Patent Litigation Tip – Counterclaim for Declaratory Judgement

By Charles Thoeming:

Patent infringement actions often present many preliminary motions on venue or discovery issues which, depending upon the strategies for the respective parties, may exacerbate any possibility for an early business resolution. In some instances, a plaintiff may voluntarily dismiss its case, leaving the parties with deep-pocket expenditures for these many months of preliminary matters, but no resolution as to the merits. Although patent infringement cases are trending more towards sanctioning frivolous complaints, these remedies typically are only available after discovery on the merits or, in some instances, an enlarged scope of satellite litigation. If a responsive pleading to the complaint does not lodge a counterclaim for declaratory relief on at least the issue of invalidity, sufficient evidentiary bases for such sanctions may be lacking.

This is the position defendant ASUS Computer International (ASUS) found itself facing in a recent ruling from the Northern District of California, in Sentegra LLC vs. ASUS Computer International, case number C 16-03136. The case involved transfer of a patent infringement action originally filed in the Southern District of New York to the Northern District of California. After a series of hearings on venue and discovery flaps, the New York court granted defendant ASUS’s motion to transfer venue to California, at which time, plaintiff Sentegra, LLC, voluntarily dismissed it.

Defendant ASUS then served a motion for sanctions based on accusations that Sentegra had (1) brought a baseless lawsuit, (2) chosen an inconvenient venue for ASUS, and (3) broken an agreement to postpone discovery, contending Sentegra’s “real goal was to exert litigation pressure so that it [could] extract a settlement” rather than litigate the case on its merits. Following a hearing on the motion, the California Court held an evidentiary hearing on the issue of the alleged discovery misconduct to resolve the finger-pointing and factual disputes. Attorneys for both sides testified and had the opportunity to cross-examine each other under oath.

The Northern District of California’s ruling (Judge William Alsup) held among other things that ASUS’s underlying contentions — that it did not infringe Sentegra’s patent and the patent is invalid in any case — are legal conclusions that must be proven on the merits. If ASUS wanted a finding that Sentegra’s case lacked merit, then it should have asserted a counterclaim for declaratory relief to keep the case alive. Instead, ASUS now wants to use a sanctions motion as a vehicle to essentially litigate a voluntarily-dismissed civil action on the merits to establish that ASUS would have won had the case gone the distance. ASUS has no one but itself to blame for failing to file a counterclaim. The record on this motion does not suffice to demonstrate that Sentegra’s lawsuit was baseless.

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