Monday, December 09, 2013

CD California affirmed by CAFC in Futurewei v. Acacia

From Futurewei v. Acacia

The district court dismissed count 11 for failure to state a claim. Noting Huawei’s “conclusory allegation” that the parties to the license agreement intended Huawei to benefit from it, the court explained that the agreement, which was attached to the complaint, must prevail over a general allegation where they conflict. Id. at 10 (relying on Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001), and Northern Ind. Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 454 (7th Cir. 1999)). Here, the court concluded, section 11.3 of the license agreement “clearly expresses the contracting parties’ intention that the license not create any third-party beneficiaries.” Id. at 10.
The district court then dismissed counts 12-15 and, for separate reasons, count 16. As to count 16, which seeks a declaration that SmartPhone and Acacia Research are alter egos, the court reasoned that, under Federal Rule of Civil Procedure 13(a), this count is a compulsory counterclaim to the claims in the Texas case and therefore must be brought in that case. Id. at 13. The court noted that the parties contested whether a cause of action even exists to seek a freestanding declaratory judgment of alter-ego status. Id.
Having dismissed all of Huawei’s claims, the district court denied Huawei’s request for discovery to help estab- lish jurisdiction, explaining that discovery “would not affect the Court’s reasoning regarding the first-to-file rule or Plaintiffs’ failure to state a claim, and would thus be futile.” Id. at 13. And the court denied Huawei’s request for leave to file a third amended complaint, explaining Huawei “‘could not possibly cure the deficien[cies]’” of the dismissed complaint.

The outcome

It is not disputed that the district court properly invoked the first-to-file rule to dismiss counts 1-10, which request declaratory judgments of non-infringement and invalidity of the five patents already in litigation in Texas. The analysis that supported that result applies as well to count 11. We assume, for present purposes, that count 11 requests some relief, namely, a declaratory judgment that Huawei is a third-party beneficiary of the license agreement entitled to enforce its provisions. We have no doubt that it would be both just and efficient to have Huawei’s third-party-beneficiary status litigated, if necessary, in Texas. See Genentech, 998 F.2d at 938. (...)

Finding an exception to the first-to-file rule here is unsupported by any substantial countervailing considera- tions. Huawei has not shown that judicial or litigant interests in economy favor allowing count 11 to proceed in this second-filed declaratory-judgment action. Indeed, Huawei is a Texas corporation and has its principal place of business in Texas. At this point, moreover, with the dismissal of counts 1-10 no longer disputed, the non- infringement and invalidity issues will be litigated in the Texas case, unless that case is transferred. Separating the third-party-beneficiary issue cannot serve the objec- tive of efficiency. (...)

Although we rely on the first-to-file rule in affirming dismissal of count 16, our conclusion is indirectly support- ed by the district court’s conclusion that count 16 is a compulsory counterclaim under Federal Rule of Civil Procedure 13. The Ninth Circuit applies a “the logical relationship test” to determine whether or not a claim is compulsory. In re Pegasus Gold Corp., 394 F.3d 1189, 1195-96 (9th Cir. 2005). “This flexible approach . . . attempts to analyze whether the essential facts of the various claims are so logically connected that considera- tions of judicial economy and fairness dictate that all the issues be resolved in one lawsuit.” Pochiro v. Prudential Ins. Co. of Am., 827 F.2d 1246, 1249 (9th Cir. 1987) (in- ternal quotation marks omitted).

A logical relationship exists when the counter- claim arises from the same aggregate set of opera- tive facts as the initial claim, in that the same operative facts serve as the basis of both claims or the aggregate core of facts upon which the claim rests activates additional legal rights otherwise dormant in the defendant.

Pegasus Gold, 394 F.3d at 1196. Here, the logical rela- tionship is strong: the license agreement gives rise to Huawei’s alter-ego claim, to SmartPhone’s affirmative right to enforce the patents in the Texas case, and to Huawei’s defense in that case that it may practice the patents as an Access customer—a defense that undergirds Huawei’s standing to seek a declaratory judgment on the alter-ego issue in the first place. Rule 13 analysis thus bolsters the first-to-file conclusion here.
Because counts 11 and 16 are properly dismissed un- der the first-to-file rule, we need not address Huawei’s motion to amend its complaint and its request for addi- tional discovery to establish jurisdiction.

As a footnote, as to the citation to the Sprewell case, recall the facts of that case:

In 1997, Latrell Sprewell, a player on the Golden State basketball team, attacked his head coach P.J. Carlesimo when competitive tensions arose by method of choking him. Sprewell verbally threatened to kill his coach twice before leaving practice, and once again later after accosting him a second time with a punch that grazed Carlesimo. Sprewell was suspended by the Warriors, and then is terminated two days later. He is then suspended by the NBA for a full year. Sprewell then attempts to vacate the arbitration under multiple claims.



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