Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_10-cv-00048/USCOURTS-cand-3_10-cv-00048-6/pdf.json

Parties Involved:
Fortinet, Inc.
Plaintiff
Trend Micro Incorporated
Defendant

Document Text:

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United States District Court

For the Northern District of California

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

FORTINET, INC.,

Plaintiff,

 v.

TREND MICRO INCORPORATED, et al.,

Defendants

 /

No. C-10-0048 MMC

ORDER AFFORDING PARTIES

OPPORTUNITY TO FILE

SUPPLEMENTAL MEMORANDUM RE:

DEFENDANTS’ MOTION TO DISMISS;

CONTINUING HEARING TO MAY 14,

2010

Before the Court is the “Motion to Dismiss Complaint Pursuant to Fed. R. Civ. P.

12(b)(1),” filed March 2, 2010, by defendants Trend Micro Inc., a California corporation,

Trend Micro Inc., a Japanese corporation, and Trend Micro Inc., a Taiwanese corporation

(collectively, “Trend Micro”). Plaintiff Fortinet, Inc. (“Fortinet”) has filed opposition, to which

Trend Micro has replied. Upon consideration of the papers filed in support of and in

opposition to the motions, the Court finds a hearing would be more productive after the

parties have had the opportunity to address in advance an issue not addressed in the

parties’ respective papers.

In its complaint, Fortinet alleges claims under the Declaratory Judgment Act,

specifically, a claim that it is entitled to a declaration that U.S. Patent No. 5,623,600 (“the

‘600 Patent”) is invalid and unenforceable, and a claim that U.S. Patent No. 5,889,943 (“the

‘943 Patent”) is invalid and unenforceable. Trend Micro contends the Court lacks subject

Case 3:10-cv-00048-MMC Document 50 Filed 04/07/10 Page 1 of 4
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matter jurisdiction to consider Fortinet’s claims, for the asserted reason that Fortinet has

failed to plead sufficient facts to support a finding that a case or controversy exists as

between Trend Micro and Fortinet. As set forth below, the Court will defer ruling on said

dispute.

Assuming, arguendo, a case or controversy exists sufficient to support Fortinet’s

claims for declaratory relief, the Court nonetheless may decline to hear the matter. As

explained by the Supreme Court, “district courts possess discretion in determining whether

and when to entertain an action under the Declaratory Judgment Act, even when the suit

otherwise satisfies subject matter jurisdictional prerequisites.” See Wilton v. Seven Falls

Co., 515 U.S. 277, 282 (1995). As further explained by the Ninth Circuit, “[t]his discretion

should be employed to avoid uncoordinated and unnecessarily disruptive adjudications of

disputes in which state and federal issues are intertwined.” See Geni-Chlor Int’l, Inc. v.

Multisonics Development Corp., 580 F.2d 981, 985 (9th Cir. 1978).

Here, the very claims made by Fortinet in the instant action have been asserted

previously by Fortinet and are the subject of an action currently pending in state court. 

Specifically, on August 6, 2009, five months before the instant action was filed, Trend Micro

filed an action in the Superior Court of the State of California, alleging therein that Trend

Micro and Fortinet had entered into an agreement by which Fortinet received a license

under both the ‘600 Patent and the ‘943 Patent and that Fortinet was in breach of its

obligations to pay royalties (see Byrnes Decl., filed March 2, 2010, Ex. 10; Compl. ¶ 31); in

response thereto, Fortinet “filed affirmative defenses of invalidity and unenforceability” (see

Compl. ¶ 31).

In a state court action for breach of a patent license agreement, the licensee may

raise the defense that the patent is invalid or unenforceable, and the state court may

adjudicate such a defense. See Lear, Inc. v. Adkins, 395 U.S. 653, 674 (1969) (holding

patent licensee sued in state court “must be permitted to avoid the payment of all royalties”

if licensee “can prove patent invalidity”; remanding matter to state court to determine merits

of licensee’s defense that patent was invalid); Dow Chemical Co. v. Exxon Corp., 139 F.3d

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1470, 1475-76 and n.4 (Fed. Cir. 1998) (holding state court may resolve issue of whether

patentee engaged in “inequitable conduct” when issue is presented in context of “state law

claim [ ] grounded in contract or tort”). Both the Federal Circuit and the Ninth Circuit have

held that where a licensee has raised or could raise the issue of a patent’s validity or

enforceability in a pending state court action, it is proper for a district court to exercise its

discretion to stay or dismiss a federal action seeking declaratory relief as to the validity or

enforceability of that same patent. See Intermedics Infusaid, Inc. v. Regents of the

University of Minnesota, 804 F.2d 129, 134-35 (Fed. Cir. 1986) (affirming district court’s

order staying licensee’s claim for declaration of patent invalidity and unenforceability where,

although licensee had opportunity to raise such claims as defenses in pending state court

action for breach of contract, licensee did not do so; noting, “these issues could have been

resolved in the [state court] suit”); Geni-Chlor Int’l, 580 F.2d at 982-83, 985 (holding district

court erred in denying motion to stay federal action seeking declaration of patent invalidity

in favor of state court proceeding to confirm arbitration award of royalties; stating

“declaratory judgment procedure [should not] be used as a device to snatch from the state

courts a dispute concerning obligations under a contract”).

 Here, as noted, Fortinet has raised in the pending state court action the issues of

whether the ‘600 Patent and the ‘943 Patent are valid and enforceable. Under such

circumstances, it would appear appropriate for this Court to decline to exercise any

jurisdiction it otherwise would have over the instant action. See id. Because the parties

have not addressed such issue, however, the Court will afford the parties an opportunity to

do so.

Accordingly,

1. No later than April 23, 2010, Fortinet shall file a supplemental memorandum, not

to exceed ten pages in length exclusive of exhibits, to address the issue raised by the Court

herein.

2. No later than April 30, 2010, Trend Micro shall file a supplemental reply, not to

exceed ten pages in length exclusive of exhibits.

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3. The hearing on Trend Micro’s motion to dismiss is hereby CONTINUED to May

14, 2010, at 9:00 a.m.

IT IS SO ORDERED.

Dated: April 7, 2010 

MAXINE M. CHESNEY

United States District Judge

Case 3:10-cv-00048-MMC Document 50 Filed 04/07/10 Page 4 of 4