College Sav. Bank v. Florida Prepaid Educ. Exp. Bd.

• Decision Date: 13 December 1996
• Docket Number: Civ. No. 94-5610 (GEB).,Civ. No. 95-4516 (GEB).
• Citation: 948 F.Supp. 400
• Parties: COLLEGE SAVINGS BANK, Plaintiff, and United States of America, Intervenor-Plaintiff, v. FLORIDA PREPAID POSTSECONDARY EDUCATION EXPENSE BOARD, Defendant.
• Court: U.S. District Court — District of New Jersey

Page 400

948 F.Supp. 400

COLLEGE SAVINGS BANK, Plaintiff and United States of America, Intervenor-Plaintiff, v. FLORIDA PREPAID POSTSECONDARY EDUCATION EXPENSE BOARD, Defendant.

Civ. No. 95-4516 (GEB).

Civ. No. 94-5610 (GEB).

United States District Court, D. New Jersey.

December 13, 1996.

Arnold B. Calmann, Saiber, Schlesinger, Satz & Goldstein, Newark, NJ, Kevin J. Culligan, Steven C. Cherny, Robert W. Morris and Mitchell S. Bompey, Fish & Neave, New York City, for plaintiff College Savings Bank.

Robert G. Shepherd, Mathews, Woodbridge & Collins, Princeton, NJ, Anne E. Hendricks, Eckert, Seamans, Cherin & Mellott, Marlton, NJ, for defendant Florida Prepaid Postsecondary Education Expense Board.

W. Scott Simpson, U.S. Department of Justice, Civil Division, Washington, DC, for intervenor-plaintiff U.S.

MEMORANDUM OPINION

GARRETT E. BROWN, Jr., District Judge.

This matter comes before the Court on the motions of defendant, Florida Prepaid Postsecondary Education Expense Board, to dismiss plaintiff's Patent Act Claim (Civ. No. 94-5610) and Lanham Act Claim (Civ. No. 95-4516) pursuant to FED.R.CIV.P. 12(h)(3). For the reasons set forth herein, the Court will grant defendant's motion to dismiss the Lanham Act Claim and deny defendant's motion to dismiss the Patent Act Claim.

I. BACKGROUND

A. The Parties

Plaintiff College Savings Bank ("CSB") is a New Jersey chartered savings bank located in Princeton, New Jersey. CSB alleges that since September, 1987, it has engaged in the business of selling CollegeSure® CD, a deposit contract administered according to a patented method and intended to provide a return adequate to satisfy college education expenses, even though those expenses are presently unknown.¹ See Patent Act Compl. ¶ 3.

Defendant Florida Prepaid Postsecondary Expense Board ("Florida Prepaid") is a body corporate of the State of Florida, created by FLA.STAT. § 240.551 to manage and operate the Florida Prepaid Postsecondary Education Expense Program (the "Program").² Like CSB, Florida Prepaid agrees to provide a return for the money invested that is guaranteed to be adequate to meet payouts required to fund the uncertain cost of a college education at specified dates in the future.³ Florida Prepaid has administered a tuition prepayment program since September, 1988.

B. The Claims

1. The Patent Act Claim

On November 7, 1994, CSB brought an action against Florida Prepaid for allegedly infringing CSB's '055 patent. Specifically, CSB avers, in pertinent part, that:

6. Defendant Florida Prepaid has been and still is directly infringing, actively inducing the infringement of, or contributing to the infringement of, the '055 patent by making, using, or selling in this Judicial District and elsewhere, contracts administered in accordance with a method to provide a return adequate to meet payouts for funding the uncertain cost of a college education at a future date.

7. Defendant Florida Prepaid with actual knowledge of the '055 patent, with knowledge of its infringement, and without lawful justification, has willfully infringed the '055 patent.

Patent Act Compl. ¶¶ 6-7. Thus, CSB contends that the manner in which Florida Prepaid performs its obligations under its college prepayment contracts — that is, the data processing apparatus and methods that Florida Prepaid uses — directly infringes CSB's patent under 35 U.S.C. § 271.

2. The Lanham Act Claim

On August 25, 1995, CSB filed a complaint against Florida Prepaid alleging violations of Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), and the common law tort of unfair competition. CSB asserts that its efforts to sell investment contracts have been hurt by "false and misleading claims that Florida Prepaid has made in its promotional materials." Lanham Act Compl. ¶ 11. Specifically, CSB alleges that defendant falsely represented the Florida Prepaid program in the following respects: (1) that the State of Florida guarantees all contract beneficiaries to have the full amount necessary to fund a college education at a participating college or university, id. ¶ 14; (2) that any tax liability on a Florida Prepaid contract is deferred until the student reaps the benefits of the contract, i.e., is enrolled at college, id. ¶ 22; (3) that Florida Prepaid's investments are backed by the "full faith and credit" of the United States, id. ¶¶ 30-32; and (4) that defendant failed to disclose, in its 1995 Annual Report, the existence of CSB's patent infringement action against it. Id. ¶¶ 37-39.

3. The Counterclaims

In response to CSB's Patent Act Claim, Defendant filed a counterclaim seeking a declaration from this Court that CSB's '055 patent is invalid, unenforceable and void. Moreover, with respect to plaintiff's Lanham Act Claim, defendant filed counterclaims alleging defamation, product disparagement and trade libel. These counterclaims are centered on a statement made by Peter Roberts, the President and Chief Financial Officer of CSB, as quoted and printed in the September 13, 1995 edition of the Miami Daily Business Review, shortly after CSB filed the Lanham Act Claim. Commenting on the representations Florida Prepaid makes in the promotion of its deposit contract program, Mr. Roberts stated: "At best those claims are half-truths, and at worst they're outright lies." See Stan Yabaro, Prepaid College Plan Faces New Suit from Rival, MIAMI DAILY BUS. REV., Sept. 13, 1995, at A1, A7, attached to Florida's Prepaid's Lanham Act Answer, Affirmative Defenses and Counterclaims as Exh. C.

C. Procedural History

On March 23, 1995, Florida Prepaid filed a motion to dismiss the Patent Act Claim or, in the alternative, to transfer the action to the Northern District of Florida. Defendant alleged that CSB's Patent Act Claim failed to state a claim for patent infringement because there was no allegation that defendant was actually using or selling the method patented by CSB. See Florida Prepaid's Brief in Support of its Motion to Dismiss or Transfer Venue at 5. Therefore, defendant argued, the Patent Act Claim should be dismissed pursuant to FED.R.CIV.P. 12(b)(6). In the alternative, Florida Prepaid argued that the patent action should be transferred to the Northern District of Florida in view of forum non-conveniens issues. Id. at 7.

On May 4, 1995, this Court denied defendant's motions. Specifically, we found that

the complaint, as reasonably read, alleges the defendant has infringed the '055 patent by using the methods and apparatus patented therein to fulfill its obligation to purchasers of the contract. That easily satisfies the standard articulated in Rule 8(a).

Paragraph 6 of the complaint alleges the defendant is infringing the patent by selling contracts performed and effectuated by use of the claims of the '055 patent. While one could interpret the paragraph as complaining of the sale of contracts, it also clearly alleges that the defendant, to perform its obligations under the contract, utilized the methods covered by the '055 patent. In this regard, it is useful to remember that a contract is a promise or set of promises for the breach of which the law gives a remedy or the performance of which the law, in some way, recognizes as a duty.

The bargained for exchange here is that the defendant's contracts allegedly memorialize that in return for the purchaser's investment, Florida Prepaid will somehow provide a return sufficient to satisfy the presently unknown financial liabilities of a college education. Inherent in that allegation, is that the defendant necessarily employs the methods covered by the '055 patent to fulfill its performance. The complaint recognizes this in paragraph 6, as evidenced by its own terms, and its close tracking of the claims of the '055 patent. I will deny the motion to dismiss.

See May 4, 1995 Transcript of Motion at 8-9, College Savings Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., Civ. No. 94-5610 (D.N.J. May 4, 1995) (GEB). Moreover, the Court was unpersuaded by defendant's forum non conveniens argument because, inter alia: (1) the defendant maintained significant contacts with New Jersey; (2) the median trial time at the time of the motion was significantly longer in the Northern District of Florida than in the District of New Jersey; and (3) most of Florida Prepaid's third-party agents who sell contracts and conduct other activities reside outside of Florida. Id. at 17-19. An Order denying defendant's motions was entered on May 5, 1995.

More than eight months later, on February 9, 1996, CSB filed a motion to dismiss Florida Prepaid's counterclaims for defamation, product disparagement and trade libel. CSB argued that Florida Prepaid, as a state agency, could not maintain an action for libel or defamation based on statements critical of government operations because such speech is protected by the Free Speech Clause of the First Amendment to the United States Constitution. See College Savings Bank v. Florida Prepaid Postsecondary Educ. Expense Bd., 919 F.Supp. 756, 758 (D.N.J.1996) (GEB) ("College Savings I"). CSB also contended that Roberts's statement was privileged speech because it commented on a judicial proceeding or a matter that is of public interest. Id.

By Memorandum Opinion and Order dated March 22, 1996, this Court granted plaintiff's motion to dismiss defendant's Lanham Act counterclaims after concluding that a government agency, such as Florida Prepaid, could not maintain an action for libel or defamation, regardless of whether that agency is acting in a proprietary capacity. Id. at 760. We also noted that "[a] contrary holding would leave open the possibility that a government agency could file a civil action alleging defamation with malice, and thereby employ its potentially vast resources to chill speech in any number of contexts and regardless of the speaker's actual intent." Id. (citing New York Times Co. v. Sullivan, 376 U.S. 254, 297, 84 S.Ct. 710, 735, 11 L.Ed.2d 686 (1964) (Black,...