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Hon Hai Precision Industry Co., Ltd. v. Wi-LAN, Inc.

United States District Court, Second Circuit

May 28, 2013

WI-LAN, INC., Defendant.

Brian J. Prew, Esq., Goodwin Procter LLP, New York, NY, Peter J. Wied, Esq., Terry D. Garnett, Esq., Vincent Yip, Esq., Goodwin Procter LLP, Los Angeles, CA, for Plaintiff.

Constance Sue Huttner, Esq., Lollo Donahue, Esq., Armita Schacht Cohen, Esq., Vinson & Elkins L.L.P., New York, NY. for Defendant.


SHIRA A. SCHEINDLIN, District Judge.


Hon Hai Precision Industry Co., Ltd. ("Hon-Hai"), a Taiwanese company, seeks a declaratory judgment that U.S. Patent No. 5, 828, 402 (the 402 Patent"), owned by Wi-LAN, Inc. ("Wi-LAN"), a Canadian company, is invalid and/or unenforceable. Hon Hai also seeks a declaration that certain of its products do not infringe the 402 Patent, and that it has not breached its licensing agreement with Wi-LAN.

Wi-LAN moves to dismiss or stay the complaint (or portions thereof) on the grounds that: (1) the Court lacks subject matter jurisdiction; (2) the firstfiled state court action for breach of contract brought by Wi-LAN should be given preference; (3) a declaratory judgment with respect to the patent claims will not resolve the parties' dispute; (4) Hon Hai does not allege supplemental jurisdiction for its non-breach claim; and (5) failure to state a claim. For the reasons stated below, Wi-LAN's motion is granted in part and denied in part.


A. The License Agreement

The 402 Patent, which Wi-LAN owns by assignment, [2] is titled "Method And Apparatus for Selectively Blocking Audio and Video Signals." It relates to technology that allows consumers to place content-based restrictions on television programs.[3] Through a contract executed on January 22, 2008 (the "Agreement"), Wi-LAN licensed this technology to Hon Hai in exchange for Hon Hai's promise to pay royalties and account for its sale of licensed products.[4]

Specifically, through the Agreement, Wi-LAN "grant[ed]" Hon-Hai a "non-exclusive license under the [402] Patent to incorporate, utilize, buy, make (as an ODM/OEM), have made, import, export, use, offer to sell and sell V-Chip Receivers in [the United States of America and its territories and possessions]...[5] The Agreement defines "V-Chip Receiver" as:

any television receiver (with or without a display) which utilizes any aspect of, or the use of which is within the scope of, the [402] Patent and, without limitation, a V-Chip Receiver is a receiver capable of: (1) blocking programming in accordance with 47 CFR 15.120(e), as amended; and (2) receiving a transport stream, which includes program rating system information, such as, by way of example only and without limitation, an ATSC signal such as any digital television receiver, set-top box, DVD recorder, desktop or notebook computer or other digital products containing an AT S.C. tuner.[6]

The Agreement states that it will terminate when the 402 Patent expires.[7] It also provides for early termination upon breach by one party, written notice by the non-breaching party, failure to cure, and a second notice of breach.[8]

Finally, the Agreement contains the following choice of law and forum selection provision:

This Agreement shall be interpreted in accordance with the laws of the State of New York, USA. Any dispute, controversy, or difference which may arise between parties hereto out of or in connection with this Agreement, or any breach thereof, will, if Wi-LAN so elects, may [sic] be resolved by the appropriate tribunals in the State of New York, USA, to whose non-exclusive jurisdiction the parties attorn, and whose decisions shall be binding upon the parties, and which decisions may be enforced in any jurisdiction.[9]

B. Wi-LAN's Action for Breach of Contract in Florida State Court

On February 3, 2011, Wi-LAN sent a written notice of breach to Hon Hai demanding royalty payments for certain products that, Wi-LAN alleged, were covered by the Agreement.[10] Hon Hai sent multiple written responses stating that it was not obligated to pay because the products in question do not practice the 402 Patent, and because the 402 Patent is invalid and/or unenforceable.[11] Wi-LAN responded by sending a second notice of breach to Hon Hai on July 6, 2012.[12]

Hon Hai alleges in the Complaint that it considers the July 6 notice of breach to be a "clear threat" by Wi-LAN to terminate the Agreement and sue for infringement of the 402 Patent.[13] Hon Hai further alleges that a justiciable controversy exists between the parties because of this threat, and because of Hon Hai's belief that it does not owe royalties, either due to its non-infringement or due to the 402 Patent's invalidity.[14]

Hon Hai initiated this action on October 23, 2012. However, Wi-LAN won the race to the courthouse by filing an action for breach of contract (the "Florida Action") against Hon Hai in the Seventeenth Judicial Circuit Court in and for Broward County, Florida on October 1, 2012.[15]

On October 24, 2012, Hon Hai removed the Florida Action to the Southern District of Florida, alleging that Wi-LAN's claim for breach of contract "necessitates a determination of patent infringement of whether Hon Hai's V-Chip Receivers infringe the 402 Patent and therefore raises a federal question that is sufficient to confer jurisdiction."[16] On November 21, 2012, Wi-LAN filed a motion to remand to state court, and on April 24, 2013 - after the pending matter had been fully submitted - the motion was granted.[17]


A. Standard of Review

1. Motion to Dismiss Under Rule 12(b)(1)

Federal Rule of Civil Procedure 12(b)(1) provides for the dismissal of a claim when a federal court lacks subject matter jurisdiction. The proponent of jurisdiction (normally the plaintiff) bears the burden of establishing subject matter jurisdiction by a preponderance of the evidence.[18] A federal court may only exercise jurisdiction over live cases and controversies.[19]

In considering a motion to dismiss for lack of subject matter jurisdiction, the court must take all facts alleged in the complaint as true and draw all reasonable inferences in favor of plaintiff.'"[20] However, "jurisdiction must be shown affirmatively, and that showing is not made by drawing from the pleadings inferences favorable to the party asserting it.'"[21] In fact, "where jurisdictional facts are placed in dispute, the court has the power and obligation to decide issues of fact by reference to evidence outside the pleadings, such as affidavits."[22] "In deciding the motion, the court may consider affidavits and other materials beyond the pleadings to resolve the jurisdictional issue, but [it] may not rely on conclusory or hearsay statements contained in the affidavits.'"[23]

2. Motion to Dismiss Under Rule 12(b)(6)

a. Pleading Under Rule 8

A pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief."[24] "Such a statement must [] give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.'"[25] In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court "must accept all non-conclusory factual allegations as true and draw all reasonable inferences in the plaintiff's favor."[26] The court evaluates the sufficiency of the complaint under the "two-pronged approach" suggested by the Supreme Court in Ashcroft v. Iqbal, [27] Under the first prong, a court can... identify[] pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.'"[28] Thus, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" to withstand a motion to dismiss.[29]

Under the second prong of Iqbal, "[w]hen there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief."[30] A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the ...

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