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IMS HEALTH, INC. v. VALITY TECH. INC.
July 28, 1999
IMS HEALTH, INC., PLAINTIFF,
VALITY TECHNOLOGY INC., DEFENDANTS.
The opinion of the court was delivered by: Lowell A. Reed, Jr., Senior District Judge.
Presently before the Court is the motion of defendant Vality
Technology Inc. ("Vality"), to dismiss the complaint, or in the
alternative to transfer or stay these proceedings (Document No.
2), the response of plaintiff IMS Health Incorporated ("IMS")
thereto, the cross-motion of IMS to enjoin defendant Vality from
proceeding with the later-filed, related action in the United
States District Court for the District of Massachusetts (Document
No. 6), the reply of Vality in support of its motion to dismiss,
transfer, or stay these proceedings, and in opposition to the
cross-motion of IMS enjoin Vality from proceeding with the
later-filed action, and the sur-reply of IMS thereto. Based on the
following analysis, the motion of the Vality will be denied. The
cross-motion of IMS will be granted.
IMS is a corporation based in Plymouth Meeting, Pennsylvania
which provides information services to the pharmaceutical and
health care industries. In order to best provide these services,
IMS has developed databases which contain information on
pharmaceutical wholesale transactions within the United States,
the habits of pharmaceutical prescribers, and preferred addresses
for use by pharmaceutical sales representatives.
In early 1994, IMS entered into what would become an ongoing
relationship with MatchWare Technologies, Inc. ("MatchWare"), a
Maryland-based firm which provided IMS with software ("MatchWare
software" or "matching software") that was useful in organizing
and facilitating more productive utilization of the large data
sets collected by IMS. (Affidavit of Ilene Blanton ¶ 2). This
relationship commenced with a presentation at the Plymouth
Meeting facility by Matthew Jaro, the President of MatchWare,
which was followed by several extended episodes in 1994 and 1995
during which Mr. Jaro worked at that facility with IMS personnel
and systems in order that the MatchWare software could be
modified for use in IMS's mainframe system. (Affidavit of Ilene
Blanton ¶¶ 3, 6, 7). On or about July 25, 1994, IMS and
MatchWare executed an End-User License Agreement and Source Code
License Agreement relating to the use by IMS of IBM MVS versions
of the MatchWare software. On or about September 8, 1994, they
executed a similar agreement which pertained to HP UNIX versions
of the software (collectively "the 1994 agreements"). (Affidavit
of Inez H. Friedman ¶¶ 2, 3). The 1994 agreements were
negotiated and executed at the IMS facility in Plymouth Meeting,
Pennsylvania. (Affidavit of Stephen L. Engber ¶¶ 3, 4).
In December 1997, Vality, a Massachusetts corporation, acquired
MatchWare, (Plt. Mem. at 8), and became the successor-in-interest
to MatchWare, a status which still characterizes it today.*fn1
(Def. Mem. at 2). Over a year later, on or about January 14,
1999, a meeting transpired between officers of IMS and Vality at
the Boston headquarters of Vality. At this meeting, Mark. E.
Atkins, President of Vality, alleged that IMS had misappropriated
its trade secrets and engaged in unauthorized use of its
copyrighted matching software. (Affidavit of Stephen L. Engber
¶ 9). Specifically, Vality alleges that while the agreements
between it and IMS were "end-user" agreements, meaning that IMS
was authorized only to use the matching software for its own
internal purposes and not for providing data-processing services
to third parties,*fn2 IMS was in fact using the software to
provide precisely these services to its own clients. (Memorandum
of Law in Support of Motion of Defendant ("Def. Mem." at 4, 5)).
Over the ensuing months, the parties then engaged in an
exchange of letters and conference calls focusing on the proper
interpretation of the 1994 agreements, and on how to resolve the
disagreement which had developed between them. Although Mr. Jaro
asserts that "[t]he negotiations respecting Vality's claim that
IMS's conduct breached the [1994 agreements] . . . took place
primarily in Massachusetts," (Affidavit of Matthew Jaro ¶ 7),
it is unclear what he means by this statement, as except for the
January 12, 1999 meeting when the allegations were first leveled,
no face to face meeting is alleged by either party to have taken
place. The only contacts discussed by either party were the
aforementioned letters and conference calls, and there is every
indication that these occurred with all IMS officers situated in
Plymouth Meeting, and all Vality officers in Boston.
IMS contends that Vality's communiques expressly threatened
litigation. (Affidavit of Stephen L. Engber ¶ 12). Vality
argues that no such threat was made or reasonably inferred from
any of the letters exchanged. (Def. Mem. at 6-9). In contrast,
the defendant asserts that the parties were attempting to come to
an amicable resolution of the dispute when IMS filed this
declaratory judgment action on March 25, 1999. (Def. Mem. at 9).
Finally, on May 5, 1999, Vality filed an action in the District
of Massachusetts ("the Massachusetts action") in which it
asserted claims sounding in copyright infringement, breach of
contract, breach of implied covenant of good faith and fair
dealing, quantum meruit and misappropriation of trade secrets.
Vality moves to dismiss the complaint on the ground that the
Court lacks subject matter jurisdiction over the action, as no
actual case or controversy existed at the time of filing. In the
alternative, Vality argues that the Court should decline to
exercise its discretionary jurisdiction over this declaratory
judgment action because: (1) IMS engaged in strategic, preemptive
litigious tactics which should not be rewarded by this Court via
a refusal to dismiss; (2) the "first-filed" rule is not
controlling; and (3) the balance of conveniences and judicial
economy favor proceeding in the United States District Court for
the District of Massachusetts.
In the alternative, Vality moves to transfer the case to the
District of Massachusetts under 28 U.S.C. § 1406(a) on the
ground that substantial activity giving rise to the claims did
not occur in Pennsylvania, thus rendering venue improper under
28 U.S.C. § 1391(b), and making § 1406(a) applicable.
In the alternative, Vality moves to transfer the case to the
District of Massachusetts under 28 U.S.C. § 1404(a) on the
grounds that (1) the District of Massachusetts is a more
convenient forum than the Eastern District of Pennsylvania, (2)
the interest of justice mandates transfer, and (3) the case
"might have been brought" in Massachusetts.
In the alternative, Vality moves to stay these proceedings
pending the resolution of the Massachusetts action.
IMS responds to the motion of Vality by arguing that (1) the
Court does have subject matter jurisdiction over the action, (2)
the "first-filed rule does require the Court to retain this
jurisdiction, and (3) Vality is not entitled to a transfer of
venue pursuant to either 28 U.S.C. § 1404(a) or
28 U.S.C. § 1406(a). IMS also cross-moves the Court to enjoin Vality
from proceeding in the Massachusetts action."
II. Dismissal for Lack of Subject Matter Jurisdiction
28 U.S.C. § 2201(a) (1994) reads in
In a case of actual controversy within its
jurisdiction, . . . any court of the United
States, upon filing of an appropriate
pleading, may declare the rights and other
legal relations of any interested party seeking
such declaration, whether or not further relief
is or could be sought.
The Declaratory Judgment Act has a remedial character, and should
therefore be interpreted liberally. Algrant v. Evergreen Valley
Nurseries, Ltd. Partnership, 126 F.3d 178, 189 (3d Cir. 1997)
(Mansmann, J., dissenting) (citing Exxon Corp. v. Fed. Trade
Comm'n, 588 F.2d 895, 900 (3d Cir. 1978)). Despite this
predilection, however, a court may assert jurisdiction over an
action brought pursuant to the Declaratory Judgment Act only if
an actual case or controversy which is ripe for disposition is
before the tribunal. See Travelers Ins. Co. v. Obusek,
72 F.3d 1148, 1153-54 (3d Cir. 1995).
In order to satisfy the "actual controversy" requirement, a
declaratory judgment action must present a controversy that "'(1)
is real and not hypothetical; (2) affects an individual in a
concrete manner so as to provide the factual predicate for
reasoned adjudication, and (3) sharpens the issues for judicial
resolution.'" Travelers Ins. Co., 72 F.3d at 1154 (quoting
Armstrong World Indus. v. Adams, 961 F.2d 405, 410 (3d Cir.
1992)). "Basically, the question . . . is whether the facts
alleged, under all the circumstances, show that there is a
substantial controversy, between parties having adverse legal
interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment." Maryland Cas. Co. v. Pacific
Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826
Ripeness, similarly, is determined by examining (1) the
adversity of the interest between the parties to the action, (2)
the conclusiveness of the declaratory judgment, and (3) the
utility or practical help that a declaratory judgment would
provide. See TIG Ins. Co. v. Insinger Mach. Co., Inc., No.
Civ.A.97-3164, 1998 WL 748287, at *3 (E.D.Pa. Oct.27, 1998)
(citing Armstrong, 961 F.2d at 411).
B. Real and Concrete Facts
Here, the dispute is indisputably real, and indeed, Vality does
not contend otherwise. The allegations of copyright infringement
leveled by Vality are of a highly specific nature, based upon
equally specific facts, and the outcome of the suit will squarely
affect the respective rights and obligations of the parties to
this suit. The contentions of both Vality and IMS provide this
Court with a clear factual predicate for reasoned, sharpened
The Court of Appeals for the Third Circuit has stated that in
order for a declaratory judgment to be considered conclusive, it
must change or clarify the legal status of the parties, not
merely lend the opinion of the court on a hypothetical set of
facts. Travelers Ins. Co., 72 F.3d at 1155. In the context of
this case, this requirement is unquestionably met. Consider, for
example, the possibility that the motion of IMS for a declaratory
judgment was granted. In that instance, it is likely that the
plaintiff could rest assured that, despite the contrary
contentions of Vality, it did not infringe on any of the
copyrights held by the defendant. Such would unquestionably
constitute a clarification of the legal status of the parties,
and this element of the test is therefore satisfied.
D. Adversity of Interests
The Court of Appeals for the Third Circuit has also spoken on
the adversity of interests, the remaining component of the
present inquiry: "[p]arties' interests are adverse where harm
will result if the declaratory judgment is not entered."
Travelers Ins. Co., 72 F.3d at 1154. Thus, importantly, "in
an appropriate circumstance, a litigant can seek a declaratory
judgment where the harm is threatened in the future. However the
plaintiff must demonstrate that the probability of that future
event occurring is real and substantial, 'of sufficient immediacy
and reality to warrant the issuance of a declaratory judgment.'"
Id. (citation omitted).
This is the point at which Vality has selected to attack the
proposition that this Court has jurisdiction over this matter. In
fact, the gravamen of the argument made by Vality is that IMS did
not have a reasonable apprehension of a lawsuit at the time of
filing. It contends that the parties were engaged in continuing
efforts to resolve the matter out of court when IMS, on the same
day that it sent a letter to Vality indicating its continuing
interest in negotiation, filed this action. IMS had no reason to
believe, Vality posits, that litigation was imminent, or even
likely. Vality specifically argues that had IMS truly feared
litigation, it would have filed this action directly after the
January 14, 1999 meeting, the only time, according to Vality, at
which any express reference to litigation was made. (Reply at
4-5). Vality contends that IMS could not have been forced to endure
tactics designed to intimidate Vality, as IMS is a corporation of
global proportions, employing in excess of 8,500 employees and
generating over $1.2 billion in revenues in 1998. (Reply at 7).
It also asserts that, as a matter of law, the fact that Vality
later commenced the Massachusetts action is insufficient as a
basis for a claim that Vality had a reasonable
apprehension of a lawsuit, as while this occurred after the
filing of this action, the law mandates that the filing party
have such a fear at the time of filing. Hence, it posits, no
justiciable case or controversy existed at that time. At the root
of the argument of Vality is the notion that for this Court to
hold a case or controversy existed at the time of filing here, it
would undermine the public policy that "potential litigants must
be encouraged to seek to avoid litigation rather than adopt a
`sue first, talk later' philosophy." Hanson PLC v.
Metro-Goldwyn-Mayer Inc., 932 F. Supp. 104, 107-08 (S.D.N Y
I, however, find this view to be unpersuasive. First, while the
series of correspondence between the parties is not replete with
explicit threats to sue, the specter of litigation undoubtedly
hung over the post-January 14, 1999 dealings between the parties.
Mr. Atkins, stated during the January 14, 1999 meeting that he
had "retained 'the best attorney in town.'" (Affidavit of Stephen
L. Engber ¶ 10). Deadlines were repeatedly set by Vality for
the return of the matching software absent a sizable payment from
IMS to Vality (delineated further in note 6), and the overall
tone of the letters exchanged between January 19, 1999 and March
25, 1999 was adversarial. Specific references to litigation and
breach of contract, for example, are found in the March 5, 1999
and March 25, 1999 letters from IMS to Vality, and the deadlines
set by Vality are mentioned in the majority of these communiques
as well. (See Affidavit of Inez H. Friedman at Exhibits C —
H). IMS also alleges that litigation was threatened during
telephone conferences between the parties on February 4, 1999 and
February 24, 1999. (See Affidavit of Stephen L. Engber ¶
12). While Vality does not contest the account of the January 14,
1999 meeting offered by IMS, it does take issue with this
characterization of the telephone conversations. (Reply at 4-5).
It is quite possible for two parties to simultaneously consider
nonlitigious settlement of a dispute, while at the same time
maintaining an awareness that either settlement is improbable or
that litigation is equally likely, particularly where these
negotiations have continued over an extended period of time but
yielded little in the way of agreement. Thus, while there was no
indication on March 25, 1999 that Vality was ready and willing to
file an action immediately, given the positions stated and the
demands made by Vality, the disagreement in which IMS found
itself with these positions, and its unwillingness to acquiesce
in those demands, IMS could ...