Nematicito, Inc. v. Spectrum Five LLC, Case No. 16-cv-01859-RS
| Decision Date | 06 June 2016 |
| Docket Number | Case No. 16-cv-01859-RS |
| Parties | NEMATICITO, INC., et al., Plaintiffs, v. SPECTRUM FIVE LLC, Defendant. |
| Court | U.S. District Court — Northern District of California |
Time is of the essence—particularly when a party seeks access to the federal courts. This general principle is true even when defendants assert counterclaims or defenses grounded in patent law—a subject matter over which Congress prefers federal courts to be the arbiters. See generally Andrews v. Daughtry, 994 F. Supp. 2d 728, 731-32 (M.D.N.C. 2014) (). Nevertheless, defendants seeking removal of an action to federal court must do so in a timely fashion. Defendant Spectrum Five, LLC, did not. Nor has it shown cause for its tardy removal from state court. Accordingly, this action will be remanded to Santa Clara County Superior Court, which has been overseeing this action for nearly a year and a half. Because plaintiffs' motion to remand must be granted, there is no reason to address plaintiffs' alternative motion to dismiss for lack of subject-matter jurisdiction.
Plaintiffs NematicITO, Inc., and Dedi Haziza own proprietary mobile waveguide antenna systems, which it agreed to license to defendant Spectrum Five, LLC. In exchange for this exclusive license, Spectrum Five agreed to pay fixed royalty payments in increments totaling $1 million: (1) $200,000 to be paid thirty days after the effective date of the agreement; (2) $300,000 to be paid thirty days after successful completion of a Critical Design Review and delivery to Spectrum Five of the non-functional prototype of the aviation product; (3) $250,000 to be paid thirty days after completion of the prototype automotive antenna; and (4) $250,000 thirty days after completion of the acceptance testing program for the automotive antenna. Compl. Ex. A at 4, Agreement ¶ III.a). The "aviation product" and "automotive product" at issue were further described in the contract by reference to "Attachment II," which included the cover page of two patents issued to Haziza—U.S. Patent Nos. 7,656,359 and 7,884,779. See id. at 11-12. In addition, Attachment II noted a pending patent application for dual polarization array and feeds; phase/frequency shifting waveguide and array; polarizing radiating elements; and planar wave-spider feeds. Id. at 13.
After signing the agreement, NematicITO started working to create the industrial designs as required by the contract. The deadline to make the first royalty payment came and passed, and Spectrum Five did not send NematicITO the payment. Subsequently, Spectrum Five informed NematicITO that it was having difficulty making payments, and NematicITO agreed to a few extensions. Ultimately, however, after Spectrum Five failed to meet extended deadlines, NematicITO chose to terminate the agreement and take the matter to court.
Plaintiffs filed this action in Santa Clara County Superior Court in November 2014. Spectrum Five answered the complaint, served discovery responses, and defended against the claims. In February 2015, in response to NematicITO's form interrogatories, Spectrum Five stated its belief that NematicITO "did not own the necessary technology to develop the antennasystem specified in" the agreement and that "the three patents" Spectrum Five licensed "were inadequate to meet the requirements of the production design specified in the [contract], from either a two-way or wideband perspective." Fisher Decl. Ex. A, Response to Form Interrogatory No. 50.2. In April 2015, Spectrum Five expanded upon this accusation: "[T]he two fundamental patents forming the basis for the proposed NematicITO aeronautical and automotive tracking mobile antenna systems do not provide an adequate foundation to satisfy the requirements of the [contract]." Fisher Decl. Ex. B, Response to Special Interrogatory No. 22. Finally, when asked to identify the documents supporting Spectrum Five's belief that NematicITO's patents did not provide adequate foundation to perform the contract, Spectrum Five identified the complaint, the agreements, and the patents attached to the agreement. Fisher Decl. Ex. C at 9, Response to Form Interrogatory 15.1.
During this time, Spectrum Five's relationship with its prior counsel became strained, culminating, in October 2015, with a successful motion to be relieved as counsel. While Spectrum Five was unrepresented, in December 2015, plaintiffs filed a motion for summary adjudication. Spectrum Five contends it was unaware of the pending motion until February 23, 2016, because service of the motion was defective. Shortly thereafter, on February 26, 2016, Spectrum Five retained new counsel.
During this period of time, Spectrum Five's principal overseeing the litigation, David Wilson, experienced a loss in the family. In light of these various problems, the Santa Clara County judge overseeing the case continued the hearing on plaintiffs' motion for summary adjudication to April 26, 2016.
On March 15, 2016, Spectrum Five filed a motion to amend the answer and add counterclaims, including claims for declaratory judgments of non-infringement, invalidity of patent, patent license obligations, failure of consideration, and lack of patent ownership. That same day, plaintiffs served answers to requests for admission, which Spectrum Five contends, confirms the viability of its counterclaims arising under patent law. On April 8, 2016, nearly a year and a half after plaintiffs filed their complaint, Spectrum Five filed a notice of removal in thiscourt pursuant to 28 U.S.C. § 1331 (federal question), § 1332 (diversity), § 1367 (supplemental jurisdiction), § 1338 (), § 1454 (), § 1446 (removal jurisdiction), § 2201 and § 2202 (declaratory judgments), and 35 U.S.C. § 271 (patent infringement).
Defendants may remove actions to federal court only if the federal court has subject-matter jurisdiction to adjudicate the claims at issue. 28 U.S.C. §1441(a). "If at any time before final judgment, it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447 (2012). Courts strictly construe the removal statute against finding federal subject matter jurisdiction, and the defendant bears the burden of establishing the basis for removal. Provincial Gov't of Marinduque v. Placer Dome, Inc., 582 F.3d 1083, 1087 (9th Cir. 2009). In addition, the removing defendant must comply with the mandatory time limits of 28 U.S.C. §1446(b). Fistoe v. Reynolds Metals Co., 615 F.2d 1209, 1212 (9th Cir. 1989). "[A] timely objection to a late petition [for removal] will defeat removal . . . ." Id. Where doubt exists regarding the right to remove an action, it should be resolved in favor of remand to state court. Matheson v. Progressive Specialty Ins. Co., 319 F.3d 1089, 1090 (9th Cir. 2003).
The doors to the federal courthouse are usually not open to defendants invoking the protection of federal law as a defense to state court claims. See Louisville & Nashville R.R. Co. v. Mottley, 211 U.S. 149 (1908). Generally, federal jurisdiction is present "only when the plaintiffs statement of his own cause of action shows that it is based upon [federal law.]" Id. at 152. Applying this well-established rule, the Supreme Court held defendants asserting counterclaims arising under federal patent law could not remove actions to federal court. See Holmes Grp., Inc. v. Vornado Air Circulation Sys., Inc., 535 U.S. 826, 831 (2002). As a result, certain members of Congress became concerned about the possibility that federal patent law might become discordantif state courts adjudicated various patent issues. See generally Andrews, 994 F. Supp. 2d at 731. To remedy this concern, Congress passed the 2011 Leahy-Smith American Invents Act. Joe Matal, A Guide to the Legislative History of the America Invents Act: Part II of II, 21 Fed. Cir. B.J. 539, 539 (2012) (citing H.R. Rep. No. 112-98, at 81 (2011), 2011 U.S.C.C.A.N. 67). As part of the so-called "Holmes Group fix," Congress added a new removal statute, which allows "any party [who] asserts a claim for relief arising under any Act of Congress relating to patents" to remove that action to federal court. 28 U.S.C. § 1454(a). In other words, defendants with counterclaims arising under patent law were no longer forced to litigate their claims in state court.
The Holmes Group fix did not, however, leave open the federal courthouse doors indefinitely. Instead, when section 1454(a) forms the basis for removal to federal court, the removing party must comply with "the time limitations contained in [28 U.S.C. §] 1446(b). "Section 1446(b) provides 'two thirty-day windows during which a case may be removed—during the first thirty days after the defendant receives the initial pleading or during the first thirty days after the defendant receives a paper 'from which it may first be ascertained that the case is one which is or has become removable' if 'the case stated by the initial pleading is not removable.'" Busch v. Jakov Dulcich & Sons LLC, No. 15-CV-00384-LHK, 2015 WL 3792898, at *3 (N.D. Cal. June 17, 2015) (quoting Harris v. Bankers Life and Casualty Co., 425 F.3d 689, 692 (9th Cir. 2005) (internal quotation marks omitted)).3 "Thus, even under section 1454, a defendant who does not remove timely will be subject to a remand motion pursuant to section 1446." Andrews, 994 F. Supp. 2d at 732. District courts may extend the deadline to remove actions with counterclaims arising under patent law "at any time for cause shown." 28 U.S.C. § 1454(b)(2).
Plaintiffs contend Spectrum Five's thirty-day clock...
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