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Our Case of the Week this week is a declaratory judgment action brought against USAA.  In a 27-page opinion, the Federal Circuit addressed three issues: subject matter jurisdiction for declaratory judgment actions under Article III of the U.S. Constitution, the discretionary authority of courts to decline declaratory judgment jurisdiction, and venue for hearing such a case.

The case concerned four U.S. patents relating to use of mobile devices to capture an image of a bank check and to transmit it for deposit.  The patents are owned by USAA, an organization based in Texas.  Mitek, based in California, created software for mobile check capture. 

Mitek alleged that USAA (through its California-based attorneys) sent licensing letters to financial institutions, including Mitek customers, including California-based Wells Fargo Bank.  USAA thereafter sued Wells Fargo for patent infringement in Texas.  Mitek was implicated in the suit through references in the complaint, through subpoenas issued to it, and through references at the trial.  Partway through the trial, Mitek filed a complaint in the Northern District of California seeking a declaratory judgment that neither Mitek or its customers had infringed the USAA patents.  Five days later, the jury in the Wells Fargo case rendered a verdict for USAA.  USAA then touted the jury verdict as a cautionary note for other banks that used Mitek’s software.

In the California-based declaratory judgment action, USAA then moved for dismissal for lack of subject-matter jurisdiction and also for dismissal based on the discretion granted to the district court by the Declaratory Judgment Act.  In the alternative, USAA sought to transfer to the Eastern District of Texas.  The California court granted the motion to transfer, finding that transfer was preferable because it would allow coordination with the Wells Fargo litigation.  The California court did not reach the motion to dismiss.  In the meantime, Wells Fargo and USAA settled, but USAA sued another Mitek customer for patent infringement.  The Eastern District of Texas then granted the motion to dismiss, finding there was no case or controversy based on either the letters sent to Mitek’s customers or the Wells Fargo litigation.  The court also stated “[e]ven if the Court’s determination . . . were later set aside, the Court would similarly and for the same reasons exercise its discretion and decline to exercise jurisdiction over Mitek’s declaratory judgment action.”

Mitek appealed both the transfer order and the subsequent dismissal of its suit.  The Federal Circuit affirmed the former, but reversed and remanded the latter for further consideration.

Subject matter jurisdiction

With respect to subject matter jurisdiction, the Court noted that the Constitution’s case-or-controversy requirement “has a dual temporal focus.”  First, the complaint “must plead facts sufficient to establish jurisdiction at the time of the complaint, and post-complaint facts cannot create jurisdiction where none existed at the time of filing.”  “Second, a case or controversy must remain present throughout the course of the suit.”

The court then considered the resolution of factual disputes in a challenge to a court’s subject matter jurisdiction.  Specifically, “[i]n the specific setting of a case-or-controversy challenge, the Fifth Circuit has said that a challenge is ‘factual’ rather than ‘facial’ if the defendant submits affidavits, testimony, or other evidentiary materials.”  “To defeat a factual attack, a plaintiff must prove the existence of subject-matter jurisdiction by a preponderance of the evidence and is ‘obliged to submit facts through some evidentiary method to sustain his burden of proof.”

Mitek’s jurisdictional argument rested on multiple bases concerning the relationship between Mitek and its customers.  The Federal Circuit held that “[t]o a large extent, the parties have debated the case-or-controversy at too high a level of generality.  The issues raised by Mitek’s asserted bases of jurisdiction, we conclude, require finer parsing of the issues and more particularized determinations than we have before us, both from the parties and from the district court.”  In particular, the district court failed to make clear whether it was resolving disputes as “factual” or “facial” issues.  The Court then waded through the district court’s reasoning and analysis and found it insufficient on numerous levels, and thus remanded for further consideration.  The Court provided a detailed, nine-page discussion of the type of analysis that would be necessary to resolve the case-or-controversy issue in a case like this.

Discretionary denial of declaratory judgment jurisdiction

Similarly, the Court reversed the district court’s discretionary denial of declaratory judgment jurisdiction, finding that the district court had failed to give sufficient rationale for its exercise of discretion, in part because it was based on the same faulty analysis under Article III.

Venue

Separately, Mitek argued that the case should be transferred back to California.  The Court disagreed for two reasons.  First, in the Fifth Circuit, a challenge to venue transfer must be made through mandamus, and not appeal from final judgment.  Since Mitek had not challenged venue through that route, its challenge was waived.  Second, the Court found that “[i]n any event, Mitek has not demonstrated an abuse of discretion” by the California court.  The Court considered each of the California court’s considerations in transferring the case, and concluded that a decision to transfer was an appropriate use of discretion.

The opinion can be found here.

By Nika Aldrich

ALSO THIS WEEK

Michael Philip Kaufman v. Microsoft Corporation, Appeal Nos. 2021-1634, -1691 (Fed. Cir. May 20, 2022)

In an appeal from a district court proceeding, the Federal Circuit upheld a $7 million jury verdict against Microsoft Corporation and its “Dynamic Data” product for infringing claims of a patent directed to the automatic generation of a user interface for working with data in a relational database.  Microsoft argued on appeal, inter alia, that the district court had failed to resolve a claim construction dispute concerning the scope of an “automatically generating” limitation in the claim preamble, entitling it to a new trial under O2 Micro Int’l, Ltd. v. Beyond Innovation Tech. Co., 521 F.3d 1351 (Fed. Cir. 2008), and that the district court had improperly construed the term “and” to mean “and/or.”  Mr. Kaufman also appealed the district court’s denial of pre-judgment interest.

The Court rejected Microsoft’s challenges.  As to the O2 Micro issue, Microsoft argued that the district court failed to resolve whether the “automatically generating” limitation required certain unclaimed steps to be performed without user input, such as preparatory steps taken before generation of the user interface.  The Federal Circuit found that Microsoft forfeited the issue by failing to advance any construction to the district court that would have resolved a dispute, and that its counsel’s comments during summary judgment proceedings that a dispute existed were insufficient to preserve the issue.  The Court also found that because a purely conjunctive construction of “and” would have excluded the only embodiment set forth in the patent specification, Microsoft’s argument that “‘and’ must carry its usual conjunctive meaning” was insufficient to overcome the presumption that that embodiment was covered by the claims.

The Federal Circuit also found that the district court erred in declining to award prejudgment interest; prejudgment interest was not in the jury’s award because the jury was provided no means to calculate it, and Mr. Kaufman did not unduly delay in bringing suit for five years because there was no evidence that it was a self-serving litigation tactic or that Microsoft was necessarily prejudiced.  As such, the Court affirmed denial of Microsoft’s post-trial motions and reversed the denial of prejudgment interest.

The opinion can be found here.

By Jason Wrubleski

Google LLC v. IPA Technologies Inc., Appeal Nos. 2021-1179, -1180, -1185 (Fed. Cir. May 19, 2022)

In an appeal from the U.S. Patent Trial and Appeal Board, the Federal Circuit addressed whether the Board correctly concluded that Google had not shown the challenged claims to be unpatentable.  The Federal Circuit reversed the Board, holding that the Board failed to resolve fundamental testimony conflicts in concluding that the relied-upon reference was not prior art. The Circuit Court vacated the decision and remanded for further proceedings.

The opinion can be found here.

By Mario Delgato

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