Covenant Not to Sue Blocks Declaratory Judgment Action Seeking to Invalidate Patent

October 10, 2012

The plaintiff, Mytee Products, Inc. ("Mytee") manufactures and sells a sealing fan under the name Tradewind. Defendants Studebaker Enterprises, Inc. ("Studebaker") and Dri-Eaz Products, Inc. ("Dri-Eaz") were assigned ownership rights in the patents-in-suit, which are both entitled "Shrouded Floor Drying Fan." Another of the defendants, Skagit Northwest Holdings, Inc. ("Skagit") is in the business of manufacturing room drying fans that are considered to be covered by the patents-in-suit.

Counsel for Studebaker and Skagit sent a letter to Mytee asserting that Mytee's Tradewind fan infringes their patents. Mytee then filed a declaratory judgment action asserting that the Tradewind did not infringe the patents and that the patents were invalid. Dri-Eaz and Studebaker subsequently executed a covenant not to sue to Mytee and provided the covenant not to sue to Mytee. Defendants then filed a motion to dismiss this patent infringement action for lack of subject matter jurisdiction.

The district court noted that "[t]he Federal Circuit, however, has held that "a covenant not to sue for patent infringement divests the trial court of subject matter jurisdiction over claims that the patent is invalid, because the covenant eliminates any case or controversy between the parties." Dow Jones & Co., Inc. v. Ablaise Ltd., 606 F.3d 1338, 1346 (Fed. Cir. 2010) (emphasis added)."

Mytee asserted that the motion to dismiss should be denied because the covenant was not signed by all three defendants and because it did not protect against future infringement actions. The district court rejected both assertions.

First, the district court found that "[t]he Covenant was signed by the President of Studebaker and the CEO of Dri-Eaz. Mytee argues that this covenant is insufficient because Skagit did not sign it. The inventor assigned ownership rights to Studebaker and Dri-Eaz in a written document (Decl. of Kevin Zeck Ex. B.) that was recorded with the Patent and Trademark Office ("PTO"). (Seecof Evidence Objection.) The recording of an assignment with the PTO creates a presumption of validity and places the burden to rebut such a showing on one challenging the assignment. SiRF Tech., Inc. v. Intl Trade Comm'n, 601 F.3d 1319, 1328 (Fed. Cir. 2010) (applying 37 C.F.R. § 3.54). Mytee has not submitted any specific evidence that rebuts the presumption of validity for the recorded patent assignment. Since the inventor assigned the patents, Studebaker and Dri-Eaz are the past and present owners of the'403 and '369 patents. Because Skagit does not own the '403 and '369 patents, Skagit cannot assert them. Spine Solutions, Inc. v. Medtronic Sofamor Danek USA, Inc., 620 F.3d 1305, 1317-18 (Fed. Cir. 2010) (holding that parent company lacked standing to sue because subsidiary owned patents-in-suit). Therefore, Skagit was not required to sign the Covenant and no actual controversy exists between it and Plaintiff."

In terms of the argument regarding future infringement, the district court stated "[i]n arguing that the Covenant in this case does not release Mytee from future claims of infringement, Mytee relies on Revolution Eyewear, Inc. v. Aspex Eyewear, Inc., 556 F.3d 1294 (Fed. Cir. 2009). 'Whether a covenant not to sue will divest the trial court of jurisdiction depends on what is covered by the covenant.' Id. at 1297. The language in the Revolution covenant only applied to products that had been sold prior to the dismissal of the action. It did not protect the alleged infringer from those products once the case was dismissed. By not offering a covenant covering current products, the Federal Circuit held that a controversy between the parties still existed. Id. at 1300. In contrast, the present Covenant applies to 'any product currently advertised, manufactured, marketed or sold by Mytee.' Like the distinguishing cases listed in Revolution, the present Covenant will protect Mytee from actions for infringement into the future. Id. at 1299-1300."

The district court then found that the facts here were distinguishable: "Other facts in Revolution Eyewear are also distinguishable from the present action. The patent owner in Revolution Eyewear specifically indicated that it would breach the covenant-not-to-sue should the alleged infringer once again market the infringing products. Id. at 1297. Here, the Defendants have given no such indication and have repeatedly attempted to settle the controversy. In fact, the Defendants specifically stated that they 'intend to put any alleged controversy to rest.' (Defs.' Reply at 3 ¶ 22); see also Dow Jones & Co., 606 F.3d at 1347."

Accordingly, the district court found that the covenant not to sue had resolved any actual case or controversy between the parties and, therefore, the district court lacked subject matter jurisdiction over the case.

Mytee Products, Inc. v. Studebaker Enterprises, Inc., et al., Case No. 11-cv-02519 BEN (DHB) (S.D. Cal. Sept. 26, 2012)

The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.