Plaintiff Fregeau's concerns would be addressed during the "new business" portion of the
meeting.

The defendants called for votes on the actions, over the objections of the plaintiffs.
Immediately after voting, the defendants announced and tendered the resignation of Defendant
Flynn, effective October 11, 2002. Then, Defendant Tirona, the Secretary of TCP, tendered his
own resignation. Then, Defendant Frankowsky announced his intent to resign from the Board of
Directors. Subsequently, two other board members tendered their resignations from the Board of
Directors of TCP.

Beginning in October 2002, the Plaintiffs made numerous requests to Defendants Flynn
and Tirona to retrieve TCP's records and assets. In late October, Defendant Flynn stated that he
would not respond to any further communications. In November 2002, Trinity Capital Partners R
& D, Inc. ("TCP R&D") was incorporated in the State of Wisconsin. The Plaintiffs allege that
Defendant Flynn is listed as the registered agent of TCP R&D, and is using the patent application
and/or the actual model and process for his other businesses, including TCP IP and TCP R&D.

In March 12, 2003, Plaintiff Sheridan received a written non-negotiable offer to all cash
investors of TCP from Defendant Flynn. The offer, set to expire on March 13, 2003, stated that TCP
R&D would issue a promissory note to each cash investor in the amount of their cash investment,
plus interest, payable in January 2004. Additionally, the offer stated that the plaintiffs would receive
nothing and required TCP to execute mutual releases and a waiver of interest with respect to
Defendant Flynn, TCP IP, and TCP R&D and stated that TCP must be dissolved.

Plaintiffs Sheridan and Fregeau contributed services, not cash, to TCP in exchange for their

shares of common stock and would receive nothing from the offer. The plaintiffs have been acting


federal patent law." Jacobson at 509. The Jacobson noted the issues were whether a fiduciary
duty existed, what it consisted of, and whether the defendants actions amounted to a breach. Id.
Similarly, in the present case, the issue is whether the defendants breached a fiduciary duty while
President and board members of TCP with regard to their actions towards the pending patent
application and the company. The court "need not immerse itself in federal patent law" to
determine whether the defendants breached their duty or committed fraud. Jd. The court need

only determine whether the defendant's conduct amounted to actionable state law claims.

Conclusion

The plaintiffs’ complaint fails to: (1) state a cause of action arising under federal patent
laws, or (2) require the resolution of a substantial question of federal patent law. This case is

hereby remanded to the Circuit Court of DuPage County.

So Ordered. Entered: Y. es Vf oF

Lule. Bogan

Ronald A. Guzman
United States District Judge



However, if "reasons completely unrelated to the provisions and purposes of' patent law
"entitle" the plaintiffs to "the relief [they] seek," then the claim fails to arise under federal patent
laws. Id. at 812, citing Franchise Tax Board of Cal., 463 U.S. 1, 26, 103 S.Ct. 2841 (1983).
While a dispute over a patent "could not exist but for the property right created” by the patent, the
claim does not necessarily "arise under" federal patent law. Int. Amor & Limousine Co. v.
Moloney, 272 F.3d 912, 915-16 (7th Cir. 2001). In addition, contracts that "may or may not
constitute agreements to assign future patent applications" do not change a contract dispute into a
federal question arising under patent law. Beghin-Say Int'l, Inc. v. Old-Bendt Rasmussen, 733
F.2d 1568, 1571 (Fed. Cir. 1984).

Here, assuming the factual allegations in the complaint are true, the plaintiffs' claims
fai] to arise under federal patent law for the following reasons: (1) federal patent
law does not create the causes of action, and (2) the causes of action do not require the resolution
of a substantial question of federal patent law.

First, federal patent law does not create the causes of action. Claims which may
commonly arise under federal patent law include "patent invalidity, infringement, and
patent-antitrust." Yuksel v. N. Am. Power Tech., 805 F.Supp. 310, 311 (E.D.Pa. 1992). Similarly,
claims requesting declarations of ownership of characters in books may arise under federal patent
and copyright laws. DeCarlo v. Archie Comics, 127 F. Supp.2d 497, 504 (S.D.N.Y. 2001).
Additionally, claims involving the amending of patent applications may arise under federal
patent law. Jacobson v. Bittner, 694 F. Supp. 507, 509 (N.D.IIL. 1988). While patent validity and
infringement are "ordinarily" matters for federal courts, "the question of who owns the patent

right and on what terms typically is a question exclusively for state courts." Jim Arnold Corp. v.



as president and secretary of TCP since the defendants’ resignations.
Discussion

In considering a motion for remand, the court must examine the plaintiffs’ complaint at the
time of the defendant's removal and assume the truth of all factual allegations contained within
the original complaint. Licursi v. Jamison, 1998 WL 808542, 2 (E. D. Pa. 1998). The removing
defendant possesses the burden to demonstrate federal jurisdiction exists. Licursi, 1998 WL at 3,
citing Dukes v. U.S. Healthcare, Inc., 57 F. 3d 350, 359 (3d. Cir.), cert. denied, 516 U.S. 1009,
116 S.Ct 564, 133 L.Ed.2d 489 (1995). Specifically, removal is appropriate only when the federal
court would have had jurisdiction when the case was initially filed. Licursi, citing Brown v.
Francis, 75 F.3d 860 (3d Cir. 1996) (quoting Abels v. State Farm Fire & Cas. Co., 770 F.2d 26,
29 (3d Cir. 1985)). The removal statutes should be "strictly construed against removal and all
doubts should be resolved in favor of remand." Licursi, citing Boyer v. Snap-on Tools Corp., 913
F.2d 108, 111 (3d Cir. 1990) (quoting Steel Valley, 809 F.2d at 1010), cert. denied, 498 U.S.
1085 (1991).

For a case to "arise under" the federal patent laws, the plaintiffs' complaint must state
some "right, title or interest under the patent laws." Christianson v. Colt Indus. Operating Corp.,
486 U.S. 800, 808, 108 S.Ct. 2166 (1988). While the plaintiff may not craft their complaint to
avoid patent issues, defenses or counter-claims arising under the patent laws do not create federal
jurisdiction. Christianson, 486 U.S. at 809. Therefore, jurisdiction under §1338 is limited to
instances where a well-pleaded complaint "establishes either that federal patent law creates the
cause of action or that the plaintiffs right to relief necessarily depends on resolution of a

substantial question of federal patent law." Jd. at 809. A "substantial question" arises if federal

patent law is a "necessary element" to the resolution of the state law claim. Jd.



future loss in the share of proceeds from a patentable invention as a result of defendant's fraud do
not arise under the patent act, but rather state law. Jacobson, 694 F. Supp. at 510 (granting
motion to remand to state court). Thus, the remedies requested are available under state law.

Finally, federal patent law fails to comprise a "necessary element" or "substantial issue"
in the plaintiffs’ claims. Claims in which the plaintiff's "right to relief necessarily depends upon
resolution of a substantial" question of federal patent law should be granted federal jurisdiction.
Christianson at 809. Accordingly, determining whether someone infringed a licensed patent or
proving noninfringement is a substantial issue of patent law. U.S. Valves, Inc. v Dray, 190 F.3d
811 (7th Cir. 1999). However, the claim fails to arise under patent law if the plaintiff is entitled
to relief for reasons "completely unrelated to the provisions and purposes" of federal patent law.
Christianson at 810. Thus, while resolving "factual disputes concerning the originator" of the
material at issue "might imply some reference to federal patent law," that does not mean that it
involves "substantial issues of federal patent law." Licursi at 4.

Here, federal patent law fails to comprise a necessary or substantial issue in the present
case. The plaintiffs only request that the court determine whether the defendants breached a
fiduciary duty or committed fraud in their actions with respect to a pending patent application.
The plaintiffs do not request a ruling relating to a license regarding an issued patent, nor do the
plaintiffs claim or request relief for patent infringement. See Kiest v. Kiest, 2000 U.S. Dist.
LEXIS 13556 (N.D.IIl. 2000) (suggesting that patent infringement, validity or claims requiring
interpretation of issued patents would involve substantial questions of patent law). Additionally,
a claim for breach of fiduciary duty arising from a defendant's "failure to patent [an] invention

jointly" does not "state a federal cause of action" and does not involve a "substantial question of



- Minuto Ger Form 0597

CSO

United States District Court, Northern District of Illinois

YY
Name of Assigned Jud; Sitting Judge if Oth
a Magiseate Judge Ronald A. Guzman than asst Judge
CASE NUMBER 03 C 5170 DATE 9/29/2003
CASE Debra Sheridan, et al vs. Michael Flynn, et al
TITLE
[In the following box (e) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the nature

MOTION: of the motion being presented.]

DOCKET ENTRY:

(¢3) ao Filed motion of [ use listing in “Motion” box above.]

(2) a Brief in support of motion due

@) Qo Answer brief to motion due. . Reply to answer brief due :

(4) a} Ruling/Hearing on set for at

(5) Oo Status hearing[held/continued to] [set for/re-set for] on set for at

© oO Pretrial conference[held/continued to] (set for/re-set for] on set for at .

(o) oO Trial[set for/re-set for] on at

(8) Oo [Bench/Jury trial] [Hearing] held/continued to at

(9) oO This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OFRCP4(m) OlLocal Rule 41.1 OFRCP41(a\1) OFRCP41(a)(2).

(do =x [Other docket entry] © ENTER MEMORANDUM OPINION AND ORDER: The plaintiffs’
complaint fails to: (1) state a cause of action arising under federal patent laws, or (2) require the resolution
of a substantial question of federal patent law, and this court grants Plaintiffs’ motion to remand. This
case is hereby remanded to the Circuit Court of DuPage County.

ay ff (For further detail see order attached to the original minute order.]

No notices required.

Notices mailed by judge's staff.
Notified counsel by telephone,

Dogketing to mail notices.

No notices required, advised in open court,

number of notices

Mail AO 450 form.
Copy to judge/magistrate judge.
courtroom
TBK deputy's
initials : —
Gisia sy) Date/time received ini
cqitral Clerk’s Office

‘SEP 3 0 2003



Hydrotech, 109 F.3d 1567, 1572 (Fed. Cir. 1997).

Here, the plaintiffs' allege the defendant's actions give rise to a breach of fiduciary duty,
usurpation of a corporate opportunity, fraud, and constructive fraud, which are state law claims.
While the object of these claims is the actions surrounding a pending patent application, that fact
fails to create federal jurisdiction under Patent laws. Moreover, the fact this dispute arises over a
pending patent application that has been previously rejected by the patent office is significant.
Courts have held that Congress has passed no laws creating "actionable" claims "solely based on
patent applications ... Title 35 of the United States Code creates protections and causes of actions
based on issued patents only." Yuksel, 805 F.Supp. at 312. Thus, no patent rights yet exist under
Title 35 in this case, suggesting that federal patent law does not apply. See Murray v. Gemplus
Int., 2002 WL 32107942 (E.D. Pa.) (concluding the court lacked jurisdiction under federal patent
law in an inventorship dispute partially because no patents had yet been issued).

Additionally, while claims requesting remedies specifically enumerated by federal patent
law may meet the jurisdictional requirement, federal patent laws do not exclusively proscribe the
remedies requested by the plaintiffs in this case. For example, the patent statute specifically
provides a remedy for patent infringement. Jim Arnold Corp., 109 F.2d at 1571. Similarly, the
request of an accounting with respect to infringing uses, is "traditionally available under the Act
in cases of copyright infringement." DeCarlo, 127 F.Supp.2d at 505. However, the plaintiffs do
not seek a remedy provided exclusively under federal law. Here, while the plaintiff requests relief
in the form of compensatory damages and the defendant assigning his interest in the pending
patent application, the plaintiff does not request a declaration of ownership or an amendment to

the patent application. Moreover, courts have held that claims requesting reimbursement for the


IP, LLC, over the objections of the plaintiffs. The Agreement provided TCP with a 15% interest
in TCP IP, LLC, and at that time, Defendant Flynn still owned and controlled 51 % of TCP.

In a special meeting of the Board of Directors of TCP on September 6, 2002, the Board
proposed amendments to the operating agreement the Board had approved in August 2002. At
that time, Defendant Flynn conditioned his assignment of the pending patent to TCP upon both
his receipt of an additional 15,000 shares of TCP Common Stock and the reduction of the shares
of TCP common stock held by all other board members by 50%. The Board also authorized and
approved the acceptance, by TCP, of an assignment of the patent from Defendant Flynn in
exchange for 15,000 shares of Common Stock of TCP. Then, the Board of Directors resolved to
assign to TCP IP, LLC, the pending patent in consideration for becoming the managing member
of TCP IP, LLC.

On October 9, 2002, Plaintiff Fregeau requested that several concerns be addressed at the
next board meeting, including the Board's approval of issuing to Defendant Flynn an additional
15,000 shares of common stock and reducing the number of shares held by the other Board
Members in exchange for his assignment of the pending patent to TCP.

A board meeting was held on October 15, 2002. Defendant Flynn was absent. Plaintiff
Fregeau objected to conducting the meeting in his absence. Without the
knowledge of the plaintiffs, Defendant Flynn had resigned on October 11, 2002. During the
board meeting on October 15, Plaintiff Fregeau requested that her concerns, expressed on
October 9, be addressed. The other attending board members insisted on repealing corporate
actions previously taken by the board before addressing Plaintiff Fregeau's concerns. The board

members said if the actions were rescinded and repealed during the "old business" portion, then


ownership interest. Defendant Flynn also said that each board member would have

to execute a Patent Holder Interest Agreement as a condition precedent to receiving an
assignment. Also during this meeting, the defendant promised he would file the assignments
concurrently with the patent application.

In September 2000, Defendant Flynn filed a patent application, Serial Number
09/658,816, for the process, listing himself as the owner of the pending patent. At that time, TCP
paid for the patent application. Defendant Flynn "represented" to the plaintiffs and the other
board members that legal requirements necessitated that Flynn list himself as the owner of the
pending patent on the patent application. The assignments, which Defendant Flynn promised
during the May board meeting to concurrently file, were not filed with the patent application.

In July 2000, TCP contracted with Pal Graphics, Inc., to develop the software for the
pending patent process. In October 2000, TCP terminated its agreement with Pal Graphics, Inc.
In December 2000, TCP contracted with Price WaterhouseCoopers ("PWC") to provide
consulting services regarding a market study for the software, as well as the development of a
business model/plan for TCP. In June 2002, PWC provided TCP with an engagement letter and
also concluded the TCP had a "viable and unique market value proposition." In May 2002, TCP
entered negotiations with a Wisconsin company, Exodus Group, LLC, to develop the software
for the business model.

In June 2002, Defendant Flynn, acting as President and CEO of TCP, contracted with
PWC. In July 2002, TCP IP n/k/a/ Paraclete Unlimited, LLC, was organized in Illinois. The
members of TCP IP are Defendant Flynn, the individual TCP consulted with at PWC, and an
individual from the Exodus Group, the Wisconsin graphics company TCP had negotiated with in
May 2002. In July 2002, Defendant Flynn, acting as Chairman and President of TCP IP, executed

the same agreement with PWC that he had executed on behalf of TCP in June 2002.
In August 2002, TCP's Board of Directors approved an Operating Agreement with TCP

2


D0cK, E TED
IN THE UNITED STATES DISTRICT COURT Sep
FOR THE NORTHERN DISTRICT OF ILLINOIS 20 203
EASTERN DIVISION

Debra Sheridan et al

v. NO. 03 C 5170

Michael Flynn, Roberto Tirona,
Allan Franowsky, and Steven
Koznarek

Ronald A. Guzman
United States Judge

MEMORANDUM OPINION AND ORDER
This matter is before the court on a motion to remand. We find that the plaintiffs claim
fails to state a case of action under federal patent statutes, and grant the plaintiffs’ motion to
remand.
Statement of Facts

The plaintiffs and defendants are or were members of the Board of Directors for Trinity
Capital Partners (“TCP”). Defendant Flynn incorporated Trinity Capital Partners in Illinois in
late December 1999 for the purpose of providing reduced risk construction loan administration
and collateralization services and products to financial institutions. The company’s sole product
was a unique business model (“model”), conceived by Defendant Flynn, for producing reduced
risk loans. The purpose of TCP was to turn Defendant Flynn’s model into a patentable business
process and software (“process”).

During the-May 19, 2000, board meeting, Defendant Flynn said he would assign a

percentage ownership in the pending patent to each board member proportionate to their stock