allegedly infringed. (7d.)

Defendants’ patent counsel replied on September 18, 2002. (R. 13-1, Def.’ Mem., Ex.
4.) Defendants pointed Livorsi to claims 1-4 and 7 of the ’781 patent and to Livorsi’s GPS
speedometers. (/d. f 2.) Defendants also acknowledged that they previously proposed licensing
negations with Livorsi. (/d. 4 3.)
IIL Defendants? Communications With Auto Meter

On August 5, 2002, Defendants sent a letter to Auto Mcter, a company that manufactures
Livorsi’s marine specdometer, (R 13-1, Defs.’ Mem., Ex. 5.) Defendants related that they
manufactured and sold a GPS marine speedometer that was authorized by the °781 patent. (/d. |
1.) Defendants further expressed that “had reason to believe” that Auto Meter was infringing the
*781 patont and demanded that Auto Meter cease and desist any infringement:

Our client has reason to believe that Auto Meter is manufacturing
and selling a GPS marine specdometer. If so, we ask that you

cease and desist any infringement of the ‘781 patent and advise as

to the quantity and dollar amount of any prior sales of any

infinging speedometers since the patent was granted on March 5,
(Id. 42.)

Auto Meter responded to Defendants’ letter on August 12, 2002. (R. 13-1, Dets.” Mem.,
Ex. 6.) Auto Meter rclated that its products differed from the claims covered by the ’781 patent
and that its products were based on prior art. (/d. | 2.)

On August 30, 2002, Defendants replied, explaining that Auto Meter’s products could not
have been based on the prior art Auto Meter cited in its August 12 letter. (R. 13-1, Defs.” Mem.,
Ex. 792.) Defendants again demanded that Auto Meter cease and desist any infringement of the
°781 patent and that it advise Defendants of any prior sales of infringing speedometers. (Id. 3.)
Defendants also requested that Auto Meter contact them should Auto Meter become interested in
obtaining a license. (/d.)

IV. _ Livorsi’s Action For Declaratory Judgment

Based on Defendants’ above-related actions, Livorsi alleges that it feared Defendants

would bring an infringement suit against Livorsi. (R. 1-1, Compl. q JL) Asa result, Livorsi

4


identifies the patent claims and Livorsi’s products at issuc, does not threaten an infringement
suit,’ and continucs to propose licensing negotiations. Defendants’ letters, which are simply
suggestions that the partics cngage in licensing negotiations, are insufficient on their own to
creale an actual controversy. See Phillips Plastics Corp., 57 F.3d at 1053.

The closest Defendants come to asserting infringement by Livorsi is to inform Plaintiff
that it “has not been singled out , . . conceming possible patent infringement . . .” and to request
information regarding other businesses that “may also infringe upon [the ’781] patent... .” (R.
13-1, Defs.’ Mem., Ex. 2 44] 1, 2 (emphasis added).) This language does not constitute an
express charge of infringement. See Phillips Plastics Corp., 57 F.3d at 1052 (affirming dismissal
of suit where the defendant’s letter to the plaintiff stated that certain of the plaintiff's products
were “covered by” its patent); Shell Oil Co., 970 F.2d at 888-89 (holding patentee’s statements
were insufficient to create a reasonable apprehension of an infringement suit despite statements
that the alleged infringer’s activities “fall within,” are “covered by,” and are “operations under”
the patent), Without an express charge of infringement by Defendants, Livorsi must prove that
the totality of the circumstances created a reasonable apprchension of an infringement suit. See
Shell Oil Co., 970 F.2d at 887-88. Livorsi has not met this burden,

To bolster its claim that Defendants’ actions induced a reasonable apprehension of suit,
Livorsi contends that Defendants’ communications with Auto Meter‘ generated within Livorsi a
reasonable apprehension of an infringement suit. These exchanges with Auto Meter, however,

are insufficient to support Livorsi’s contention, given that Livorsi and Defendants were engaged

> Because there was not an explicit threat of litigation, the facts before the Court differ from those
in EMC Corp. v. Norand Corp., 89 F.3d 807, 809 (Fed. Cir, 1995). In EMC Corp., the
defendant’s president first sent a letter to the plaintiff inviting it to engage in licensing
negotiations. Jd. When the plaintiff failed to respond, the defendant’s president sent a
subsequent letter informing the plaintiff that his company intended to tum the matter over to its
patent counsel “for action.” /d. Although the Federal Circuit believed an actual controversy
existed, it upheld the district court’s decision to exercise its discretion to decline jurisdiction to
entertain the suit. Jd. Here, Defendants never threatened any action.

4 Whether Livorsi was aware of Defendants’ contact with Auto Meter is unclear from the record.
For purposes of (his motion, however, this court has found all factual inconsistencies in favor of
the plaintiff. Neiman, 619 F.2d at 1190.



Livorsi Marine for your use in manufacturing and distributing your
GPS marine gauges. [Nordskog] would be open to such an
arrangement[,] which could include a one-time licensing fee plus a
royalty on cach unit marketed.

Kindly review the enclosed and consider our request and let me
know your willingness to proceed to an agreement that would be
mutually beneficial for [Nordskog] and Livorsi.

(R. 13-1, Defs.” Mem., Ex. 1.)

On August 2, 2002, Defendants sent Livorsi a follow-up letter stating that Defendants had
contacted other companies regarding infringement, requesting information from Livorsi
regarding other potential infringers of the ’781 patent, and expressing Defendants’ continucd
desire to engage in licensing negotiations with Livorsi:

T want you to know that in NO way has your company been singled
out by us as the only manufacturer of GPS Specdometers we have
or will contact concerning possible patent infringement and
potential licensing arrangements . . . .

However we are only aware of a couple of companies that are
using GPS Speedos and if you can let us know the names of all the
businesses that you are aware of who arc selling units that may
also infringe upon our patent, we would be very appreciative, and
this may enable us to reduce licensing and royalty fee amount that
we would be requesting .. . should you desire to proceed into a
contractual relationship with us.

Kindly respond to this and the previous letter to let us know your
desires and intentions, Mike, so that we may proceed into some
sort of reasonable and mutually beneficial arrangement. Let us
know the direction you would like to take in the matter, It is our
opinion that a licensing and royalty fee would be most appropriate
and provide us both with the sales and revenues to grow our
respective businesses.

(R. 13-1, Defs.” Mem., Ex. 2 (emphasis added).)
Hi, Livorsi’s Response To Defendants’ Letters And Defendants’ Subsequent Reply

On August 14, 2002, Livorsi’s patent counsel responded to Defendants’ letters. (R. 13-1,
Defs.’ Mem., Ex. 3.) Livorsi indicated that it had completed an initial review of the "781 patent.
(a. § 3.) Livorsi also requested additional information. (/d.) To “begin evaluating

(Defendants’] request to enter into a licensing arrangement,” Livorsi needed to know which

products Defendants believed infringed the ’781, and which patent claims these products



filed this action for declaratory judgment. (/d.)
ANALYSIS
1 Declaratory Judgment Jurisdiction In Patent Disputes

In patent cases, courts apply a two-part lest to determine whether an actual controversy
exists. See, ¢.g., Phillips Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051, 1052
(Fed. Cir. 1995), Specifically, the Court must find both (1) an explicit threat or other action by
the patent owner crealing a reasonable apprehension of an infringement suit on the part of the
declaratory plaintiff, and (2) present activity constituting infringement or concrete steps being
taken with the intent to conduct such activity. /d. at 1052. The parties agree that Livorsi has
satisfied the second part of the applicable test. Therefore, the only issuc is whether Defendants
created a reasonable apprehension of an infringement suit in Livorsi through an explicit threat or
other action.

To satisfy the first element of the test, a plaintiff must objectively establish that the
patentee’s conduct has risen “to a levet sufficient to indicate an intent to enforce its patent,”
Sheil Oil Co. v. Amoco Corp., 970 F.2d 885, 887-88 (Fed. Cir. 1992). Where there is no express
charge of infringement, a court must look to the totality of the circumstances, evaluated as of the
filing date. Jd. at 888 (quoting Arrowhead Indus. Water, Inc., 846 F.2d at 736). A court will
evaluate the “totality of the circumstances” because a party “should not be subject to
manipulation by a patentee who uses careful phrases in order to avoid explicit threats.” Phillips
Plastics Corp., 57 F.3d at 1053.

I. Livorsi Has Failed to Prove A Reasonable Apprehension of An Infringement Suit

A, Livorsi and Defendants were still Negotiating when Livorsi Filed Suit

An actual controversy, in the context of licensing negotiations, does not exist until
licensing negotiations have broken down. Jd. (affirming dismissal of declaratory judgment action
where the plaintiff filed suit rather than responding to defendant's request for information that it
needed to “put together a reasonable offer of a licensing proposal”), Defendants and Livorsi

agree that licensing negotiations did not break down until February 2003 when Livorsi finally



in licensing negotiations. Under the circumstances, Livorsi must prove more than that
Defendants sent cease and desist letters to a third party manufacturer.
CONCLUSION
Livorsi has failed io establish that an actual controversy existed at the time that it filed its
Complaint. Instead, the record shows that Livorsi did not have a reasonable apprehension of an

infringement suit since the parties’ licensing discussions had not yet broken down. Accordingly,

Defendants’ motion to dismiss is granted.

DATED: June 18, 2003 ENTERED



‘
Minute Order Form (W6s!!7)

United States District Court, Northern District of Minois

Name of Assigned Judy Sitting Judge if Other
moe - trate Judge Amy J. 8t Eve “Than Aasigned Judge
CASE NUMBER 02 C 7448 DATE /18/2003
CASE Livorsi Marine, Inc. ys. Nordskog Publishing, Inc.

TITLE

[In the following box (a) indicate the purty filing the motion, €.g., plaintiff, defendant, 3rd party plaintiff, und (h) state brictly the nature
MOTION: of the motion being presented.)
DOCKET ENTRY;
qa) a Filed motion of [ use listing in “Motion” box above.]
(2) Oo Brief in support of motion due
(3) oO Answer brief to motiondue __. Reply to answer brief due___
(4) QO Ruling/Hcaring on set fora
(3) Qa Status hearing[held/continucd to] [set for/re-set for]on_——ssetfor_ at
(6) Oo Pretrial conference[held/continucd to] [set for/re-set for}on set for at
(o) im) Trial[set for/re-set for]on__—_at
(8) Oo [Bench/Jury trial] [Hearing] held/continucdto —at__
(9) o This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to]

OOFRCP4(m) OlLocal Rule 41.1 OFRCP41(a\(1) CFRCP4I1(a)(2).

qo) ff [Other docket entry] | Enter Memorandum Opinion and Order. Defendants’ motion to dismiss is

granted. Status hearing set for 7/17/03 at 8:45 A.M. is stricken. Any other pending dates are stricken.

Any pending motions are denied as moot.
Cora ® ’

al) @ [For further detail see order attached to the original minute order. ]

No notices required, advised in open court.

No notices requited

Notices mailed by judge's staff.

Notified counsel hy telephone.

| Docketing to mail notices.

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Z| Mat a0 480 frm 1ynod Josia's'n
Copy to judge/magistrate judge. WAYS
courtroom All kd 81 NN eu
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served Defendant. (R. 17-1, Pl.’s Resp. at 1, 4; R. 13-1, Defs.’ Reply at 2-3.) But, Livorsi filed
suit on October 16, 2002, when the parties were still engaged in licensing negotiations. (R. 17-1,
Pl’s. Resp. at 1.) As Livorsi admitted, “neither party had expressly rejected all possibility of a
license at the time Livorsi filed this action.” (/d.) Livorsi also admits waiting to serve
Defendants for over three months because it was still cngaged in “last-ditch efforts to resolve”
the matter. (/d. at 4.) When parties are still engaged in licensing negotiations as of the filing
date of an action for declaratory judgment, there can be no actual controversy. See Phillips
Plastics Corp., 57 F.3d at 1053; see also Oce-Office Sys., Inc., v. Eastman Kodak Co., 805
F.Supp. 642, 646-47 (N.D. Ill. 1992) (requiring one party to have terminated negotiations for an
actual controversy to exist). The instant case, then, does not present an actual controversy. It
seems instead that Livorsi preferred to file suit rather than respond to Defendants’ September 18,
2002 letter.

B. The Circumstances do not Support Reasonable Apprehension of an
Infringement Suit

Even if Defendants and Livorsi were no longer in licensing negotiations when Livorsi
filed this suit, Defendants correctly assert that their letters to Livorsi did not objectively gencrate
reasonable apprehension of an infringement suit. (R. 13-1, Defs.’ Mem. at 8.) A reasonable
apprehension of an infringement suit “requires more than the nervous state of mind of a possible
infringer; it requires that the objective circumstances support such an apprehension,” Phillips
Plastics Corp., 57 F. 3d at 1053-54,

Tn the instant case, an objective evaluation of the communications between Livorsi and
Defendants shows that Plaintiff’s foar of suit was unreasonable. Defendants’ first letter informs
Livorsi of the ’781 patent’s existence while inviting Livorsi to engage in licensing negotiations.
(R. 13-1, Defs.’ Mem., Ex. 1.) Defendants’ second Ictter continues to encourage negotiations.

(R. 13-1, Defs.” Mem., Ex. 2 3.) Defendants’ third letter, authored by their patent counsel,”

* That Defendants’ patent counsel authored a letter does not elevate the nature of the dispute
where, as here, Defendants were responding to a letter from Plaintiff's patent counsel. See Shell
Oil Co., 970 F.2d at 888.



yw

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS

EASTERN DIVISION
LIVORST MARINE, INC., )
)
Plaintiff, )
J No. 02 C7448
v. )
)
NORDSKOG PUBLISHING, INC. and J
NORDSKOG PERFORMANCE PRODUCTS, +)
TNC. )
) DOCKET
Defendants. )

MEMORANDUM OPINION AND ‘DER
AMY J. ST. EVE, Judge:

After a series of communications, Livorsi Marine, Inc. (“Livorsi”) brought an action for
declaratory judgment against Nordskog Publishing, Inc. and Nordskog Performance Products,
Inc, (collectively, “Nordskog”) Livorsi claims that Nordskog, owner of United States Patent No.
6,353,781 (the “°781 patent”), has accused Livorsi and its primary supplicr of infringing the *781
patent. Livorsi claims that Defendants’ action have induced a reasonable apprehension of an
infringement suit. Livorsi seeks a declaration that it does not infringing the patent and that the
patent is invalid, Defendants move to dismiss the complaint pursuant to Federal Rule of Civil
Procedure 12(b)(1) for lack of a justiciable controversy, Because the Court does not have subject
matter jurisdiction, Defendants’ motion is granted.

STANDARDS

A Rule 12(b)(1) motion to dismiss tests the federal jurisdiction of a complaint. See Fed.
R. Civ, P. 12(b)(1). It is well settled that federal jurisdiction is limited to cases of “actual
controversy.” Arizonans for Official English v. Arizona, 520 U.S. 43, 67, 117 S.Ct. 1055, 1069,
137 L.Ed.2d 170 (1997); Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S, 227, 240,
37 S.Ct. 461, 81 L.Ed. 617 (1937). This requirement, which the Declaratory Judgment Act
explicitly acknowledges, see 28 U.S.C. § 2201, has its roots in Article III of the Constitution.
See U.S. Const. art. Il, § 2, cl. L.; United Pub. Workers of Am. (C.L.O.) v. Mitchell, 330 U.S. 75,

1

60



116, 67 S.Ct. 556, 577, 91 L.Ed. 754 (1947) (Douglas, J., dissenting in part). In order for an
actual coniroversy to exist, there must be a “definite and concrete” dispute — one that touches the
“legal relations of parties having adverse legal interests.” Aetna, 300 U.S. at 240-41, 57 §.Ct, at
464, Courts, in determining the question of federal jurisdiction in declaratory judgment actions,
must cvaluate whether an actual controversy exists at all stages of (he litigation, including the
action’s filing date. Arizonans for Official English, 520 U.S. at 67, 117 S.Ct. at 1069;
Spectronics Corp, v. HB. Fuller Co., Inc., 940 F.2d 631, 634 (Fed. Cir. 1991) (“later events may
not create jurisdiction where none existed at the time of filing”); Arrowhead Indus. Water, Inc. v.
Ecolochem, Ine., 846 F.2d 731, 736 (Fed. Cir. 1988).!

Plaintiffs bear the burden of proving the existence of subject matter jurisdiction. Jat’?
Harvester Co. v. Deere & Co., 623 F.2d 1207, 1210 (7" Cir. 1980). In analyzing a Rule 12(b)(1)
motion, the Court may look beyond the pleadings, See Long v. Shorebank Dev. Corp., 182 F.3d
548, 554 (7" Cir. 1999); Int'l Harvester Co., 623 F.2d at 1210. The Court must accept all well-
pleaded factual allegations as true and draw all reasonable inferences in favor of the plaintiff.
Long, 182 F.3d at 554; Neiman v. Rudolf Wolff & Co., Ltd,, 619 F.2d 1189, 1190 (7" Cir, 1980).

BACKGROUND
I Defendants’ Initial Letters To Livorsi

On July 16, 2002, Defendants sent a letter notifying Livorsi of the existence of their °781
patent and inviting Livorsi to engage in licensing negotiations with them regarding GPS products
that Livorsi sold:

Please also sce the advertisement for Nordskog Performance
Products in the same August 2002 issue which announces that our
GPS speedometer is patented. Perhaps you have been unaware of
this previously. We do have a patent for the marine GPS Speedo.
Enclosed is a copy of the United States Patent... .

We would be agreeable to entering into a licensing agreement with

' Whether an actual controversy exists is a matter of substantive law. Jd. Because this case
arises under patent law, the Court must apply the substantive law of the Federal Circuit.
Vanguard Research, Inc. v. Peat, inc., 304 F.3d 1249, 1254 (Fed. Cir, 2002), With respect lo
procedural issues nol unique to patent law, the Court will apply Seventh Circuit precedent, 7d,

2