IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLORADO

Civil Action No. 1 1-cvM2519-WYD-MJW

TELECOMMUNICATIONS SYSTEMS. INC., a Maryland company,

Plaintiff,

V.

TRACBEAM. L.L.C., a Colorado limited liability company.

Defendant.

Defendant TracBeam, L.L.C.’s Reply in Support of Its Motion to Dismiss

Under Fed. R. Civ. P. 12(b)(1)
Table of Contents

Introduction 1

II. Argument 2

A. TCS’s new allegations that attempt to correct pleading deficiencies

warrant the dismissal of its Complaint 2

B. TCS’s agreement to indemnify MetroPCS pursuant to a contract does

not, by itself, create an adverse legal interest between TCS and

TracBeam 3

C. TCS has effectively conceded that mere indemnification demands are

insufficient to create subject-matter jurisdiction 6

D. TracBeam’s letter to TCS, considered with the totality of the

circumstances, is insufficient to establish subject-matter jurisdiction 7

III. Conclusion 10
Table of Authorities

Cases

ABB Inc. v. Cooper Indus., LLC, 635 F.3d 1345 (Fed. Cir. 2011) 4

Arris Group, Inc. v. British Telecomms. PLC. 639 F.3d 1368 (Fed. Cir. 2011) passim

Arrowhead Industrial Water, Inc. v. Ecolochem, Inc. 846 F.2d 731 (Fed. Cir. 1988) 4

Creative Compounds. LLC v. Starmark Labs., 651 F.3d 1303 (Fed. Cir. 2011) 7

Darrow v. WKRP Mgnit., LLC,

09-cv-01613, 2010 U.S. Dist. Lexis 43636 (D. Cob. Apr. 6,2010) 1,2,3

Goodyear Tire & Rubber Co. v. Reieasomers, Inc., 824 F.2d 953 (Fed. Cir. 1987) 9

Innovative Therapies, Inc. t’. Kinetic Concepts, Inc., 599 F.3d 1377 (Fed. Cir. 2010) 6, 8

LizardTech. Inc. Earth Res. Mapping, Inc., 433 F.3d 1373 (Fed. Cir. 2006) 10

Medlmniune, Inc. v Genentech, Inc.. 549 U.S. 118 (U.S. 2007) 7

Microchip Tech. Inc. v Chamberlain Grp.. Inc., 441 F.3d 936 (Fed. Cir. 2006) 4,6

Ours Tech.. Inc. v. Data Drive Thru, Inc., 645 F. Supp. 2d 830 (ND. Cal. 2009) 2, 6

Prasco, LLC v. Medicis Fharnz. Corp., 537 F.3d 1329 (Fed. Cir. 2008) 8

Proo[point. Inc. i’. InNova Patent Licensing. LLC,

5:11-cv-02288, 2011 U.S. Dist. Lexis 120343 (N.D. Cal. Oct. 17, 2011) 7

Schreiber Foods, Inc. v. Beatrice Cheese, Inc., 402 F.3d 1198 (Fed. Cir. 2005) 2

Smith v. Pizza Hut, Inc.. 694 F. Supp. 2d 1227 (D. Cob. 2010) 1,2,3

Vanguard Research, Inc. v. PEA1 Inc., 304 F.3d 1249 (Fed. Cir. 2002) 9

Rules

D.C.COLO.LCiv.R 7.1 3

Fed. R. Civ. p. 12 2, 10

H
I. Introduction

The Court should dismiss this action because plaintiff Telecommunication Systems, Inc.

(“TCS”) has attempted to rectify pleading deficiencies by asserting new facts in its Opposition. In

particular, TCS has asserted for the first time that, prior to filing this lawsuit, TCS agreed to

indenmify MetroPCS pursuant to a contract. (Opp. at 5) As TCS acknowledges. its novel

allegations are directed at the “crux of TracBeam’ s indemnification argument.” hi. TCS should not

be permitted to use its Opposition to amend its Complaint. See, e.g., Darrow v. WKRP Mg;nt., LLC,

2010 U.S. Dist. Lexis 43636, at *8 (D. Cob. Apr. 6, 2010); Smith v. Pizza Hu4 Inc., 694 F. Supp.

2d 1227, 1230 (D. Cob. 2010).

Even if the Cour accepts TCS’s efforts to amend its pleading via an opposition brief, the

Court should still dismiss TCS’s Complaint. Contrary to TCS’s asser ion, a vendor’s contractual

obligation to indemnify a customer is not sufficient, by itself, to create subject-matter jurisdiction.

TCS has cited no case whose holding has adopted that proposition, and the Federal Circuit has

suggested that, even when an indemnification agreement exists, subject-matter jurisdiction may

only be established where the patent holder has accused “customers of direct infringement based on

the sale or use of a supplier’s equipment.” Arris Group. J,ic. v. British Teleco,nms. PLC, 639 F.3d

1368, 1375 (Fed. Cir. 2011). There is no such credible allegation in this case.

Nor do the other circumstances relied upon by TCS create subject-matter jurisdiction. In

particular, neither TracBeam’s interactions with third parties regarding its technology nor

TracBeam’s six-sentence letter to TCS create “adverse legal interests” that are “of sufficient

immediacy and reality to warrant the issuance of a declaratory judgment.” Arris Group. 639 F.3d at

1373.

The Court should therefore dismiss this action under Fed. R. Civ. P. 12(b)(1).

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II. Argument

A. TCS’s new allegations that attempt to correct pleading deficiencies warrant the

dismissal of its Complaint.

“Plaintiffs cannot rectify their pleading deficiencies by asserting new facts in an opposition

to a motion to dismiss.” Darrow v WKRP Mgznt., LLC, 2010 U.S. Dist. Lexis 43636, at *8 (D.

Cob. Apr. 6,2010)). See also Smith v. Pizza Hut, Inc., 694 F. Supp. 2d 1227, 1230 (D. Cob. 2010)

(same).

Despite that rule, TCS now alleges for the first time: (1) the existence of an indemnification

agreement between MetroPCS and TCS, (2) that TCS agreed in late May 2011 to indemnify

MetroPCS pursuant to that agreement, and (3) that TCS made this agreement prior to the filing of

this action for declaratory judgment. See Ex. 3 to Opp. at ¶91 5, 7-8. These allegations appear

nowtere in TCS’s Complaint. Instead, TCS’s Complaint alleged only that “MetroPCS and Sprint

have tendered indemnification demands to TCS.” Compl. 9111. But the fact that Sprint and

MetroPCS made indemnification demands does not imply that: (1) TCS acceded to those demands

(in fact, TCS does not allege, even in its Opposition, that it has agreed to Sprint’s indemnification

demands), (2) that the indemnification demands were made pursuant to an indemnity contract (see.

e.g., Ours Tech., Inc v. Data Drive Thru. Inc.. 645 F. Supp. 2d 830, 839 (N.D. Cal. 2009) (refusing

to infer existence of indemnification agreement from company’s indemnification of customer); or

(3) that TCS acceded to those demands before filing this action for declaratory-judgment (see

Schreiber Foods, Inc. v. Batrice Cheese, Inc., 402 F.3d 1198, 1201 (Fed. Cir. 2005) (analyzing

whether standing existed at the time of the filing of the suit)).

TCS’s novel allegations are important: As TCS states, “The crux of TracBeam’s

indemnification argument is that TCS’s Declaratory Judgment Complaint does not explicitly state

that it has accepted the indemnification requests from either AT&T or MetroPCS in the Texas

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litigation’... .Howe’er, as set forth iii the Declaration of Bruce A. ‘White. TCS has indeed accepted

the inden-mification request of MetroPCS in the Texas litigation (and has done so as of the date of

the filing of the Complaint), rendering this argument moot.” (Opp. at 5)

Because TCS is now attempting to add allegations in order to address deficiencies in its

Complaint that were raised by TracBeam’s Motion to Dismiss, TCS’s Complaint should be

dismissed. See. e.g.. Darrow, 2010 U.S. Dist. Lexis 43636. at *9; Smith. 694 F. Supp. 2d at 1230

(same). 2 In the event that the Court does not dismiss this Complaint as a result of TCS’s new

allegations, TracBeam presents reasons in the following sections that wanant the dismissal of the

Complaint, even with TCS’s new allegations.

B. TCS’s agreement to indemnify MetroPCS pursuant to a contract does not, by itself,

create an adverse legal interest between TCS and TracBeam.

TCS has cited no case law in which a court concludes that a vendor’s contractual obligation

to indemnify a customer is sufficient, by itself, to create subject-matter jurisdiction. The sole

authority relied upon by TCS for that proposition is Arris Group. (Motion at 3-6) But the Federal

Circuit in Arris Group did not reach the indenmification issue in that case. See Arris Group, 639

F.3d at 1375 (“We need not reach the indemnification issue, for we conclude that, applying the

standard articulated by the Supreme Court in Medhnmune, there is an actual controversy between

Arris and BT concerning Arris’ liability for, at least, contributory infringement.”).

In fact, neither TCS’s Complaint nor TracBeam’s Motion to Dismiss alleges the existence of

indemnification requests from AT&T. Presumably, TCS meant “Sprint,” instead of “AT&T.” If

not. TCS is making yet another novel allegation that was contained nowhere in its Complaint. 2 As an alternative argument mentioned in the Conclusion to its Opposition, TCS requests leave to

amend its Complaint. (Opp. at 10) This request should be denied because TCS has not filed a

motion to amend, which is required under the Local Rules. See D.C.COLO.L.Civ.R 7.1C (“A

motion shall not be included in a response or reply to the original motion. A motion shall be made

in a separate paper.”).

3
While the discussion of indemnification in Arris Group is therefore dicta, even that dicta

fails to establish subject-matter jurisdiction in this case. In particular, in Arris Group, the Federal

Circuit was explicit that two circumstances must be met before a supplier can have standing as a

result of its customers’ alleged infringement: First. “a patent holder [must] accuse[] customers of

direct infringement based on the sale or use of a supplier’s equipment.” Arris Group, 639 F.3d at

1375. Second, either “(a) the supplier is obligated to indemnify its custome’-s from infringement

liability, or (b) there is a controversy between the patentee and the supplier as to the supplier’s

liability for induced or contributory infringement based on the alleged acts of direct infringement by

its customers.” Id. See atio ict at 1375 n.5 (explaining that there was no Article III standing in

MicroChip. 441 F.3d at 944. because both of the following requirements were not satisfied:

(1) “there was ‘nothing in the record to indicate that [the supplier] ha[d] induced or contributed to

infringement,” and (2)”the supplier ha[d] not produced any agreement indemnifying a customer

against infringement.”).

The authority cited by the Federal Circuit in Arris Group illustrates that, for the first

requirement. an accusation of infringement must be directly “based on the sale or use of a supplier’s

equipment.” For example, in addition to MicroClup, the Federal Circuit cited, in its discussion on

this topic, Arrowhead Industrial Water. Inc. v Ecolochein. Inc. See 4rris Group. 639 F.3d at 1375

n.5. In Arrowhead, the patent holder had informed a supplier’s customer that the supplier is “not

licensed to use our process and we would therefore consider any use a direct patent infringement.”

846 F.2d 731, 733 (Fed. Cir. 1988). See alsoArris Group, 639 F.3d at 1375 (citing ABB Inc. v

Cooper Indus.. LLC, where the patent holder had written directly to the plaintiff that its relationship

with its customer constituted “material breach” of a patent settlement and plaintiff wrote directly to

the customer that the patent holder would “vigorously defend its rights.” 635 F.3d 1345, 1346-47

4
(Fed. Cir. 2011)).

Although TCS now claims that it is obligated to indemnify MetroPCS from infringement

liability (thereby addressing the second condition), TCS has failed to appropriately allege the first

circumstance: that “a patent holder accuses customers of direct infringement based on the sale or

use of a supplier’s equipment.” Arris Group, 639 F.3d at 1375 (emphasis added) (finding standing

for the supplier where the patent holder had accused the customer of direct infringement by

“explicitly and repeatedly singl[ing] out [the supplier’s] products used in [the customer’s] network

to support its infringement contentions.”). Nowhere does TCS credibly allege that TracBeam has

accused MeIroPCS of infringement based on the sale or use of TCS’s equipment. At best, TCS

claims in its Complaint that “TracBeam has alleged that at least one customer of TCS infringes the

‘231 patent in the United States District Court for the Eastern District of Texas with products

supplied by TCS.” (Compl. 9[ 17; see ciLia 9[ 27 (same regarding ‘484 patent)). But TCS has never

indicated—in the Complaint or in its Opposition—where TracBeam made any such allegation

regarding TCS. The only documents from TracBeam that TCS has submitted to this Court are

TracBeam’s Complaints in the Texas Action. TracBeam’s letter to TCS, excerpts from TracBeam’s

patents, and various corporate documents. See Exs. 1,2 & 8-10 to Opp. Yet in none of these

documents does TracBeam accuse MetroPCS of direct infringement based on the sale or use of

TCS’s equipment. 3

TCS’s argument that its acceptance of an alleged indemnification obligation with a customer

is sufficient to create standing does not satisfy the dicta regarding standing that is discussed in Arris

TCS confusingly states in its Opposition that “TracBeam does not dispute TCS’ contention that

the products/services at issue in the Texas litigation against MetroPCS are supplied by TCS.” (Opp.

at 4) But how can TracBeam disprove an allegation for which there is no indication that it was ever

made? Moreover, it is TCS’s burden to prove that standing exists. See Arris Group, 639 F.3d at

1373 (“The burden is on the party claiming declaratory judgment jurisdiction to establish that an

Article III case or controversy existed at the time the claim for declaratory relief was filed.”).

5
Group. Furthermore, any test according to which an indenmification agreement automatically

creates standing would undermine the rule that “[t]he specific facts of each case must be considered,

in deciding whether a declaratory action is warranted.” Innovative Therapies, Inc. v. Kinetic

Concepts. mc, 599 F.3d 1377, 1382 (Fed. Cir. 2010).

C. TCS has effectively conceded that mere indemnification demands are insufficient to

create subject-matter jurisdiction.

In its Complaint. ICS stated that “MetroPCS and Sprint have tendered indemnification

demands to TCS.” (Comp. ¶ 11) Yet in arguing in its Opposition that it has standing, TCS does not

rely upon Sprint’s indemnification demand.

In fact. TCS effectively concedes TracBeam’s argument that mere indemnification demands,

independent of a contract, confer standing. Initially, MetroPCS broadly asserts that TracBeam has

“provide[dl no legal support” for the conclusion that “barebone allegations regarding

indemnification demands are too speculative to confer standing.” (Opp. at 6 (quoting Motion at

13)) Yet TCS provides no legal support of its own that indicates that indemnification demands are

sufficient, and its claim that TracBeam has provided no support for its contrary position is

inaccurate. See Motion at 12-13 (citing Microchip, 441 F.3d at 944 (finding no possibility of legal

dispute where “Microchip has not produced any agreement indemnifying a customer against

infringement of the patents-in-suit.”); Ours Tech., 645 F. Supp. 2d at 840 (mere indemnification

demands from a customer created adverse economic, not legal, interests)). cee also Creative

Compounds. LLCv. StarmarkLabs., 651 F.3d 1303, 1316 (Fed. Cir. 2011) (“In the absence of an

indemnity agreement between Stannark and one of these ‘customers,’ Starmark has, at most, only

an economic interest in clarifying its customers’ rights under Creative’s patents.”); Froofroint, Inc.

i’. IniVova Patent Licensing. LLC. 2011 U.S. Dist. Lexis 120343, at 15 (N.D, Cal. Oct. 17, 2011)

(“[C]ourts to address the issue have put little faith in mere allegations of indemnity obligations.”).

6
TCS quickly abandons any pretense of an argument that indenmification demands might

suffice for standing and falls back upon its new allegations regarding the indemnification

agreement. See Opp. at 6 (“TCS has clarified that it has accepted its contractual indemnifications

obligation to MetroPCS ). Because the “indemnification demands to TCS from Sprint and

MetroPCS,” as alleged in the Complaint, “are insufficient to confer standing on TCS” (Motion at

12), the Complaint should be dismissed.

D. TracBeam’s letter to TCS, considered with the totality of the circumstances, is

insufficient to establish subject-matter jurisdiction.

TCS argues that, even if its indemnification agreement, by itself, is inadequate to confei

standing upon TCS, the “totality of the circumstances” establishes subject-matter jurisdiction.

(Opp. at 6 (citing Medlminune, 549 U.S. at 127)). For TCS, the “totality of the circumstances”

consists of (in addition to the indemnification agreement discussed above), TracBeam’s interaction

with other entities surrounding its technology and a letter from TracBeam to TCS. Neither of these

creates “adverse legal interests” between TCS and TracBeam that are “of sufficient immediacy and

reality to warrant the issuance of a declaratory judgment.” Arris Group, 639 F.3d at 1373.

According to TCS, the scquence of events, which has been illustrated in the following

timeline, establishes a “substantial controversy” (Opp. at 7): ‘

‘

Sources: Compl. 9[9[ 7-9, 12; Exs. 1-2 to Compl.

7
February 2011 August 2011

(TracBeam files suit (TCS receives

April 2009 against MetroPCS, letter from

September 1996 (484 Peoples Wireless, TracBeam

(provisional patent Sprint, Verizon, regarding patent application filed) issued) AT&T) portfolio)

1996-1997 July 2010 May 2011

(TracBeam (‘231 (TracBeam contacts AT&T, patent amends

Verizon & Sprint) issued} Complaint to add

Skyhook &

GoogleJ

As this timeline makes clear, the sequence does not indicate any rash of suits by TracBeam

following the issuance of the patents or any connection between correspondence and litigation by

TracBeam. To the contrary. the sequence above (based on the allegations and information

submitted by TCS) indicates that:

• Approximately fifteen years passed between (1) TracBeam’s alleged contacts with AT&T,

Verizon, and Sprint, and(2) the filing of TracBeam’s suit against those entities.

• Almost two years transpired between the issuance of the ‘484 patent and the filing of

TracBeam’s original Complaint.

• Seven months lapsed between the issuance of the ‘231 patent and the filing of the original

Complaint.

• Of the defendants in the Texas Action, there is no allegation that MetroPCS, Peoples, Skyhook,

or Google received any prior communications?

TCS attempts to make these events significant by alleging in its Opposition that, “to the best

of [its] knowledge, TracBeam attempted to license its supposed technological innovations well

before it secured issued patents.” (Opp. at 7 (citing to Complaint in Texas Action 9[91 25, 32, & 36)

Yet this is pure surmise by TCS, since the paragraphs of the Complaint in the Texas Action that are

TCS notes that ‘“prior litigious conduct is one circumstance to he considered in assessing whether

the totality of circumstances creates an actual controversy.” (Opp. at 3 (quoting Prasco. LLC r.

Medicis Phann. Corp., 537 F.3d 1329, 1341 (Fed. Cir. 2008)) Yet, despite the existence of prior

litigious conduct by the defendant in Frasco, the Federal Circuit held that no controversy existed.

Id. See also Innovative Therapies, Inc. v. Kinetic Concepts, Inc., 599 F.3d 1377, 1382, 1385 (Fed.

Cir. 2010) (same).

8
cited by TCS do not mention any discussion regarding licenses. See 9f 25 (“Plaintiff contacted

AT&T in written correspondence regarding Plaintiff’s wireless location technology and patent

applications”); ¶ 32 (same regarding Sprint Nextel”); ¶ 36 (same regarding Verizon). These

paragraphs are susceptible to interpretations other than an invitation by TracBeam to license un

patented technology, 6such as the interpretation that TracBeam contacted defendants to co-develop

technology.

Because past events surrounding the letter do not create adverse legal interests, TCS must

rely upon the words of the letter to create Article III standing. But in its Motion to Dismiss,

TracBeam distinguished its .six-sentence letter to TCS from several cases arising from the Federal

Circuit and this District in which correspondence from a patent holder supported the finding of an

adverse legal interest. (Motion at 5-6) TracBeam has also cited a case from the Tenth Circuit in

which the district court held that innocuous Jetters from a holder failed to establish standing.

(Motion at 6 n.4)

In its Opposition, TCS has failed to identify any case in which a court has found subjectmatter jurisdiction based on correspondence as benign as that from TracBeam to TCS. Instead.

TCS cites to the Federal Circuit’s statement in Arris Group that “a specific threat of infringement

litigation by the patentee is not required to establish jurisdiction, and a declaratory judgment action

cannot be defeated simply by the stratagem of a correspondence that avoids magic words such as

‘litigation’ or ‘infringement.” (Opp. at 8 (quoting Arris Group, 619 F.3d at 1379) (some internal

quotation marks omitted)). But in Arris Group. the patent holder “explicitly and repeatedly singled

out [the supplier’ 1 products used in [the customer’sl network to support its infringement

Without citing any support, TCS expands upon its implausible surmise by referring to

“TracBeain’s apparent attempt to secure licenses from various entities as early as the filing of its

provisional application, before it had secured any legal patent rights.” (Opp. at 10)

9
contentions.” Id. at 1377. There is no comparable allegation here. 7 TCS fails to identify any aspect

of the correspondence that would support an adverse legal interest. Under TCS’s logic, any

comnmnication by a patent holder to a company could create an adverse legal interest.

TCS may have attempted to limit the result of its logic by emphasizing that TracBeam’s

letter was signed by the inventor of the Patents. (Opp. at 9) Yet TCS does not expiain why an

inventor should be prevented from publicizing his invention. To the contrary, a primary policy

underlying the patent system is to make inventions known to the public. See LizardTech, Inc. x’.

Earth Res. Mapping, Inc.. 433 F.3d 1373, 1375 (Fed. Cir. 2006) (“The whole purpose of a patent

specification is to disclose one’s invention to the public. It is the quid pro quo for the grant of the

period of exclusivity. The need to tell the public what the invention is, in addition to how to make

and use it, is self-evident.”). Nor does TCS explain why TracBeam’s letter becomes litigious

merely because the inventor of the Patents is a patent agent and prosecuted the patents before the

PTO. (Opp. at 9) Accordingly, the totality of the circumstances does not support subject-matter

jurisdiction in this case.

III. Conclusion

The Court should dismiss this action under Fed. R. Civ. P. 12(b)(l) because TCS has failed

to carry its burden of establishing the existence of an Article III case or controversy and has

inappropriately attempted to add new allegations to its Complaint via its opposition brief.

TCS also cites to Vanguard Research, Inc. v. PEAI Inc.. 304 F.3d 1249 (Fed. Cir. 2002) and

Goodyear Tire & Rubber Co. v Releasorners. Inc., 824 F.2d 953 (Fed. Cir. 1987). (Opp. at 3, 8)

Yet those cases only emphasize the innocuousness of TracBeam’s letter to TCS. See Vanguard

Research, 304 F.3d at 1255 (explaining that patent holder had previously sued the declaratoryjudgment plaintiff for misappropriation of trade secrets regarding the technology at issue in the

patents and had notified both the plaintiff and its customers that they were using the patent holder’s

technology without a license); Goodyear Tire, 824 F.2d at 956 n.5 (explaining a representative of

the defendant (Goodyear) had told they “would have to talk about infringement of the patents by

Goodyear and possible licensing”).

10
Dated: November 28, 2011 Respectffihly submitted,

By/si Jonathan Gottfried

Gregory S. Dovel

CA State Bar No. 135387

Email: gregdovellaw.com

Jonathan Gottfried

NY State Bar No. 4269163

Email: jonathan@dovellaw.com

DOVEL & L1.JNER, LLP

201 Santa Monica Blvd., Suite 600

Santa Monica, CA 90401

Telephone: 310-656-7066

Facsimile: 310-657-7069

By: is! Tracy L. Ashmore

ROBINSON, WATERS &

O’DORISO, P.C.

1099 18th Street, Suite 2600

Denver, Colorado 80202-1926

Telephone: (303) 297-2600

Facsimile: (303) 297-2750

tashmore@rwolaw.com

11
CERTIFICATE OF SERVICE

I hereby certify that on the 28th day of November, a true and correct copy of the foregoing

Defendant TracBeam, LL.C.’s Reply in Support of Its Motion to Dismiss was duly filed via the

CMJECF system and served electronically and/or via U.S. Mail, postage prepaid, addressed to the

following:

Victor lvi. Morales

McElroy, Deutsch, Mulvaney & Carpenter, LLP

5613 DTC Parkway, Suite 1100

P.O. Box 4467

Greenwood Village, CO 80 155-4467

Edward A. Penninglon

Stephanie D. Scruggs

Sid V. Pandit

Murphy & King

Professional Corporation

1055 Thomas Jefferson Street, Suite 400

Washington, D.C. 20007

/s/ Kristi Kellow

Kristi Kellow

12