CPI Card Group Inc. v. Multi Packaging Solutions, Inc.

          ORDER

          MICHAEL E. HEGARTY UNITED STATES MAGISTRATE JUDGE

         On September 21, 2017, Plaintiff CPI Card Group, Inc. (“CPI”) moved for substitution of the “real Plaintiff in interest” under Federal Rule of Civil Procedure 15(a)(2), contending that the patent at issue was not actually assigned to CPI, but rather to its subsidiary, CPI Card Group-Minnesota, Inc. (“CPI-Minnesota”). See ECF No. 122. After briefing, I found that CPI failed to demonstrate its constitutional standing in this case, denied CPI's motion to substitute, and dismissed CPI's claims without prejudice for the Court's lack of subject matter jurisdiction. At the same time, in the interest of ensuring the just, speedy, and inexpensive resolution of this matter, I stayed the effect of the dismissal order and permitted CPI-Minnesota an opportunity to move for joinder in this action under Federal Rule of Civil Procedure 17(a). See Order at 15 & n.8, ECF No. 158 at 15 (citing Procom Supply, LLC v. Langner, No. 12-cv-00391-MSK-KMT, 2012 WL 4856724, at *6 (D. Colo. Oct. 11, 2012)).

         Before any motion for joinder was filed, Defendant Multi Packaging Solutions, Inc. (“MPS”) filed a motion to dismiss on December 1, 2017, arguing that the Court lacks subject matter over all claims in this case, including MPS's counterclaims, and seeking in the alternative to voluntarily dismiss its counterclaims. See ECF No. 162. CPI-Minnesota then timely filed a motion for joinder asserting that naming CPI, rather than CPI-Minnesota, as the patent-owner Plaintiff at the commencement of this action was an honest mistake and that there is no prejudice to MPS in allowing CPI-Minnesota to join as the proper Plaintiff. See ECF No. 165. Finding that the Court has jurisdiction to address the pending motions, I grant MPS's request for voluntary dismissal of its counterclaims without prejudice. I also grant CPI-Minnesota's motion for joinder.

         I. Motion to Dismiss for Lack of Subject Matter Jurisdiction '

         CPI initiated this action on October 11, 2016, alleging generally that MPS had infringed, and may continue to infringe, claims of a U.S. Patent No. 8, 419, 889 patent (“the '889 Patent”), titled “Ultrasecure Card Package, ” by making, using, importing, offering to sell, and selling its card packaging products. More specifically, CPI contends that MPS used “ZED” machinery to create the same patent-protected heat-sealing process used by CPI to seal its packaged prepaid debit cards. On December 13, 2016, MPS filed the operative amended answer and counterclaims for declaratory judgment of noninfringement and invalidity of the '889 Patent. The Court issued the governing Scheduling Order in a Patent Case on December 8, 2016, and, after a tutorial and hearing on August 29, 2017, the Court issued its claim construction order on October 23, 2017, then modified the Scheduling Order in accordance with the parties' proposals on October 31, 2017.

         Shortly after the Court issued its order dismissing CPI's claims without prejudice but staying the effect of the dismissal order to allow CPI-Minnesota to file a motion for joinder, MPS filed the present motion to dismiss, asserting that the Court lacks subject matter jurisdiction over all claims, including MPS's counterclaims. MPS further asserts that this lack of subject matter jurisdiction deprives the Court of authority to even address the motion for joinder.

         Rule 12(b)(1) empowers a court to dismiss a complaint for “lack of subject-matter jurisdiction.” Fed.R.Civ.P. 12(b)(1). Dismissal under Rule 12(b)(1) is not a judgment on the merits of a plaintiff's case, but only a determination that the court lacks authority to adjudicate the matter. See Castaneda v. INS, 23 F.3d 1576, 1580 (10th Cir. 1994) (recognizing federal courts are courts of limited jurisdiction and may only exercise jurisdiction when specifically authorized to do so). A court lacking jurisdiction “must dismiss the cause at any stage of the proceedings in which it becomes apparent that jurisdiction is lacking.” Full Life Hospice, LLC v. Sebelius, 709 F.3d 1012, 1016 (10th Cir. 2013) (internal quotation marks omitted).

         Previously, the Court expressed its belief that the dismissal of CPI's claims without prejudice for lack of jurisdiction will not automatically destroy its jurisdiction over MPS's counterclaims against CPI, which seek declaratory judgment of (1) noninfringement and (2) invalidity of the '889 Patent. See Nov. 29, 2017 Tr. 2: 7-11, ECF No. 163; see also First Amended Answer, ECF No. 34 (listing counterclaims). MPS now argues that the Court did not retain jurisdiction over the counterclaims after dismissal of CPI's claims and requests dismissal of the counterclaims if they are the sole reason that the Court has jurisdiction. CPI counters that although its legal claims will be dismissed for lack of standing, the Court has retained jurisdiction over CPI's claims for equitable relief (namely, an injunction). Opp'n to Mot. to Dismiss at 2-3, ECF No. 166. In addition, CPI asserts that the Court maintains jurisdiction over MPS's counterclaims because there still exists “‘a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'” Id. at 3-6 (quoting MedImmune, Inc. v. Genentech, Inc., 549 U.S. 764, 771 (2007)). CPI's opposing argument is intertwined with the arguments raised in its Motion for Joinder. Given this overlap, I will first address whether the Court has jurisdiction over this case and, if so, whether it is proper to grant MPS's motion to dismiss its counterclaims. I will then analyze whether it is proper to join CPI-Minnesota in this action.

         A. Does the Court Have Jurisdiction to Address the Pending Motions?

         At the outset, the Court notes that no party has cited a binding case directly addressing whether the Court loses jurisdiction to hear a motion to amend and/or join a patent owner when a plaintiff learns during litigation that it is not the true patent owner.

         In its motion to dismiss and its opposition to CPI-Minnesota's motion for joinder, MPS focuses heavily on the continued viability of MPS's counterclaims and their effect, if any, on subject matter jurisdiction. MPS posits that upon dismissal of CPI's infringement claim the Court will automatically lose jurisdiction over MPS's counterclaims for invalidity and noninfringement because the counterclaims “sought declaratory judgment of MPS's rights against CPI as owner of the '889 patent asserting infringement by MPS.” Mot. to Dismiss at 1, ECF No. 162. Stated otherwise, MPS's counterclaims must also be dismissed for CPI's lack of standing.

         MPS cites H.R. Technologies, Inc. v. Astechnologies, Inc., 275 F.3d 1378, 1386 (Fed. Cir. 2002), for the proposition that when a patent plaintiff lacks standing, “the defendant's corresponding patent counterclaims should be dismissed.” Mot. to Dismiss, ECF No. 162 at 3. That case is readily distinguishable, though, because the Federal Circuit only upheld the dismissal of a counterclaim of noninfringement. It reasoned that such claim was asserted against the wrong party because the named plaintiff could not defend a claim of noninfringement on behalf of the patentee, who was the real party in interest at that time. See H.R. Techs., 275 F.3d at 1386. Here, by contrast, MPS has also asserted a counterclaim for invalidity of the ‘889 Patent. H.R. Technologies provides no insight on the fate of that separate claim. Furthermore, at least one other district court has declined to dismiss a declaratory-judgment claim where the plaintiff “faced a real and imminent threat of infringement suit” that was “ultimately traceable” to a party who lacked technical standing to bring or join an infringement lawsuit. See Simmons Bedding Co. v. Leggett & Platt, Inc., No. 11-cv-232-wmc, 2012 WL 11909449, at *10 (W.D. Wis. Mar. 27, 2012) (internal quotation marks omitted).

         MPS also cites Bishop v. Smith, 760 F.3d 1070, 1091 n.13 (10th Cir. 2014), emphasizing that as part of the redressability requirement, a declaratory-judgment action must be brought against a defendant who can, if ordered to do so, remedy the alleged injury. This argument disregards CPI's ability to control CPI-Minnesota by virtue of the parties' corporate relationship. In any event, Bishop is not a patent case so the Tenth Circuit did not apply the relevant standard. See MedImmune, 549 U.S. at 771 (articulating the standard for declaratory-judgment actions in the patent context to be whether “there is a substantial controversy, between parties having adverse legal judgments, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment” (internal quotation marks omitted)).

         MPS's citation to Fina Research, S.A. v. Baroid Limited, 141 F.3d 1479, 1480-81 (Fed. Cir. 1998), is equally unavailing. That case examined whether there was an actual controversy between the parties in a declaratory judgment action when the plaintiff's only potential liability was for inducing patent infringement. Although Fina Research did not involve counterclaims, MPS seems to be arguing that if a claim would fall for lack of subject matter jurisdiction, so would a counterclaim on the same topic. See Opp'n to Mot. for Joinder at 2, ECF No. 158 (pairing the citation to Fina Research with a reference to Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 (1941), an insurance case stating that the inquiry in a declaratory judgment action is the same even if the positions of the parties in the conventional suit are reversed).

         MPS's jurisdictional authority requires the Court to make significant inferences. At the same time, MPS is unable to point to a patent case in which both noninfringement and invalidity counterclaims were dismissed as a direct result of a finding of lack of subject-matter jurisdiction over the primary claims, nor has this court located one. MPS has not presented a convincing argument that the Court does not have subject matter jurisdiction over either of its counterclaims.

         Even if the Court did lack subject matter jurisdiction over the counterclaims, MPS has not persuaded the Court that the jurisdictional defect cannot be cured in any way such that immediate dismissal of the entire case is required. MPS continues to rely on Schreiber Foods, Inc. v. Beatrice Cheese, Inc., 402 F.3d 1198, 1203 (Fed. Cir. 2005), for the proposition that “if the original plaintiff lacked Article III initial standing, the suit must be dismissed, and the jurisdictional defect cannot be cured by the addition of a party with standing.” Notably, Schreiber did not actually address this issue: the plaintiff there had constitutional standing at the time the suit was commenced. Instead, the court addressed whether a party with standing at the outset of litigation could lose, then regain, standing before the entry of judgment by assigning, then reacquiring, a patent. Id. Referencing its previous holding “that the temporary loss of standing during patent litigation can be cured before judgment, ” the court concluded that the jurisdictional defect that existed due to the patent's transfer during litigation was cured. Id. at 1204 (citing Insituform Techs., Inc. v. Cat Contracting, Inc., 385 F.3d 1360, 1371-72 (Fed. Cir. 2004)).

         MPS's reliance on Schreiber is strained for another reason too. Schreiber cites Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1309 (Fed. Cir. 2003), to support the proposition that “the jurisdictional defect cannot be cured by the addition of a party with standing.” But Paradise Creations also involved an entirely different scenario: whether a state statute could retroactively confer standing on the plaintiff corporation, which claimed its patent rights under a contract executed at a time when it was administratively dissolved. See Id. at 1305. In any event, the Federal Circuit specifically noted that the district court's order denying the plaintiff's motion to amend and to join the purported patent owners to the action was not before the court on ...