Genband U.S. LLC v. Metaswitch Networks LTD

• Decision Date: 31 March 2017
• Docket Number: CIVIL ACTION NO. 2:16-CV-00582-JRG.
• Parties: GENBAND US LLC, Plaintiff, v. METASWITCH NETWORKS LTD, Metaswitch Networks Corp., Defendants.
• Court: U.S. District Court — Eastern District of Texas

248 F.Supp.3d 825

GENBAND US LLC, Plaintiff,

v.METASWITCH NETWORKS LTD, Metaswitch Networks Corp., Defendants.

CIVIL ACTION NO. 2:16-CV-00582-JRG.

United States District Court, E.D. Texas, Marshall Division.

Signed March 31, 2017

Kurt Max Pankratz, Benjamin Todd Pendroff, Chad Christian Walters, Christopher Scott Ponder, Douglas Mark Kubehl, James C. Williams, Jeffery Derek Baxter, Jennifer C. Tempesta, Kathryn Juffa, Matthew Edward Prosen, Monica Rae Hughes, Nicholas Alfred Schuneman, Roshan Suresh Mansinghani, Stanton A. Lewis, Susan Cannon Kennedy, Tim Joseph Calloway, Vernon Edward Evans, Kevin A. Smith, Baker Botts LLP, Christopher Bailey Trowbridge, Craig Joseph Cox, Michael J. Kawalek, Bell Nunnally & Martin PLLC, Dallas, TX, Peter Aaron Kerr, Shannon Marie Dacus, Deron R. Dacus, The Dacus Firm, PC, Tyler, TX, for Plaintiff.

Charles Kramer Verhoeven, Jennifer A. Kash, Aaron Bergstrom, Alexander Bromley Binder, Andrew M. Holmes, Anthony J. Moreno, Brian E. Mack, David Eiseman, IV, Grant Nicholas Margeson, Iman Lordgooei, James DuBois Judah, Lance Lin Yang, Lindsay M. Cooper, Marc L. Kaplan, Sayuri Kuo Sharper, Quinn Emanuel Urquhart & Sullivan LLP, San Francisco, CA, Andy Tindel, Gregory Blake Thompson, James Mark Mann, Mann, Tindel & Thompson, Attorneys at Law, Michael E. Jones, Patrick Colbert Clutter, IV, Sterken E. Robert, III, Potter Minton, a Professional Corporation, Tyler, TX, Crystal Riggins, Shella Deen, San Jose, CA, David Henry Hill, David Hill, Attorney at Law, Henderson, TX, for Defendant.

ORDER OF DISMISSAL WITHOUT PREJUDICE

RODNEY GILSTRAP, UNITED STATES DISTRICT JUDGE

Before the Court is Defendants' Motion to Dismiss for Lack of Subject Matter Jurisdiction or in the Alternative for Partial Summary Judgment (Dkt. No. 71) filed on November 7, 2016. For the reasons set forth below, the motion is GRANTED and Plaintiff's claims are DISMISSED WITHOUT PREJUDICE. Further, the Court, sua sponte , DISMISSES Defendants' counterclaims WITHOUT PREJUDICE.

I. BACKGROUND

On January 21, 2014, Genband U.S. LLC filed a complaint against Metaswitch Networks Corp. and Metaswitch Networks Ltd., alleging infringement of eight different patents in Case No. 2:14–cv–33 (the "'33 Case"). ('33 Case, Dkt. No. 1.) Metaswitch Networks Corp. and Metaswitch Networks Ltd. filed counterclaims in the '33 Case, amended on December 1, 2014, which included five state law counterclaims and one counterclaim under the Lanham Act. ('33 Case, Dkt. No. 95 at 52–67.) In parallel to these proceedings, Metaswitch Networks Ltd. filed a complaint against Genband U.S. LLC and Genband Management Services Corp. on July 7, 2014, alleging infringement of seven different patents in Case No. 2:14–cv–744 (the "'744 Case"). ('744 Case, Dkt. No. 1.) Genband U.S. LLC's and Genband Management Services Corp.'s counterclaims in the '744 Case, amended on April 16, 2015, included five different patent infringement counterclaims and four state law counterclaims. ('744 Case, Dkt. No. 75 at 26–51.) In this same suit, Metaswitch Networks Ltd. reasserted four of its six counterclaims from the '33 Case. ('744 Case, Dkt. No. 74 at 41–50.)

On June 29, 2015, the Court entered an order to stay all non-patent claims and counterclaims in the '33 Case. ('33 Case, Dkt. No. 252 at 1.) The Court subsequently entered an order on July 20, 2015 to stay all non-patent counterclaims in the '744 Case. ('744 Case, Dkt. No. 123 at 1.) Both the '744 and the '33 Cases proceeded to trial, and all patent claims and counterclaims were resolved. ('744 Case, Dkt. No. 348; '33 Case, Dkt. No. 480.) After both trials, the Court lifted the stays and severed all non-patent claims and counterclaims from the '744 and '33 Cases. ('744 Case, Dkt. No. 385 at 2.) The severed claims were then consolidated into the above captioned Case No. 2:16–cv–582 (the "'582 Case"). ('744 Case, Dkt. No. 385 at 2.)

In the '582 Case, Genband U.S. LLC ("Genband" or "Plaintiff") is the plaintiff and Metaswitch Networks Corp. and Metaswitch Networks Ltd. (collectively, "Metaswitch" or "Defendants") are the defendants. ('582 Case, Dkt. No. 1.) Genband's claims in the '582 Case are: (1) trade secret misappropriation under state law; (2) trade secret misappropriation under state common law; (3) tortious interference with prospective business relations under state common law; and (4) unfair competition pursuant to California law. ('582 Case, Dkt. No. 1.) Metaswitch's counterclaims in the '582 Case are: (1) breach of contract to license on FRAND/RAND terms, (2) breach of contract for the CableLabs agreement, (3) violation of Section 43(a)(1)(B) of the Lanham Act, (4) tortious interference with a prospective business relationship, (5) unfair competition pursuant to California law; and (6) unfair competition pursuant to a Texas state statute. ('582 Case, Dkt. No. 1.)

Metaswitch has filed a motion to dismiss all of Genband's claims for lack of subject matter jurisdiction or in the alternative for partial summary judgment. ('582 Case, Dkt. No. 71.) Metaswitch argues that because Genband's remaining claims are all state claims and are not joined with a substantial and related patent claim, they no longer have an independent jurisdictional basis. ('582 Case, Dkt. No. 71 at 7.)

II. LEGAL STANDARD

Congress and the Constitution together prescribe the bounds of federal courts' subject matter jurisdiction. U.S. CONST. art. III, §§ 1 –2; Ruhrgas AG v. Marathon Oil Co. , 526 U.S. 574, 583, 119 S.Ct. 1563, 143 L.Ed.2d 760 (1999). "It is to be presumed that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction."

Kokkonen v. Guardian Life Ins. Co. of Am. , 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). However, this boundary must also "be policed by the courts on their own initiative ...." Ruhrgas , 526 U.S. at 583, 119 S.Ct. 1563 ; Fed. R. Civ. P. 12(h)(3) ("If the court determines at any time that it lacks subject-matter jurisdiction, the court must dismiss the action.").

III. ANALYSIS

The Court considers two issues: (1) whether § 1338(b) confers an independent jurisdictional basis for severed claims and (2) whether the Court has the discretion to dismiss a counterclaim after the original complaint has already been dismissed.

A. Section 1338 Does Not Confer an Independent Jurisdictional Basis for Severed Claims

Genband's claims in this case did not have an independent jurisdictional basis at the time of severance. Honeywell Int'l, Inc. v. Phillips Petroleum Co. , 415 F.3d 429, 431 (5th Cir. 2005) ("In assessing whether the district court had subject matter jurisdiction, we generally look to the time at which the action commenced. However, a severed action must have an independent jurisdictional basis." (citations omitted)). Genband argues, though, that Honeywell does not control this case. ('582 Case, Dkt. No. 115 at 19.) Instead, Genband relies on Louisiana v. American National Property & Casualty Co. , 746 F.3d 633, 637 (5th Cir. 2014), arguing that "claims in federal court via original jurisdiction do not require an independent jurisdictional basis in a severed action." ('582 Case, Dkt. No. 115 at 17.) Genband, the party seeking the exercise of jurisdiction, argues that this Court has original subject matter jurisdiction over Genband's state law claims pursuant to 28 U.S.C. § 1338(b) because (1) district courts have "original jurisdiction" over unfair competition claims joined with a substantial and related patent infringement claim and (2) the claims "infused" with original jurisdiction pursuant to § 1338(b) do not require an independent jurisdictional basis when severed from a patent infringement action. ('582 Case, Dkt. No. 115 at 13–14); 28 U.S.C. § 1338(b) ("The district courts shall have original jurisdiction of any civil action asserting a claim of unfair competition when joined with a substantial and related claim under the copyright, patent, plant variety protection, or trademark laws."). Therefore, Genband concludes, its unfair competition claims, which include its trade secret misappropriation claims, do not require an independent jurisdictional basis because the "original jurisdiction" as conferred by § 1338(b) is not revoked at severance. ('582 Case, Dkt. No. 115 at 12; '582 Case, Dkt. No. 148 at 2.)

However, Genband's reliance on Louisiana is misplaced. In Louisiana , the State initiated a class action lawsuit against several insurers in Louisiana state court to recover on homeowner insurance policies of individuals that had been assigned to the State. Louisiana , 746 F.3d at 634. The defendants removed the case to federal court, asserting jurisdiction under the Class Action Fairness Act ("CAFA") because there was minimal diversity and more than $5,000,000 in controversy. Id. After the Louisiana Supreme Court held that, under Louisiana law, the insurance policies at issue must be considered individually, the State dropped its class action allegations, and the claims on behalf of each individual were severed. Id. Each new complaint was given a new case number and randomly assigned to a district judge. Id. at 636. The district courts held that once the cases were individually severed from the class action, CAFA did not supply jurisdiction and, because there was no diversity jurisdiction, the cases should be remanded to state court. Id. On appeal, the Fifth Circuit held that federal jurisdiction must be established for "state claims that [are] tagging along in the tail wind of the original federal claims." Id. at 637. The Fifth Circuit distinguished Honeywell , noting that the claim at issue in that case had never been invested with original federal jurisdiction as the claims in Louisiana had been. Id. at 637. The court concluded that a severed action must have an independent jurisdictional basis only if those claims were originally "based on supplemental jurisdiction." Id. at 637–38.

The Honeywell rule applies in this case because ...