lack of a case or controversy. 

The Court ordered the parties to meet and confer on the covenant not to sue and provide

supplemental briefing as to whether the covenant did in fact divest the Court of jurisdiction but

otherwise stayed the litigation from proceeding. After supplemental briefing was provided on

September 8, 2006, the Court determined that the parties had failed to adequately meet and confer

and therefore instructed the parties to meet and confer a second time and then provide supplemental

briefing.

II. DISCUSSION

Visto extended to Sproqit the following covenant not to sue: 

Visto will unconditionally agree not to assert any claim of

patent infringement against Sproqit under the claims of the patents-insuit as they presently read, with respect to any product currently

advertised, manufactured, marketed or sold by Sproqit, or any product

which was advertised, manufactured, marketed or sold by Sproqit

prior to the date of this covenant. This covenant is personal to Sproqit

and is not transferable.

Pl.’s Supp. Br. at 1-2. The main question for the Court is whether this covenant divests the Court of

jurisdiction with respect to Sproqit’s declaratory judgment counterclaims.

A declaratory judgment counterclaim may only be brought to resolve an “actual

controversy.” 28 U.S.C. § 2201(a). “[T]he actual controversy must be extant at all stages of review,

not merely at the time the complaint is filed.” Super Sack, 57 F.3d at 1058 (internal quotation marks

omitted). Under Federal Circuit law, in the patent context, there is a case or controversy with

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respect to a declaratory judgment counterclaim when there is (1) an explicit threat or other action by

the patentee, which creates a 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. See id. The burden is on Sproqit “to

establish that jurisdiction over its declaratory judgment action existed at, and has continued since,

the time the [counterclaim] was filed.” Id. (internal quotation marks omitted). 

As noted above, Visto argues that its covenant not to sue divests the Court of jurisdiction

over Sproqit’s counterclaims based on Super Sack. In Super Sack, the Federal Circuit examined

whether a declaratory plaintiff had a reasonable apprehension of suit when the declaratory defendant

had extended a covenant not to sue. See id. at 1058-59. The covenant not to sue stated: “Super Sack

will unconditionally agree not to sue Chase for infringement as to any claim of the patents-in-suit

based upon the products currently manufactured and sold by Chase.” Id. at 1056 (emphasis

omitted). The Federal Circuit commented as follows:

The legal effect of Super Sack’s promise not to sue is the heart of the

matter, and the trial court acted consistently with that legal effect. In

short, although Chase may have some cause to fear an infringement

suit under the ‘796 and ‘652 patents based on products that it may

develop in the future, Chase has no cause for concern that it can be

held liable for any infringing acts involving products that it made,

sold, or used on or before July 8, 1994, the day Super Sack filed its

motion to dismiss for lack of an actual controversy. As to the ‘796

and ‘652 patents, Super Sack is forever estopped by its counsel’s

statement of nonliability, on its face and as explained during oral

argument before this court, from asserting liability against Chase in

connection with any products that Chase made, sold, or used on or

before July 8, 1994. This estoppel, in turn, removes from the field any

controversy sufficiently actual to confer jurisdiction over this case. 

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 to satisfy the first part of our two-part test

of justiciability.

Id. at 1059.

The Federal Circuit rejected the declaratory plaintiff’s argument “that Super Sack’s promise

not to sue fails to eliminate the controversy between them because, however absolute it may be with

respect to past and present products, the promise does not cover products that Chase may make, sell,

or use in the future.” Id. The court explained that, under the second part of the declaratory

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justiciability test, the alleged infringer must be engaging in present activity that places it at risk of

infringement liability.

Chase has, of course, never contended that it has already taken

meaningful preparatory steps toward an infringing activity by planning

to make a new product that may later be said to infringe. And Super

Sack’s promise not to sue renders any past or present acts of

infringement that Chase may or may not have committed irrelevant to

the question whether a justiciable controversy remains. The residual

possibility of a future infringement suit based on Chase’s future acts is

simply too speculative a basis for jurisdiction over Chase's

counterclaim for declaratory judgments of invalidity.

Id. at 1059-60.

In the instant case, Visto claims that its covenant not to sue is exactly like the covenant not to

sue offered by the declaratory defendant in Super Sack. Sproqit contends otherwise. More

specifically, Sproqit argues that Super Sack is not dispositive and Visto’s covenant does not divest

the Court of jurisdiction: (1) because the covenant fails to identify the accused products; (2) because

the covenant does not extend to future products that are, in essence, functionally equivalent to the

products covered by the covenant; (3) because the covenant does not address inducement or

contributory infringement by Sproqit; (4) because the covenant does not cover Sproqit’s customers,

licensees, or other authorized users; (5) because the covenant does not cover Sproqit’s successors or

acquirers; (6) because the covenant does not cover Visto’s successors; and (7) because the covenant

does not extend to re-examination claims. Sproqit further contends that, if Visto’s covenant is

deemed adequate, then Visto’s claims should be dismissed with prejudice and Sproqit’s

counterclaims without prejudice. Each argument is addressed below.

At the outset, however, it should be noted that this Court, even prior to Visto’s issuance of

the covenant not to sue, had serious questions about the justiciability of this suit in light of Visto’s

waiver of claim for damages and undisputed information that Sproqit had ceased doing business and

was no longer selling the accused products. Under these circumstances, Sproqit was not currently

engaged in infringing activity and there was considerable doubt as to the immediacy and

concreteness of its intent and ability to do so in the future. See Sierra Applied Sciences, Inc. v.

Advanced Energy Indus., Inc., 363 F.3d 1361, 1372 (Fed. Cir. 2004) (“In the declaratory-judgment

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

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1 Sproqit makes a variation of this argument in asserting that the covenant is deficient because

a direct infringer could make a trivial modification to the accused products and that Sproqit could

thereby be held liable for indirect infringement.

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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.’”). Justiciability hinged on

the rather conclusory assertions of Mr. Trooien that “[o]nce this case is litigated to a successful

conclusion Sproqit will resume commercial operations . . . .” Trooien Decl. ¶ 6. It was when the

Court directed the parties to engage in further discovery to flesh out Mr. Trooien’s statements that

Visto issued the covenant not to sue.

A. Identification of Accused Products

Sproqit argues first that the covenant is inadequate because it does not identify the accused

products. According to Sproqit, the accused products should be explicitly identified in the covenant. 

Sproqit, however, provides no authority to support its argument. Moreover, it appears that the

covenant is actually broader by not identifying specific products. Sproqit has not shown otherwise. 

Nor has Sproqit shown that it plans to manufacture or sell other products not covered by the

covenant. Accordingly, the Court rejects Sproqit’s argument that Super Sack is inapposite for this

reason.

B. Future Products That Are Functionally Equivalent1

Sproqit’s second argument is that the covenant is inadequate because Visto has “apparently

take[n] the position that its covenant is limited to products advertised, manufactured, marketed, or

sold, with no changes permitted, major, minor or otherwise.” Def.’s 2d Supp. Br. at 2 (emphasis

omitted). The Court is not persuaded by Sproqit’s argument.

First the covenant does not state that it is so limited. Should an enforcement issue arise, it is

not clear that Visto’s covenant not to sue will be so interpreted. In Glenayre Elecs., Ltd. v. Polansky

Elecs., Ltd., No. 90-1255 (RCL), 1994 U.S. Dist. LEXIS 8631 (D.D.C. Mar. 31, 1994), the court

stated that “plaintiff’s concern that it will be unable to modify its existing products without fear of a

lawsuit is unfounded . . . [a]s long as plaintiff does not make any material changes to its [product]

line.” Id. at *6.

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Second, this is not a situation where Sproqit “has developed and imminently plans to release

new versions of its products.” BIS Advanced Software Sys., Ltd. v. Red Bend Software, Inc., No. 04-

11960-RWZ, 2006 U.S. Dist. LEXIS 12223, at *4 (D. Mass. Mar. 22, 2006). No such evidence has

been presented to the Court. Nor has Sproqit submitted evidence that it regularly updates its

products. See id. at *3 (“Because defendant regularly updates its products, . . . it is still vulnerable

to an infringement suit.”). Thus, the issue of the application of the covenant to functionally

equivalent variations is at this point speculation.

Finally, even if the Sproqit Architecture is, “by its very nature, . . . a flexible construct that

can be used to form the backbone of many different applications and solutions,” Def.’s 2d Supp. Br.

at 2, Super Sack is clear that “[t]he residual possibility of a future infringement suit based on [the

declaratory plaintiff’s] future acts is simply too speculative a basis for jurisdiction over [the]

counterclaim for declaratory judgments of invalidity.” Super Sack, 57 F.3d at 1060. 

C. Inducement or Contributory Infringement by Sproqit

Sproqit’s next contention is that the covenant is inadequate because it does not clearly cover

indirect infringement by Sproqit. Sproqit notes that, in its complaint, Visto asserted both

inducement and contributory infringement as well as direct infringement for all four patents at issue.

In briefing filed by Visto on September 15, 2006, Visto clarified that “the covenant covers

both direct and indirect infringement, including contributory infringement and inducement, where

the directly infringing product is one which was advertised, manufactured, marketed or sold by

Sproqit on or before the date of the covenant.” Pl.’s Memo. at 2. The Court understands Visto’s

representation also covers products currently advertised, manufactured, marketed, or sold as of the

date of the covenant in accord with the terms quoted above. Accordingly, this issue is moot.

D. Sproqit’s Customers, Licensees, or Other Authorized Users

Sproqit further asserts that covenant is insufficient as it does not cover its customers,

licensees, or other authorized users. In its September 15 briefing, Visto concedes that “[t]he

[c]ovenant [c]overs Sproqit’s [c]ustomers, [l]icensees, [o]r [o]ther [a]uthorized [u]sers [o]f Sproqit’s

[e]xisting [p]roducts, [b]ut [n]ot [o]f [f]uture [u]nnamed [c]ustomers on [f]uture [u]nnamed

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 Sproqit argues that, because the covenant does not extend to future customers, licensees, and

authorized users, it “does not dissipate the justiciable controversy before the court.” Def.’s 2d Supp.

Br. at 3. Sproqit, however, has misread Visto’s brief. Visto states that the covenant does cover

customers -- just not customers on future products.

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[p]roducts.”2 Id. The Court agrees with Visto based on Microchip Tech., Inc. v. Chamberlain

Group, 441 F.3d 936 (Fed. Cir. 2006) that is the exclusion of future unnamed customers of future

unnamed products does not create a justiciability controversy.

In Microchip, the Federal Circuit held that there must “be an underlying legal cause of action

that the declaratory defendant could have brought or threatened to bring” in order for the declaratory

plaintiff to have a reasonable apprehension of a future suit. Id. at 943. In this case, Sproqit itself has

no reasonable apprehension based on its customers, licensees, or other authorized users because

Visto has admitted that the covenant covers indirect infringement as well as direct, and Visto has

stipulated to customers, licensees and authorized users of Sproqit’s existing products.

While the Federal Circuit noted that it is possible for a declaratory plaintiff’s customers to

have an adverse legal interest with respect to the declaratory defendant, there was no such interest in

Microchip, because plaintiff’s customers “were not parties to this action” and the declaratory

plaintiff did not “establish[] a legal relationship between it and a customer that had a legal interest

adverse to [the declaratory defendant], such as the existence of an indemnity agreement between [the

declaratory plaintiff] and its customer.” Id. At best, the declaratory plaintiff “had only an economic

interest in clarifying its customers’ rights under [the] patents [at issue], which may have facilitated

the sale of [the declaratory plaintiff’s] products,” but “an economic interest alone . . . cannot form

the basis of an ‘actual controversy’” because the declaratory plaintiff “was under no threat of legal

harm.” Id. 

In the instant case, Sproqit has not provided any evidence that it has an indemnification

agreement with any of its customers. Nor has it submitted any evidence indicating that Visto has

made any threats to Sproqit’s customers. Compare Intellectual Property Development, Inc. v. TCI

Cablevision of California, Inc., 248 F.3d 1333, 1341 (Fed. Cir. 2001) (potential suit against entity

entitled to indemnification from accused not sufficient to preserve justiciability). Accordingly, at

best, Sproqit has only an economic interest in clarifying its customers’ rights. That interest is even

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further attenuated given Visto’s stipulation that existing customers are covered by its covenant. As

in Microchip, any economic interest of Sproqit is insufficient to create a case or controversy.

E. Sproqit’s Successors or Acquirers

Sproqit asserts that the covenant is insufficient because it does not extend to its successors or

acquirers. Visto in turn argues that the covenant may be personal and nontransferable, citing in

support Inline Connection Corp. v. Atlantech Online, Inc., 85 Fed. Appx. 767, 769 (Fed. Cir. 2004)

(“Future disputes relating to Atlantech’s successors in interest and others in privity with Atlantech

are just that -- future disputes. They must be left to future cases and are not ripe for consideration in

this case.”), and Vision Biosystems (USA) Trading, Inc. v. Ventana Med. Sys., Inc., No. 03-10391-

GAO, 2004 U.S. Dist. LEXIS 21449, at *31 (D. Mass. Sept. 30, 2004) (“The possibility that Vision

might transfer certain interests in the future to an unidentified third party remains remote and

speculative and does not demonstrate a live controversy between the present parties.”).

Sproqit criticizes Visto’s reliance on Inline because it is an unpublished case, see Fed. Cir. R.

47.6(b) (“An opinion or order which is designated as not to be cited as precedent is one unanimously

determined by the panel issuing it as not adding significantly to the body of law. Any opinion or

order so designated must not be employed or cited as precedent.”), and Vision Biosystems to the

extent it relies on Inline. While Inline is an unpublished case, and therefore not precedential, the

Court is not barred from examining its reasoning and adopting that reasoning if persuasive. As for

Vision Biosystems, it did not expressly rely on Inline, simply making note of the case in a footnote. 

See Vision Biosystems, 2004 U.S. Dist. LEXIS 21449, at * 32 n.2.

The Court holds that the covenant is adequate even though it does not extend to Sproqit’s

successors or acquirers. In Super Sack, the Federal Circuit stated that “[t]he residual possibility of a

future infringement suit based on [the declaratory plaintiff’s] future acts is simply too speculative a

basis for jurisdiction over [the] counterclaim for declaratory judgments of invalidity.” Super Sack,

57 F.3d at 1060. Although the Federal Circuit made this statement in the context of future products,

the same reasoning would apply to future successors or acquirers. As noted above, even before

Visto issued the covenant not to sue herein, Visto had raised a substantial argument that Sproqit’s

asserted intent to produce and sell the accused product once this case was terminated in its favor was

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insufficient to establish justiciability. While the Court does not rely on the current record to find

nonjusticiability on this factor alone, the additional layer of events that would have to transpire

before a potential successor would come into play exacerbates the remoteness of the purported

controversy here. Sproqit has presented no evidence of any imminent or concrete plan or ability to

sell or assign its intellectual property to a successor.

F. Re-examination Claims

Sproqit contends next that the covenant is inadequate because it does not extend to reexamination claims. Sproqit highlights the fact that the ‘708 patent is currently in reexamination --

all of the original claims in the ‘708 patent have already been rejected as invalid over the prior art

and that Visto has therefore amended the claims of the ‘708 patent and added new claims in the

reexamination process. Sproqit also notes that the ‘192 patent was sent back into reexamination in

August 2006 and that a request for reexamination has been made with respect to the ‘221 patent.

The problem for Sproqit is that its argument is foreclosed by Spectronics Corp. v. H.B.

Fuller Co., 940 F.2d 631 (Fed. Cir. 1991). In Spectronics, the Federal Circuit found that a

declaratory judgment plaintiff did not have a reasonable apprehension about a future suit based on a

pending reissue application. The court explained that “[t]here is . . . no guarantee that the reissue

patent will eventually issue” and added that, even if the plaintiff did have a reasonable apprehension

about a future suit based on the reissue patent, the plaintiff could not “demonstrate that its present

activity is potentially infringing of any patent claims, since . . . no reissue patent claims yet exist by

which infringement vel non can be measured.” Id. at 636; see also Amana Refrigeration, Inc. v.

Quadlux, Inc., 172 F.3d 852, 856 (Fed. Cir. 1999) (“[T]he future existence of a reissue patent is

wholly speculative and, therefore, cannot create a present controversy.”). While Spectronics and

Amana dealt with reissue applications, the same reasoning would apply to reexamination. See

Vision Biosystems, 2004 U.S. Dist. LEXIS 21449, at *32 (“Vision’s concern that some claims may

emerge from the PTO’s reexamination of the ‘439 patent is too speculative and does not provide a

basis for jurisdiction at this time.”).

Sproqit tries to distinguish Spectronics, stating that in that case, the patent owner initiated

reissue proceedings “before extensive litigation.” Def.’s Supp. Br. at 8. But nothing in Spectronics

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 Spectronics holds that original claims reissued without substantive change would be subject

to the covenant not to sue and that there is cause to fear a suit for future infringement only of

“substantively non-identical claims.” Spectronics, 940 F.2d at 637. That fear is not sufficient to confer

justiciability.

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 Sproqit’s concern that Visto’s covenant did not expressly state it was binding on Visto’s

successors are obviated by the dismissal with prejudice. The Court notes that, even though counsel’s

statement in Super Sack did not expressly refer to Super Sack’s successor, the court in Intellectual

Property Development held that statement in Super Sack bound any successor. See Intellectual Property

Development, 248 F.3d at 1340. 

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indicates that the Court’s ruling was based on, or even took into account, whether the litigation was

in the early or late stage of proceedings. The point remains that what ultimately emerges from the

PTO is still speculative and, until the precise form of the claim is fixed and presented, Sproqit’s

assertion of noninfringement are not sufficiently concrete to measure.3

G. Dismissal With or Without Prejudice

For the foregoing reasons, the Court rejects Sproqit’s arguments that Visto’s covenant not to

sue is inadequate and further holds that the covenant divests the Court of jurisdiction over Sproqit’s

declaratory relief counterclaims as well as Visto’s claims.

Sproqit’s final contention is that the dismissal of its counterclaims should be without

prejudice and Visto’s claims with prejudice. Sproqit notes that that approach was taken by the

Federal Circuit in Intellectual Property Development, 248 F.3d at 1342 (holding that “the statement

of non-liability divested the district court of Article III jurisdiction, and therefore the district court

properly granted the motion to dismiss [plaintiffs’] complaint with prejudice and [defendant’s]

counterclaims without prejudice”). Visto does not argue otherwise. The Court agrees that Sproqit’s

counterclaims should be dismissed without prejudice and that Visto’s claims, in light of its covenant

not to sue issued herein, should be dismissed with prejudice. That is the approach taken by the

courts which have addressed the issue. See, e.g., Intellectual Property Development, 248 F.3d at

1349; Inline, 2004 U.S. App. LEXIS 771, at *6. Whereas Visto’s asserted claims are forever barred

by the covenant and thus warrant dismissal with prejudice4

 (see Super Sack, 57 F.3d at 1060; BIS

Advanced Software Systems, 2006 U.S. Dist. LEXIS 12223, at *5; Glenayre Electronics, 1994 U.S.

Dist. LEXIS 8631, at *12), Sproqit’s counterclaims are dismissed on grounds of mootness only. See

MedImmune, Inc. v. Genentech, Inc., 427 F.3d 958, 970 (Fed. Cir. 2005) (“[W]e have stated that a

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dismissal for lack of subject matter jurisdiction is usually one without prejudice because the

dismissing court has no power to render a judgment on the merits of the dismissed claim.”);

Landmark Land Co. v. FDIC, 256 F.3d 1365, 1380 (Fed. Cir. 2001) (noting that “the

case-or-controversy requirement is a component of subject matter jurisdiction”); cf. Knauf Fiber

Glass, GmbH v. Certainteed Corp., No. 1:02-cv-1215-DFH, 2004 U.S. Dist. LEXIS 6291, at *3 n.1

(N.D. Ind. Mar. 24, 2004) (“Although Super Sack itself affirmed dismissal with prejudice, later

Federal Circuit law makes clear that dismissal of counterclaims in response to a Super Sack

declaration should be without prejudice [citing Intellectual Property Development]. Dismissal for

lack of subject matter jurisdiction is ordinarily without prejudice, of course, because the court has

not adjudicated the merits of the claim and the decision does not bar a future decision on the

merits.”). 

III. CONCLUSION

For the foregoing reasons, the Court grants Visto’s motion to dismiss based on the covenant

not to sue. Visto’s claims are dismissed with prejudice. Sproqit’s counterclaims are dismissed

without prejudice. Visto’s prior motion to dismiss (Docket No. 192) and Sproqit’s motion for a

protective order (Docket No. 213) are moot. 

The Clerk of the Court is ordered to enter final judgment and close the file in this case.

IT IS SO ORDERED.

Dated: October 4, 2006

 EDWARD M. CHEN

United States Magistrate Judge

Case 3:04-cv-00651-EMC Document 231 Filed 10/04/06 Page 11 of 11