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UCP International Co. Ltd. v. Balsam Brands Inc.

United States District Court, N.D. California

May 9, 2017

UCP INTERNATIONAL COMPANY LIMITED, et al., Plaintiffs,
v.
BALSAM BRANDS INC., et al., Defendants.

          ORDER DENYING MOTION TO DISMISS Dkt. No. 42, 43, 47, 50

          William H. Orrick United States District Judge

         INTRODUCTION

         Balsam Brands Inc. and Balsam International Unlimited Company (together “Balsam”) move to dismiss the declaratory judgment action filed by UCP International Company Limited and Global United Enterprises Limited (together “UCP”), arguing that there is no valid case or controversy between the parties. Although Balsam admits that there is an existing legal controversy between it and UCP regarding whether UCP's Inversion Tree infringes Balsam's Flip Tree patents, it contends that UCP lacks standing to seek a declaratory judgment because Balsam has not clearly indicated any intent to sue UCP for patent infringement. But a defendant's representations that it does not intend to sue cannot defeat Article III standing in a declaratory judgment case. UCP has demonstrated that it has standing and Balsam's motion to dismiss UCP's complaint is DENIED.

         BACKGROUND

         UCP manufactures and sells an artificial invertible Christmas tree called the Inversion Tree. First Amended Complaint (“FAC”) ¶2. It has patents pending on the Inversion Tree. FAC ¶23. Balsam is a leading retailer of artificial Christmas trees and sells a product called the Flip Tree. FAC ¶17. Balsam has two U.S. patents on the Flip Tree. ¶9.

         In August, 2015, Balsam learned that Frontgate, a catalog and online retailer, was selling the Inversion Tree, which Balsam believed was infringing on Balsam's Flip Tree patents. After a short investigation, Balsam filed an infringement suit against Frontgate Marketing, Inc. and Cinmar, LLC on October 20, 2015, alleging that Frontgate was infringing Balsam's patents by selling the Inversion Tree. In an announcement to its customers regarding the lawsuit, Balsam explained that it was “shocked to seek that Frontgate.com was offering an ‘Inversion Tree' that appeared to be eerily similar to the Flip Tree . . . We have since learned that by January 2015, one of Frontgate's Chinese Christmas tree suppliers was hard at work designing what we believe is an obvious imitation of the Flip Tree - the product that Frontgate now calls its ‘Inversion Tree.' ” FAC ¶17. At the time it filed its suit, Balsam was aware that UCP was the Chinese manufacturer of the Inversion Tree but did not name UCP as a defendant in the lawsuit.

         Although UCP was not brought into the suit against Frontgate, the Frontgate litigation was entirely about UCP's Inversion Tree. In its discovery responses Balsam accused UCP of designing the infringing invertible trees at issue in the lawsuit. FAC ¶19. Balsam also detailed how UCP's Inversion Tree met each and every one of the claim limitations on Balsam's patents. Id. On February 2, 2016, Balsam filed its infringement contentions against Frontgate. FAC ¶20. Every invertible tree identified in Balsam's claims charts was manufactured by UCP and Balsam claimed that UCP's trees met each of the claim limitations on its patents. Id. In June of 2016, Balsam contacted the named inventors of UCP's pending patent applications on the Inversion Tree and subpoenaed the lead inventor, David Jalbert. FAC ¶23. Balsam stated that it was seeking Jalbert's “personal insight and recollection as the principal designer of the technology used in the accused products.” Id. Balsam added that Jalbert's knowledge “goes to the very heart of Frontgate's alleged infringement, including willfulness.” Id.

         During the Frontgate litigation, Balsam also subpoenaed documents and testimony from UCP's U.S. affiliate, UCP International (USA), explaining that it was seeking information from UCP (USA) because UCP is “the designer and manufacturer of the accused products.” FAC ¶24. Balsam sought information regarding UCP's design of the Inversion Tree, whether it made any attempts to design around Balsam's patents, and UCP's organizational structure and records. Id. Balsam also sought documents from Michael Stadlberger, an individual who helped sell UCP's invertible trees. FAC ¶25. Balsam sought information about the Inversion Tree's design, Stadlberger's communications with the inventors of the UCP Inversion Tree, and information regarding UCP's corporate structure, affiliates, and agents. Id. UCP fought Balsam's attempts to compel discovery from UCP and its agents. FAC ¶24.

         On November 1, 2016, because it was struggling to obtain discovery from UCP, Balsam's counsel informed Frontgate's attorneys that it might seek to add UCP as a party to the Frontgate litigation. FAC ¶27. On December 6, 2016 Balsam sent a letter to Frontgate's counsel again stating it was considering whether “UCP should be added to this lawsuit.” Id., Ex. A.

         In late 2016, I issued my Claim Construction Order in the Frontgate litigation. FAC ¶29. Frontgate indicated it would be filing a motion for summary judgment and seeking an order of non-infringement of Balsam's patents. Id. Balsam admits that if Frontgate had won on its motion for summary judgment, it would have “cleared UCP for sale of its Inversion Tree in the United States.” Id.

         In December of 2016, Balsam and Frontgate reached a settlement in the Frontgate litigation. MTD at 4. UCP was not part of the settlement. Id. On December 19, 2016 Balsam and Frontgate stipulated to dismiss the case with prejudice and the case was dismissed by the court on December 20, 2016. Id. That same day, UCP filed this declaratory judgment action against Balsam. Id.

         Following the settlement, Frontgate stopped purchasing Inversion Trees from UCP. As Frontgate was UCP's only U.S. customer, UCP no longer has a customer in the United States, but is in discussions with a potential customer to replace Frontgate. UCP is currently searching for warehouse space so that it can directly sell its trees in the United States. It has an existing inventory of Inversion Trees that it is seeking to sell.

         On February 16, 2017, Balsam moved to dismiss UCP's complaint arguing that UCP had failed to state a justiciable controversy because UCP had failed to allege that it feared Balsam would bring a lawsuit against it and because UCP had failed to take meaningful steps toward potentially infringing activity. UCP then filed an First Amended Complaint (“FAC”), adding some more details about the Frontgate litigation and its efforts to find a replacement customer for Frontgate and noting that Balsam has refused to give UCP a covenant not to sue.[1] Balsam has now moved to dismiss UCP's FAC, arguing that UCP still has failed to show a justiciable case or controversy.

         LEGAL ...


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