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MASTERCARD INTERNATIONAL INC. v. LEXCEL SOLUTIONS

June 16, 2004.

MASTERCARD INTERNATIONAL INCORPORATED and MASTERCARD INTERNATIONAL, LLC, Plaintiffs,
v.
LEXCEL SOLUTIONS, INC., Defendant.



The opinion of the court was delivered by: WILLIAM PAULEY, District Judge

MEMORANDUM and ORDER

Plaintiffs MasterCard International Inc. and MasterCard International, LLC (collectively, "MasterCard") bring this action for a declaratory judgment of non-infringement and invalidity of defendant Lexcel Solutions Inc.'s ("Lexcel's") patents for an electronic funds transfer network test system, U.S. Patent No. 6,129,271, and U.S. Patent No. 6,336,590. Lexcel moves to dismiss this action pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction, and alternatively moves to transfer this action to the District of Arizona, pursuant to 28 U.S.C. § 1404(a). For the reasons stated below, Lexcel's motion to dismiss is denied, and its motion to transfer venue is granted.

  BACKGROUND

  This action stems from the deterioration of a relationship between parties to a software license agreement. Lexcel sells and licenses software called "financial transaction network testing and simulation software" to test financial transaction systems, such as electronic funds transfer systems. (Compl. ¶ 8.) MasterCard operates financial transaction networks and supplies testing and simulation software to its member financial institutions to allow them to verify that their systems will operate with MasterCard's financial transaction networks. (Compl. ¶¶ 9-10.) Until April 2003, MasterCard licensed this testing and simulation software from outside vendors, including Lexcel. (Compl. ¶ 11.) In collaboration with another vendor, MasterCard is developing network testing and simulation software for distribution to its associated financial institutions. (Compl. ¶ 15; Supplemental Declaration of Simon Dix, dated November 24, 2003 ("Dix Decl. II.") ¶¶ 2-5.) As a result, Lexcel filed suit against MasterCard in the District of Arizona on July 29, 2003, (the "Arizona Action") claiming breach of contract, misappropriation of trade secrets, unfair competition, copyright infringement and breach of fiduciary duty. (Compl. ¶ 12; Declaration of Nathan Dunn, dated Oct. 30, 2002 ("Dunn Decl.") Ex. F: Lexcel Arizona Complaint.) The Arizona Action concerns the same technology and products at issue here. (Transcript of Oral Argument, dated December 5, 2003 ("Tr.") at 11; Compl. ¶ 12; Dunn Decl. Ex. F.) Specifically, Lexcel alleges in the Arizona Action that MasterCard improperly accessed the confidential source code of Lexcel's financial network testing software. (Dunn Decl. Ex. F ¶¶ 11-18, 23, 25, 34, 37, 40, 43.) On August 15, 2003, MasterCard answered and counterclaimed for breach of a license agreement in that action. (Dunn Decl. Ex. C: MasterCard Arizona Answer and Counterclaim.)

  On September 4, 2003, Lexcel's counsel advised MasterCard's counsel in the context of a compromise negotiation that Lexcel might have a claim for patent infringement against MasterCard for "infringement that may occur in the future or that may have already occurred." (Compl. ¶ 13; Dunn Decl. Ex. B at 2.) Further, during an "in-person meeting between MasterCard and Lexcel personnel subsequent to the filing of the Arizona Action, Lexcel personnel allegedly told MasterCard that Lexcel owned at least two government-issued U.S. patents, and suggested that the existence of those patents would prevent MasterCard from pursuing alternate sourcing of network testing and/or simulator software other than from Lexcel without facing a lawsuit from Lexcel." (Compl. ¶ 14.)

  MasterCard filed this action on September 12, 2003, alleging that it is entitled to a declaratory judgment of patent non-infringement and invalidity, and a finding that Lexcel's patents are unenforceable because: (a) both MasterCard and Visa publically used their own versions of financial transaction network testing or simulation software before Lexcel applied for its patents; and (b) Lexcel intentionally failed to disclose prior art to the United States Patent and Trademark Office ("PTO") during prosecution. (Compl. ¶¶ 17-39.) The underlying facts of the parties' dispute are nearly identical to those of the Arizona Action. (Dunn Decl. Ex. F ¶¶ 11-18; Compl. ¶¶ 8-16.) On December 3, 2003, two days before oral argument on this motion, this Court received notice from Lexcel that it moved to amend its complaint in the Arizona Action to add, inter alia, a "conditional" patent infringement claim. (Lexcel Supplemental Submission, dated December 3, 2003; Joint Status Letter to the Court, dated May 14, 2004 ("Joint Letter") at 2.) On May 28, 2004, the Arizona federal district court denied Lexcel's motion to amend its complaint to include a "conditional proposed count" of patent infringement because: (1) Lexcel's conditional amendment failed to satisfy the standards of Fed.R.Civ.P. Rule 8; and (2) Lexcel's conditional request failed to demonstrate that an actual case or controversy existed. Lexcel Solutions, Inc. v. MasterCard, Inc., CV-03-1454-PHX-JAT (D. Ariz. May 28, 2004).

  DISCUSSION

  I. Rule 12(b)(1) Standards

  On a Rule 12(b) motion to dismiss, this Court generally must accept the factual allegations contained in the complaint as true, and draw all reasonable inferences in favor of the non-movant; it should not dismiss the complaint "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); accord Leatherman v. Tarrant County Narcotics Intelligence & Coordination Unit, 507 U.S. 163, 164, 113 S.Ct. 1160, 1161 (1993) (noting that factual allegations in the complaint must be accepted as true on motion to dismiss); Press v. Quick & Reilly, Inc., 218 F.3d 121, 128 (2d Cir. 2000) (same). In order to avoid dismissal, a plaintiff must assert a cognizable claim and allege facts that, if true, would support such a claim. Boddie v. Schnieder, 105 F.3d 857, 860 (2d Cir. 1997).

  Under a Rule 12(b)(1) challenge to a court's subject matter jurisdiction, the disputed jurisdictional fact issues may be resolved by referring to evidence outside of the pleadings, such as affidavits, and if necessary, an evidentiary hearing. See Phifer v. City of New York, 289 F.3d 49, 55 (2d Cir. 2002); Zappia Middle East Constr. Co. v. Emirate of Abu Dhabi, 215 F.3d 247, 253 (2d Cir. 2000).

  II. Declaratory Judgment Act

  MasterCard asserts subject matter jurisdiction pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201 (2003) and the federal patent laws, pursuant to 28 U.S.C. § 1338(a) (2003). (Compl. ¶ 5.) Lexcel argues that this Court should dismiss the complaint for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1) because an actual controversy does not exist. Interpreting the Declaratory Judgment Act, 28 U.S.C. § 2201, the Federal Circuit has established a two-pronged test to determine if there is a justiciable controversy in a declaratory judgment action concerning patent law. A declaratory judgment plaintiff must show that, as of the time the complaint was filed: (1) the defendant's conduct "created on the part of plaintiff a reasonable apprehension that the defendant [would] initiate suit"; and (2) the plaintiff either produced or had taken steps to produce the accused device. Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1988); Shell Oil Co. v. Amoco Corp., 270 F.2d 885, 888 (Fed. Cir. 1992).

  A plaintiff may establish an objective reasonable apprehension of suit through evidence of a defendant's express charge of infringement or through a totality of the circumstances. Cardinal Chem. Co. v. Morton Int'l, Inc., 508 U.S. 83, 96 (1993); Shell Oil, 270 F.2d at 888; Arrowhead, 846 F.2d at 734-36. "To invoke the court's declaratory judgment jurisdiction, a plaintiff must show `more than the nervous state of mind of a possible infringer,' but does not have to show that the patentee is `poised on the courthouse steps.'" Vanguard Research, Inc. v. PEAT, Inc., 304 F.3d 1249, 1255-56 (Fed. Cir. 2002) (citations omitted). ...


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