Cooper Indus. v. Abb Holdings Inc.

• Decision Date: 25 May 2011
• Docket Number: Civil Action H-11-791
• Parties: Cooper Industries, LLC and Cooper Power Systems, Inc.,Plaintiffs, v. ABB Holdings Inc. and ABB Inc.,Defendants.
• Court: U.S. District Court — Southern District of Texas

Cooper Industries, LLC and Cooper Power Systems, Inc.,Plaintiffs,

v.ABB Holdings Inc. and ABB Inc.,Defendants.

Civil Action H-11-791

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

Dated: May 25, 2011

MEMORANDUM AND ORDER

Pending before the court is plaintiff's motion to remand. Dkt. 3. After considering the motion, the response, and the applicable law, the motion to remand is GRANTED.

BACKGROUND

This dispute arises from an October 7, 2005, settlement agreement that concluded patent litigation between plaintiffs (collectively referred to as "Cooper") and defendants (collectively referred to as "ABB") when ABB manufactured an insulating fluid called BIOTEMP, which Cooper claimed to have patented. Dkt. 1-4 at 3-4. The settlement agreement licensed ABB to manufacture BIOTEMP, but explicitly provided that no third party had a license to manufacture BIOTEMP. Id. at 4. ABB subsequently engaged Dow Chemicals ("Dow") to manufacture BIOTEMP on ABB's behalf, and Cooper filed suit seeking a declaratory judgment that ABB had violated the terms of the settlement agreement. Id.

ABB removed the case to this court, recognizing that only a state law claim was raised by Cooper, but asserting that the settlement agreement is premised upon Cooper's patent. ABB argued that issues of patent law inherent in the dispute created a substantial federal issue justifying removal.

The case was docketed at Civil Action No. 09-3534. On January 14, 2010, the court reviewed the state law contract claim raised by plaintiff, and determined that no substantial federal issue was raised. More specifically, the court held:

The court finds that Cooper has not artfully pleaded a contract claim around a necessarily federal patent dispute. This case is distinguishable from U.S. Valves, Inc. v. Dray, 212 F.3d 1368 (Fed. Cir. 2000), cited by ABB. In U.S. Valves, the Federal Circuit held that in order for the court to determine whether the defendant had breached the contract at issue, the court was required to determine whether the goods sold by the defendant were covered by the patent. Thus federal subject matter jurisdiction was proper in the case. Id. at 1372. This case, however, does not center on whether BIOTEMP falls within the Cooper patents—that is undisputed. It is a question of whether the license agreement allows ABB to manufacture BIOTEMP via a third party. Such a determination rests on contract interpretation, not federal patent law. Remand, therefore, is appropriate.

Civil Action No. 09-3534, Dkt. 9 at 5.

The state court litigation proceeded after remand. On March 11, 2010, Cooper added a claim in its first amended petition for breach of contract, and also added demands for actual damages and injunctive relief. Dkt. 1-4 at 47-53. ABB did not remove the case within 30 days of these amended pleadings. Trial was scheduled in the state court for May 16, 2011. Dkt. 1-5 at 55.

On March 3, 2011, ABB removed this case for the second time, asserting that a ruling by the Court of Appeals for the Federal Circuit in a related case constitutes binding precedent, and that the case is removable on the basis of a substantial federal question. The related case was filed by ABB against Cooper seeking an anticipatory declaratory judgment of non-infringement of Cooper's patent and was docketed in this court as Civil Action No. 09-2394. Judge Hoyt dismissed the case for lack of subject matter jurisdiction because Cooper had not (and still has not) filed a patent infringement suit. ABB appealed, and the Court of Appeals for the Federal Circuit issued a decision on February 17, 2011, reversing the order of dismissal. ABB Inc v. v. Cooper Indus., LLC, 635 F.3d 1345 (Fed.Cir. 2011). A detailed discussion of the Federal Circuit's opinion is necessary for the court to rule on the motion to remand in this case.

The issue before the Federal Circuit in ABB's declaratory judgment action was whether ABB could file a declaratory judgment action premised upon its potential defenses to a patent infringement suit that had not been filed:

Cooper first asserts that subject matter jurisdiction does not exist because there was no actual controversy surrounding infringement but instead a dispute about contract interpretation. An Article Ⅲ case or controversy exists when "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, Inc. v. Genentech, Inc., 549 U.S. 118, 127, 127 S.Ct. 764, 166 L.Ed.2d 604 (2007) (quoting Maryland Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941)). "MedImmune rejected our prior, more stringent standard insofar as it included a requirement of a "reasonable apprehension of imminent suit." Id. at 132 n. 11, 127 S.Ct. 764; see also SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1378-80 (Fed. Cir. 2007) (recognizing MedImmune's rejection of the reasonable apprehension test); Teva Pharm. USA, Inc. v. Novartis Pharm. Corp., 482 F.3d 1330, 1338-39 (Fed. Cir. 2007) (same).

Thus, a specific threat of infringement litigation by the patentee is not required to establish jurisdiction, and a "declaratory judgment action cannot be defeated simply by the stratagem of a correspondence that avoids magic words such as 'litigation' or 'infringement.'" Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed. Cir. 2009). Cooper's argument that the controversy must be judged based on the actually threatened litigation is an impermissible attempt to revive the "reasonable apprehension of imminent suit" test rejected by the Supreme Court in MedImmune.

635 F.3d at 1348. Thus, the Federal Circuit viewed the issue before it as whether ABB had identified a "substantial controversy" between it and Cooper concerning patent infringement that was of "sufficient immediacy and reality to warrant the issuance of a declaratory judgment." The court found that, despite Cooper's characterization of the controversy as involving only state contract law, and despite Cooper filing only a state law contract claim, Cooper's assertion in pre-litigation letters toABB that it intended to "act vigorously to protect its rights" was sufficient to implicate a patent suit. The Federal Circuit reached this conclusion because, in its view, a party seeking to vigorously protect its rights would seek damages and injunctive relief, and to "obtain an injunction or damages remedy, Cooper likely would have to sue ABB for induced infringement or Dow for direct infringement (which would have obligated ABB to indemnify Dow)." Id. at 1348-49.

The Federal Circuit also noted that Cooper "does not contend in its brief here" that it could obtain damages on a breach of contract theory in the state court, and further that the Texas court "has not adopted Cooper's argument that the contract contains an enforceable negative implied covenant on the part of ABB not to infringe." Id. at 1349. In other words, the Federal Circuit used the proceedings during Cooper's state court litigation to support its finding that damages and injunctive relief could only be obtained in a patent suit. In the course of reaching this conclusion, the Federal Circuit inserted a footnote that is the basis of ABB's renewed removal of Cooper's lawsuit:

FN3. Even if [Cooper] did [seek damages under a contract theory], such a claim would be within federal subject matter jurisdiction because Cooper's "right to relief [would] necessarily depend [ ] on resolution of a substantial question of federal law," i.e. whether ABB had, in fact, infringed the patents. See Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 808, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988) (quoting Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27-28, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)).

635 F.3d at 1349 fn 3. The Federal Circuit then compared this situation to MedImmune where the patent holder sent "'a letter expressing its belief that [the accused product] was covered by [one of respondent's patents] and its expectation that petitioner would pay royalties' and the Court found there was a case or controversy." Id. at 1349. The court held that Cooper's pre-litigation threat was the equivalent of the threat made in MedImmune and that ABB's declaratory judgment action could therefore proceed.

The Federal Circuit's ruling-that ABB was under a threat of patent litigation sufficient to permit ABB to seek a declaratory judgment of non-infringement- is not relied upon by ABB as a basis for removal in this case. Rather, ABB argues that footnote 3 of the Federal Circuit's opinion establishes that Cooper's contract claim in this case is, in reality, a claim premised upon patent law and that that claim is, therefore, removable.

ANALYSIS

When an action is not initially removable, 28 U.S.C. § 1446(b) provides that the defendant has 30 days after it receives a copy of "an amended pleading, motion, order or other paperfrom which it may first be ascertained that the case is one which is or has become removable . . .." (emphasis added). Here, ABB asserts that the decision of the Federal Circuit on appeal from the dismissal of ABB's declaratory judgment action, and more accurately footnote 3 in that decision, constitutes a binding ruling in this matter, and makes this case removable as of the time of the Federal Circuit's ruling.

Cooper notes that the issue before the Federal Circuit was whether ABB could pursue a separate declaratory judgment action, and not whether Cooper's state law lawsuit was or was not removable. Cooper further asserts that the Federal Circuit simply misconstrued the nature of the state court proceedings in this case, and also misconstrued Cooper's position on its ability to obtain damages in this case. The Federal Circuit's ruling is, in Cooper's view, the result of basic misunderstandings of...