Argus Neurooptics, LLC v. Matthews

• Decision Date: 24 August 2011
• Docket Number: No. 5:11-CV-84-D,5:11-CV-84-D
• Court: U.S. District Court — Eastern District of North Carolina
• Parties: ARGUS NEUROOPTICS, LLC, Plaintiff, v. CHARLES J. MATTHEWS, Defendant.

ARGUS NEUROOPTICS, LLC, Plaintiff, v. CHARLES J. MATTHEWS, Defendant.

No. 5:11-CV-84-D

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NORTH CAROLINA WESTERN DIVISION

SO ORDERED. August 24, 2011

ORDER

On February 25, 2011, Argus NeuroOptics, LLC ("Argus" or "plaintiff") filed this action against Charles J. Matthews ("Matthews" or "defendant") seeking a declaratory judgment construing Argus's patent rights under an "Invention Assignment Agreement" ("the Agreement"), a declaratory judgment and injunctive relief enforcing Argus's ownership rights under the Agreement, damages for breach of fiduciary duty and breach of contract, and attorney's fees [D.E. 1 ]. On March 25, 2011, defendant filed a motion to dismiss, arguing that the court lacks subject-matter jurisdiction to consider the complaint [D.E. 8]. On April 14, 2011, plaintiff responded in opposition (D.E. 10]. On May 2, 2011, defendant filed a reply [D.E. 11]. For the reasons explained below, the court grants defendant's motion to dismiss.

I.

Argus researches and develops medical devices and treatments in the fields of photobiology, laser therapy, photomedicine, and biofeedback. Compl. ¶ 2. Matthews and two others founded Argus. Id. On December 2, 2009, Matthews signed an "Invention Assignment Agreement" by which he assigned a pending patent application and "related inventions" that included "all inventions, rights, titles, and interests throughout the world, concepts, know-how, improvements,and trade secrets, whether or not patentable or registrable under copyright or trademark law related to" the pending patent application and "the general fields of photobiology, laser therapy, photomedicine, medical devices, and algorithms related to biofeeback and control." Compl., Ex. 1. Matthews also agreed to "promptly make full written disclosure" to Argus concerning any of his activities subject to the agreement. Id. The relationship between Matthews and Argus has deteriorated. See Compl. ¶¶ 18, 21-25. Matthews is "working on a series of new patents" and refuses to disclose information to Argus. Id. However, Argus is unaware of whether Matthews is in violation of the Agreement. Id ¶¶ 3, 26. Thus, Matthews "has compelled Argus to enforce its rights through this lawsuit" Id. ¶ 26.

In count one, Argus seeks a declaratory judgment that the six specific items listed in the Agreement are "patentable material." Compl. ¶¶ 27-29, Ex. 1 at 2. Alternatively, Arugs seeks a declaratory judgment that any non-patentable items are copyrightable or trademarkable. Id. ¶ 29. In count two, Argus seeks a declaratory judgment that Matthew's "future inventions ... in the general fields of photobiology, laser therapy, photomedicine, medical devices, and algorithms related to biofeedback and control, which might be applied commercially," constitute "patentable material." Id. ¶¶ 30-32, Ex. 1 at 2. Alternatively, Argus seeks a declaratory judgment that any future inventions in these general fields are copyrightable or trademarkable. Id. ¶ 32. In count three, Argus requests a declaratory judgment mat it is the sole owner of all inventions covered by the Agreement. Id ¶¶33-34. In count four, Argus requests a declaratory judgment or an injunction preventing Matthews from taking any action or asserting any claim that is inconsistent with Argus's ownership rights under the Agreement. Id ¶¶ 35-36. In count five, Argus demands attorney's fees pursuant to 35 U.S.C. § 285. Id. ¶¶ 37-40. In count six, Argus alleges Matthews has breached his fiduciary duty to Argus. Id ¶¶ 41-44. In count seven, Argus alleges Matthews breached the Apeement. Id¶¶ 45-48. Argus asserts the court has subject-matter jurisdiction pursuant to 28 U.S.C. §§ 1338(a) and 1367 because it has pled one or more claims arising under federal patent law and pled one or more state law claims for which federal patent law is a necessary element. Id. ¶ 5.

The Declaratory Judgment Act provides that, "in a case of actual controversy within its jurisdiction... any court of 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). A federal court may properly exercise jurisdiction in a declaratory judgment action only if "the complaint alleges an 'actual controversy' between the parties of sufficient immediacy and reality to warrant issuance of a declaratory judgment" and "the court possesses an independent basis for jurisdiction over the parties." Volvo Constr. Equip. N.A.. Inc. v. CLM Equip. Co., 386 F.3d 581,592 (4th Cir. 2004). The Declaratory Judgment Act "is not an independent basis for subject matter jurisdiction." Prasco. LLC v. Medicis Pharm. Corp., 537 F.3d 1329, 1335 (Fed. Cir. 2008). Only if a case meets the case or controversy requirement of Article ? will a district court have jurisdiction over a declaratory judgment action. Id. Thus, a dispute must "'be definite and concrete, touching the legal relations of parties having adverse legal interests'... and 'admi[t] of specific relief through a depee of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.'" Medlmmune, Inc. v. Genentech. Inc., 549 U.S. 118, 127 (2007) (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 240-41 (1937)). To determine whether a court "possesses an independent basis for jurisdiction over the parties," a court applies the well-pleaded complaint rule to a hypothetical traditional complaint. Discover Bank v. Vaden, 396 F.3d 366, 371 (4th Cir. 2005), rev'd on other grounds, 556 U.S. 49 (2009); Fina Oil & Chem. Co. v. Ewen, 123 F.3d 1466, 1470 (Fed. Cir. 1997). Thus, if the federal question would only arise as a defense to a state created action, jurisdiction is lacking. Discover Bank, 396 F.3d at 371.

The typical declaratory judgment action involving patents arises when a plaintiff seeks a declaratory j udgment of non-infringement or invalidity of a defendant's patent. See, e.g.. Arris Grp., Inc. v. British Telecomms. PLC, 639 F.3d 1368, 1373 (Fed. Cir. 2011). However, a declaratory judgment of patent rights requires the existence of a patent. See GAF Bldg. Materials Corp. v. Elk Corp., 90 F.3d 479, 482-83 (Fed. Cir. 1996). Thus, a dispute concerning a pending patent application is "purely hypothetical" and cannot support a declaratory judgment action because such a declaratory judgment would have "no legal meaning or effect." Id.

Here, Argus's declaratory judgment demands do not arise from actual controversies within this court's jurisdiction. As for counts one and two, Argus seeks a declaration that certain specific items and general classes of items are "patentable material." Compl. ¶¶ 27-32. Alternatively, Argus seeks a declaratory judgment that such non-patentable inventions constitute copyrightable material under federal copyright law or trademarkable material under federal trademark law. See id.

"[A] number of statutory requirements must be satisfied before a patent can issue. The claimed subject matter must be useful, novel, and not obvious____In addition, the patent application must describe, enable, and set forth the best mode of carrying out the invention." Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 736 (2002). Furthermore, Congress has tasked the United States Patent and Trademark Office ("PTO") with the responsibility of granting and issuing patents. See 35 U.S.C. § 2. Judicial review of the PTO's determination requires the exhaustion of administrative remedies. See, e.g.. Leighton v. Coe, 130 F.2d 841, 842 (D.C. Cir. 1942): Bullard v. United States, No. 09 1670, 2009 WL 2872739, at* 1 (D.D.C. 2009) (unpublished). The subject matter of Argus's Agreement is exceedingly broad and lacks the detail necessary for a deteimination of patentability. See 35 U.S.C. § 111(a); 37 C.F.R. § 1.77; Festo Corp., 535 U.S. at 736. Thus, even if this court had the authority to determine whether a specific item is patentable, adeclaratory judgment on this "purely hypothetical" question would have "no legal meaning or effect." See GAP Bide. Materials Corp., 90 F.3d at 482-83. Finally, Argus fails to demonstrate that a dispute with Matthews exists regarding whether these items are patentable, copyrightable, or trademarkable. See Medlmmune, Inc., 549 U.S. at 127. Accordingly, Argus has failed to plead facts sufficient to support mis court's subject-matter jurisdiction over claims one and two and they are dismissed.

As for count three, Argus seeks a declaratory judgment that it is the sole and exclusive owner of the items listed in the Agreement. However, a pure question of ownership "is not a suit under an Act of Congress relating to patents as required by [28 U.S.C] § 1338(a)." Rephin-Say Int'l. Inc. v. Rasmussen, 733 F.2d 1568, 1571 (Fed. Cir. 1984) (quotations omitted); see Hif Bio. Inc. v. Yung Shin Farm. Indus. Co., 600 F.3d 1347, 1356-57 (Fed. Cir. 2010); E.I, du Pont de Nemours & Co. v. Okuley, 344 F.3d 578, 582 (6th Cir. 2003); Pixton v.B&B Plastics. Inc., 291 F.3d 1324,1327 (Fed. Cir. 2002). Thus, the court lacks an independent basis for jurisdiction, and count three is dismissed. See Volvo Const. Equip. N.A.. Inc., 386 F.3d at 592.¹

Next, Argus contends that its claims for breach of fiduciary duty and breach of contract in counts six and seven support subject-matter jurisdiction pursuant to Christianson v. Colt Indus. Operating Corp., 486 U.S. 800 (1988). Pl.'s Resp. Opp'n 10. Argus claims that to properly consider and rule upon those claims, a court will "necessarily have to determine whether the material assignedto Argus in the ... Agreement is patentable and/or copyrightable under federal law." Id.

In Christianson, the Supreme Court held that a state-law claim arises under the patent laws only when patent law is essential to every theory of a claim as pled in the complaint. 486 U.S. at 810; Bd. of Resents. Univ. of...