Gen. Protecht Group Inc. (formerly Known As Zhejiang Dongzheng Elec. Co.) v. Leviton Mfg. Co. Inc.

• Citation: 99 U.S.P.Q.2d 1275,651 F.3d 1355
• Decision Date: 26 September 2011
• Docket Number: No. 2011–1115.,2011–1115.
• Parties: GENERAL PROTECHT GROUP, INC. (formerly known as Zhejiang Dongzheng Electrical Co.), G–Techt Global Corporation, Securelectric Corporation, and Warehouse–Lighting.com, LLC, Plaintiffs–Appellees,andCentral Purchasing, LLC and Harbor Freight Tools USA, Inc., Plaintiffs–Appellees,v.LEVITON MANUFACTURING CO., INC., Defendant–Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals for the Federal Circuit

651 F.3d 1355

99 U.S.P.Q.2d 1275

GENERAL PROTECHT GROUP, INC. (formerly known as Zhejiang Dongzheng Electrical Co.), G–Techt Global Corporation, Securelectric Corporation, and Warehouse–Lighting.com, LLC, Plaintiffs–Appellees,andCentral Purchasing, LLC and Harbor Freight Tools USA, Inc., Plaintiffs–Appellees,

v.LEVITON MANUFACTURING CO., INC., Defendant–Appellant.

No. 2011–1115.

United States Court of Appeals, Federal Circuit.

July 8, 2011.Rehearing En Banc Denied Sept. 26, 2011.

William F. Long, Sutherland, Asbill & Brennan, LLP, of Atlanta, GA, argued for plaintiffs-appellees, General Protecht Group, Inc., et al. With him on the brief were Ann G. Fort, Lei Fang and Joshua D. Curry.Mark J. Rosenberg, Sills Cummis & Cross P.C., of New York, NY, for plaintiffs-appellees, Central Purchasing, LLC, et al.Larry L. Shatzer, Wilson, Sonsini, Goodrich & Rosati, P.C., of Washington, DC, argued for defendant-appellant. With him on the brief were Shaun R. Snader; and Stefani E. Shanberg and Robin L. Brewer, of Palo Alto, CA.Before LINN, SCHALL, and DYK, Circuit Judges.LINN, Circuit Judge.

Leviton Manufacturing Co., Inc. (“Leviton”) appeals the grant of a preliminary injunction to enforce a forum selection clause in a settlement agreement which resolved a prior lawsuit brought by Leviton against General Protecht Group, Inc., formerly known as Zhejiang Dongzheng Electrical Co. (“GPG”). Because the district court correctly determined that the forum selection clause applies to this case and did not abuse its discretion in granting the preliminary injunction, this court affirms.

I. Background

Leviton and GPG are both manufacturers of ground fault circuit interrupters (“GFCIs”). In 2004 and 2005, Leviton sued GPG and three other defendants, including two of the Appellees, in the District of New Mexico for infringement of U.S. Patent Nos. 6,246,558 and 6,864,766 (“'558 patent” and “'766 patent” respectively). In 2007, the parties settled that lawsuit pursuant to the terms of a confidential settlement agreement (“Settlement Agreement”). The Settlement Agreement included the following covenant not to sue:

2.1 ... Leviton also hereby covenants not to sue (1) Defendants ... for alleged infringement of the '558 and/or '766 patents based on the Dongzheng products currently accused of infringement ... and (2) Defendants ... for alleged infringement of the '558 patent and/or the '766 patent with respect to an anticipated future new GFCI product that Defendant Dongzheng has indicated its intent to market in the U.S. in the future, provided however that [the future product conforms to a submitted design].Gen. Protecht Grp., Inc. v. Leviton Mfg. Co., No. 10–1020, 2010 WL 5559750, at *2 (D.N.M.2010); Appellees' Br. at 7. The Settlement Agreement also specified that the covenant not to sue applied to customers of the defendants, and that “Leviton ... agrees that Defendants' customers are intended beneficiaries ... and ... can enforce such provisions against Leviton....” Appellees' Br. at 8.

In addition, the Settlement Agreement included the following clause entitled “Governing Law/Venue”:

Any dispute between the Parties relating to or arising out of this [Settlement Agreement] shall be prosecuted exclusively in the United States District Court for the District of New Mexico. The Parties consent to the venue and jurisdiction of such court for this purpose.

Gen. Protecht, 2010 WL 5559750, at *3.

In September 2010, Leviton filed a complaint with the International Trade Commission (“ITC”) alleging infringement by GPG and its U.S. distributors (the other Appellees here) of U.S. Patents Nos. 7,463,124 and 7,764,151 (“'124 patent” and “'151 patent” respectively). Around the same time, Leviton filed a complaint against Appellees and other defendants in the Northern District of California alleging infringement of the same two patents. The '124 and '151 patents are both continuations ultimately depending from the applications that issued as the '558 and '766 patents. Both the '124 and '151 patents issued after the Settlement Agreement was executed and the prior litigation resolved.

Following receipt of these complaints, GPG informed Leviton that it believed it had a license to practice the asserted patents under the Settlement Agreement, and that Leviton was required to bring its case in the District of New Mexico pursuant to the forum selection clause in the same agreement. The parties were unable to agree, and Appellees filed a complaint in the District of New Mexico asserting declaratory-judgment claims for breach of contract, non-infringement, and invalidity. GPG also moved in New Mexico for a temporary restraining order and a preliminary injunction against Leviton's continued litigation of the dispute outside of New Mexico.

The New Mexico district court granted the preliminary injunction enforcing the forum selection clause of the Settlement Agreement. The district court found that there was a likelihood of success on the merits because GPG had asserted a defense of implied license, which likely triggered the forum selection clause, and because GPG was likely to succeed on the merits of this defense. Gen. Protecht, 2010 WL 5559750, at *1. The district court also considered the other three preliminary injunction factors (irreparable harm, balance of hardships, public interest) and found that each favored entry of a preliminary injunction. Id. at *25–28.

Leviton appealed and sought expedited review, which this court granted, and a stay pending appeal of the preliminary injunction, which this court denied. In December 2010, pursuant to the preliminary injunction, Leviton voluntarily dismissed its California action and moved to dismiss the ITC case against the GPG products. That motion was granted.

On appeal, Leviton essentially makes three arguments: (1) the forum selection clause does not apply because it does not extend to cases in which the only relationship the Settlement Agreement bears to the subsequent dispute is that it possibly gives rise to a defense; (2) even if the forum selection clause could apply in such cases, the Settlement Agreement does not give rise to an implied license defense in the present case as a matter of law; and (3) the district court erred in its application of the remaining three preliminary injunction factors.

Leviton timely appealed and this court has jurisdiction pursuant to 28 U.S.C. §§ 1292(a)(1), 1292(c)(1), and 1295(a)(1).

II. Discussion

A. Standard of Review

Although this court generally applies the law of the respective regional circuit on questions of procedure, this court applies its own law in reviewing procedural matters arising from substantive issues in areas of law within its exclusive jurisdiction. See Tex. Instruments Inc. v. Tessera Inc., 231 F.3d 1325, 1328 (Fed.Cir.2000). In a case such as this, involving an injunction against participation in a district court suit for patent infringement and an ITC investigation under section 337 of the Tariff Act, this court's procedural law applies. Id. “Under Federal Circuit law, this court sustains a grant or denial of a preliminary injunction unless the district court abused its discretion, or based its decision on an erroneous legal standard or clearly erroneous findings of fact.” Id.

B. Likelihood of Success on the Merits

1. Forum Selection Clause

The forum selection clause in the Settlement Agreement states in relevant part that “any dispute between the Parties relating to or arising out of this [Settlement Agreement] shall be prosecuted exclusively in the United States District Court for the District of New Mexico.” Gen. Protecht, 2010 WL 5559750, at *3. Thus, whether GPG is likely to succeed on the merits of applying the forum selection clause depends on whether its implied license defense crosses the threshold required to trigger the “relating to or arising out of” provision of that clause. The parties disagree about how high this threshold really is.

As Leviton argues, if all that is required is a license and a bare allegation that it provides a defense, then virtually every subsequent dispute between contracting parties would trigger such a forum selection clause. On the other hand, as GPG argues, if a party seeking to enforce a forum selection clause in the context of a license defense must first establish, conclusively, that it would win the license defense, such a forum selection clause would be meaningless because if the defense should fail, then the merits would have been litigated in a forum other than that which was bargained for; and if the defense should succeed, there would likely be nothing left to litigate once the case arrives in the proper forum.

In Texas Instruments, this court held that “[p]atent infringement disputes do arise from license agreements” and that where “the governing law clause of the license agreement is not limited to license related issues such as the amount of royalty due, term of agreement, and cross licensing[, that clause,] ... as in any patent license agreement, necessarily covers disputes concerning patent issues.” 231 F.3d at 1331. This case presents a non-frivolous dispute regarding the scope of a patent license. The outcome of that dispute will determine whether the patentee can sustain its suit for infringement. Thus, there is no question in this case that the dispute “relates to or arises out of” the Settlement Agreement. The forum selection clause therefore applies, and the district court did not abuse its discretion in granting the preliminary injunction on that basis.

2. Implied License

The controlling case on the implied license question presented here is TransCore v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed.Cir.2009). In settling a prior case, TransCore had in effect licensed MARK IV by covenanting not to sue under multiple patents covering automated toll collection technology. Id. at 1273. The settlement agreement included the following provisions:

[TransCore...