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IMS HEALTH, INC. v. VALITY TECH. INC.

July 28, 1999

IMS HEALTH, INC., PLAINTIFF,
v.
VALITY TECHNOLOGY INC., DEFENDANTS.



The opinion of the court was delivered by: Lowell A. Reed, Jr., Senior District Judge.

    MEMORANDUM

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.

I. Background

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).

During the period following the execution of these documents and continuing through November, 1997, an interval which saw the entry of IMS and MatchWare into another End User License Agreement, IMS and MatchWare enjoyed an apparently trouble-free relationship which was marked by frequent service visits by Mr. Jaro to the Plymouth Meeting facility, as were required under the 1994 agreements. (Affidavit of Ilene Blanton ¶ 11). Further, in July of 1996 and August of 1997, IMS and MatchWare entered into additional maintenance, support and training agreements relating to the MatchWare software. (Affidavit of Stephen L. Engber ¶ 5).

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

A. Standard

28 U.S.C. § 2201(a) (1994) reads in relevant part:

    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 (1941).

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).

There is a great deal of overlap in the factors needed to make these two determinations, and at the core of both inquiries are the following questions, as this Court has previously articulated: "whether a controversy is based on real and concrete facts, whether the parties are adverse, and the potential conclusiv[eness] of the declaratory action go to the fitness of the issues for judicial review." TIG Ins. Co., 1998 WL 748287, at * 3. It is this amalgamated inquiry with which the Court is concerned.*fn3

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 adjudication.

C. Conclusiveness

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 1996).

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 ...


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