Cloud Byte LLC v. Dell Inc. et al

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
MARSHALL DIVISION
CLOUD BYTE LLC,
Plaintiff,
v.
DELL INC. and DELL TECHNOLOGIES
INC.,
Defendants.
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CIVIL ACTION NO. 2:24-CV-00637-JRG
FILED UNDER SEAL
MEMORANDUM ORDER & OPINION
Before the Court is the Motion to Dismiss Defendants’ Counterclaims 3, 6, 9, 12, 15, 18,
and 21 Pursuant to Fed. R. Civ. P. 12(b)(6) (the “Motion”) filed by Plaintiff Cloud Byte LLC
(“Plaintiff,” or “Cloud Byte”). (Dkt. No. 138.) Having considered the Motion, the Court finds that
it should be and hereby is GRANTED.
I. 	BACKGROUND
Cloud Byte filed the above-captioned case against Defendants Dell Inc. and Dell
Technologies Inc. (“Defendants,” or “Dell”) on August 5, 2024, asserting seven patents against
Dell; to-wit: U.S. Patent Nos. 7,739,544; 9,482,632; 9,560,177; 9,629,265; 9,651,320; 9,900,249;
and 10,628,273 (collectively, the “Asserted Patents”). (Dkt. No. 1.)
In its answer, Dell asserted seventeen (17) affirmative defenses and twenty-two (22)
counterclaims. (Dkt. No. 126.) Dell’s sixth affirmative defense is for an alleged failure to mark—
the answer states “Plaintiff and its predecessors-in-interest to the Asserted Patents failed to comply
with the notice requirements of 35 U.S.C. § 287, barring Plaintiff from all monetary relief for acts
that occurred prior to Plaintiff providing actual notice to Dell on the date of the filing of the
Complaint in this action.” (Id. at 15.) Dell’s third, sixth, ninth, twelfth, fifteenth, eighteenth, and
twenty-first counterclaims (the “Marking Counterclaims”) all relate to marking as well—each of
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the Marking Counterclaims seeks a “Declaration of Failure to Comply with 35 U.S.C. § 287” for
each of the Asserted Patents. (Id. at 21, 24, 27, 30, 33, 36, and 39.) All of the Marking
Counterclaims seek the same relief of a declaration “that Cloud Byte cannot recover pre-suit
damages.” (Id.)
II. 	LEGAL AUTHORITY
“The Supreme Court has long held that in general, ‘a litigant may not use a declaratory-
judgement action to obtain piecemeal adjudication of defenses that would not finally and
conclusively resolve the underlying controversy.” AbbVie Inc. v. MedImmune Ltd., 881 F.3d 1334,
1337 (Fed. Cir. 2018) (quoting MedImmune, Inc. v. Genetech, Inc. et al., 549 U.S. 118, 127 n.7
(2007)). However, the Supreme Court has found that the Declaratory Judgement Act grants
jurisdiction over certain counterclaims brought by parties accused of infringement, such as
invalidity. See Cardinal Chem. Co. v. Morton Int’l, 508 U.S. 83, 96 (1993).
In addition, the Declaratory Judgement Act grants federal courts broad discretion in
determining whether to exercise jurisdiction over claims seeking declaratory relief. Wilton v. Seven
Falls Co., 515 U.S. 277, 287 (1995) (discussing the “unique breadth” of a federal court’s
“discretion to decline to enter a declaratory judgement.”) In exercising that broad discretion,
“[t]rial courts must determine whether hearing the case would serve the objectives for which the
Declaratory Judgement Act was created, namely, allowing a party who is reasonably at legal risk
because of an unresolved legal dispute[] to obtain judicial resolution of that dispute without having
to await the commencement of legal action by the other side.” Ford Motor Co. v. United States,
811 F.3d 1371, 1378 (Fed. Cir. 2016) (internal citations omitted).
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III. 	ANALYSIS
Cloud Byte asserts that this Court should dismiss Dell’s Marking Counterclaims because
the Marking Counterclaims do not further the purpose of the Declaratory Judgement Act.1 (Dkt.
No. 138 at 4.) It asserts that the Marking Counterclaims waste judicial resources because they are
“verbatim duplicates” of Dell’s sixth defense. (Id.) It further argues the Court should decline to
exercise jurisdiction over these counterclaims because “[d]eclaratory judgement jurisdiction is not
a vehicle for defendants to reframe defenses as affirmative claims. Nor is it a mechanism to obtain
procedural advantages through relabeling. Dell seeks to do both.” (Id. at 5.)
Dell responds that “courts have consistently recognized the benefit of declaratory
judgement claims in patent suits,” and argue that “Dell’s Marking Counterclaims—like its
invalidity and non-infringement counterclaims—will allow Dell to conclusively establish its rights
as to all tried patents regardless of the outcome of Cloud Byte’s claims at trial.” (Dkt. No. 143 at
4-5.) It asserts that because of the resources it has expended to develop the record to make its case
for no pre-suit liability, and the risk that with only a marking defense its rights and liability on pre-
suit damages could remain in question for future litigation following trial (if, for example, Dell
were to prevail on non-infringement), this Court should permit its Marking Counterclaims in this
suit. (Id. at 5.)
The Court finds that in this case, Dell’s Marking Counterclaims, which mirror its marking
defense, would not serve the purposes of the Declaratory Judgement Act. The two cases of courts
1 Cloud Byte also asserts that, as an initial matter, the Court should dismiss Dell’s Marking Counterclaims under Fed.
R. Civ. P. 12(b)(6) because they fail to state a justiciable claim under Article III in the declaratory judgement context.
See, e.g. Calderon v. Ashmus, 523 U.S. 740, 747 (1998). The Court finds that because it has determined the Motion
should be granted on the basis of Cloud Byte’s second argument—regarding discretionary jurisdiction and the purpose
of the Declaratory Judgement Act—it declines to provide an additional opinion regarding whether marking
counterclaims generally are justiciable under Article III of the Constitution.
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declining to dismiss marking counterclaims which Dell cites are inapposite, as neither involves a
similar factual situation of the movant invoking the purpose of the Declaratory Judgement Act in
seeking to have them dismissed. See Seitz v. Envirotech Sys. Worldwide Inc., No. H-02-4782, 2007
WL 1795678, at *3 (S.D. Tex. June 19, 2007) (denying a motion to strike, inter alia, a marking
counterclaim in a dispute concerning Fed. R. Civ. P. 15 and leave to amend counterclaims);
SafeNet, Inc. v. Uniloc USA, Inc., No. 6:15-cv-00097, 2015 WL 10793747, at *10 (E.D. Tex. Aug.
19, 2015), report and recommendation adopted, 015 WL 7272196 (E.D. Tex. Nov. 17, 2015)
(declining to dismiss declaratory judgement action involving noninfringement, invalidity, failure
to mark, release, breach of contract, fraud/fraudulent inducement, and negligent misrepresentation,
where both briefing from the parties and the court’s analysis focused on whether subject matter
jurisdiction existed for the entire action as a whole).
The Court determines that Super-Sparkly Safety Stuff v. Skyline USA is a more appropriate
comparison to the facts of this case, wherein the Northern District of Texas dismissed marking
counterclaims that “mirror[ed the defendant’s] affirmative defenses” on the grounds that they
“would not further the Declaratory Judgement Act’s purpose,” since the defendant “simply recast
as counterclaims the very arguments it pled in response to [the plaintiff’s] claims.” See Super-
Sparkly Safety Stuff, LLC v. Skyline USA, Inc. No. 3:18-cv-00587, 2019 WL 4860959, at *2 (N.D.
Tex. Oct. 2, 2019). The Court finds that where, as here, litigation is already well underway and
Dell has been given, and has taken, the opportunity to assert a marking defense concerning its
liability for pre-suit damages, Dell is not in danger of being left with an unresolved legal dispute
regarding its potential liability in this case. Accordingly, the Court declines to exercise jurisdiction
over the Marking Counterclaims, as it finds that they are highly duplicative and do not serve the
purpose of the Declaratory Judgement Act.
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IV. 	CONCLUSION
For the reasons stated herein, the Court finds that Plaintiff’s Motion to Dismiss Defendants’
Counterclaims 3, 6, 9, 12, 15, 18, and 21 is GRANTED, and these counterclaims are
DISMISSED.
Since the Parties filed their briefing under seal, the Court files this Order under seal as well.
However, the Parties are ORDERED to jointly prepare a redacted version of this Order for public
viewing and to file the same on the Court's docket as an attachment to a Notice of Redaction within
five (5) business days of this Order.
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____________________________________
RODNEY GILSTRAP
UNITED STATES DISTRICT JUDGE
So ORDERED and SIGNED this 29th day of January, 2026.
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