United States District Court, E.D. New York
November 2, 2005.
NEIL BROTHERS LIMITED, Plaintiff,
WORLD WIDE LINES, INC., APS PROMOTIONAL SOLUTIONS, INC and JOHN DOES I-III, Defendants.
The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
This case arose out of a dispute between Neil Brothers Limited
("Neil Brothers" or the "plaintiff"), World Wide Lines, Inc.
("World Wide"), and APS Promotional Solutions, Inc. ("APS"),
regarding the manufacture and sale of novelty drinking mugs. The
defendants APS and John Does, I-III have not appeared in this action. Presently before the Court is a motion by World Wide
pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure
("Fed.R.Civ.P.") to dismiss Count III of the plaintiff's
amended complaint for lack of subject matter jurisdiction.
The following facts are derived from the amended complaint,
unless otherwise noted, and are taken as true for the purpose of
A. The Plaintiff's '099 and '775 Patents
The plaintiff is the owner of two United States Patents. Patent
No. 6,759,099 B2 (the "'099 patent") is entitled "Decoration
Method Using Thermochromic Ink," and was issued by the United
States Patent and Trademark Office ("USPTO") on July 6, 2004.
Patent No. 6,902,775 (the "'775 patent") is entitled "Decoration
Method," and was issued by the USPTO on June 7, 2005. Both
patents describe processes employing "thermochromism." The
definition of thermochromism is "the phenomenon of reversible
change of color of a substance with change of temperature."
Webster's Third New International Dictionary 2373 (1976). In
other words, when thermochromic ink is applied to an article,
application of heat to that article will cause the appearance of
the ink to change. For example, the thermochromic ink might
become transparent when heated, revealing a picture concealed
beneath. When the heat is removed, the appearance of ink, and
hence the object, reverts back to its original appearance. The plaintiff alleges that, during or about December, 1997,
Shinel Bhagi, Managing Director and an owner of Neil Brothers,
met with representatives of an entity known as "Atlas Crystal
Works, Inc." and operating as "World Wide Art Studios" ("World
Wide Art"), which is a predecessor of the defendant World Wide.
According to the plaintiff, at the meeting Bhagi described to
World Wide Art a method for using thermochromic ink to make
drinking mugs that change color when hot liquid is poured into
them. World Wide Art expressed an interest in selling the
color-change mugs and, on February 7, 1998 the plaintiff entered
into a written agreement with World Wide Art for it to market in
the United States mugs made employing the disclosed method. With
instruction from Bhagi, World Wide Art manufactured and sold the
mugs. Originally, the mugs were marketed under the trademark
MYSTERYTM, and later under the trademark MYSTIQUE®.
World Wide Art sold the plaintiff's mugs through September,
2003 and paid Neil Brothers a royalty on its sales. In September,
2003 World Wide Art changed ownership and became World Wide
Line's, Inc. The plaintiff claims that (1) the trademark
registration for the MYSTIQUE® mark was transferred to World Wide
when it acquired World Wide Art; (2) after September, 2003 World
Wide continued to manufacture the color-change mugs with the
MYSTIQUE® mark by the process introduced by Bhagi to World Wide
Art; (3) the process disclosed from Bhagi to World Wide Art later
became covered by the '099 and '775 patents; and (4) World Wide has not paid any royalties to the plaintiff from sales of
the MYSTIQUE® mugs. These allegations form the basis of Counts I
and II of the plaintiff's amended complaint.
B. World Wide's '165 Patent
World Wide is the owner of United States Patent No. 6,281,165
(the "'165 patent") entitled "Thermochromatic Ink Covered Article
Having Image Disposed Thereon and Method of Making the Same." The
'165 patent was issued on August 28, 2001. Similar to the
plaintiff's '099 and '775 patents, World Wide's '165 describes a
method for manufacturing a product that changes its appearance
The plaintiff alleges that on January 27, 1998, Bhagi and
several representatives from World Wide Art attended a convention
in Texas where World Wide Art displayed and offered to sell the
color-change mugs. Approximately one year later, World Wide Art
filed or caused to be filed on its behalf the patent application
which eventually became the '165 patent. As the successor in
interest to World Wide Art, the defendant World Wide currently
owns the rights to the '165 patent.
C. The September 24, 2004 Meeting
In support of its motion, World Wide submitted the declaration
of Mark Hobbs, President of World Wide; the declaration of Donald
Godsey, the owner of World Wide; the declaration of Matthew
Stavish, Esq., annexing as exhibits a license agreement and three letter correspondence between the parties;
and a transcript, video tape, and dvd recording of a September
24, 2004 meeting between the parties. Bhagi, Hobbs, and Godsey
were present at the meeting. In opposition, the plaintiff submits
Bhagi's declaration and the declaration of an independent
businessman named James Peng.
From these documents the Court has learned that on September
24, 2004, the parties met for the purpose of negotiating an
agreement whereby the parties would cross-license each other's
patents. The parties dispute whether an agreement was actually
reached at this meeting. World Wide claims that "the parties
amicably ended" the meeting "with no threats of litigation being
made" and that "a verbal, handshake agreement was reached." The
plaintiff, as is apparent from its correspondence with World Wide
shortly after the meeting, did not believe that an agreement was
reached and thought that negotiations would continue.
On September 28, 2004, the plaintiff sent World Wide a letter
purporting to reject what it perceived as World Wide's offer of a
cross-royalty settlement extended on September 24, 2004. The
plaintiff rejected the offer based on advice from legal counsel.
Specifically, the plaintiff sought more favorable terms because
of Neil Brothers' confidence in the strength of its own patents,
and what it thought to be the comparative vulnerability of the
defendant's '165 patent. On October 29, 2004, World Wide responded in a letter signed by
Hobbs. In this letter, World Wide denied any infringement of the
plaintiff's '099 patent. Hobbs also informed the plaintiff that
World Wide would not "engage in any future partnership";
criticized Neil Brothers' "obdurate position on the subject of
[Neil Brothers patents'] superiority as well as [Neil Brothers']
relentless pursuit to degrade the integrity of [the '165
patent]"; and promised to "defend [World Wide's] current position
despite the consequences of time, cost, or potential outcome."
On March 3, 2005, the plaintiff commenced this action by filing
a one count complaint alleging infringement of the '099 patent.
On March 16, 2005, Hobbs wrote to Bhagi. In his letter, Hobbs
re-stated World Wide's position that they have not infringed on
Neil Brothers' '099 patent. Hobbs continued that World Wide "will
use unlimited sums of money as well as other resources to prove
[their] argument and exonerate [themselves] from this unmerited
lawsuit." In the second to last paragraph, Hobbs stated that
[Is] in full understanding of [Neil Brothers']
intentions to manufacture thermocromatic mugs in
China and then subsequently mass distribute the blank
products into the United States as well as the United
Kingdom. As you well know, and have known for many
years, World Wide does possess valid "165"
sublimation patents in both the US and UK which
prohibits [sic] any company other than World Wide
Lines, Inc. from sublimating into a thermochromatic
mug. We will vigorously defend these patents using
every means of resources [sic] available and will not
stop until the wrongdoing is corrected if you do
choose this course of action. In conclusion, Hobbs acknowledged that the parties were now on a
"war footing" with each other.
On June 16, 2005 the plaintiff amended its complaint, adding
two new causes of action. Count II of the plaintiff's amended
complaint seeks damages and injunctive relief for infringement of
the '775 patent. Count III seeks a declaration that the
defendant's '165 patent is invalid. The defendant now moves to
dismiss Count III and argues that the court lacks subject matter
jurisdiction over the declaratory cause of action because there
is no "actual controversy" between the parties with respect to
the '165 patent.
A. Rule 12(b)(1)
When considering a motion for lack of subject matter
jurisdiction under Rule 12(b)(1), to resolve the jurisdictional
question the Court may consider affidavits and other materials
beyond the pleadings. Robinson v. Gov't of Malaysia,
269 F.3d 133, 141 & n. 6 (2d Cir. 2001); Antares Aircraft, L.P. v. Fed.
Republic of Nigeria, 948 F.2d 90, 96 (2d Cir. 1991), vacated on
other grounds, 505 U.S. 1215, 112 S. Ct. 3020, 120 L. Ed. 2d 892
(1992); Exch. Nat'l Bank of Chicago v. Touche Ross & Co.,
544 F.2d 1126, 1130 (2d Cir. 1976). Under Rule 12(b)(1), the Court
must accept as true all material factual allegations in the
complaint, but will not draw inferences favorable to the party
asserting jurisdiction. Shipping Fin. Servs. Corp. v. Drakos,
140 F.3d 129, 131 (2d Cir. 1998); Atl. Mut. Ins. Co. v. Balfour Maclaine Int'l
Ltd., 968 F.2d 196, 198 (2d Cir. 1992). As the party seeking to
invoke the jurisdiction of the Court, the plaintiff bears the
burden of demonstrating that subject matter jurisdiction is
proper based on facts existing at the time the claim under
consideration was filed. Scelsa v. City Univ. of N.Y.,
76 F.3d 37, 40 (2d Cir. 1996); see Arrowhead Indus. Water, Inc. v.
Ecolochem, Inc., 846 F.2d 731, 734 n. 2 (Fed. Cir. 1988)
Here, only Count III of the amended complaint is under
consideration. Thus, it is appropriate for the Court to consider
events occurring after the original complaint was filed, but
prior to the amendment and addition of Count III.
B. The Declaratory Judgment Act
The Declaratory Judgment Act (the "Act") provides, in pertinent
part, that "[i]n a case of actual controversy within its
jurisdiction, . . . any court of the United States . . . may
declare the rights and other legal relations of any interested
party seeking such declaration." 28 U.S.C. § 2201(a). The Act
explicitly requires the existence of an "actual controversy"
between the parties before a court can entertain jurisdiction.
Id.; see EMC Corp. v. Norand Corp., 89 F.3d 807, 810 (Fed.
The Federal Circuit has developed a two-pronged test to be used
to determine whether an "actual controversy" exists in an action
for a declaration of patent invalidity. First, the defendant's conduct must have created on
the part of the plaintiff a reasonable apprehension
that the defendant will initiate suit if the
plaintiff continues the allegedly infringing
activity. Second, the plaintiff must actually have
either produced the device or have prepared to
produce that device.
Goodyear Tire & Rubber Co. v. Releasomers Inc., 824 F.2d 953,
955 (Fed. Cir. 1987) (citations omitted); see Phillips
Plastics Corp. v. Kato Hatsujou Kabushiki Kaisha, 57 F.3d 1051,
1052-53 (Fed. Cir. 1995); Shell Oil Co. v. Amoco Corp.,
970 F.2d 885, 887-88 & n. 2 (Fed. Cir. 1992); Arrowhead,
846 F.2d at 736. Neither party disputes that the second prong of this test
has been met. Rather, the defendant argues that nothing it did
was sufficiently threatening, so that the plaintiff could not
have reasonably feared being sued for infringement of the '165
C. As to the Plaintiff's "Reasonable Apprehension" of
Litigation Involving the '165 Patent
Under the first prong of the "actual controversy" test, it is
the plaintiff's burden to show that it had an objectively
reasonable apprehension that it will be sued for infringement of
the '165 patent. Shell Oil Co., 970 F.2d at 887; see Indium
Corp. of Am. v. Semi-Alloys, Inc., 781 F.2d 879, 883 (Fed. Cir.
1985) (A "purely subjective apprehension of an infringement suit
is insufficient to satisfy the actual controversy requirement.").
A plaintiff's apprehension that it will be sued can be based on
an express accusation of infringement. Or, when no express charge
of infringement has been made, the plaintiff's apprehension can
be based on the totality of the circumstances. Cardinal Chem.
Co. v. Morton Int'l, Inc., 508 U.S. 83, 96, 113 S. Ct. 1967, 124 L. Ed. 2d 1 (1993); see also Vanguard Research, Inc.
v. PEAT, Inc., 304 F.3d 1249, 1254-54 (Fed. Cir. 2002) ("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."') (quoting Phillips,
57 F.3d at 1053-54); Arrowhead, 846 F.2d at 736 ("In light of the
subtleties in lawyer language . . . the courts have not required
an express infringement charge.").
The plaintiff alleges in paragraph 63 of the amended complaint
that Bhagi has spoken with Hobbs and Godsey, and that Godsey told
Bhagi that if Neil Brothers imports the mugs into the United
States then World Wide would initiate a patent infringement
action against Neil Brothers. The plaintiff further alleges in
paragraph 64 that it fully intends to import the mugs and to have
designs imprinted on them. The plaintiff claims to have entered
into a joint venture with James Peng, a declarant on this motion,
to have color-change mugs manufactured in China and imported into
the United States for sale. According to his declaration, Peng
claims that he met Hobbs on March 30, 2005, and that Hobbs
threatened him with a lawsuit if he continued the Peng-Bhagi
World Wide does not dispute that it engaged in discussions with
the plaintiff concerning its patents, but denies that it ever
threatened the plaintiff or anyone else with a lawsuit. World
Wide also denies engaging in any activity that could be construed as a threat of litigation over the '165 patent. Rather,
World Wide characterizes the statements made by Hobbs and Godsey
at the September 24, 2004 meeting and in their later
correspondence as "pure positional statements," "jawboning," or a
reservation of rights during the course of active negotiations.
World Wide argues that even if they had indicated during
negotiations that the plaintiff might infringe the '165 patent,
the Court still is without declaratory judgment jurisdiction
because World Wide was careful to maintain that they still
desired to resolve any issues "quickly and amicably and without
resort to litigation."
The Court finds that an actual controversy exists in this case
with respect to the '165 patent. First, Bhagi and Peng both claim
that World Wide explicitly threatened to sue for infringement of
the '165 patent if Neil Brothers followed through on its plan to
import the color-change mugs. Second, the March 16, 2005 letter
from Hobbs to Bhagi was sufficiently threatening when considered
in the entire context of the parties' strained relationship.
At the time the March 16, 2005 letter was written, negotiations
between the parties had already broken down. Litigation between
the parties had commenced. At that time all efforts to "resolve
any issues quickly and amicably and without resort to litigation"
had been abandoned. Admittedly, the parties were on a "war
footing" with each other. To an objective observer, that letter
is a warning that World Wide will "strike back," so to speak, if
the plaintiff follows through with its intention to import color-change mugs. World Wide is prepared to use "every resource
available" in order to protect its '165 patent and "stop the
wrongdoing." What "wrongdoing" is Hobbs referring to if not
patent infringement? What "resources" will World Wide make use of
other than judicial process? Considering the combative posture of
the parties, it is unlikely that World Wide intended this letter
to express anything other than its clear intention to enforce its
patent rights by litigation. See Arrowhead Indus. Water, Inc.
v. Ecolochem, Inc., 846 F.2d 731, 737 & n. 7 (Fed. Cir. 1988);
Océ-Office Sys., Inc. v. Eastman Kodak Co., 805 F. Supp. 642,
646-47 (N.D. Ill. 1992); see also EMC Corp. v. Norand Corp.,
89 F.3d 807, 812 (Fed. Cir. 1996) ("the question is whether the
relationship between the parties can be considered a
`controversy'"); compare Phillips Plastics Corp. v. Kato
Hatsujou Kabushiki Kaisha, 57 F.3d 1051, 1053 (Fed. Cir. 1995)
("[A] litigation controversy normally does not arise until the
negotiations have broken down.").
World Wide claims that the statements made in the March 16,
2005 letter were defensive in nature. Belying this contention is
the fact that World Wide was the party that initially raised the
issue of the '165 infringement in this action. The '165 patent
was not mentioned in the plaintiff's original complaint filed on
March 3, 2005. World Wide opened the door in its March 16, 2005
letter, and it was not unreasonable for the plaintiff to prefer
not to immediately abandon its business arrangement with Peng or
to wait for World Wide to attempt to enforce its patent in
another forum. Instead, the plaintiff took the initiative to seek a determination of the
parties' rights. See Arrowhead, 846 F.2d at 735 (stating that
the Declaratory Judgment Act allows competitors to clear the air
and avoid being forced to make an "in terrorem choice between
the incurrence of a growing liability for patent infringement and
abandonment of their enterprises"); EMC Corp., 89 F.3d at 812
(patentee who first approached alleged infringer was not
"quiescent" party unfairly brought into declaratory judgment
suit); Phillips, 57 F.3d at 1053 ("[T]he purpose of the
Declaratory Judgment Act is to enable those threatened to remove
such a cloud on their commercial activity, instead of being
obliged to await the convenience of the threatening party)
(citation omitted). Accordingly, World Wide's motion to dismiss
Count III in the amended complaint is denied.
Based on the foregoing, it is hereby
ORDERED, that the motion by the defendant World Wide Lines,
Inc. pursuant to Fed.R.Civ.P. 12(b)(1) to dismiss Count III of
the amended complaint for lack of subject matter jurisdiction is
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