Arnouse Digital Devices Corp. v. United States ( 2022 )

In the United States Court of Federal Claims
No. 19-837
(Filed: 31 August 2022 *)
***************************************
ARNOUSE DIGITAL DEVICES CORP., *
*
Plaintiff, *
*
v. *
*
THE UNITED STATES, *
*
Defendant, *
*
KLAS TELECOM, INC., *
*
Third-Party Defendant, *
*
KLAS TELECOM GOVERNMENT INC., *
*
Third-Party Defendant. *
*
***************************************
ORDER
HOLTE, Judge.
On 6 June 2019, plaintiff filed a complaint alleging the United States government
infringed its patent. On 16 April 2021, the parties entered settlement discussions, and on 15 July
2021, they requested the Court stay all proceedings. All parties anticipated this case would be
dismissed with prejudice pursuant to Rule 41(a)(1)(A)(ii) of the Rules of the Court of Federal
Claims upon execution of a license agreement between plaintiff and third-party defendants, Klas
Telecom, Inc. and Klas Telecom Government, Inc. Plaintiff and Klas failed to execute a license
agreement; however, plaintiff alleges they nevertheless entered into a valid and enforceable
license agreement via multiple email exchanges. Plaintiff requests the Court find a license
agreement exists and then dismiss the case. As plaintiff now alleges its patent infringement
claim against the government is moot in view of this license, plaintiff asserts factual grounds that
undermine the Court’s subject matter jurisdiction over the case. In effect, plaintiff’s request
*
This order was originally filed under seal on 22 August 2022, ECF No. 81, to protect the confidentiality of the
communications contained in the parties’ sealed joint appendix, ECF No. 73. The Court provided the parties
opportunity to review the order for any proprietary, confidential, or other protected information, and submit to the
Court proposed redactions. The parties notified the Court they have no redactions. This order is now reissued for
publication.
amounts to a peculiar motion to dismiss its own complaint for lack of subject matter jurisdiction.
The Court’s appropriate course of action in these circumstances is to order plaintiff to show
cause as to why the Court should not construe plaintiff’s request as a motion for voluntary
dismissal pursuant to RCFC 41(a)(2). The Court will hold a status conference to discuss with the
parties before proceeding with such an order.
I. Background
A. Factual & Procedural History
On 6 June 2019 plaintiff filed a complaint alleging the government infringed U.S. Patent
No. 10,101,769. See Compl., ECF No. 1. Plaintiff alleged the government authorized or
consented to the use or manufacture of the inventions described in the ’769 patent by Klas
Telecom, Inc., and Klas Telecom Government, Inc. (collectively, “Klas”). Id. at 1. Plaintiff
alleged the Court has subject matter jurisdiction over its claim under 28 U.S.C. § 1498(a). Id. at
16. On 29 July 2019, pursuant to Rule 14(b) of Rules of the Court of Federal Claims (“RCFC”),
the government filed unopposed motions to notify Klas of its potential interest in the subject
matter of the case, ECF Nos. 6, 7. See Notice, ECF Nos. 20, 21. On 4 October 2019, the
government filed its answer to the complaint, ECF No. 16, and on 2 December 2019, Klas filed
an answer to the complaint, ECF No. 28. On 27 January 2021, the Court entered a claim
construction briefing schedule, ECF No. 47. The parties completed claim construction briefing
and the Court scheduled a Markman hearing for 29 July 2021. See Order, ECF No. 55.
Plaintiff’s counsel initiated settlement discussions on 16 April 2021. J.A. at 2–3, ECF
No. 73. After three months of negotiation, on 15 July 2021, all parties filed a joint motion to
stay the case, which the Court granted. Joint Mot. to Stay at 1, ECF No. 56; Order, ECF No. 57.
Settlement discussions then broke down; on 17 September 2021, plaintiff filed a motion for leave
to file a motion to enforce a settlement agreement and to file exhibits under seal. 1 See Pl.’s Mot.
for Leave, ECF Nos. 60, 61. The Court held a status conference with the parties on 3 December
2021 to discuss the jurisdictional issues argued in the briefing on plaintiff’s motion for leave.
See Order, ECF No. 67. At the status conference, all parties agreed establishing the Court’s
jurisdiction over plaintiff’s anticipated motion to enforce a settlement agreement is a threshold
issue the Court should address before all else. Id. at 1. Consequently, the parties agreed to a
supplemental briefing schedule to address the jurisdictional questions raised during the status
conference. Id. The parties also agreed the stay of the case should continue. Id. Lastly, plaintiff
agreed this schedule for proceedings renders its motion for leave moot. Id. The Court granted
plaintiff’s motion to strike, denied as moot plaintiff’s motion for leave, continued the stay of
proceedings, and entered a supplemental briefing schedule to address the Court’s jurisdiction to
enforce the parties’ alleged settlement agreement. Id. at 2.
On 31 January 2022, the parties filed a joint appendix under seal including all
communications leading to the alleged agreements, ECF No. 73. On 1 February 2022, plaintiff
filed its supplemental brief in support of the Court’s jurisdiction to enforce the parties’ alleged
1
Plaintiff originally filed its motion on ECF as a motion for leave to file highly sensitive documents. Pl.’s Mot. for
Leave, ECF No. 60. Plaintiff corrected the original motion for leave filing on 22 September 2021 under the proper
ECF event, and included a motion to strike its 17 September 2021 filing. See Pl.’s Mot. for Leave, ECF No. 61.
-2-
settlement agreement. See Pl. Suppl. Br., ECF No. 74. On 3 March 2022, the government and
Klas each filed a response. See Gov’t Suppl. Br., ECF No. 75; Klas Suppl. Br., ECF No. 76. On
23 March 2022, plaintiff filed a reply in support of its supplemental brief. See Pl. Suppl. Reply,
ECF No. 77. On 2 June 2022, the Court heard oral argument on the issue. See Order, ECF No.
78.
B. The Alleged Agreements
Plaintiff alleges the existence of two separate agreements: a license agreement between
plaintiff and Klas, and a settlement agreement between all parties. Oral Arg. Tr. (“Tr.”) at 9:6–
13:25, ECF No. 80. 2 The license agreement includes “only . . . Klas and [plaintiff] as
signatories,” not the government, and deals with issues such as royalties, the scope of the patent
license, and liability release. Tr. at 20:3–23, 32:11–12 (plaintiff’s counsel confirming “the
[g]overnment truly was not involved” with the license agreement). Separate from the license, the
settlement agreement includes all parties’ and is based on their stated intent to sign a dismissal
with prejudice once the license agreement between plaintiff and Klas “was finalized and signed.”
Tr. at 20:3–23.
Plaintiff argues “[p]laintiff and Klas agreed to all material terms [of the license
agreement] via email.” Tr. at 34:14–24. Although they did not reduce the agreement to a
“formal signed writing,” “the attorney email negotiations” between plaintiff and Klas in the joint
appendix, ECF No. 73, create a “valid and enforceable” patent license agreement. Id.Specifically, plaintiff points to an email dated 7 July 2021 from Klas’s counsel to plaintiff’s
counsel, J.A. at 77–78, for all “the material terms necessary for a meeting of the minds and a
valid . . . license agreement.” Tr. at 47:5–13.
As for the all-parties settlement agreement, plaintiff contends the joint motion to stay,
ECF No. 56, “memorialized the [p]arties’ Settlement Agreement to dismiss this case once the
License Agreement was finalized.” Pl. Suppl. Br. at 4. The joint motion to stay stated: “[u]pon
execution of the [license] agreement . . . , [p]laintiff, [t]hird-[p]arty defendants, and the United
States anticipate that the present litigation will be dismissed with prejudice pursuant to
RCFC 41(a)(1)(A)(ii).” Joint Mot. to Stay at 1. If the plaintiff-Klas license agreement is valid,
then, as documented by the joint motion to stay, plaintiff avers the parties have an enforceable
settlement agreement—an “agreement to dismiss this case with prejudice.” Pl. Suppl. Br. at 2.
II. Summary of the Key Arguments
Plaintiff argues the issue “is whether the Court has subject matter jurisdiction to enforce
an agreement to dismiss this action by way of adjudicating the validity of the License Agreement
between [plaintiff] and Klas, an integral and necessary part of the Parties’ settlement.” Pl. Suppl.
Br. at 2. Although plaintiff requests the Court decide the validity of its alleged license before
2
At oral argument, Klas and the government disagreed initially with how plaintiff termed the two alleged
agreements. For clarity, the Court adopts plaintiff’s nomenclature, but nothing in this order should be construed as a
reflection of the Court’s views as to whether either is a valid and enforceable “agreement,” or what the terms of each
are.
-3-
dismissing, plaintiff made some key arguments at oral argument that reveal the nature of its
request. Tr. at 106:6–23.
Regardless of a separate all-parties settlement agreement to dismiss the case, plaintiff
asserts the Court can dismiss this case based on a valid license agreement alone. Plaintiff alleges
the license agreement “grant[ed] a release for all past infringement of the ’769 patent . . . and all
other patents and, going forward, a license under the [’769 patent].” Tr. at 106:14–17. Plaintiff
continues, “if there is a license agreement, which [plaintiff] contends that there is, then there is
no longer a case []or controversy and Plaintiff[’s §] 1498 patent infringement suit against the
U.S. Government is moot.” Tr. at 106:6–9, 106:21–23 (plaintiff’s counsel); Pl. Suppl. Br. at 16
(“The existence of the License Agreement essentially moots Arnouse’s case against the
Government . . . . The License Agreement, if found valid, removes an essential element of
Arnouse’s action against the Government . . . .”). If there is a license, plaintiff states the Court
could appropriately “dismiss[] this case” due to a “lack of subject matter jurisdiction . . . sua
sponte[.]” Tr. at 42:11–17. In effect, plaintiff requests the Court dismiss plaintiff’s own
complaint for lack of subject matter jurisdiction after finding it has an enforceable license against
Klas.
The government agrees plaintiff’s alleged “license in this Court is jurisdictional, [and]
would deprive this Court of subject matter jurisdiction to do anything else[, s]o the Court [could]
dismiss the case based on the lack of jurisdiction because of the license.” Tr. at 41:1–9; Gov’t
Suppl. Br. at 9–10. Klas argues the Court lacks authority to “make a specific factual finding
relating to the third-party agreement between [plaintiff] and Klas, and effectively enforce that
agreement,” as requested by plaintiff. Id. at 11–12.
III. Applicable Law
“Federal courts are courts of limited jurisdiction. They possess only that power
authorized by Constitution and statute, which is not to be expanded by judicial decree.”
Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted). “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 the jurisdiction.” Id. (citations omitted). Courts “have
an independent obligation to determine whether subject-matter jurisdiction exists, even in the
absence of a challenge from any party,” and it “can never be forfeited or waived.” Arbaugh v.
Y&H Corp., 546 U.S. 500, 514 (2006) (citations omitted). “In determining jurisdiction, a court
must accept as true all undisputed facts asserted in the plaintiff’s complaint and draw all
reasonable inferences in favor of the plaintiff.” Trusted Integration, Inc. v. United States, 659
F.3d 1159, 1163 (Fed. Cir. 2011). “[If] a federal court concludes that it lacks subject-
matter jurisdiction, the court must dismiss the complaint in its entirety.” Arbaugh, 546 U.S. at
514; see also Rick’s Mushroom Serv., Inc. v. United States, 521 F.3d 1338, 1346 (Fed. Cir.
2008); Rocovich v. United States, 933 F.2d 991, 993 (Fed. Cir. 1991); Hale v. United States, 143
Fed. Cl. 180, 184–85 (2019); RCFC 12(h)(3) (“If the court determines at any time that it lacks
subject-matter jurisdiction, the court must dismiss the action.”).
“The jurisdiction of the Court of Federal Claims is even more limited than that of other
federal district courts.” Giesecke+Devrient GmbH v. United States, 150 Fed. Cl. 330, 342
-4-
(2020). “Pursuant to express grants by Congress, the jurisdiction of the Court of Federal Claims
is primarily over monetary claims against the federal government; thus, almost universally, suits
between private litigants are ‘beyond the jurisdiction of the court.’” Id. (quoting United States v.
Sherwood, 312 U.S. 584, 588 (1941)). The jurisdiction of the Court of Federal Claims is
prescribed by the “metes and bounds of the United States’ consent to be sued in its waiver of
immunity.” RHI Holdings, Inc. v. United States, 142 F.3d 1459, 1461 (Fed. Cir. 1998) (citing
Sherwood, 312 U.S. at 586). “Therefore, the limits placed upon this Court, ‘whether imposed by
the Constitution or by Congress,’ are precise and ‘must neither be disregarded nor evaded.’”
Giesecke, 150 Fed. Cl. at 342 (quoting RHI Holdings, Inc., 142 F.3d at 1461).
IV. Analysis of Plaintiff’s Request
As agreed by all parties, the Court’s jurisdiction to hear this case arises under 28 U.S.C.
§ 1498(a). Pl. Suppl. Br. at 6; Gov’t Suppl. Br. at 9–10; Klas Suppl. Br. at 11. Section 1498(a)
provides: “Whenever a[ patented] invention . . . is used or manufactured by or for the United
States without license of the owner . . . , the owner’s remedy shall be by action against the United
States in the United States Court of Federal Claims for the recovery of his reasonable and entire
compensation for such use and manufacture.” 28 U.S.C. § 1498(a) (emphasis added). This
statute “provides the sole remedy available to a patentee for an eminent domain taking of a
license in his patent.” De Graffenried v. United States, 228 Ct. Cl. 780, 783 (1981) (emphasis
removed), aff’d sub nom. 985 F.2d 584 (Fed. Cir. 1992).
Plaintiff now presents factual allegations which, if taken as true, undermine the Court’s
subject matter jurisdiction over plaintiff’s own complaint. For the Court to have jurisdiction
over a claim under § 1498(a), the government must have taken plaintiff’s patented invention
“without license of the owner.” Compl. at 2 (citing § 1498(a)). Plaintiff now “challenge[s] the
[C]ourt’s jurisdictional authority by denying or controverting necessary jurisdictional
allegations”—plaintiff states the government’s actions are licensed. Aerolineas Argentinas v.
United States, 77 F.3d 1564, 1572 (Fed. Cir. 1996) (citing KVOS, Inc. v. Associated Press, 299
U.S. 269, 278 (1936)); Pl. Suppl. Reply at 9. As the claimant, “the burden of establishing”
subject matter jurisdiction over its complaint rests on plaintiff. Kokkonen, 511 U.S. at 377.
Although the government and Klas argue no license exists, the defense of subject matter
jurisdiction “can never be forfeited or waived.” Arbaugh, 546 U.S. at 514. The Court “ha[s] an
independent obligation to determine whether subject-matter jurisdiction exists,” id., and plaintiff
now pleads the Court lacks subject matter jurisdiction over its complaint because of a license.
Tr. at 106:6–9, 106:21–23 (plaintiff’s counsel); Pl. Suppl. Br. at 16; Pl. Suppl. Reply at 9. When
a “plaintiff discovers that subject matter jurisdiction is lacking,” it can neither: bring a RCFC
12(b)(1) motion to dismiss against its own claim, cf. Feezor v. Excel Stockton, LLC, No. CIV S
12-0156 KJM, 2013 WL 2485623, at *11 (E.D. Cal. June 10, 2013); nor “move pursuant to
[RCFC] 41(a)(2) for a voluntary dismissal contingent on the fulfillment of terms that the court
may find proper.” 5B Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure §
1350 (3d ed. 2022). Plaintiff’s request amounts to just that—an RCFC 41(a)(2) motion for
voluntary dismissal based on a lack of subject matter jurisdiction, contingent on the Court
finding plaintiff and Klas have a valid license. See id.; RCFC 41(a)(2) (“[A]n action may be
dismissed at the plaintiff’s request only by court order, on terms that the court considers
proper. . . . Unless the order states otherwise, [the] dismissal . . . is without prejudice.”); Pl.
-5-
Suppl. Reply at 7–12. As subject matter jurisdiction is plaintiff’s burden and plaintiff alleges
facts destroying subject matter jurisdiction, the Court finds it unnecessary to determine the truth
of plaintiff’s allegations. 3 Kokkonen, 511 U.S. at 377. If plaintiff’s allegations are taken as true,
the Court “is required to dismiss the suit and the fact that the plaintiff has noticed the lack of
jurisdiction does not bring the dismissal within the discretion of the court.” Wright & Miller,
supra, § 1350 (“[A] dismissal [for lack of subject matter jurisdiction] is not a decision on the
merits and has no res judicata effect that would prevent the reinstitution of the action in a court
that has subject matter jurisdiction over the controversy.”); RCFC 12(h)(3); Arbaugh, 546 U.S. at
514.
V. Conclusion
Plaintiff alleges its patent infringement claim against the government is moot in view of a
license and asserts factual grounds that undermine the Court’s subject matter jurisdiction over
the case. For the reasons discussed supra, the Court’s appropriate course of action in these
circumstances is to order plaintiff to show cause as to why the Court should not construe
plaintiff’s request as a motion for voluntary dismissal pursuant to RCFC 41(a)(2) and dismiss the
case without prejudice. To discuss next steps in the case, the Court will hold a status conference
the week of 29 August 2022 before issuing the show cause order. The Court further LIFTS the
stay of proceedings in this case and TERMINATES the parties’ obligation to file joint status
reports every thirty days, ECF No. 57.
IT IS SO ORDERED.
s/ Ryan T. Holte
RYAN T. HOLTE
Judge
3
“[T]he only ruling from this Court” plaintiff is “asking for” at this time “is that the license agreement is valid and
enforceable.” Tr. at 85:10–15; see also Tr. at 92:15–21. Plaintiff intends to then “bring [the ruling] to a state
court[,] ask the state court to take judicial notice of it[,] and then make a determination about breach and damages.”
Tr. at 42:18–21 (plaintiff’s counsel). While a party to a Contract Disputes Act-governed contract with the
government may seek a declaration concerning contract interpretation, the Court is not aware of any general
authority under which it may declare private rights before dismissing for lack of subject matter jurisdiction. See,
e.g., Am. Renovation & Const. Co. v. United States, 65 Fed. Cl. 254, 261 (2005); see also Tr. at 116:4–117:8
(government counsel explaining the statute granting the Court authority to adjudicate CDA-contract private party
disputes was repealed in 2011). Notwithstanding the Court’s lack of authority to enter declaratory judgments,
United States v. King, 395 U.S. 1, 2–3 (1969), the Court emphasizes such a decision would divest the Court of
subject matter jurisdiction and end the case. Tr. at 42:11–17; § 1498(a); Arbaugh, 546 U.S. at 514. Plaintiff’s stated
intent at oral argument accordingly conflicts with Federal Circuit case law: “in the absence of subject matter
jurisdiction there can be no preclusive findings or conclusions on the merits, and dismissal for lack of jurisdiction is
without prejudice.” Aerolineas Argentinas, 77 F.3d at 1572 (Fed. Cir. 1996) (citing Lewis v. United States, 70 F.3d
597, 603 (Fed. Cir. 1995) (“[A] jurisdictional dismissal is not res judicata.”) (emphasis added); Wheeler v. United
States, 11 F.3d 156, 159–60 (Fed. Cir. 1993); Burnside–Ott Aviation Training Ctr., Inc. v. United States, 985 F.2d
1574, 1580–81 (Fed. Cir. 1993)). As such, plaintiff’s requested decision from the Court would not be preclusive and
would not result in a dismissal with prejudice. Id.-6-