Unisense Fertilitech v. Auxogyn, Inc.

Order Granting Motion of Defendants to Dismiss the Complaint YVONNE GONZALEZ ROGERS, District Judge. Plaintiffs Unisense Fertilitech A/S and Fertilitech, Inc. (“Fertilitech”) seek declaratory judgments against Defendants Auxogyn, Inc. (“Auxogyn”) and the Board of Trustees of Leland Stanford Junior University (collectively “Patentee Defendants”) to have Patent Number 7,963,906 B2 (the “'906 Patent”) declared invalid, not infringed, and unenforceable. The Patentee Defendants have filed a Motion to Dismiss for lack of subject matter jurisdiction on the grounds that the Complaint fails to establish a case or controversy under Article III of the Constitution.1 (Dkt. No. 21.) The Court held oral argument on May 8, 2012, and requested supplemental briefing on the issue of the third party conduct for which Fertilitech could be held liable for inducing infringement. Briefing was completed on June 8, 2012. (See Dkt. No. 47, 48.) Having carefully considered the papers submitted and the pleadings in this action, for the reasons set forth below, the Court hereby Grants the Motion to Dismiss With Leave to Amend, to the extent possible in light of this Order. I. INTRODUCTION As alleged in this case, researchers at Stanford University, including the co-founders of Auxogyn, developed technology to assist in determining when a human embryo has greater potential for developmental competence. In essence, the technology seeks to improve the success rate of in vitro fertilization treatments by facilitating the assessment of embryonic characteristics that allow the prediction of the developmental potential of an embryo and the probability of achieving pregnancy for infertile couples. (Complaint at 2:21-22; Defs.’ Mot. Dismiss 1, 5.) From this work, the Patent and Trademark Office issued the '906 Patent. Thereafter, the '906 Patent was assigned to the Board of Trustees of Leland Stanford Junior University, and then exclusively licensed to Auxogyn. (Complaint ¶¶ 14,15.) Plaintiff Fertilitech manufactures and sells incubators that take time-lapse images of developing embryos. One product Fertilitech developed is the Embryo-Scope®, which allows researchers to ob [825] serve critical states of embryonic development that previously went unnoticed. In addition to selling its products, Fertilitech shares its scientific knowledge with the public by publishing its research findings in scientific papers, and presenting its findings at industry conferences. (Complaint at 2; Defs.’ Mot. Dismiss 5.) A. Auxogyn’s Letters. Beginning in August 2011, Auxogyn sent three letters to Fertilitech, advising Fertilitech that certain Fertilitech publications and presentations may discuss information within the scope of the '906 Patent. The first letter, sent on or about August 19, 2011, stated that Auxogyn learned that Fertilitech had been discussing and presenting information related to the scope of the '906 Patent. (Complaint, Ex. 2, Dkt. No. 1-2.) Auxogyn sent the letter “to ensure that Unisense Fertilitech is aware of [the '906 Patent] and the assessment methods claimed in the patent” and noted that “the United States patent laws may impose legal liability upon a person or entity who induces another person or entity to infringe a patent with the United States.” (Id) Auxogyn sent a second letter to Fertilitech on or about September 27, 2011, stating that Auxogyn had “become aware of [Fertilitech’s] publication in Human Reproduction entitled ‘The Use of Morphokinetics as a Predictor of Embryo Implantation.’ ” (Complaint, Ex. 3, Dkt. No. 1-3.) The second letter went on “to provide further explanation regarding [the '906 Patent].” (Id) This second letter did not reference the patent laws. On or about October 11, 2011, Auxogyn sent a third letter to Fertilitech stating, “Auxogyn is concerned about the planned presentations by [Fertilitech] at the American Society for Reproductive Medicine (ASRM) Annual Meeting in Orlando, Florida, U.S., on October 15-19, 2011. (Complaint, Ex. 4, Dkt. No. 1-4.) The letter “requested] that [Fertilitech] please respect Auxogyn’s patent rights and refrain from suggesting or encouraging the use of the '906 Patent’s claimed methods within the United States, such as at the upcoming ASRM Annual Meeting.” (Id) Additionally, the letter advised that “under United States patent law, infringement of the '906 Patent can be achieved indirectly by inducing others to perform any of the '906 Patent’s claimed methods in the United States. (Id) The infringing acts of inducement (such as encouraging others to use the claimed methods) can be performed either inside the United States or outside of the United States.” (Id) B. Fertilitech Files Suit. On October 14, 2011, Fertilitech initiated this declaratory judgment action, alleging that after receiving these three letters from Auxogyn, it “reasonably apprehended that Auxogyn may institute litigation related to the '906 Patent.” Fertilitech asserts that its EmbryoScope® product does not directly infringe the '906 Patent and its EmbryoScope® product does not cause others to infringe the '906 Patent. Further, Fertilitech has no knowledge that its publications or presentations indirectly cause others to infringe on the '906 Patent. By way of this declaratory relief action, Fertilitech seeks judgments of non-infringement, invalidity, and unenforceability of the '906 Patent. II. LEGAL STANDARDS A. Subject Matter Jurisdiction. A motion to dismiss under Federal Rule of Civil Procedure 12(b)(1) challenges the subject matter jurisdiction of the Court. See, e.g., Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039-40 (9th Cir.2003). A. challenge to subject [826] matter jurisdiction “can be either facial, confining the inquiry to allegations in the complaint, or factual, permitting the court to look beyond the complaint.” Id. at 1039-40 n. 2; see also White v. Lee, 227 F.3d 1214, 1242 (9th Cir.2000). Auxogyn challenges the Court’s jurisdiction on the grounds that on its face, the facts alleged in the Complaint do not establish an actual case or controversy between the parties to warrant the issuance of a declaratory judgment. In a facial attack, the defendant challenges the sufficiency of the allegations of subject matter jurisdiction in the complaint. Love v. United States, 915 F.2d 1242, 1245 (9th Cir.1990). Review is akin to that for a Rule 12(b)(6) motion, i.e., all allegations of the complaint are taken as true and all reasonable inferences are drawn in favor of the plaintiff. Id. B. Declaratory Judgment Act. The Declaratory Judgment Act provides that: “In a case of actual controversy within its jurisdiction ... any court in the United States ... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.” 28 U.S.C. § 2201(a). The phrase “a case of actual controversy” refers to the types of “cases” and “controversies” that are justiciable under Article III of the Constitution. 3M Co. v. Avery Dennison Corp., 673 F.3d 1372, 1376 (Fed.Cir.2012).2 To present a “case or controversy,” the dispute must be “real and substantial” and “definite and concrete, touching the legal relations of parties having adverse legal interests!)]” MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007); see Prasco, LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1339 (Fed.Cir.2008) (“must be based on a real and immediate injury or threat of future injury that is caused by the defendants — an objective standard that cannot be met by a purely subjective or speculative fear of future harm.”). The test for determining subject matter jurisdiction in declaratory judgment actions is “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” MedImmune, supra, 549 U.S. at 127, 127 S.Ct. 764.3 Thus, declaratory judgment [827] jurisdiction exists “where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without license.” SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed.Cir.2007). The party invoking the Court’s jurisdiction must point to “some affirmative act by the patentee” defendant4 that forms the basis for an actual controversy between the parties. Prasco, supra, 537 F.3d at 1388-39. The Court also should consider present activity or concrete steps taken to conduct potentially infringing activity that might subject the plaintiff to suit. See Cat Tech, supra, 528 F.3d at 880. III. DISCUSSION Fertilitech alleges that it “has not induced any other person to infringe the claims of the '906 Patent.” (Complaint ¶ 25.) Furthermore, “Fertilitech has no knowledge that its publications or presentation will cause another person to directly infringe the claims of the '906 Patent.” (Id. ¶ 26.) However, Fertilitech has instituted this lawsuit because, “[a]s a result of Auxogyn’s threatening communications to Fertilitech, Fertilitech [was] under reasonable apprehension of suit by Auxogyn.” (Id. ¶ 3; see also, id. ¶ 10 (“Fertilitech reasonably apprehended that Auxogyn may institute litigation related to the '906 Patent.”), and ¶ 16 (“Auxogyn’s threatening actions have caused Fertilitech reasonably to apprehend that Auxogyn will sue Fertilitech over the '906 Patent”).) It seeks a declaration that “it does not infringe, either directly, contributorily, or by inducement, any valid and enforceable claim of the '906 Patent.” (Id. ¶ 27.) A. Acts of Defendant Indicating an Intent to Enforce Its Patent. Each letter that Auxogyn wrote to Fertilitech expressed a concern that Fertilitech’s presentations and/or publications discussed information within the scope of the '906 Patent. The first letter states that Auxogyn “learned” that Fertilitech had been involved in discussing and presenting procedures that might come within the scope of the '906 Patent and advised that the patent laws may impose liability for inducing another to infringe a patent. (Complaint, Ex. 2.) The second letter states that Auxogyn had “become aware of [Fertilitech’s] publication in Human Reproduction entitled ‘The Use of Morphokinetics as a Predictor of Embryo Implantation,’ which discusses the measurement and use of certain timing parameters.” (Complaint, Ex. 3) The second letter went on “to provide further explanation regarding [the '906 Patent].” (Id.) On October 11, 2011, Auxogyn sent a third and final letter to Fertilitech that expressed Auxogyn’s “concern[ ] about the planned presentations by [Fertilitech] at the American Society for Reproductive [828] Medicine (ASRM) Annual Meeting in Orlando, Florida, U.S., on October 15-19, 2011. (Complaint, Ex. 4.) The letter was sent “to request that [Fertilitech] respect Auxogyn’s patent rights and refrain from suggesting or encouraging the use of the '906 patent’s claimed methods ... at the upcoming ASRM Annual Meeting.” The letter advised Fertilitech that “the '906 patent covers methods for assessing the potential for developmental competence of a human,” compares the scope of the claims of '906 Patent to Fertilitech’s presentation and advises that the material to be presented is “within the scope of the '906 patent claims.” (Id.) The final paragraph in the letter, captioned in bold print “Inducement of Infringement,” advises Fertilitech that the patent laws impose liability for inducing others to infringe the '906 Patent and provides an example of inducement, “encouraging others to use the claimed methods.” (Id.) Having identified the acts of Auxogyn that articulate rights under the '906 Patent, the next step is to analyze the planned or ongoing activity identified in Auxogyn’s letters and in Fertilitech’s Complaint to determine whether such conduct might subject Fertilitech to a patent infringement lawsuit. B. Present Activity or Concrete Steps Taken to Conduct Activity That Might Subject Plaintiff To Suit For Patent Infringement Medlmmune requires that the Court consider “whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” 549 U.S. at 126-27, 127 S.Ct. 764. For the parties to have “adverse legal interests,” “there [must] be an underlying legal cause of action that the declaratory defendant could have brought or threatened to bring, if not for the fact that the declaratory plaintiff has preempted it.” Microchip Tech. Inc. v. Chamberlain Group, Inc., 441 F.3d 936, 943 (Fed.Cir.2006); see Arris Group Inc. v. British Telecomms. PLC, 639 F.3d 1368, 1374-75 (Fed.Cir.2011) (“An ‘adverse legal interest’ requires a dispute as to a legal right — for example, an underlying legal cause of action that the declaratory defendant could have brought or threatened to bring.”); Benitec Australia, Ltd. v. Nucleonics, Inc., 495 F.3d 1340 (Fed.Cir.2007) (“A useful question to ask in determining whether an actual controversy exists is what, if any, cause of action the declaratory judgment defendant may have against the declaratory judgment plaintiff.”). Put another way, “[i]t is the nature of the controversy, not the method of its presentation or the particular party who presents it, that is determinative” of whether there is a constitutional “case or controversy.” Aetna Life Ins. Co. of Hartford, Conn. v. Haworth, 300 U.S. 227, 244, 57 S.Ct. 461, 81 L.Ed. 617 (1937). The threatened legal action here is induced infringement of a method patent claim. There are two requirements for induced infringement: “first that there has been direct infringement, and second, that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another’s infringement.” MEMC Elec. Materials, Inc. v. Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1378 (Fed.Cir.2005) (quotations omitted); Manville Sales Corp. v. Paramount Sys., Inc., 917 F.2d 544, 553 (Fed.Cir.1990) (direct infringement and that “the alleged infringer’s actions induced infringing acts and that he knew or should have known his actions would induce actual infringements.”) (quoted in DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1306 [829] (Fed.Cir.2006)); 35 U.S.C. § 271(b) (anyone who “actively induces infringement of a patent shall be liable as an infringer.”). Thus, “a finding of inducement requires a threshold finding of direct infringement— either a finding of specific instances of direct infringement or a finding that the accused products necessarily infringe.” Ricoh Co. v. Quanta Computer Inc., 550 F.3d 1325, 1341 (Fed.Cir.2008), cert. denied, — U.S. -, 129 S.Ct. 2864, 174 L.Ed.2d 578 (2009) (citing ACCO Brands, Inc., supra v. ABA Locks Mfrs. Co., Ltd., 501 F.3d at 1313 (Fed.Cir.2007)). Additionally, to infringe on a method patent, a person must perform all of the steps of the method. See Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1317 (Fed.Cir.2009) (citing Joy Techs., Inc. v. Flakt, Inc., 6 F.3d 770, 773 (Fed.Cir.1993)).5 Situations where a declaratory plaintiff has satisfied the “case or controversy” requirement based upon a putative third-party infringer’s activity include when: (1) the declaratory plaintiff was obligated to indemnify the third-party from infringement liability; and (2) the patentee complained that users of the declaratory plaintiffs product directly infringe on the patent through the use of the declaratory plaintiffs product. See Arris, supra, 639 F.3d at 1374 (“where a patent holder accuses customers of direct infringement based on the sale or use of a supplier’s equipment, the supplier has standing to commence a declaratory judgment action if (a) the supplier is obligated to indemnify its customers from infringement liability, or (b) there is a controversy between the patentee and the supplier as to the supplier’s liability for induced or contributory infringement based on the alleged acts of direct infringement by its customers.”).6 In both scenarios, there was ongoing or planned activity of a third-party that potentially infringed on the declaratory defendant’s patent and the declaratory plaintiffs relationship with that third-party was such (i.e., buyer-seller or indemnitor-indemnitee) that the legal rights of the [830] declaratory plaintiff were affected by the third-party’s potentially infringing acts. Here, no specific instances of potentially infringing activity or concrete steps towards potentially infringing activity have been identified and no product has been accused of necessarily infringing on the '906 Patent. 1. Whether there is a justiciable controversy regarding whether the Embryo-Scope® directly or indirectly infringes on the '906 Patent? Although Auxogyn has not accused any of Fertilitech’s products of infringement, Fertilitech seeks a declaratory judgment of non-infringement with respect to its EmbryoScope®. None of the letters references the EmbryoScope® and none suggests that the EmbryoScope® — or any other product developed or marketed by Fertilitech — infringes the '906 Patent. Rather, the conduct identified by the three letters relates to Fertilitech’s presentations and publications. Thus, to the extent that Fertilitech is in apprehension of a lawsuit based upon the sale or use of the EmbryoScope®, the Court does not have jurisdiction under the declaratory judgment act. Accordingly, the Court concludes that there is no justiciable controversy concerning whether the EmbryoScope® directly or indirectly infringes on the '906 Patent. 2. Whether there is a justiciable controversy regarding whether readers or attendees will infringe on the '906 Patent? Fertilitech also argues that it has identified “concrete steps: it is selling its FDA-approved [Embryoscope®] system and has published abstracts and a paper describing methods of using the system in such a way that Auxogyn alleges would directly infringe and induce infringement.” (Fertilitech’s Supp’l Br. 4.) The nature of the threatened legal action identified in the letters relates to whether Fertilitech’s presentations and publications could induce third parties to infringe on the '906 Patent. While Fertilitech has published articles and made presentations, no potentially infringing conduct (or concrete steps towards infringing conduct) is identified in the letters or the Complaint. Jurisdiction over a declaratory judgment action requires “the dispute be ‘definite and concrete, touching the legal relations of parties having adverse legal interests’; and that it be ‘real and substantial’ and ‘admit of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.’ ” MedImmune, supra, 549 U.S. at 121, 127 S.Ct. 764 (quoting Aetna, supra, 300 U.S. at 240-41, 57 S.Ct. 461). There has been no charge of infringement made by Auxogyn against Fertilitech, no charge of infringement made by Auxogyn against any reader of Fertilitech’s publications, and no charge of infringement made by Auxogyn against a viewer of Fertilitech’s presentations. Where no one is engaging in potentially infringing conduct, there is no controversy to support declaratory judgment jurisdiction to test the validity of a patent. The Court is concerned that Fertilitech is asking the Court to issue an advisory opinion based upon an unstated, hypothetical set of facts. While Fertilitech may have an interest in determining whether readers of its publications or viewers of its presentations may infringe on the '906 Patent, and whether it could be liable for such infringement, it is unclear how Fertilitech’s publications or presentations could induce infringement. Accordingly, the dispute is neither “immediate” nor “real” so as to meet the requirements for jurisdiction under the Declaratory Judgment Act. [831] IV. CONCLUSION Based on the foregoing analysis, the Court Grants the Motion to Dismiss for lack of subject matter jurisdiction. Out of an abundance, the Court grants leave to amend to the extent possible consistent with this Order and with Rule 11 obligations. Such amended complaint shall be filed no later than October 5, 2012. This Order Terminates Docket Number 21. It Is So Ordered. Footnotes [1] In the alternative, the Patentee Defendants move to dismiss Count III of the Complaint, which alleges fraud against the Patent and Trademark Office, for failure to plead fraud with particularity. Plaintiffs indicate that they do not oppose dismissal of Count III and represent that they will submit an appropriate Rule 41 dismissal without prejudice as to Count III. In reliance upon this representation, the Court will not address that part of Defendants’ motion that seeks to dismiss Count III for failure to state a claim. [2] " ‘Whether an actual case or controversy exists so that a district court may entertain an action for a declaratory judgment of non-infringement and/or invalidity is governed by Federal Circuit law.’ ” 3M Co., supra, 673 F.3d at 1377 (quoting MedImmune, Inc. v. Centocor, Inc., 409 F.3d 1376, 1378 (Fed.Cir.2005), overruled on other grounds, MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 130-31, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007)). [3] Prior to Medlmmune, the Federal Circuit had developed a two-part "reasonable apprehension of suit” test to determine if an "actual controversy” exists in a declaratory action for non-infringement or invalidity. The test required both: (1) acts of defendant indicating an intent to enforce its patent, which create a reasonable apprehension of an infringement suit; and (2) present activity by the plaintiff or concrete steps taken to conduct such an activity that might subject plaintiff or its customers to suit for patent infringement. Arrowhead Indus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 731, 737 (Fed.Cir.1988). Medlmmune rejected the "reasonable apprehension of suit” test finding that it was too stringent and held that under the declaratory judgment act, a court should look at "all the circumstances” to determine whether a justiciable Article III controversy exists. Teva Pharms. USA, Inc. v. Novartis Pharms. Corp., 482 F.3d 1330, 1339 (Fed.Cir.2007). Subsequently, the Federal Circuit has clarified that both the issue of whether acts of the defendant create a reasonable apprehension of a patent infringement lawsuit and the issue of whether the plaintiff has made meaningful preparation to conduct potentially infringing [827] activity remain important elements in the totality of the circumstances which must be considered in determining whether a declaratory judgment is appropriate. See Cat Tech LLC v. TubeMaster, Inc., 528 F.3d 871, 880 (Fed.Cir.2008) (noting that absent concrete steps to conduct infringing activity, the dispute is not "immediate” or "real”). [4] Where, as here, the affirmative acts by the patentee are communications to the plaintiff, there are no "magic words such as 'litigation' or 'infringement' " that must be recited before the recipient may file suit seeking a declaratory judgment. See Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed.Cir.2009). Indeed, the Federal Circuit commented that it would be hard to believe a "competent lawyer drafting such correspondence for a patent owner would identify specific claims, present claim charts, and explicitly allege infringement.” Id. [5] Under 35 U.S.C. § 271(c), a supplier can be liable for contributory infringement if its products necessarily infringe on the patent. There is no suggestion that any of Fertilitech’s products necessarily infringe upon the '906 Patent, so only inducement of infringement is at issue. Induced infringement based upon a third party’s use of an accused product, requires "active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use.” MEMC Elec. Materials, supra, 420 F.3d at 1379 (quoting Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 936, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005)). [6] Accord ABB Inc. v. Cooper Industries, LLC, 635 F.3d 1345 (Fed.Cir.2011) (finding declaratory judgment jurisdiction over action seeking declaration that ABB could outsource manufacturing under its license agreement with Cooper where Cooper had contacted Dow Chemicals, the third-party manufacturer to whom ABB had outsourced its work, "to formally put Dow on notice that Cooper will vigorously defend its rights should Dow attempt to make products covered by one or more of Cooper’s products”); BP Chemicals Ltd. v. Union Carbide Corp., 4 F.3d 975, 981 (Fed.Cir.1993) ("The agreement to defend or indemnify a third person does not provide the actual controversy whereby the defender or indemnitor may bring a declaratory action on its own behalf when there is no actual controversy involving the indemnitee.”). See also SanDisk, supra, 480 F.3d at 1381 ("where a patentee asserts rights under a patent based on certain identified ongoing or planned activity of another party, and where that party contends that it has the right to engage in the accused activity without a license”); Cat Tech, supra, 528 F.3d at 880 (whether a party has made meaningful preparation to conduct potentially infringing activity remains an important element in the totality of the circumstances which must be considered in determining whether a declaratory judgment is appropriate; absent concrete steps to conduct infringing activity, the dispute is not "immediate” or "real”).