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Magistrate Judge Burke Recommends Granting-in-Part, Denying-in-Part Motion to Dismiss for Lack of Subject Matter Jurisdiction

Magistrate Judge Christopher Burke recently considered a motion to dismiss this patent-infringement action for lack of subject matter jurisdiction, granting-in-part as to one of plaintiff Adidas’ counts, but denying-in-part as to other portions of the complaint. In an earlier action, Unequal Technologies sued Reebok, which is wholly owned by Adidas AG. The earlier suit ended when Unequal provided two different versions of a covenant not to sue that extended only to Reebok products. Adidas then filed the instant action, seeking a declaration that the covenant is binding and applicable to Adidas products as well and that Adidas does not infringe the three patents-in-suit covered by the covenant. Declaratory judgment defendant Unequal responded to the complaint with a motion to dismiss for lack of subject matter jurisdiction. Adidas AG, et al. v. Unequal Techs. Co., et al., C.A. No. 16-52-LPS-CJB, Report and Recommendation at 1-6 (D. Del. Nov. 23, 2016).

Judge Burke first found that the second-issued of the two covenants not to sue had superseded the first-issued and was, therefore, the only covenant in effect. In reaching this conclusion, Judge Burke noted that the record “overwhelmingly indicates that the First Covenant was not operative, because even after it was sent to Reebok, the parties were still negotiating over the final form that the covenant would take.” Thus, Judge Burke found, there was no plausible claim that the first covenant was enforceable, and the Court need not even address whether the first covenant’s terms covered Adidas products. This portion of Adidas’ complaint was, therefore, dismissed. Id. at 7-16.

Based on the same prior suit against Reebok and resulting covenant not to sue, Adidas claimed that there was declaratory judgment jurisdiction for its claims of non-infringement. As Judge Burke explained in assessing jurisdiction, “The mere fact that Defendants had ‘filed infringement suits against other parties for other products[,]’ does not, ‘in the absence of any act directed toward [Plaintiffs], meet the minimum standard’ for declaratory judgment jurisdiction. This is so even where, as here, a defendant had previously sued one of a plaintiff’s subsidiaries. Plaintiffs’ Complaint, however, goes beyond simply alleging that Defendants had previously sued Reebok” because the complaint also alleged that Unequal had sought discovery into Adidas products. Id. at 17 (citations omitted). Thus, “it was then reasonable for [Adidas} to think that [Unequal] believed that such products infringed the patents-in-suit. Indeed, in the context of a patent infringement case, that is what the term ‘Accused Products’ suggests. As a result, it seems strange to ask whether, at the time of the instant suit, there was a ‘substantial controversy’ brought on by [Unequal] about whether [Adidas’] products at issue infringed the patents-in-suit. [Unequal] had, after all, already pretty clearly stated that they did.” Id. at 18.

Adidas AG, et al. v. Unequal Techs. Co., et al., C.A. No. 16-52-LPS-CJB (D. Del. Nov. 23, 2016).

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