11-7996.121-JCD September 20, 2012

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION

BMO HARRIS BANK )

NATIONAL ASSOCIATION, )

)

Plaintiff, )

)

v. ) No. 11 C 7996

)

POLLIN PATENT LICENSING, LLC and )

AUTOSCRIBE CORPORATION, )

)

Defendants. )

MEMORANDUM OPINION

Before the court are three motions: (1) defendants’ motion to

dismiss Counts II-V and VII-X of plaintiff’s complaint for lack of

subject matter jurisdiction; (2) defendants’ motion for a

protective order precluding plaintiff from seeking the construction

of eighty-nine claim terms; and (3) plaintiff’s motion for judgment

on the pleadings. For the reasons explained below, each motion is

denied. 

BACKGROUND

This patent case relates to check-by-phone debt-collection

systems “in which a payer may authorize payment from his or her

checking account through a telephone communication with a live

system operator.” (Defs.’ Mem. in Supp. of Mots. at 1.) Plaintiff,

BMO Harris Bank National Association (“BMO”), seeks declaratory

judgment of non-infringement and invalidity of five patents: U.S.

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Patent No. 7,117,171, entitled “System and Method for Making a

Payment from a Financial Account” (the “‘171 patent”); U.S. Patent

No. 6,041,315, entitled “Automated Payment System and Method” (the

“‘315 patent”); U.S. Patent No. 5,966,698, entitled “Automated

Payment System and Method” (the “‘698 patent”); U.S. Patent No.

5,727,249, entitled “Automated Payment System and Method” (the

“‘249 patent”); and U.S. Patent No. 5,504,677, entitled “Automated

Payment System” (the “‘677 patent”). Defendant Autoscribe

Corporation is the owner by assignment of the five patents, and

defendant Pollin Patent Licensing, LLC is the exclusive licensee. 

Defendants have filed a counterclaim for infringement of the

‘171 patent only. They move to dismiss Counts II-V and VII-X of

the complaint, which concern the remaining four patents, for lack

of subject-matter jurisdiction based on a lack of case or

controversy. They also move for a protective order that would

preclude BMO from seeking the construction of more than ten terms

from the ‘171 patent. BMO moves for judgment on the pleadings on

Counts II-V of its complaint, arguing that defendants have conceded

that there is no infringement of the ‘315, ‘698, ‘249, and ‘677

patents (to which we will refer collectively as the “Four

Patents”). 

DISCUSSION

A. Defendants’ Motion to Dismiss for Lack of Jurisdiction

The Declaratory Judgment Act (the “Act”) provides that “[i]n

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a case of actual controversy within its jurisdiction, . . . any

court of the United States . . . 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 Act itself does not create a basis for federal

jurisdiction; a party seeking to establish jurisdiction under the

Act bears the burden of proving that the facts alleged, “‘under all

the circumstances, show that there is a substantial controversy,

between the parties having adverse legal interests, of sufficient

immediacy and reality to warrant the issuance of a declaratory

judgment.’” Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d

1340, 1343 (Fed. Cir. 2007) (quoting MedImmune, Inc. v. Genentech,

Inc., 549 U.S. 118, 127 (2007)). The dispute must be “definite and

concrete,” and “admit of 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, 549 U.S. at 127 (brackets omitted). 

“The burden is on the party claiming declaratory judgment

jurisdiction to establish that such jurisdiction existed at the

time the claim for declaratory relief was filed and that it has

continued since.” Benitec, 495 F.3d at 1344. If a party has

actually been charged with infringement of a patent, there is

necessarily a case or controversy adequate to support jurisdiction

at that time. Id. (quoting Cardinal Chem. Co. v. Morton Int’l,

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Inc., 508 U.S. 83, 96 (1993)). Once the burden of establishing

jurisdiction has been met, jurisdiction continues absent further

information; the burden of bringing forth such further information

“may logically rest with the party challenging jurisdiction, but

the actual burden of proof remains with the party seeking to invoke

jurisdiction.” Benitec, 495 F.3d at 1344-45 (citation omitted). 

The first issue is whether jurisdiction existed at the time

BMO filed the complaint. To establish jurisdiction, the complaint

relies on a patent demand letter that was sent to BMO on July 5,

2011 by defendants’ agent, a third party called IP Dispute

Resolution Corporation. The letter states in pertinent part:

IPDR is a business consulting firm that specializes in

resolving patent disputes. We have successfully resolved

more than 500 disputes alleging patent infringement. . .

. 

IPDR has been hired by Autoscribe Corporation which

owns 5 U.S. patents (U.S. Pat Nos. 7,117,171; 6,041,315;

5,966,698; 5,727,249, and 5,504,677) covering certain

check by phone payment systems involving a live operator.

. . .

Autoscribe believes that you have used and are using 

a system which is covered by one or more of its issued

U.S. patents.

Autoscribe has already successfully licensed its

patents to several major U.S. companies . . . .

Under U.S. patent law, the manufacture, sale, or use

of a patented system or process, without a license from

the patent owner, constitutes patent infringement. . . .

We understand that receiving a letter alleging patent

infringement is not a pleasant experience. . . . Please

review the enclosed instructions entitled “AUTOSCRIBE -

STEPS FOR PROMPT RESOLUTION”, which will guide you

through the process of resolving this matter.

IPDR has a limited period of time to resolve this

matter, and has successfully done so in as little as 30

days. However, this matter will not go away on its own. 

If you do nothing, or do not respond in a timely manner,

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Autoscribe will take the matter away from IPDR and turn

it over to Autoscribe’s patent litigation attorneys. . .

. Please give this matter your immediate attention and

work with us. . . .

As evidence of our good faith and willingness to work

with you to resolve this matter, enclosed is a

presentation which explains how claims 6 and 12 of the

‘171 Patent apply to the check by phone collection system

you are using. Also enclosed is a CD containing copies

of the patents, and file histories for the patents.

We will contact you in approximately fourteen (14)

days to confirm your receipt of these materials . . . .

(Defs.’ Mem. in Supp. of Mots., Ex. A, at 1-2.) 

The “Autoscribe - Steps for Prompt Resolution” attachment to

the letter instructs BMO to perform an analysis of its system that

processes check-by-phone transactions, and then states in relevant

part:

Once you have determined that you are not using a check

by phone system which is already licensed by Autoscribe,

you may want to engage a patent attorney to review the

Autoscribe infringement allegations. . . . Please note

the following:

1. U.S. Patent No. 7,117,171 generally applies to check

by phone systems which generate electronic records which

are processed for payment. 

2. U.S. Patent Nos. 6,041,315; 5,966,698; 5,727,249, and

5,504,677 generally apply to check by phone systems which

generate physical drafts, which are processed for

payment.

3. If your system only generates electronic records,

your patent attorney need only focus on the ‘171 patent

and its file history.

4. Autoscribe has previously engaged in and is currently

engaged in patent infringement litigation regarding its

check by phone patents. IPDR will supply any pleadings

from Autoscribe’s litigations that your attorney would

like to review.

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Once any legal defenses have been identified, the parties

can assess their relative risks and determine the next

courses of action. 

 

(Defs.’ Mem. in Supp. of Mots., Ex. A, at 3.)

Also attached to the letter is a 12-page document entitled

“Autoscribe U.S. Patent No. 7,117,171 Claim 6 Infringement

Analysis,” which describes the ‘171 patent, in particular claim 6,

and explains defendants’ allegations of how BMO’s system “Infringes

Claim 6 of the ‘171 Patent.” (Defs.’ Mem. in Supp. of Mots., Ex.

A, at 15.) The last page of the analysis states: “Claim 6 of the

‘171 Patent is just One Example of Infringement from the Five

Patents owned by Autoscribe.” (Defs.’ Mem. in Supp. of Mots., Ex.

A, at 15.) 

The complaint also alleges that on September 21, 2010, IPDR

sent BMO a letter on behalf of defendants that indicated that

defendants were offering BMO a license to the patents, but that

there was only a “limited time period within which to come to an

amicable resolution.” On October 13, 2011, “IPDR again sent on

Defendants’ behalf an email inquiring ‘Any update from [BMO] on

their due diligence for the Autoscribe matter?’” (Compl. ¶ 24.)

BMO filed the instant suit on November 10, 2011. 

Defendants contend that there was no case or controversy as to

the Four Patents at the time the complaint was filed because the

letter charged BMO with infringing just the ‘171 patent. They

point out that it was the only patent for which an infringement

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analysis was provided and argue that the analysis described “how

BMO was infringing only claims 6 and 12 of the ‘171 Patent.” They

also emphasize the statement that BMO’s “patent attorney need only

focus on the ‘171 patent and its file history” if its system “only

generates electronic records.” According to defendants, BMO’s

counsel has “represented that BMO’s system only generates

electronic drafts.” (Defs.’ Mem. in Supp. of Mots. at 5.) 

BMO maintains that the demand letter created declaratoryjudgment jurisdiction as to all five patents because it

specifically identified all of them, indicated that defendants

believed BMO to be “using a system which is covered by one or more

of [defendants’] issued U.S. patents,” sought to license the

patents, warned that the matter could be turned over to

“Autoscribe’s patent litigation attorneys” if not resolved, and

specified in the analysis that claim 6 was “just one example of

infringement from the five patents owned by Autoscribe.” (BMO’s

Reply in Supp. of Mot. for J. on the Pleadings at 5-6.) In 1

addition, we note that the letter referred to itself as a “letter

alleging patent infringement” and threatened litigation if BMO did

not “respond in a timely manner.” We agree with BMO that the

letter charged BMO with infringement of all five patents and

therefore created a case or controversy to support jurisdiction.

BMO also argues that in determining whether there is a case or 1/

controversy here, we should consider other lawsuits in which defendants allege

that other parties have infringed all five patents. We need not consider prior

litigious conduct; the demand letter alone is sufficient to create jurisdiction. 

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The letter does not, as defendants contend, merely “identif[y]” the

Four Patents and “request [] further discussion.” (Defs.’ Combined

Reply at 8.) Defendants make much of the letter’s instruction to

“only focus on the ‘171 patent” in the event that BMO’s system

generates electronic records, but this statement is not equivalent

to a disclaimer of the infringement accusation. BMO has

established that declaratory-judgment jurisdiction existed at the

time it filed this action. 

The next question is whether, given the “further information”

that defendants have provided in their briefs, BMO has shown that

jurisdiction continues to exist. Defendants note that they have

asserted a counterclaim for infringement of solely the ‘171 patent,

and they contend that their current position regarding the Four

Patents eliminates any justiciable controversy. Defendants’

position appears to have evolved. They state in their opening

brief that they have “no intent to assert claims for infringement”

of the Four Patents, that they have so informed BMO repeatedly, and

that they do not “presently intend to pursue infringement

litigation against BMO with respect to the” Four Patents. (Defs.’

Mem. in Supp. of Mots. at 2, 7.) They also state that “any fear

that BMO has of being sued later for future infringement of a

future system is negligible and as a practical matter non-existent”

because all of defendants’ patents will “expire in October 2012.”

(Defs.’ Mem. in Supp. of Mots. at 7.) In their reply, defendants

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take it up a notch, stating that they “will not assert claims for

infringement of the [Four Patents] against BMO at a later date,”

“will not now, or at any time in the future, assert the [Four

Patents] against BMO,” and “will not sue BMO for infringement of

the [Four Patents].” (Defs.’ Combined Reply at 3, 9, 10.)

Defendants refuse, however, to execute a “formal stipulation of

non-infringement and/or covenant not to sue” and contend that they

are not obligated to do so. (Defs.’ Combined Reply at 3.) 

As BMO points out, defendants’ statements are not phrased as

covenants or promises, and they are vague in several respects. They

are not specific as to which of BMO’s products or activities are

covered by the representation. Nor do defendants provide a time

frame (past activities or future activities, or both) or specify

whether the representation applies to BMO only or its affiliates or

other related parties as well. 

In support of their argument that that they are not required

to enter into a formal stipulation or covenant not to sue BMO,

defendants cite two cases, Prasco, LLC v. Medicis Pharmaceutical

Corp., 537 F.3d 1329 (Fed. Cir. 2008), and Microsoft Corp. v.

WebXchange, Inc., C.A. No. 09-484-JJF, 2009 WL 3534845 (D. Del.

Oct. 30, 2009), neither of which is on point. In Prasco, there was

no patent demand letter; the defendants had not accused plaintiff

of infringement or asserted any rights to plaintiff’s products, nor

had they taken action that implied any such claims. 537 F.3d at

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1340. Similarly, in WebXchange, there was no patent demand letter,

and the defendant had not accused the plaintiff itself of

infringement, merely plaintiff’s customers. 

We can infer that defendants refuse to enter into a covenant

or promise not to sue because they simply do not want to be bound

by their representation. They are entitled to retain their right

to sue for infringement of the Four Patents, but by retaining that

right, they have “preserved this controversy at a level of

‘sufficient immediacy and reality’” to allow BMO to pursue its

claims for declaratory judgment as to those patents. See, e.g.,

Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 1294,

1300 (Fed. Cir. 2009) (holding that, where plaintiff’s covenant not

to sue applied only to defendant’s past activities and did not

extend to future sales of defendant’s products, an actual

controversy existed within the meaning of the Declaratory Judgment

Act). Accordingly, a case or controversy still exists between BMO

and the defendants as to the Four Patents, and there is a basis for

us to continue to exercise jurisdiction as to the claims involving

those patents. The motion to dismiss Counts II-V and VII-X of the

complaint will be denied. 

B. Defendants’ Motion for a Protective Order

Defendants assert that BMO “seeks to waste judicial resources

by having this Court construe eighty-nine terms through the claim

construction process” and seek a protective order preventing BMO

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from seeking construction of more than ten claim terms. (Defs.’

Mem. in Supp. of Mots. at 8-9.) BMO responds that the motion is

premature because at the time it was filed, the parties had

completed only the first step in the process to narrow claimsconstruction issues. The parties had not yet exchanged proposed

constructions or completed the meet-and-confer process. 

We agree with BMO that defendants’ motion is premature. The

parties filed the instant motions early in the claims-construction

process, and we later suspended the claims-construction schedule

pending our rulings. We have not even held a pre-Markman hearing,

so we decline to enter an order regarding the proper scope of

claims construction at this juncture. The motion for a protective

order will be denied. 

C. Plaintiff’s Motion for Judgment on the Pleadings

BMO repeatedly contends that defendants “have conceded noninfringement” of the Four Patents. (Pl.’s Mem. in Supp. of Mot.

for J. on the Pleadings at 5, 6; Pl.’s Reply in Supp. of Mot. for

J. on the Pleadings at 1, 4, 5, 10, 12, 13, 14.) This contention

mischaracterizes defendants’ arguments. Their statements that they

are “not asserting” the Four Patents against BMO and have no

intention to do so are not the same as conceding that BMO has not

infringed the patents. BMO strains mightily to cast defendants’

statements as concessions of non-infringement, but it fails.

Judgment on the pleadings is not appropriate. Plaintiff’s motion

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will be denied. 

CONCLUSION

Defendants’ motion to dismiss for lack of jurisdiction [29] is

denied. Defendants’ motion for a protective order [29] is denied.

Plaintiff’s motion for judgment on the pleadings [35] is denied. 

A status hearing is set for October 10, 2012 at 10:30 a.m. to

discuss a new schedule for claims construction. 

 

DATE: September 20, 2012

ENTER: _________________________________________________

John F. Grady, United States District Judge

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