RealD Spark, LLC v. Microsoft Corporation

— 1 — — 2 — — 3 — — 4 — — 5 — — 6 — — 7 — — 8 — UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 9 AT SEATTLE — 10 — 11 REALD SPARK, LLC, CASE NO. 2:22-cv-00942-TL 12 Plaintiff, ORDER ON MOTION TO DISMISS v. COUNTERCLAIMS — 13 — MICROSOFT CORPORATION, — 14 — Defendant. — 15 — 16 This matter is before the Court on Plaintiff RealD Spark, LLC (“RealD”)’s motion to 17 dismiss Defendant Microsoft Corporation’s counterclaims. Dkt. No. 152. Having reviewed the 18 motion, Microsoft’s response (Dkt. No. 155), RealD’s reply (Dkt. No. 157), and the relevant 19 record, the Court GRANTS the motion. 20 I. BACKGROUND1 21 This is an intellectual-property case that arises out of disputed technology developed to 22 ward off so-called “Zoom fatigue,” an affliction caused by the physical and psychological strain — 23 — 1 This background recites only an abbreviated version of the procedural history of this case and specifically focuses 24 on those facts and procedural developments relevant to the instant motion to dismiss. 1 experienced by videoconference participants. In this case, Plaintiff RealD originally brought four 2 claims against Defendant Microsoft: (1) breach of contract; (2) violation of the Defend Trade 3 Secrets Act, 18 U.S.C. §§ 1836 et seq.; (3) violation of the Washington Uniform Trade Secrets 4 Act, Chapter 19.108 RCW; and (4) patent infringement. See Dkt. No. 1 (complaint).2 RealD 5 alleged that it had developed an innovative technology, which it called “SocialEyes,” that 6 artificially adjusts the perceived gaze—i.e., the direction in which (or object at which) an 7 individual appears to be looking—of videoconference participants, so that it appears that 8 participants are looking directly at one another other, and not at the cameras or screens on their 9 respective devices. Id. ¶ 14 . The technology allows participants to perceive that they are 10 maintaining eye contact with their interlocutors. Id. ¶ 19 . RealD asserts that by mimicking eye 11 contact, SocialEyes “makes the video conference more vivid, engaging, and personal for all 12 parties concerned.” Id. 13 RealD’s claim for patent infringement centered around United States Patent 14 No. 10,740,985 (the “’985 Patent”). Id. ¶¶ 75–109. The “’985 Patent describes, among other 15 things, a method and apparatus for adjusting a digital representation of a head region, particularly 16 by adjusting target features, such as correcting a perceived gaze direction of eyes or modifying 17 the texture and/or shape of features such as the nose, mouth, chin or neck.” Id. ¶ 79 . In short, the 18 ’985 Patent represents the foundational technology for SocialEyes. The ’985 Patent covers the 19 technology that makes SocialEyes possible. 20 RealD’s complaint alleges that, after it had collaborated with Microsoft between 2016 21 and 2019, with an eye toward Microsoft’s licensing or acquiring RealD’s SocialEyes technology, 22 Microsoft abruptly ceased discussions with RealD. Id. ¶¶ 21, 23 . Microsoft then hired several — 23 — 24 2 As discussed below, RealD voluntarily dismissed the patent-infringement claim. 1 RealD employees who had worked on SocialEyes (id. ¶ 24) and subsequently developed “Eye 2 Contact,” a product similar to SocialEyes (id. ¶ 1). The Eye Contact product, RealD alleged, 3 constituted the “unauthorized and unlicensed use of patented and/or proprietary RealD 4 technology.” Id. Allegedly, products “with the Eye Contact feature infringe[d] . . . the ’985 5 Patent.” Id. ¶ 88 . 6 On December 9, 2022, Microsoft answered RealD’s complaint. Dkt. No. 30. In its 7 answer, Microsoft brought two counterclaims against RealD: (1) declaratory judgment of 8 noninfringement of the ’985 Patent (id. at 48 ¶¶ 7–11); and (2) declaratory judgment of invalidity 9 of the ’985 Patent (id. at 48 ¶¶ 12–16). On October 31, 2023, Microsoft filed an amended answer 10 to RealD’s complaint. Dkt. No. 109. In its amended answer, Microsoft added a third 11 counterclaim: (3) declaratory judgment of invalidity and/or unenforceability of the ’985 Patent 12 for improper inventorship (id. at 49 ¶¶ 17–30). In its first counterclaim, Microsoft seeks a 13 declaration that it has not infringed the ’985 Patent. Id. at 48 ¶ 8. In its second counterclaim, 14 Microsoft seeks a declaration that the ’985 Patent is invalid, because “each claim of the ’985 15 Patent asserted against Microsoft is invalid for failing to comply with one or more of the 16 requirements for patentability set forth in 35 U.S.C. § 101 et seq., including but not limited to 17 sections 102, 103, and 112.” Id. at 49 ¶ 13. And in its third counterclaim, Microsoft seeks a 18 declaration that RealD’s claims in the ’985 Patent are invalid and unenforceable, because in 19 applying for and obtaining the patent, RealD “fail[ed] to name the actual inventors of the claimed 20 subject matter.” Id. at 50 ¶ 18. Microsoft alleges that the SocialEyes technology, as patented in 21 the ’985 Patent, was developed not at RealD, but rather at the Skolkovo Institute of Science and 22 Technology (“Skoltech”). Id. at 50 ¶ 19. Microsoft alleges that Skoltech inventors “worked in 23 collaboration with the named inventors of the ’985 Patent . . . on eye gaze correction technology” 24 and “contributed to the inventions in the ’985 Patent.” Id. at 50 ¶¶ 22–23. These Skoltech 1 inventors, however, were not identified as inventors on the ’985 Patent, allegedly rendering the 2 patent “invalid and unenforceable for improper inventorship.” Id. at 51 ¶ 29. 3 On January 11, 2024, RealD moved to voluntarily dismiss its claims of infringement of 4 the ’985 Patent without prejudice, leaving only the breach-of-contract and federal and state trade5 secrets claims as live causes of action. Dkt. No. 125. On January 30, 2024, the Court granted 6 RealD’s motion and dismissed the ’985 Patent claim from this case. Dkt. No. 136. Soon 7 thereafter, on February 8, 2024, RealD issued to Microsoft a covenant not to sue (“the 8 Covenant”) for infringement of the ’985 Patent (Dkt. No. 149-1). Pursuant to the Covenant, 9 RealD unconditionally and irrevocably covenants to refrain, at any time, from directly or indirectly causing the commencement, 10 maintenance, or prosecution of any Action against Microsoft, any of its Affiliates, or their past or present directors, officers, 11 employees, successors, assigns, Customers, manufacturers, distributors, licensees, or other transferees for direct or indirect 12 infringement as to any claim of the ’985 Patent based upon Microsoft making, having made, using, manufacturing, 13 developing, designing, marketing, licensing, distributing, importing, offering for sale, or selling of any service, product, 14 software, or other technology, as they exist today or have existed in the past, including Eye Contact and the currently known 15 extensions or improvements Stare and Teleprompter. 16 Dkt. No. 149-1 at 1. 17 Finally, in one further development with respect to the ’985 Patent, on November 19, 18 2024, in an administrative inter partes review (“IPR”)3 of the ’985 Patent initiated by Microsoft, 19 the U.S. Patent and Trademark Office’s Patent Trial and Appeal Board determined that 18 out of 20 the 19 claims of the ’985 Patent were unpatentable. See Dkt. No. 142-1 (IPR final written 21 decision) at 55. — 22 — 3 IPR is a statutorily defined administrative procedure that “allows a third party to ask the U.S. Patent and — 23 — Trademark Office to reexamine the claims in an already-issued patent and to cancel any claim that the agency finds to be unpatentable” because the claim is “obvious” or not sufficiently “novel.” Cuozzo Speed Techs. v. Commerce 24 for Intellectual Prop., 579 U.S. 261, 265 (2016); see 35 U.S.C. §§ 311–319. 1 II. LEGAL STANDARD 2 Under the Declaratory Judgment Act, a federal court may, “[i]n a case of actual 3 controversy . . . , declare the rights and other legal relations of any interested party seeking such 4 declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201 (a). A “case of 5 actual controversy . . . refers to the type of ‘Cases’ and ‘Controversies’ that are justiciable under 6 Article III” of the United States Constitution. MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 , 7 127 (2007). But “there is no bright-line rule for determining whether an action satisfies the case 8 or controversy requirement. . . . Instead . . . , ‘the analysis must be calibrated to the particular 9 facts of each case.’” Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1336 (Fed. Cir. 10 2008) (quoting Cat Tech LLC v. TubeMaster, Inc., 528 F.3d 871, 879 (Fed. Cir. 2008)). In other 11 words, courts apply “a totality-of-the-circumstances test for deciding whether there is indeed an 12 actual controversy, on the particular facts and relationships involved.” Revolution Eyewear, Inc. 13 v. Aspex Eyewear, Inc., 556 F.3d 1294, 1297 (Fed. Cir. 2009). 14 “Basically, the question in each case is whether the facts alleged, under all the 15 circumstances, show that there is a substantial controversy, between parties having adverse legal 16 interests, of sufficient immediacy and reality to warrant the issuance of declaratory judgment.” 17 MedImmune, 549 U.S. at 127 (quoting Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270 , 18 273 (1941)). “A useful question to ask in determining whether an actual controversy exists is 19 what, if any, cause of action the declaratory judgment defendant may have against the 20 declaratory judgment plaintiff[.]” Benitec Austl., Ltd. v. Nucleonics, Inc., 495 F.3d 1340 , 1344 21 (Fed. Cir. 2007). “The party seeking a declaratory judgment must establish that jurisdiction 22 ‘existed at the time the claim for declaratory relief was filed and that it has continued since.’” 23 Streck, Inc. v. Rsch. & Diagnostic Sys., Inc., 665 F.3d 1269, 1282 (Fed. Cir. 2012) (quoting 24 Benitec, 495 F.3d at 1344 ). 1 III. DISCUSSION 2 The central question here is the extent to which RealD’s “Covenant Not to Sue,” 3 executed February 8, 2024, and subsequently provided to Microsoft on or about that date, puts to 4 rest any “actual controversy” between the Parties. See Revolution Eyewear, 556 F.3d at 1297 5 (“Whether a covenant not to sue will divest the trial court of jurisdiction depends on what is 6 covered by the covenant.”). RealD argues that the Covenant deprives the Court of subject-matter 7 jurisdiction over all three of Microsoft’s counterclaims. See Dkt. No. 152 at 9–10. Microsoft 8 argues that the Covenant only deprives the Court of subject-matter jurisdiction over Microsoft’s 9 first two counterclaims. See Dkt. No. 155 at 5. Microsoft asserts that a live controversy—and 10 therefore the Court’s jurisdiction—remains with respect to Microsoft’s third counterclaim. See — 11 — id. 12 A. Counterclaims I and II 13 There is no dispute that the Declaratory Judgment Act’s “actual controversy” requirement 14 deprives the Court of subject-matter jurisdiction over Microsoft’s first two counterclaims. 15 Microsoft “does not object to the dismissal of its declaratory-judgment counterclaims of 16 noninfringement and invalidity of the ’985 Patent.” Dkt. No. 155 at 5. Therefore, the Court 17 DISMISSES Count I (see Dkt. No. 109 at 48 ¶¶ 7–11) and Count II (see id. at 49 ¶¶ 12–16) of 18 Microsoft’s counterclaims. 19 B. Counterclaim III 20 With respect to its third counterclaim, the key inquiry is into what, if any, “affirmative 21 act[s]” RealD has performed such that Microsoft finds itself “in the position of either pursuing 22 arguably illegal behavior or abandoning that which [it] claims a right to do.” SanDisk Corp. v. 23 STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed. Cir. 2007). That Microsoft might feel 24 threatened with litigation is not sufficient to give rise to an actual Article III controversy to 1 warrant declaratory judgment, unless Microsoft can also point to an affirmative act on the part of 2 RealD that provides a factual basis for such a threat. Id. at 1380–81. “Generally, an affirmative 3 act by the patentee is ‘conduct that can be reasonably inferred as demonstrating intent to enforce 4 a patent.’” UCP Int’l Co. Ltd. v. Balsam Brands Inc., 787 F. App’x 691 , 698 (Fed. Cir. 2019) 5 (quoting Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1363 (Fed. Cir. 2009)). 6 Microsoft presents several arguments in support of this Court’s maintaining subject7 matter jurisdiction over its third counterclaim. First, Microsoft argues that, even though RealD’s 8 Covenant extinguished liability with respect to the ’985 Patent, it did not quash Microsoft’s 9 potential liability with respect to “related patents in the same patent family.” Dkt. No. 155 at 7. 10 Microsoft locates an “affirmative act” in RealD’s purported refusal to extend the Covenant to 11 additional patents in the ’985 Patent family. Second, Microsoft argues that it remains under 12 “threat of a future suit on those related patents.” Id. Such threat, according to Microsoft, is 13 evidenced by RealD’s conduct in prosecuting the instant case. Id. RealD’s strategy and tactics in 14 its litigation of this case—and the effect of such strategy and tactics on “Microsoft’s lived 15 experience” (id. at 14) in this lawsuit—suffice to maintain an “Article III controversy” (id. at 7). 16 Third, Microsoft asserts that interests of judicial economy counsel in favor of this Court’s 17 preserving subject-matter jurisdiction over the counterclaim. Id. The Court will examine each 18 argument in turn. 19 1. Effect of the Covenant 20 In evaluating whether a covenant not to sue truly eliminates a threat of litigation between 21 two parties, courts emphasize conduct over words. In SanDisk, for example, a verbal statement 22 that a patentee would not sue a putative infringer did not eliminate such a threat where the 23 patentee “ha[d] engaged in a course of conduct that show[ed] a preparedness and willingness to 24 enforce its patent rights despite [the] statement.” Revolution Eyewear, 556 F.3d at 1297 1 (discussing SanDisk, 480 F.3d at 1381 ). Here, Microsoft asserts that “RealD has not been hiding 2 its intention to assert the continuation patents against Microsoft or Microsoft’s customers.” Id. at 3 9. This assertion is based on RealD’s “[r]efus[al] to provide a covenant that encompasses the 4 entire [’985] Patent Family.” Id. at 17. RealD “could have included the ’985 Patent family” in 5 the Covenant, Microsoft argues, “but RealD expressly refused to do so.” Id. 6 As an initial matter, Microsoft’s assertion that RealD “expressly” refused to provide the 7 family-wide covenant is a misrepresentation of the record—or at least of the record that 8 Microsoft has presented to the Court. Not doing something is different from refusing to do 9 something. In illustrating RealD’s purported intransigence on the scope of the Covenant, 10 Microsoft conflates nonperformance with refusal to perform. Microsoft explains that RealD 11 “provide[d] a covenant not to sue limited only to the ’985 Patent, specifically noting that ‘[s]uch 12 release and covenants do not extend to any other patents or patent applications.’” Dkt. No. 155 at 13 10–11. After further negotiation, “RealD unilaterally served Microsoft with a covenant not to sue 14 that was identical to the one discussed earlier . . . .” Id. at 11. RealD has certainly failed to offer 15 Microsoft a covenant as broad as Microsoft wanted—but it did not refuse to do so, nor did it 16 “expressly” refuse to do so. “Express” means “[c]learly and unmistakably communicated; stated 17 with directness and clarity,” as distinct from “implied.” Express, Black’s Law Dictionary (12th 18 ed. 2024) (emphasis added). And a “refusal” is a “denial or rejection of something offered or 19 demanded.” Refusal, Black’s Law Dictionary (12th ed. 2024). In not giving Microsoft what 20 Microsoft wanted, RealD neither affirmatively denied nor affirmatively rejected anything; it 21 omitted rather than committed. This distinction is important, because Microsoft characterizes 22 RealD’s purported refusal as an affirmative act that was—and is—indicative of an intent to sue. 23 In support of its position, Microsoft cites Bal Seal Engineering, Inc. v. Nelson Products, 24 Inc., where a district court held that a patentee’s refusal to provide a covenant not to sue with 1 respect to both the patents-in-suit and certain “Related Patents” “add[ed] weight to the existence 2 of an actual controversy.” Dkt. No. 155 at 21; Bal Seal Eng’g v. Nelson Prods., Inc., 3 No. C13-1880, 2016 WL 11518601 , at *2, 4 (C.D. Cal. Sept. 8, 2016). But that case is 4 distinguishable from the case before the Court. First, unlike Microsoft here, the declaratory5 judgment plaintiff in Bal Seal—Nelson Products—was actively seeking declaratory judgment on 6 the “Related Patents” for which Bal Seal did not provide a covenant. See Bal Seal, 2016 WL 7 11518601, at *2. In contrast, Microsoft’s declaratory-judgment counterclaims here cover only 8 the ’985 Patent, which is the subject of RealD’s Covenant. Second, Bal Seal affirmatively 9 refused to provide a covenant not to sue. Indeed, where “Bal Seal refused to provide a covenant 10 not to sue because it ‘could not guarantee’ that there would not be any future litigation 11 involving” the patents at issue (id. at *4), Microsoft has not provided any real evidence that 12 RealD’s motivation behind its failure to provide a covenant stemmed from its own inability to 13 offer such a guarantee. Unlike Bal Seal, RealD has not asserted that it “c[annot] guarantee that 14 there w[ill] not be any future litigation.” Where Bal Seal both withheld a promise and asserted its 15 inability to even make such a promise, RealD has only withheld the promise. The Court finds 16 significance between Bal Seal’s “can’t,” which implies the inevitability of future litigation, and 17 RealD’s “hasn’t,” which does not. This is especially so where Microsoft is unable to point to any 18 verbal expression from RealD wherein RealD clearly evinced its unequivocal intention to leave 19 open the door to future litigation. Finally, the Bal Seal court ultimately found that “a refusal to 20 provide such a covenant alone is not particularly significant.” Bal Seal, 2016 WL 11518601 , at 21 *4 (citing Organic Seed Growers & Trade Ass’n v. Monsanto Co., 718 F.3d 1350 , 1357–60 (Fed. 22 Cir. 2013)). If a refusal alone is not particularly significant, then a lack of a refusal is not 23 significant at all. — 24 — 1 Microsoft also relies on Harris Corp. v. Federal Express Corp., 670 F. Supp. 2d 1306 2 (M.D. Fla. 2009). See Dkt. No. 155 at 22–23. That case is also distinguishable from the instant 3 case. In Harris, five of FedEx’s—the declaratory-judgment plaintiff—counterclaims against 4 Harris sought a declaration that certain patents were unenforceable due to Harris’s alleged 5 inequitable conduct.4 Harris, 670 F. Supp. 2d at 1308 . As the Harris court found, “even if 6 [Harris’s] Covenant covered FedEx’s invalidity and non-infringement counterclaims, it has no 7 effect on Counterclaims 8–12, those based on unenforceability due to inequitable conduct.” Id. at 8 1312. Citing a Federal Circuit case in which “jurisdiction over a request for attorney fees 9 prevents a covenant not to sue from stripping a district court of jurisdiction over counterclaims of 10 inequitable conduct,” the Harris court found that “FedEx ha[d] maintained its request for 11 attorney fees pursuant to 35 U.S.C. § 285 from its initial Answer onward” and, therefore, 12 “pursuant to Monsanto, the Court retain[ed] jurisdiction to consider the issue of inequitable 13 conduct for the purpose of awarding attorney’s fees, which, if found, would necessarily give the 14 Court jurisdiction to render the [patents at issue] unenforceable.” Id. at 1312–13 (citing 15 Monsanto Co. v. Bayer Bioscience N.V., 514 F.3d 1229 , 1242–43 (Fed. Cir. 2008)). 16 Here, although Microsoft, like FedEx, has maintained its request for attorney fees under — 17 — 35 U.S.C. § 285 “from its initial Answer onward” (see Dkt. No. 30 (answer) at 50; Dkt. No. 109 18 at 52), Microsoft has not alleged inequitable conduct against RealD. This is a crucial distinction, 19 because 35 U.S.C. § 285—the attorney fees provision in Title 35—provides that “[t]he court in 20 exceptional cases may award reasonable attorney fees to the prevailing party.” 35 U.S.C. § 285 21 (emphasis added). The Federal Circuit has defined “exceptional cases” as “those involving bad — 22 — 4 “Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of a patent. — 23 — This judge-made doctrine evolved from a trio of Supreme Court cases that applied the doctrine of unclean hands to dismiss patent cases involving egregious misconduct.” Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276 , 24 1285 (Fed. Cir. 2011) (citations omitted). 1 faith litigation or those involving inequitable conduct by the patentee in procuring the patent.” 2 Brasseler, U.S.A. I, L.P. v. Stryker Sales Corp., 267 F.3d 1370, 1380 (Fed. Cir. 2001) (citing 3 Cambridge Prods. Ltd. v. Penn Nutrients Inc., 962 F.2d 1048 , 1050–51 (Fed. Cir. 1992)). Failure 4 to correctly name inventors can involve bad faith where the named inventors acted in bad faith or 5 with deceptive intent. Bd. of Educ. ex rel. Bd. of Trs. of Fla. State Univ. v. Am. Bioscience, Inc., — 6 — 333 F.3d 1330, 1344 (Fed. Cir. 2003). But Microsoft has not identified bad faith or deceptive 7 intent with respect to the inventorship issue, nor has it alleged bad-faith litigation or inequitable 8 conduct either in its counterclaim or in its briefing (other than referring to the term “inequitable 9 conduct” in discussing the facts of Harris in its response brief (see Dkt. No. 155 at 22–23)). 10 Therefore the Court cannot, as the Harris court did, bootstrap the unenforceability counterclaim 11 to the request for attorney fees and, consequently, maintain subject-matter jurisdiction. 12 Finally, Microsoft cites Cardinal Chemical Co. v. Morton International, Inc., 508 U.S. 83 13 (1993), which Microsoft argues “empowers the Court to exercise jurisdiction to assess the 14 outstanding questions of validity and enforceability under the Declaratory Judgment Act.” Dkt. 15 No. 155 at 20. But as the Federal Circuit explained in Benitec, Cardinal Chemical is inapplicable 16 to a district court’s determination of whether it maintains subject-matter jurisdiction over a 17 declaratory-judgment counterclaim: — 18 — [T]he Supreme Court makes clear at the outset of its opinion that “[the] practice [the Federal Circuit’s uniform practice of declaring — 19 — the issue of validity moot if it affirms the district court’s finding of noninfringement], and the issue before us, therefore concern the — 20 — jurisdiction of an intermediate appellate court—not the jurisdiction of either a trial court or this Court.” — 21 — 22 Benitec, 495 F.3d at 1345 (alteration in original) (emphasis added) (quoting Cardinal Chemical, — 23 — 508 U.S. at 95 ). Put another way, “Cardinal Chemical . . . does not address whether subsequent — 24 — 1 events can divest the district court of jurisdiction . . . over [an alleged infringer’s] 2 counterclaims.” Id. 3 The Court notes further that RealD’s purported refusal to provide Microsoft with the 4 covenant that Microsoft wanted is not, strictly speaking, an “affirmative” act. The Federal Circuit 5 has distinguished between a patentee’s nonprovision of a covenant—or, similarly, its provision 6 of a covenant that a putative infringer deems unsatisfactory—and a patentee’s affirmative action 7 toward litigation. See Prasco, 537 F.3d at 1341 (“[T]hough a [party’s] failure to sign a covenant 8 not to sue is one circumstance to consider in evaluating the totality of the circumstances, it is not 9 sufficient to create an actual controversy—some affirmative actions by the [party] will also 10 generally be necessary.”). That is, the universe of affirmative acts does not necessarily include 11 actions not taken. An absence of a declaration that one party will not sue another is not the same 12 as that party’s affirmative declaration that it will sue. 13 2. “Expanding the Battlefield” 14 Microsoft asserts that RealD’s actions have placed Microsoft under an ever-present threat 15 of litigation. See Dkt. No. 155 at 17. But aside from the instant case, in which RealD originally 16 asserted an infringement claim against Microsoft as to the ’985 Patent (see Dkt. No. 1 ¶¶ 75– 17 109)—a claim that has been voluntarily dismissed and, pursuant to the Covenant, extinguished as 18 a matter of course—it is not apparent from the record that RealD has done anything that places 19 Microsoft under a threat of litigation. 20 RealD asserts that it “has never asserted or even threatened to assert [additional patents in 21 the ’985 Patent family] against” Microsoft. Dkt. No. 157 at 4. In contrast, Microsoft’s position is 22 that “[t]his is a classic situation where actions speak louder than words.” Dkt. No. 155 at 14. 23 Under SanDisk, actions do speak louder than words—but Microsoft does not convincingly 24 identify any meaningful actions on the part of RealD. 1 In making its argument, Microsoft goes to significant lengths to convince the Court that it 2 operates under a cloud of imminent litigation related to the non-’985 members of the ’985 Patent 3 Family. For example, Microsoft relies heavily on the facts that it prosecuted an administrative 4 adjudication of the ’985 Patent all the way to completion, which it suggests was a costly and 5 time-consuming ordeal. See Dkt. No. 155 at 17. This administrative adjudication concerned only 6 the ’985 Patent, but Microsoft uses that litigation as a wedge, arguing that RealD’s refusal to 7 concede in that matter is necessarily indicative of its intention to litigate additional patent claims 8 against Microsoft. Such an argument, however, elides the fact that it was Microsoft that initiated 9 the administrative adjudication in the first place. See Dkt. No. 142-1 at 3. Microsoft argues that 10 “RealD has had every opportunity to provide Microsoft and its customers with actual patent 11 peace that would extinguish the controversy over RealD’s patents, but RealD has refused to do 12 so.” Dkt. No. 155 at 14. But such an assertion rings hollow where, Microsoft—not RealD— 13 “filed a Petition for inter partes review of claims 1–14 and 16–19 . . . of [the ’985 Patent].” Dkt. 14 No. 142-1 at 3. According to Microsoft, after Microsoft initiated the IPR of the ’985 Patent, 15 “RealD rejected Microsoft’s request for ‘complete peace’ because RealD is considering future 16 suits.” Id. at 15. Put another way, Microsoft’s position is that RealD’s decision to keep playing 17 defense in the administrative action necessarily indicates RealD’s clear intention to play offense 18 in the future. 19 This logic is suspect, and the Court is not persuaded that RealD is, in fact, considering 20 future litigation such that Microsoft faces an immediate threat. Microsoft points to its 21 “litigat[ion] of costly IPR proceedings that it offered to terminate if RealD provided a covenant 22 not to sue [that] encompassed the entire ’985 Patent family,” suggesting that it only prosecuted 23 the IPR because RealD would not offer a sufficiently broad covenant. Dkt. No. 155 at 17. The 24 record does not support such causation. 1 Microsoft initiated the IPR proceedings on June 16, 2023, seeking the Patent Trial and 2 Appeal Board’s (“PTAB”) administrative invalidation of 18 of the ’985 Patent’s 19 claims. Dkt. 3 No. 152 at 5; Dkt. No. 142-1 at 3. Microsoft, however, had already asked this Court to invalidate 4 the entirety of the ’985 Patent on December 9, 2022—more than six months before it initiated 5 IPR proceedings—when it first pleaded counterclaims in the instant case. See Dkt. No. 30 at 49 6 (praying for declaratory judgment that the ’985 Patent is invalid). RealD did not drag Microsoft 7 into “costly IPR proceedings,” nor did it “expand the battlefield” of this litigation, as Microsoft 8 asserts (Dkt. No. 155 at 9). Rather, Microsoft undertook the costly IPR proceedings—and 9 thereby “expanded the battlefield”—willingly, of its own accord. Further, Microsoft’s briefing 10 indicates that negotiations regarding a covenant with RealD took place in December 2023, six 11 months after Microsoft’s initiation of IPR proceedings. See Dkt. No. 155 at 10. Given this 12 timeline, it is implausible for Microsoft to now argue that it only found itself knee-deep in an 13 administrative patent adjudication because RealD refused to offer it a covenant of sufficient 14 scope and breadth. Microsoft opened a new, purportedly expensive theater of operations in its 15 conflict with RealD—IPR before the PTAB—yet now seeks to foist responsibility for such 16 litigation onto RealD, because RealD would not sue for peace on terms agreeable only to 17 Microsoft. 18 Microsoft argues further that actual controversy exists, because “RealD identified 19 Lenovo”—a customer of Microsoft—“in filings to this Court and pointed to Lenovo devices as 20 ‘Accused Products.’” Dkt. No. 155 at 17. Microsoft’s argumentation here is conclusory and 21 unconvincing. Although the purported basis for Microsoft’s argument here is RealD’s “filings to 22 this Court,” the only record evidence that Microsoft cites in establishing its position is a court 23 filing authored and submitted by Microsoft. Id. at 18 (quoting Dkt. No. 121 (Def.’s renewed 24 motion to stay) at 6–7). Microsoft argues that “RealD’s prior submissions to the Court 1 memorialize in writing the independent ‘affirmative act[s]’ that, under a totality-of-the 2 circumstances inquiry, confer subject matter jurisdiction under the Declaratory Judgment Act.” 3 Id. (citing SanDisk, 480 F.3d at 1381 ). But Microsoft has not presented the Court with any of 4 these prior submissions here, and the Court will not hunt for them in a record that presently 5 comprises 174 docket entries. See IOW, LLC v. Breus, 425 F. Supp. 3d 1175 , 1188 (D. Ariz. 6 2019) (“[T]he Court will not search the record for evidence to support [plaintiff’s] arguments.”). 7 In addressing this piece of Microsoft’s argument, RealD points out that Microsoft “does not 8 provide any support or evidence that RealD has made any affirmative threat to Lenovo, and 9 indeed, RealD has made no such threat.” Dkt. No. 157 at 10. The Court agrees. Moreover, 10 Microsoft fails to connect the dots to demonstrate how the alleged threats to Lenovo factor into 11 an actual dispute between RealD and Microsoft. Microsoft could have explained as much in its 12 briefing, but it opted not to do so. 13 3. Judicial Economy 14 Microsoft asserts that “[a]llowing the improper inventorship counterclaim to proceed 15 alongside Microsoft’s rebuttal to the trade secret allegations will promote judicial economy and 16 overall efficiencies if the same jury who hears the evidence of alleged trade secret 17 misappropriation is also asked to decide” the improper-inventorship issue “at the same time.” 18 Dkt. No. 155 at 25. Outside of a federal court, this might be a compelling argument. But subject19 matter jurisdiction is a Constitutional requirement in this arena, whereas judicial economy is 20 merely a prudential prerogative. It is well established that the latter cannot trump the former. In 21 reversing a district court’s holding that judicial economy militated against the divestiture of that 22 court’s subject-matter jurisdiction over a declaratory-judgment counterclaim, the Federal Circuit 23 found that “[t]he district court’s argument concerning the expenditure of precious and admittedly 24 overstretched judicial resources is certainly well-taken . . . .” Dow Jones & Co., Inc. v. Ablaise 1 || Ltd., 606 F.3d 1338, 1348 (Fed. Cir. 2010). But “[sJubject matter jurisdiction is a threshold 2 || requirement for a court’s power to exercise jurisdiction over a case, and no amount of ‘prudential 3 || reasons’ or perceived increases in efficiency, however sound, can empower a federal court to 4 || hear a case where there is no extant case or controversy.” /d. 5 Similarly here, Microsoft’s objective of sparing the Court, the Parties, and the community 6 || from “serial trials” is irrelevant where there is no Constitutional basis for subject-matter 7 || jurisdiction. The Court therefore rejects Microsoft’s position that interests of judicial economy 8 || warrant a finding that it has subject-matter jurisdiction over Counterclaim III. 9 IV. CONCLUSION 10 Accordingly, RealD’s motion to dismiss Microsoft’s counterclaims (Dkt. No. 152) is 11 || GRANTED. Microsoft’s counterclaims are DISMISSED. — 12 — 13 Dated this 30th day of September, 2025. 14 / | Ly PC ‘ 15 Tana Lin United States District Judge — 16 — — 17 — — 18 — — 19 — — 20 — — 21 — — 22 — — 23 — — 24 —