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FCI USA, Inc. v. Hon Hai Precision Industry

May 11, 2005

FCI USA, INC., ET AL., PLAINTIFF(S),
v.
HON HAI PRECISION INDUSTRY, ET AL., DEFENDANT(S).



The opinion of the court was delivered by: Joseph C. Spero United States Magistrate Judge

ORDER GRANTING PLAINTIFFS' MOTION TO DISMISS COUNTS I AND II OF DEFENDANTS' COUNTERCLAIMS FOR LACK OF SUBJECT MATTER JURISDICTION TO THE EXTENT THEY RELATE TO U.S. PATENT NUMBERS 6,024,584, 6,079,991, 6,093,035, 6,164,983, AND 6,325,644 [Docket No. 118]

I. INTRODUCTION

On Friday, April 22, 2005, FCI's Motion to Dismiss Counts I and II of Defendants' Counterclaims for Lack of Subject Matter Jurisdiction to the Extent They Relate to U.S. Patent Numbers 6,024,584, 6,079,991, 6,093,035, 6,164,983, and 6,325,644 (the "Motion"), came on for hearing. For the reasons stated below, the Motion is GRANTED.

II. BACKGROUND

On March 23, 2001, FCI sued Foxconn Electronics, Inc. and Hon Hai Precision Industry Co., Ltd. (hereinafter, collectively referred to as "Foxconn") for infringement of five patents by Foxconn's one-piece Level-2 Sockets in Case No. C01-1192 JCS ("FCI 1").*fn1 On March 19, 2004, the parties to FCI 1 entered into a settlement agreement. See Morazavi Decl., Ex. F (Settlement Agreement (attached to Joint Stipulation of Dismissal)). Under the Settlement Agreement, FCI granted Foxconn a license for one-piece Level 2 Sockets manufactured by Foxconn in exchange for a lump sum payment and on-going royalties. Id. The Settlement Agreement also contained the following provision concerning challenges to the validity of the FCI 1 patents:

2.2 Hon Hai*fn2 agrees that it will not object to, challenge or contest, directly or indirectly, FCI's ownership of the FCI patents. In any dispute arising out of the License Product provided in the License Agreement the FCI Patents shall conclusively be presumed to be valid and enforceable and Hon Hai shall not directly or indirectly challenge the validity or enforceability of the FCI Patents in any proceeding involving the resolution of any such dispute. Hon Hai expressly reserves the right to object to, challenge or contest, directly or indirectly, the validity or enforceability of the FCI Patents or oppose directly or indirectly any patent or patent application related to the FCI Patents, except for disputes arising out of the Licensed Product provided in the License Agreement.

Id., Settlement Agreement, Section 2.2. The License Agreement also contains a provision regarding challenges to the validity of the FCI 1 patents:

8.3 FCI shall have the right to terminate this agreement if Hon Hai takes any action directly or indirectly to oppose or invalidate any of the Licensed Patents or any related patent. However, FCI shall have no right of termination under this paragraph with respect to invalidity challenges made by Hon Hai in Civil Action C 03-4519 JCS pending in the U.S. District Court for the Northern District of California against the Licensed Patents and/or other FCI patents on which that suit is based and Hon Hai shall retain all its rights to challenge the validity of such patents in said Civil Action C 03-4519 JCS.

Id., License Agreement, Section 8.3.

FCI filed this action on October 6, 2003, alleging that Foxconn was infringing seven patents owned by FCI -- the five FCI 1 patents plus two additional patents -- "through its activities involving low-profile two piece ball grid array ("BGA") connectors."*fn3 Complaint at 2, 4. Foxconn, in turn, asserted counterclaims seeking a declaratory judgment that: 1) "[n]either the Foxray line of products nor any other product made, used or sold" by Foxconn infringes any of the asserted the patents (Count I); and 2) the asserted patents are invalid (Count II).

On March 16, 2005, FCI informed Foxconn that it had decided to withdraw with prejudice its claims of infringement as to the FCI 1 patents with respect to the Foxray connector only. Declaration of Sheila Mortazavi in Support of FCI's Motion to Dismiss ("Mortazavi Decl."), Ex. A (March 16, 2005 Letter). The letter further promised to release Foxconn from all damages resulting from past infringement of these patents by the Foxray connector. Id. The Foxray connector was identified in Foxconn's discovery responses as the only 2-piece BGA connector "manufactured, used, offered for sale, sold or imported" by Foxconn. Mortazavi Decl., Ex. D (Foxconn Electronics, Inc.'s Supplemental Responses to Plaintiffs' First Set of Interrogatories at 2).

FCI now brings a Motion to Dismiss, asserting that because it has withdrawn its claims based on the FCI 1 patents and has promised to release Foxconn from all damages for past infringement, there is no actual controversy with respect to Foxconn's counterclaims of non-infringement and invalidity of the FCI 1 patents (Counts I and II) and therefore, these counterclaims must also be dismissed for lack of subject matter jurisdiction. According to FCI, in light of the withdrawal of its claims and the covenant not to sue, there is no threat that creates a reasonable apprehension on the part of Foxconn that it will face an infringement suit by FCI based on the FCI 1 patents and moreover, there is no present activity on the part of Foxconn which could constitute infringement of those patents.

In its Opposition, Foxconn argues that this Court has subject matter jurisdiction over its counterclaims because the Settlement Agreement in FCI 1 was "piecemeal," resolving only the infringement issues, while reserving Foxconn's validity and enforceability challenges. Opposition at 5-7. According to Foxconn, the Settlement Agreement envisioned that the validity issues that were not addressed in FCI 1 would be carried over to FCI 2. Id. at 6-7. Further, Foxconn asserts that it fears suit with respect to "a number of Foxconn's connector products," including its BGA DDR DIMM connector ("the DDR Connector"), which it has been selling to Apple since September 2003, and "an enhanced version of the Foxray Connector called Foxray-S Enhanced Receptacle," with respect to which Foxconn says it has taken "substantial steps toward developing." Id. at 8; see also id. at 16-17 (stating that "Foxconn is also actually manufacturing and selling more than a thousand connector products, which could be subject to a claim by FCI under the Patents at Issue").*fn4 According to Foxconn, the covenant and release offered by FCI is insufficient to protect it from suit because it only covers the Foxray Connector.

In its Reply, FCI contests Foxconn's characterization of the Settlement Agreement as "piecemeal," arguing that the Court's dismissal order makes clear that the settlement was not piecemeal. That order states that the "parties have entered into a Settlement Agreement resolving their dispute" and that the Court is "dismissing with prejudice this action in its entirety." Mortazavi Decl., Ex. F. With respect to Foxconn's assertion that there is jurisdiction because the parties reserved the validity challenges, FCI notes that parties cannot stipulate to the existence of subject matter jurisdiction where there would, otherwise, be none. FCI goes on to dispute Foxconn's assertions that there is an ...


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