Applied Materials, Inc. v. Demaray LLC

Background

Applied Materials, Inc. brought a declaratory judgment action concerning two Demaray patents involving physical vapor deposition reactors and methods for depositing thin films during semiconductor manufacturing. Applied sought declarations that its reactors, including reactors in its Endura product line, did not directly or indirectly infringe the patents. Applied also sought declarations that it had a nonexclusive, perpetual, royalty-free license and that an assignment of patent rights prevented infringement claims against it.

The dispute followed Demaray’s patent-infringement lawsuits against Intel Corporation and Samsung Electronics Co. Ltd., which Demaray alleged were using or configuring Applied reactors in infringing ways. Demaray also sought documents and testimony from Applied about the reactors supplied to those customers. Applied alleged that Demaray’s infringement contentions, subpoenas, refusal to provide a promise not to sue, and other conduct created a real dispute between Applied and Demaray.

Demaray’s Motion

Demaray moved under Federal Rule of Civil Procedure 12(b)(1) to dismiss for lack of subject-matter jurisdiction, arguing that Applied had not shown an actual controversy required for declaratory relief. Demaray also moved under Rule 12(b)(6) to dismiss Applied’s license and assignment-based claims for failure to state a legally sufficient claim.

Subject-Matter Jurisdiction

The court held that it had jurisdiction over Applied’s declaratory judgment action. In a patent declaratory judgment case, an actual controversy exists when the alleged facts show a substantial dispute between parties with opposing legal interests that is sufficiently immediate and real to justify a declaration.

The court found that Demaray had taken affirmative actions directed at Applied, including serving subpoenas seeking information about Applied’s reactors, requesting information to determine which reactors were allegedly involved in infringement, referring to Applied’s reactors in infringement contentions, and refusing to provide a covenant not to sue. Considering the circumstances together, the court found a definite and concrete dispute concerning Demaray’s patents.

The court separately found a sufficient potential for a direct-infringement claim against Applied. Demaray’s infringement contentions identified Applied’s Endura-line reactors and relied on Applied’s literature, documentation, components, photographs, and reactor configurations. Because Applied made and sold the reactors and alleged that it had performed the relevant method for research, development, and demonstrations, the court found a reasonable potential for a direct-infringement suit. The court did not decide whether Applied could be liable for indirect infringement because the other grounds established jurisdiction.

The court also declined Demaray’s request that it use its discretion to refuse jurisdiction while Demaray’s customer lawsuits proceeded in the Western District of Texas. The court found that Demaray’s actions toward Applied and the possible effect of the case on the customer lawsuits supported exercising jurisdiction.

License Claim

Applied alleged that a Sale and Relationship Agreement between Applied Komatsu and Symmorphix gave Applied a nonexclusive, perpetual, royalty-free license to rights relating to certain sputtered silicon deposition technology. Demaray argued that the license depended on employee-assignment provisions that violated California Business and Professions Code section 16600 and therefore could not support Applied’s claim.

The court denied Demaray’s motion to dismiss the license-based claim. Reading the agreement as a whole and drawing reasonable inferences in Applied’s favor, the court found that Applied had sufficiently pleaded that the agreement granted it a license related to the asserted patents. Although Demaray’s interpretation might ultimately reflect the parties’ intent, the agreement and the parties’ prior negotiations left doubt about that intent. The court therefore concluded that Applied plausibly stated a claim for a declaration of non-infringement based on a license.

Assignment-of-Rights Claim

Applied separately alleged that an inventor’s employee agreement automatically assigned patent ownership rights to Applied. Applied argued that this assignment supported a declaration that its reactors could not infringe and that Demaray could not proceed without joining all co-owners.

The court rejected that theory at the motion-to-dismiss stage. It relied on its prior conclusion that the assignment provision was void and unenforceable under California Business and Professions Code section 16600 because it broadly covered post-employment inventions and was not limited to inventions based on Applied’s confidential information. The court also rejected Applied’s request to enforce a narrower version of the provision covering only inventions conceived during employment or using confidential information.

The court held that Applied’s assignment-based theory sought to enforce ownership rights through an assignment provision that substantially restrained trade. It therefore granted Demaray’s motion to dismiss Applied’s claim for a declaration of non-infringement based on assignment of rights and failure to join all co-owners.

Disposition

The court granted in part and denied in part Demaray’s motion to dismiss. It found subject-matter jurisdiction over Applied’s declaratory judgment action, denied the motion to dismiss Applied’s third claim based on a license, and granted without leave to amend the motion to dismiss Applied’s fourth claim based on assignment of rights.