Early Warning Servs., LLC v. Grecia

EARLY WARNING SERVICES, LLC v. WILLIAM GRECIA

CIVIL ACTION NO. 21-1050

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

April 6, 2021

MEMORANDUM

KEARNEY, J.

After weeks of threatening a software designer he would sue four of its customers for infringing his patent unless the software designer could "buy out" his claims for an "early discounted amount," a Pennsylvania patent holder sued a bank customer of the software designer in Texas for allegedly infringing one claim of his patent relating to software used by the bank. The bank customer hired counsel, opened settlement discussions, and negotiated an extension of time to respond to the complaint in Texas. A few weeks later, the software designer agreed to indemnify its bank customer but there is no evidence the designer hired the bank's lawyers or controls the bank's defense. Two weeks after agreeing to indemnify its bank customer, the software designer sued the patent owner here asking we declare its software does not infringe the patent or the patent at issue is otherwise invalid. While the Texas suit is first filed and we may stay or dismiss in deference if it involves the same patents at issue involving the same product, the Texas district court is not a proper venue to sue the software designer under patent venue rules and we prefer addressing the designer's broader invalidity claims under the customer suit exception to the first-filed rule in patent cases. The software designer's declaratory judgment suit before us is also not a compulsory counterclaim in the first-filed Texas case as the patent holder offers no basis to find the designer so controls the bank customer sued in Texas so as to be functionally equivalent to the bank (like an insurer might on a subrogation claim). We deny the patent holder's motion to dismiss.

I. Alleged facts

Pennsylvanian William Grecia owns United States Patent 8,404,555 ("'555 patent"), titled "Personalized digital media access system (PDMAS)."¹ The '555 patent relates to the field of digital access management schemes used by makers of electronic products to protect sensitive data from illegal access using computerized devices.² Mr. Grecia claims his patent "teaches a more personal system of access rights management which employs electronic ID, as part of a web service membership, to manage access rights across a plurality of devices."³ He also owns United States Patent Numbers 8,533,860 ("'860 patent") and 8,887,308 ("'308 patent"), which share substantially identical specifications and relate to the same subject matter.⁴

Mr. Grecia regularly sues to enforce his patent rights against third parties through licenses or litigation involving his patent portfolio, including the '555 patent.⁵ He filed over fifty patent infringement suits against corporate defendants including Google Inc., Apple Inc., Sony Network Entertainment International, LLC, Samsung Electronics America, Inc., Microsoft Corp., and Amazon.com, Inc.⁶ Other corporate targets of Mr. Grecia's frequent patent infringement suits include The Bank of New York Mellon Corporation, Citibank, N.A., Morgan Stanley Smith Barney, LLC, and TIAA, FSB d/b/a/ TIAA Bank.⁷ The United States District Court for the Southern District of New York invalidated the '308 patent when he sued these four financial institutions, and he chose to not appeal.⁸ Courts or the United States Patent and Trademark Office invalidated or cancelled all of the claims of the '860 patent, the other patent related to his '555 patent.⁹

Mr. Grecia then turned to enforce his claims under the '555 patent. He sent a "demand" letter to software designer Early Warning Services, LLC's counsel in December 2020 claiming enforceable rights under the '555 patent.¹⁰ Early Warning owns the Zelle® network, a financial services network "focused on transforming digital payment experiences."¹¹ Its customers in the financial industry participate in the Zelle® network which provides financial payment services to their respective customers.¹²

Mr. Grecia's December 2020 demand to Early Warning specifically accused its customers First National Bank of Central Texas, Frost Bank, American Bank, and First National Bank of Texas of infringing his patent.¹³ Mr. Grecia demanded Early Warning "move wisely" to "buy out" these cases for an "early discounted amount" before he filed cases against the four customers after January 5, 2021.¹⁴ He also threatened to demand large sums of money after filing suits in the Western District of Texas.¹⁵ Mr. Grecia attached four claim charts purporting to identify the customers' alleged infringement of at least claim 2 of the '555 patent.¹⁶ He threatened further enforcement efforts and would "not consider any bulk or global" deals concerning the Zelle® network "at all in 2021."¹⁷

Mr. Grecia sues Frost Bank.

Early Warning does not appear to have immediately responded to Mr. Grecia's December 2020 demands. So Mr. Grecia sued Frost Bankers, Inc. in the United States District Court for the Western District of Texas (the "Frost Bank suit") a week into 2021. He alleges Frost Bank infringes claim 16 of the '555 patent through its use of the Zelle® computer product.¹⁸ Mr. Grecia alleges Frost Bank offers its customers—individuals and businesses holding accounts with Frost Bank—a way to make and receive payments digitally.¹⁹ He claims this digital payment system is the Zelle® computer program product which, as part of the Zelle® network, includes code facilitatingthe monitoring access to the Frost Bank account holder's money.²⁰ Frost Bank's alleged infringing uses of the Zelle® computer product include its capability of "receiving an access request in the form of an email or mobile telephone number through the Frost Bank communications console" "establishing an API communication related to the ZELLE RESTful API," and "writing the Frost Bank account holder's email or phone number and the Zelle CSCToken to the Zelle Computer product metadata."²¹

Mr. Grecia does not specifically allege infringement by Early Warning but does claim its Zelle® network infringes the '555 patent.²² He attaches a claim chart as an exhibit to his Frost Bank suit complaint including a description of the allegedly infringing product, the Zelle® computer product.²³ The claim chart also identifies Early Warning as the maker and seller of the Zelle® network royalty scheme.²⁴

Mr. Grecia alleges Early Warning agreed to defend and indemnify Frost Bank in the Frost Bank suit.²⁵ He bases his conclusion on his confusion in the name of Frost Bank's counsel (Baker Botts) with Early Warning's counsel (Baker Hostetler); each is a large law firm but they are not the same or related law firms. In response to Mr. Grecia's Motion, Early Warning submitted the declaration of its in-house counsel Warren Johnson.²⁶ Attorney Johnson swears he learned of Mr. Grecia's December 23, 2020 demand letter shortly after Early Warning received it; Early Warning did not engage in settlement discussions with Mr. Grecia; Attorney Johnson retained outside counsel on behalf of Early Warning in connection with Mr. Grecia's allegations of patent infringement but did not retain the Baker Botts law firm representing Frost Bank in the Texas suit.²⁷

Attorney Johnson further swears the Baker Botts firm is Frost Bank's separate counsel.²⁸ Attorney Johnson attests Early Warning's offer to defend and indemnify Frost Bank in the Texasaction did not begin until Frost Bank requested indemnity on February 10, 2021 and Early Warning did not agree to do so until February 22, 2021.²⁹

Mr. Grecia contends he had communications with Frost Bank's counsel at the Baker Botts firm in January 2021, but Attorney Johnson swears neither Early Warning nor its counsel were involved in any way with those communications.³⁰ Mr. Grecia offers no counter to Early Warning's sworn representations of no involvement in retaining Frost Bank's counsel or in negotiating with him in the Texas suit.

Frost Bank's counsel negotiates an extension to respond in Texas.

Mr. Grecia claims on January 19, 2021, Early Warning's counsel, as Frost Bank's indemnitor, met and conferred with him in the Frost Bank Texas action "to open settlement negotiations and to establish an unopposed agreement to a forty-five (45) day extension for [Early Warning] to answer" the complaint in Frost Bank.³¹ This unsworn averment is directly contradicted by Attorney Johnson's declaration Early Warning did not agree to indemnify Frost Bank until February 22, 2021 and did not retain Baker Botts to defend Frost Bank. Mr. Grecia is apparently again confusing the names of counsel for Frost Bank and Early Warning as both begin with Baker. Judge Albright granted Frost Bank's and Mr. Grecia's request for extension on January 20, 2021 setting an answer date of March 22, 2021.³²

Early Warning, represented by a different law firm (Baker & Hostetler LLP), sued Mr. Grecia here in his home District on March 4, 2021.³³ Early Warning alleges Mr. Grecia created an actual case or controversy "by threatening actual and imminent injury to [Early Warning] that can be redressed by judicial relief and that injury is of sufficient immediacy and reality to warrant the issuance of a declaratory judgment."³⁴ It asks us to declare the '555 patent is invalid, the claims ofthe '555 patent are unenforceable, and Early Warning and its customers, including Frost Bank, do not infringe on the '555 patent through the use of the Zelle® network.³⁵

II. Analysis

Early Warning asks us to declare: (1) the '555 patent is invalid under 35 U.S.C. §§ 101, 102, 103, and 112; (2) the claims of the '555 patent are unenforceable due to fraud in the United States Patent Office; and (3) Early Warning and its customers do not infringe a valid and enforceable claim of the '555 patent.³⁶

Mr. Grecia moves to dismiss Early Warning's claim, or, in the alternative, transfer or stay this case to the Western District of Texas under the first-to-file rule because this case and the Frost...