Spread Spectrum Screening Llc v. Eastman Kodak Co.

• Decision Date: 26 September 2011
• Docket Number: No. 2011–1019.,2011–1019.
• Citation: 657 F.3d 1349,100 U.S.P.Q.2d 1266
• Parties: SPREAD SPECTRUM SCREENING LLC, Plaintiff–Appellant,v.EASTMAN KODAK COMPANY, Continental Web Press, Inc., Graphic Partners, Inc., Johns–Byrne Company, and Genesis Press, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

657 F.3d 1349

100 U.S.P.Q.2d 1266

SPREAD SPECTRUM SCREENING LLC, Plaintiff–Appellant,

v.EASTMAN KODAK COMPANY, Continental Web Press, Inc., Graphic Partners, Inc., Johns–Byrne Company, and Genesis Press, Inc., Defendants–Appellees.

No. 2011–1019.

United States Court of Appeals, Federal Circuit.

Sept. 26, 2011.

Chad Ennis, F & B LLP, of Austin, TX, argued for the plaintiff-appellant. With him on the brief was Adam V. Floyd. Of counsel was Joseph D. Gray.R. Scott Feldmann, Crowell & Moring, LLP, of Irvine, CA, argued for the defendants-appellees. With him on the brief were Brian M. Koide, of Washington, DC, and Scott L. Bittman, of New York, NY.

Of counsel was Jeffrey D. Sanok, of Washington, DC.Before RADER, Chief Judge, LOURIE and O'MALLEY, Circuit Judges.O'MALLEY, Circuit Judge.

In this patent case, Spread Spectrum Screening LLC (“S3”) filed suit in the Northern District of Illinois against Eastman Kodak Company (“Kodak”) and four of Kodak's customers—Continental Web Press, Inc., Graphic Partners, Inc., Genesis Press, Inc., and Johns–Byrne Company (collectively, “the Kodak Customers”)—alleging infringement of U.S. Patent No. 5,689,623 (“the '623 Patent”). On September 1, 2010, the district court granted Kodak's motion to: (1) sever the claims against it from those against the other defendants; (2) stay the action against the Kodak Customers in Illinois; and (3) transfer the case against Kodak to the Western District of New York. S3 appeals only from the portion of the order granting Kodak's motion to stay the case against the Kodak Customers pending the outcome of its action against Kodak in New York. Spread Spectrum Screening, LLC v. Eastman Kodak Co., No. 10 C 1101, 2010 WL 3516106, 2010 U.S. Dist. LEXIS 90549 (N.D.Ill. Sept. 1, 2010) (“ District Court Opinion ”). Because this appeal is not from a final judgment within the meaning of 28 U.S.C. § 1295(a)(1), and does not otherwise qualify as an appealable order, we dismiss for lack of jurisdiction.

Background

A. Factual Background

1. The '623 Patent

The '623 Patent—entitled “Spread Spectrum Digital Screening”—was invented by an individual named Adam Pinard and is currently assigned to S3, a patent holding company. The patent, which issued on November 18, 1997, discloses a type of screening mask that can be used in commercial printing software and includes claims drawn to a “spread spectrum digital screening mask,” methods and systems for using the mask, and binary reproductions of a continuous tone image that have certain claimed characteristics.

The technology involved relates to digital “half-toning,” which S3 describes as “a process used in the commercial printing industry to convert a continuous tone image, such as a photograph, into a half-tone image consisting of a pattern of minute dots that, when viewed at a suitable distance, appears to recreate the continuous tone image.” Appellant's Br. 14. Newspapers, for example, are printed in half-tone.

The '623 Patent contains four sets of claims:

• Claims 1–12, which claim a digital screening mask;

• Claims 13–16, which claim methods of using the digital screening mask;

• Claim 17, which claims a system that uses the digital screening mask; and

• Claims 18–19, which claim binary reproductions having certain characteristics.

According to S3, the screening masks described in the '623 Patent result in “visually-pleasing half-tone images that [are] less susceptible to dot gain and dot loss and thus more commercially viable than the prior art.” Appellant's Br. 17.

2. Kodak's Staccato Software

Kodak manufactures, uses, and licenses the allegedly infringing products under the brand name Staccato. The Kodak Customers are licensed to use the Staccato software products. According to Kodak, it has licensed 1,621 copies of the software in the United States, and the Kodak Customers represent only nine (9) licenses. Appellees' Br. 5.

Although the Kodak Customers are licensed to use the Staccato software, they are not involved in making it. According to S3, the Kodak Customers “use Kodak's digital screening masks and systems to generate half-toned images” which are “typically etched onto a printing plate. The plate is then installed in a printing press, which applies ink onto the plate and then rolls it onto a media, thereby transferring the image onto the media.” Appellant's Br. 18. S3 alleges that the Kodak Customers manufacture and sell their own binary reproductions “in the form of half-toned image reproductions.” Id.

B. Procedural History

On February 18, 2010, S3 filed suit against Kodak and the Kodak Customers in the Northern District of Illinois alleging infringement of the '623 Patent. S3 also named a Kodak competitor, Heidelberg U.S.A., Inc., and its customer, Hafner Printing Co., Inc., as defendants—both of which were later dismissed from the litigation.¹ In the complaint, S3 alleges that Kodak: (1) makes, uses, and sells software that directly infringes claims 1–9, 11, and 13–18 of the ' 623 Patent; and (2) actively induces its customers to infringe claims 1–9, 11, and 13–18 of the ' 623 Patent. With respect to the Kodak Customers, S3 alleges that they infringe the ' 623 Patent by: (1) using Kodak's infringing products; and (2) manufacturing binary reproductions that independently infringe claim 18 of the ' 623 Patent. Specifically, S3 alleges, the Kodak Customers directly infringe “at least claims 1–9, 11, and 13–18 of the ' 623 Patent by making, using, selling, and/or offering for sale infringing products and/or methods.” Joint Appendix (“J.A.”) 68 at ¶ 67.

Kodak and three of its Customers (Genesis, Johns–Byrne, and Graphic Partners) counterclaimed seeking declaratory judgment that the '623 Patent is invalid and not infringed. In addition, one of Kodak's Customers, Johns–Byrne, filed a cross-claim against Kodak for indemnification. In the cross-claim, Johns–Byrne alleged that it uses the Staccato product “in only one type of job, printing a white base on plastic” and that this use “amounts to perhaps 1% or 2% of Johns–Byrne's business, and can be accomplished with other software.” J.A. 258 at ¶ 3.²

On April 29, 2010, Kodak filed a motion to: (1) sever the case against it from the other defendants; (2) transfer the case against it to the Western District of New York; and (3) stay the case against the Kodak Customers in the Northern District of Illinois. The Kodak Customers joined in Kodak's motion.

On September 1, 2010, the district court granted Kodak's motion in full. Specifically, the court: (1) severed S3's claims against Kodak from the claims against its competitor, Heidelberg, on grounds that the actions did not arise from a common transaction or occurrence; (2) severed S3's claims against Kodak from its claims against the Kodak Customers; (3) stayed the case against the Kodak Customers pending resolution of S3's case against Kodak; and (4) transferred the case against Kodak to the Western District of New York pursuant to 28 U.S.C. § 1404(a), concluding that it is a more convenient forum and that the interest of justice favored the transfer.³ S3 appeals only from the portion of the district court's order granting the stay.

With respect to the motion to stay, the district court found that the Kodak Customers were “merely peripheral” to the action against Kodak, would “add nothing to plaintiff's infringement action against Kodak,” and were named as defendants solely to establish venue in the Northern District of Illinois. Accordingly, the court stayed S3's action against the Kodak Customers pending the resolution of the case against Kodak in New York. In reaching this conclusion, the court noted that, “if the action against Kodak proceeds and Kodak's Staccato product is found to have infringed the '623 patent, and each of Kodak's Customers are found to have used Staccato in their processes, they will also have infringed the '623 patent.” District Court Opinion, 2010 WL 3516106, at *3, 2010 U.S. Dist. LEXIS 90549, at *9. The court found that, because the customers “merely use” the Kodak product, “they have nothing substantive to offer during plaintiffs action against Kodak and likely do not even understand how the product software actually works and will not be helpful to determine whether Kodak's Staccato product infringes the '623 patent.” Id.

S3 timely appealed to this court asserting jurisdiction under both 28 U.S.C. §§ 1292 and 1295.

Standard of Review

On matters relating to this court's jurisdiction, we apply Federal Circuit law, “not that of the regional circuit from which the case arose.” Nystrom v. TREX Co., Inc., 339 F.3d 1347, 1349–50 (Fed.Cir.2003). Whether the court has jurisdiction over an appeal from a district court decision is a question of law the court reviews “in the first instance.” Pause Tech. LLC v. TiVo, Inc., 401 F.3d 1290, 1292 (Fed.Cir.2005) (citing Nystrom, 339 F.3d at 1349–50).

Discussion

S3 argues that the stay order is a final appealable order and that the district court abused its discretion in granting the stay because its decision was based on “an incorrect finding that the Printer Defendants were mere customers of Kodak and peripheral to the litigation.” Appellant's Br. 13. S3 asserts that there are three independent bases for jurisdiction in this court. First, S3 contends that the stay is appealable as a final order under § 1295. Second, it argues that jurisdiction is proper under the customer suit exception to the first-to-file rule discussed in Kahn v. General Motors Corp., 889 F.2d 1078 (Fed.Cir.1989). Finally, S3 argues that the stay is appealable under § 1292 because the district court effectively “issued an injunction barring S3 from proceeding against the Printer Defendants.” Appellant's Br. 9.

In response, Kodak argues that this court should dismiss the case for lack of jurisdiction because: (1) the stay was not a final judgment under 28 U.S.C. § 1295, and none of the exceptions to the finality requirement applies; (2) the customer suit...