Monday, July 25, 2011

Super Sack'ing Plaintiff's covenant not to sue doesn't need to include suppliers to divest court of jurisdiction

American Technology Inc. sued Volocity Micro, Inc. for patent infringement related to computer heat sinks. Defendant counterclaimed for declarations that the patent was invalid, not infringed, and not enforceable. Plaintiff responded with a covenant not to sue:
neither ATI no any successor in interest to ATI will sue Velocity Micro, Inc. ("VM") or AmericanFuture Technologies Corp. ("AFTC"), or any customer of AFTC or VM, for infringement of U.S. Patent No. 6,411,512 now or in the future (including for any possible past damages) for any products that VM or AFTC makes, has made for its business, uses, sells, offers for sale or imports into the United States now or in the future.
In light of the covenant, Plaintiff asked the court to dismiss its patent infringement claim with prejudice. Plaintiff also argued, pursuant to Super Sack Mfg. Corp. v. Chase Packaging Corp., that the Court no longer had subject matter jurisdiction to hear Defendant's counterclaims for declarations of invalidity, noninfringement, and unenforceability. Defendant opposed, arguing that the covenant not to sue did not cover its suppliers. (So, Plaintiff retains the right to assert its patent against the rest of the supply chain). Defendant further argued that by limiting the covenant to only a handful of small retainers (including Defendant), suppliers will not manufacture the heat sinks because there would only be a limited market for them.

In essence, Defendant's argument was that because Plaintiff reserved the right to sue Defendant's supply chain, this reservation served as a "restraint on [Defendant's] 'free exploitation of non-infringing goods.'" While Defendant did cite a district court that had followed this proposition, the Court here found the circumstances distinguishable:
However, in Sunshine Kids [Juvenile Prods., LLC v. Ind. Mills & Mfg., Inc., No. C10-5697BHS, 2011 WL 862038, at *5 (W.D. Wash. Mar. 9, 2011)] the court determined that the facts alleged indicated a "pattern of conduct on the part of the the declaratory judgment defendant which if established as true could cause a reasonable man to fear that he or his customers' face an infringement suit."2011 WL 862038, at *5 (quoting Grafon Corp. v. Hausermann, 602 F.2d 781, 783-84 (7th Cir. 1979)) In contrast, Defendant neither alleges facts nor otherwise demonstrates that a threat of suit against its suppliers is objectively real and immediate, as opposed to speculative.
(citing Prasco, LLC v. Medicis Pharm. Corp, 537 F.3d 1329, 1338-39 (Fed. Cir. 2008))

Plaintiff's motion to dismiss granted. Counterclaims dismissed without prejudice. Case closed.

American Technology Inc. v. Velocity Micro, Inc., slip op., Case No. 6:11-cv-109 (M.D. Fla. June 28, 2011) (J. Conway)