Super Sacking -- Does a Covenant Not To Sue Eliminate Subject Matter Jurisdiction on a Subsequent Infringement Claim?

Apparently not.  Foliar Nutrients sued Plaint Food Systems (PFS) in 2004 for infringing a number of its patents.  After PFS sought reexamination of some of those patents, the parties settled.  That settlement called for Foliar to pay PFS $50,000 over five years, and included a mutual covenant not to sue where Foliar agreed not to assert its previously asserted patents and PFS agreed not to challenge their validity.

The settlement didn't work.  After the first year's payment, the parties were unable to continue operating under the agreement.  PFS sued Foliar a couple of times, trying to collect the money that Foliar didn't pay, but those cases didn't last.  Eventually, PFS gave up on filing lawsuits against Foliar.  Foliar, however, filed suit for patent infringement, asserting a number of its patents against PFS.

PFS sought dismissal, arguing that there was no subject matter jurisdiction because of the covenant not to sue.  Specifically, PFS relied on Super Sack and its progeny.  See Super Sack Manufacturing Corp. v. Chase Packaging Corp., 57 F.3d 1054 (Fed. Cir. 1995).  I have previously written about Super Sack a few times.

Super Sack

The typical circumstances are a patent owner asserts its patent and the defendant challenges validity of the patent.  For whatever reason, the patent owner decides it doesn't wish to pursue the patent infringement case, but it must also dispose of the counterclaim dealing with non-infringement and invalidity.  One solution to this issue is for the patent owner to covenant not to sue the defendant for infringement of the patent.  By doing this, the defendant's counterclaims for invalidity and non-infringement are no longer justiciable.  There is no longer a threat that the defendant can be sued for infringing the patent, so it can't ask the Court for a declaration that it does not infringe the patent and it has no basis to pursue a declaration that the patent is invalid.  Makes sense.

But what about when the patent owner changes its mind and wants to sue on the patent.  Does the covenant not to sue deprive the Court of subject matter jurisdiction to resolve that dispute?

"There is no authority for the proposition that a covenant not to sue stands as a jurisdictional bar to bringing a subsequent infringement claim."  Samsung Elecs. Co. v. Rambus, Inc., 440 F. Supp. 2d 495, 504 (E.D. Va. 2006).  PFS' argument to the contrary overextends the U.S. Court of Appeals for the Federal Circuit's precedent regarding invalidity claims, which are brought pursuant to the Declaratory Judgment Act and require the continuous presence of a real and immediate controversy between the litigants in order to remain justiciable.  See MedImmune v. Genentech, Inc., 549 U.S. 118, 127 (2007).  Under Super Sack and its progeny, where the case or controversy underlying a patent-invalidity action is the threat that the patentee will press an allegedly invalid patent against the invalidity claimant, the patentee can unilaterally divest the court of subject matter jurisdiction over the invalidity claim by extinguishing the immediacy and reality of that threat.  See Super Sack, 57 F.3d at 1058-60; Revolution Eyewear v. Aspex Eyewear, Inc., 556 F.3d 1294 (Fed. Cir. 2009).  One way to do so is by issuing a sufficiently broad covenant not to assert the patents-in-suit against the invalidity claimant.  Super Sack, 57 F.3d 1058.  Additionally, if the patentee has any infringement claims pending against the invalidity claimant at the time of the covenant's execution, the patentee must move to dismiss those claims under Federal Rule of Civil Procedure 41.  See Highway Equip. Co. v. FECO, Ltd., 469 F.3d 1027, 1033 (Fed. Cir. 2006); cf. Already, LLC v. Nike, Inc., 133 S.Ct. 721, 726-28 (2013) (addressing this procedure in the trademark context).  If the combination of the covenant not to sue and the Rule 41 dismissal sufficiently diminishes the controversy underlying an invalidity claim, the invalidity claim is rendered nonjusticiable and the Court is divested of subject matter jurisdiction over it.

But that logic does not extent to a plaintiff's claim of patent infringement:

Significantly though, the holdings in the Super Sack line of cases do not extend to patent-infringement claims, which are not brought pursuant to the Declaratory Judgment Act and are therefore not subject to its unique justiciability requirements.  See 35 U.S.C. 271 (Providing an independent statutory basis for patent infringement claims).  To the contrary, the Federal Circuit has clarified that a patentee's covenant not to sue does not divest a district court of subject matter jurisdiction over infringement claims -- even those that remain pending at the time of the covenant's execution.  Highway Equip., 469 F.3d at 1033 n.1 (observing that, in situations where a patentee unilaterally secures a Super Sack dismissal, the patentee's "covenant does not deprive the district court of jurisdiction to determine the disposition of the patent infringement claims raised in the Complaint under Rule 41"); Cooper Notification, Inc. v. Twitter, Inc., 545 F. App'x 959, 966-67 (Fed. Cir. 2013) (same).

Thus, PFS's motion to dismiss Foliar's patent infringement claim, for lack of subject matter jurisdiction, was denied.
Foliar Nutrients, Inc. v. Plant Food Systems, Inc., Case No. 6:13-CV-748 (M.D. Fla. July 14, 2014) (J. Dalton)

[NOTE: GrayRobinson, PA is involved in the above-captioned matter]

Amended Pleading (Rule 15(a)(1)) vs. Supplemental Pleading (Rule 15(d)) -- Are they different?

Yes.

MacNeil IP (an Illinois company) sent a cease and desist letter to Kramer America (a Florida company) informing Kramer of a number of patents owned by MacNeil and asserting that Kramer infringed one of those patents.  As is the risk whenever you send a letter accusing another of infringement, Kramer responding by filing a declaratory judgment lawsuit, asking the Court to declare that Kramer did not infringe the patent MacNeil had accused it of infringing.

MacNeil responded by doing two things.  First, it provided Kramer a covenant promising that it would not sue Kramer for the patent MacNeil previously accused Kramer of infringing.  This had the net effect of removing subject matter jurisdiction as no controversy existed between the parties related to that patent any longer.  (For a discussion on this approach, see my post on Super Sack.)  MacNeil also filed a patent infringement case in Illinois, charging Kramer with infringing some of MacNeil's other patents.

Kramer responded to the covenant not to sue by filing an Amended Complaint, pursuant to Fed. R. Civ. P. 15(a)(1), asking now for a declaration that it did not infringe the patents MacNeil sued over in Illinois.  MacNeil objected, and asked the Court to strike the "Amended Complaint" as not being an amended complaint at all.  Instead, MacNeil argued the "Amended Complaint" was a "Supplemental Complaint" pursuant to Rule 15(d), which Kramer needed leave of court to file.

Rule 15(a)(1) allows a party to file an amended pleading, without leave of court, within a 21-day time period (which Kramer was within).  Rule 15(d), on the other hand, allows a party to file a supplemental pleading setting out any transaction, occurrence, or event that happened after the original pleading was filed.  But a party must first receive permission from the Court to file such a supplemental pleading.

MacNeil further argued that the "Amended Complaint" could not supplement the original complaint under Rule 15(d) because, while there was subject matter jurisdiction for the original complaint as, at the time it was filed, there was a controversy between the parties related to the patent at issue therein, there was not subject matter jurisdiction at the time the original complaint was filed related to the other patents because they had not been asserted against Kramer.

The Court refused to strike the Amended Complaint, and instead invited MacNeil to file a motion to dismiss the Amended Complaint under this subject matter jurisdiction analysis.  MacNeil did precisely that.

MacNeil's cease and desist letter stated:

We ... are writing to you concerning the ... vehicle floor mat that you manufacture, sell, offer to sell and import.  MacNeil owns multiple patents directed to vehicle floor trays, including U.S. Patent Nos. 7,401,837; 7,316,847; 7686,370; 7607,713; 7,444,748; 7686,371; and 7,784,848. ....
It has come to our attention that your use, manufacture, sale, offers to sell and importing of the ... mats infringes at least one of the MacNeil IP LLC patents.  See U.S. Patent No. 7,401,837 attached hereto....

While MacNeil provided a covenant not to sue on the '837 patent, MacNeil did sue Kramer for infringement of the '370 and '819 patents.

The issues presented are different for the '370 patent and the '819 patent.  First, the '370 patent is identified in MacNeil's letter.  The '819 is not.  Second, the '819 patent is related to a mechanism for affixing a floor mat to a vehicle floor, and not to a floor tray itself.  Thus, the Court determined that subject matter properly exists for the declaratory judgment case related to the '370 patent.  But the declaratory judgment count concerning the '819 patent (and related trade dress and unfair competition issues) did not present a justiciable issue at the time the complaint was filed because they had not been asserted.

[NOTE: This presents an interesting timing issue to me.  Kramer has subject matter jurisdiction here in Florida on one patent claim.  The day after it filed its declaratory judgment case here, MacNeil filed a patent infringement case in Illinois asserting another patent (not previously identified in its letter).  But MacNeil's letter says that Kramer allegedly infringes "at least one of" MacNeil's patents.  So Kramer amends its complaint to name the two others MacNeil sued on in Illinois.  One of those cases can stick because that patent number happened to be mentioned in the cease and desist letter, but the other can't because it wasn't mentioned?  This seems to give MacNeil grounds to go back to Illinois -- the second filed jurisdiction -- and seek to proceed there on the second patent.  Thus, 2 different court will be addressing the same parties in similar patents at the same time.  Perhaps the next round of motions here will shake that issue out.  We'll see.]

Kramer America, Inc. v. MacNeil IP, LLC, Case No. 6:11-cv-1489, (M.D. Fla. Dec. 8, 2011 (motion to strike amended complaint) Feb. 3, 2012 (motion to dismiss amended complaint)) (J. Presnell)

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)