FlatSpikes, LLC v. Softspikes, LLC

• Decision Date: 19 December 2012
• Docket Number: Civil Action No. DKC 12–1539.
• Citation: 913 F.Supp.2d 208
• Parties: FLATSPIKES, LLC v. SOFTSPIKES, LLC, and Pride Manufacturing Co., LLC.
• Court: U.S. District Court — District of Maryland

913 F.Supp.2d 208

FLATSPIKES, LLC

v.SOFTSPIKES, LLC, and Pride Manufacturing Co., LLC.

Civil Action No. DKC 12–1539.

United States District Court,

D. Maryland.

Dec. 19, 2012.

Aidan D. Jones, Law Office of Aidan D. Jones, Michael H. Selter, Manelli Selter PLLC, Washington, DC, for Flatspikes, LLC.

Maryellen Noreika, Paul Saindon, Wilmington, DE, Stuart M. G. Seraina, James P. Ulwick, Kramon and Graham PA, Baltimore, MD, for Softspikes, LLC, and Pride Manufacturing Co., LLC.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

The question presented in this breach of contract case is whether there is federal subject matter jurisdiction. The parties have filed memoranda, ECF Nos. 21, 23, 24, the issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, the case will be dismissed for lack of subject matter jurisdiction.

I. BackgroundA. Factual Background

Plaintiff is an inventor of golf shoe technology. Specifically, it holds a number of patents on non-metal golf shoe cleats. (ECF No. 21–1, at 2). On October 7, 1999, Plaintiff entered into an “Asset Purchase Agreement” (“APA”) with Defendants, designers and manufacturers of non-metal golf shoe cleats and systems to attach the cleats to golf shoes. ( Id.). Under the APA, Plaintiff sold Defendants its rights to certain golf cleat patents and products in exchange for a cash payment, periodic royalty payments on the sale of patented “Dynamic Cleats,” ¹ and an advance on royalty payments. ( Id. at 2–6). From 1999 through 2008, Defendants paid Plaintiff royalties on two of their products, the Black Widow cleat and the Pulsar cleat (“BW Cleats”). (ECF No. 23, at 2).

The APA includes an “Offset Provision” that allows Defendants to offset legal expenses of litigation commenced by third parties against Defendants claiming that the “Property” purchased pursuant to the APA infringes the third party's patent rights against royalties earned by Plaintiff under the contract:

In the event any third party commences litigation against Buyer [Defendants] alleging that the sale or license by Buyer of Products covered by Property infringes the patent rights of such third party, Buyer shall pay such out-of-pocket expenses, up to an aggregate amount of Fifty Thousand Dollars ($50,000), incurred by Buyer in Defending any such suits.

( Id. at 6). After the first $50,000, the APA provides that litigation expenses will be split evenly by Plaintiff and Defendants, and Defendants are to offset Plaintiff's portion of the expenses against future royalty payments. ( Id.). “Products” are defined as all “uses of and products based on the Property.” ( Id. at 2). “The Property” is defined as “the patents and patent applications set forth in” the APA, and, among other things, “all works derived from” the patents. ( Id. at 1).

In 2007, a third party, Greenskeepers, Inc., sued Defendants, alleging that the BW Cleats infringed one of its patents. (ECF No. 1 ¶ 12). On December 16, 2008, Defendants told Plaintiff that they were suspending royalty payments to offset litigation costs incurred in defending the Greenskeepers lawsuit. ( Id. ¶ 13). Defendants claimed and offset litigation expenses of approximately $2,500,000 for this suit. ( Id. ¶ 14).

In July 2008, separately and apart from the Greenskeepers litigation, Defendant Softspikes sued another third party, MacNeill Engineering Co., for its infringement of Plaintiff's patents, to which Defendants had rights under the APA. In September of that year, MacNeill filed a counterclaim against Softspikes alleging that its sale of BW Cleats infringed MacNeill's patents. ( Id. ¶ 16). This litigation settled, and Plaintiff asserts that the settlement included cross-licenses covering past sales and continued manufacturing of each company's property, including cleats for which Plaintiff is owed royalties. ( Id. ¶ 17). Softspikes suspended royalty payments to Plaintiff and offset its $1,000,000 in litigation expenses for defense of MacNeill's counterclaim against royalty payments already due. ( Id. ¶ 18–19). Finally, Plaintiff alleges that Softspikes received approximately $1,000,000 worth of license fees from MacNeill between 2000–2004 for products it avers qualify as “Dynamic Cleats” under the APA, and for which Plaintiff is entitled royalty payments. ( Id. ¶ 20).

B. Procedural Background

On December 14, 2011, Plaintiff filed a complaint against Defendants alleging breach of contract in the Circuit Court for Montgomery County, Maryland. (ECF No. 23, at 3). In their answer to this complaint, Defendants argued that the state court lacked subject matter jurisdiction because federal courts have exclusive jurisdiction in cases arising under federal patent laws. (ECF No. 21, at 1). After the circuit court decided that patent issues were likely implicated by the complaint, that lawsuit was stayed until Plaintiff filed a complaint with this court. ( Id.). That case remains stayed pending this determination of federal subject matter jurisdiction.

On May 22, 2012, Plaintiff filed a complaint comprised of two counts for breach of contract. (ECF No. 1). On July 2, 2012, Defendants filed an answer to the complaint asserting a number of affirmativedefenses and counterclaims for breach of contract and unjust enrichment. (ECF No. 9). Plaintiff subsequently filed an answer to the counterclaims. (ECF No. 22). After a conference with the parties, and given the unusual posture of this case, briefing on federal subject matter jurisdiction was ordered. (ECF No. 20). Despite filing suit here, Plaintiff contends that this court lacks subject matter jurisdiction, while Defendants assert that it has it.

II. Standard of Review

Under 28 U.S.C. § 1338(a), “[t]he district courts ... have original jurisdiction of any civil action arising under any Act of Congress relating to patents.” Further, “no State court shall have jurisdiction over any claim for relief arising under any act of Congress relating to patents ...” Id.

It is axiomatic that lawsuits “arise under the law that creates the cause of action.” Am. Well Works Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S.Ct. 585, 60 L.Ed. 987 (1916); Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, 808, 106 S.Ct. 3229, 92 L.Ed.2d 650 (1986). Even if the cause of action does not arise from patent law, the jurisdictional inquiry does not necessarily end. “[A] case [also] may arise under federal law ‘where the vindication of a right under state law necessarily turn[s] on some construction of federal law.’ ” Merrell Dow, 478 U.S. at 808, 106 S.Ct. 3229 (quoting Franchise Tax Bd. v. Const. Laborers Vacation Trust, 463 U.S. 1, 9, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)). Furthermore,

the question is, does a state-law claim necessarily raise a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance of federal and state judicial responsibilities.

Grable & Sons Metal Products, Inc. v. Darue Engineering & Mfg., 545 U.S. 308, 314, 125 S.Ct. 2363, 162 L.Ed.2d 257 (2005). Federal patent law jurisdiction, therefore

extends only to those cases in which a well-pleaded complaint establishes either that federal patent law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal patent law, in that patent law is a necessary element of one of the well-pleaded claims.

Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 801, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988). Therefore, to establish federal jurisdiction when state law creates the plaintiff's causes of action, a party must show “two things: (1) that the plaintiff's right to relief necessarily depends on a question of federal law, and (2) that the question of federal law is substantial.” Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 816 (4th Cir.2004) (en banc).²

A plaintiff's state law claim necessarily relies on federal law only if every theory supporting that claim requires the federal issue to be resolved. Christianson, 486 U.S. at 811, 108 S.Ct. 2166 (“The well-pleaded complaint rule ... focuses on claims, not theories, ... and just because an element that is essential to a particular theory might be governed by federal patent law does not mean that the entire claim ... ‘arises under’ patent law.”).³Put differently, if each claim supports at least one theory of recovery based on state law, the federal courts do not have jurisdiction. Id. at 810, 108 S.Ct. 2166 (holding that “a claim supported by alternative theories in the complaint may not form the basis for § 1338(a) [patent] jurisdiction unless patent law is essential to each of those theories”); see also In re Tamoxifen Citrate Antitrust Litig., 466 F.3d 187, 199 (2d Cir.2006) (concluding that “even if one theory supporting a claim essentially turns on an issue arising under patent law, as long as there is at least one alternative theory supporting the claim that does not rely on patent law, there is no ‘arising under’ jurisdiction under 28 U.S.C. § 1338”); Dixon, 369 F.3d at 817 (“if the plaintiff can support his claim with even one theory that does not call for an interpretation of federal law, his claim does not ‘arise under’ federal law”); Mulcahey v. Columbia Organic Chemicals Co., Inc., 29 F.3d 148, 153 (4th Cir.1994) (“[I]f a claim is supported not only by a theory establishing federal subject matter jurisdiction but also by an alternative theory which would not establish such jurisdiction, then federal subject matter jurisdiction does not exist.”); Greer v. Crown Title Corp., 216 F.Supp.2d 519, 522 (D.Md.2002) (“[I]f a state law claim is supported by alternative theories of recovery, only one of which sustains federal jurisdiction, then federal jurisdiction does not exist.”) (citing Christianson, 486 U.S. 800, 108 S.Ct. 2166). Finally, jurisdiction may only be based on the...