Applied Biokinetics LLC v. Kt Health, LLC

• Docket Number: C. A. 22-638-RGA-JLH
• Decision Date: 31 August 2023
• Parties: APPLIED BIOKINETICS LLC, Plaintiff, v. KT HEALTH, LLC, Defendant.
• Court: U.S. District Court — District of Delaware

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APPLIED BIOKINETICS LLC, Plaintiff,
v.
KT HEALTH, LLC, Defendant.

C. A. No. 22-638-RGA-JLH

United States District Court, D. Delaware

August 31, 2023

REPORT AND RECOMMENDATION

JENNIFER L. HALL, UNITED STATES MAGISTRATE JUDGE

This is a patent case filed by Plaintiff Applied Biokinetics LLC (“ABK”) against Defendant KT Health, LLC (“KT Health”). Presently before the Court are two pending motions. First is ABK's Motion to Dismiss Inequitable Conduct Counterclaim and Strike Affirmative Defense (D.I. 19). Next is KT Health's Motion to Dismiss for Lack of Standing and, Alternatively[,] for a Stay Pending the Federal Circuit's Review of Overlapping Issues Affecting Standing in Related Cases (D.I. 41). I recommend GRANTING ABK's motion to dismiss the inequitable conduct counterclaim and defense. I recommend DENYING KT Health's motion to dismiss or stay.

I. BACKGROUND

ABK alleges that it “is the owner of all right, title, and interest in” eight patents: U.S. Patent Nos. 8,414,511 (the “'511 patent”), 8,814,818 (the “'818 patent”), 8,834,398, 8,968,229, 10,212,987, 10,299,953, 11,096,815, and 11,206,894 (collectively, the “Asserted Patents”). (D.I. 10 ¶¶ 17, 27, 37, 47, 57, 64, 74, 83.) The Asserted Patents are generally directed to adhesive systems that are applied to the bottom of the foot to treat plantar fasciitis. ABK alleges that various kinesiology tape products sold by KT Health infringe certain claims of the Asserted Patents. (Id. ¶¶ 12-15.)

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A. ABK/Mueller License Agreement

Back in 2014, ABK entered into a License Agreement (“Agreement”) with a company called Mueller Sports Medicine, Inc. (“Mueller”). (See D.I. 43, Ex. 8.) The Agreement states that ABK grants Mueller a “worldwide exclusive license” to “make, use, sell, distribute, promote, and import the Licensed Products” covered by certain of ABK's patents, which include the Asserted Patents in this case. (Id. at 1, 6.) The Agreement defines the “Licensed Products” as “plantar fasciitis products whose manufacture, use, sales, distribution, promotion or importation (if performed in the U.S.) would infringe the Patent Rights ....” (Id. at 1.) The Agreement provides that Mueller will pay ABK a royalty on each Licensed Product sold. (Id. at 2.) The Agreement further states that “[n]othwithstanding the exclusive rights granted to [Mueller] under this Agreement, [ABK] shall be permitted to sell its existing inventory of FASCIADERM-branded product, but not to replenish inventory . . ., until August 30, 2014 ....” (Id. at 5.)

Particularly relevant to the present dispute are the following two provisions in the Agreement (as amended in 2019) regarding the rights of the parties:

Grant of rights.... [Mueller] may sublicense the rights granted, provided that [Mueller] shall obtain the written consent of [ABK] to do so (such consent shall not be unreasonably withheld) and terms to [ABK] shall be as favorable as in this Agreement

Infringement by Third Parties. In the event that either party learns of possible infringements of the Patent Rights . . . that party shall notify the other in writing of the possible infringements .... [Mueller] shall have the right to commence lawsuits against third persons arising from infringement of the Licensed Rights

In the event that [Mueller] does not commence a lawsuit against an alleged infringer . . . within one hundred twenty (120) days of notification by [ABK], [ABK] may commence enforcement action

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(including without limitation filing a lawsuit) .... [ABK] shall obtain the written consent of [Mueller] to do so and such consent shall not be unreasonably withheld.

[ABK] will cooperate fully and in good faith with [Mueller] for the purpose of securing and preserving [Mueller's] rights under this Agreement. Any recovery (including, but not limited to, a judgment, settlement or licensing agreement included as resolution of an infringement dispute) shall be retained by the party commencing the lawsuit.

(Id., Ex. 8 at 1; Ex. 10.)

The Agreement also contains forum selection clauses, which provide that “any litigation between the parties that identifies Mueller as plaintiff” is subject to the exclusive jurisdiction of specified courts in Texas and that “any litigation between the parties that identifies ABK as plaintiff” is subject to the exclusive jurisdiction of specified courts in Wisconsin. (Id., Ex. 8 at 5.)

B. Texas Lawsuits

In 2021, ABK sued retailers CVS Pharmacy, Inc. (“CVS”) and Walmart Inc. (“Walmart”) in separate actions in the Western District of Texas. ABK alleged that CVS and Walmart infringed some of ABK's patents-including some of the patents asserted in this case-by, among other things, selling certain kinesiology tape-including the same KT Health products accused in this case. See, e.g., Applied Biokinetics LLC v. CVS Pharmacy, Inc., Nos. 21-555-ADA, 21-556-ADA, 21-557-ADA (W.D. Tex.); Applied Biokinetics LLC v. Walmart Inc., Nos. 21-1132-ADA, 21-1133-ADA, 21-1134-ADA (W.D. Tex.).

After obtaining a copy of the ABK/Mueller Agreement in discovery, CVS moved to dismiss ABK's infringement claims for, among other things, lack of constitutional standing. CVS argued that the Agreement divested ABK of its rights in the patents such that it could not bring a lawsuit against CVS. Subsequently, ABK moved to amend to join Mueller as a defendant, and then it moved to “realign” Mueller as an involuntary plaintiff. CVS again moved to dismiss.

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On July 7, 2022, Judge Albright granted CVS's motion to dismiss in a one-page opinion, stating, in relevant part:

[T]he Court [has] decided to dismiss the above-captioned cases for lack of standing and improper venue.

Plaintiff Applied Biokinetics LLC has a contract dispute with Mueller Sports Medicine, Inc. regarding who has the right to enforce the asserted patents in this case, and according to the contract, that dispute must be heard in Wisconsin. The Court then stayed the case to allow Plaintiff Applied Biokinetics LLC to negotiate with Mueller Sports Medicine, Inc. to cure the issue of standing. The stay has now expired, and the contract dispute remains.

It is hereby ORDERED that this case is dismissed. Applied Biokinetics LLC has leave to re-file this case when and if it cures standing, such as through negotiations with Mueller Sports Medicine, Inc. or through a favorable decision from a Court in Wisconsin.

(D.I. 42, Ex. 2 (No. 21-555, D.I. 91 (W.D. Tex. July 7, 2022)).) ABK appealed the dismissal to the Federal Circuit, and that appeal is pending. See Applied Biokinetics LLC v. CVS Pharmacy, Inc., No. 22-2038 (Fed. Cir., last docket entry March 10, 2023).

Walmart then moved to dismiss the claims against it for lack of standing, incorporating the arguments made by CVS. On August 16, 2022, Judge Albright stayed the Walmart case “[i]n the interest of judicial efficiency” because Walmart's “arguments are now on appeal at the Federal Circuit.” (D.I. 42, Ex. 6 (No. 21-1132, D.I. 25 (W.D. Tex. Aug. 16, 2022)).)

C. This Litigation

On May 13, 2022, after oral argument on CVS's motion to dismiss in Texas, ABK filed this action. (D.I. 1.) ABK filed a First Amended Complaint (“FAC”) on August 1, 2022. (D.I.10.) As noted above, the FAC alleges that ABK “is the owner of all right, title, and interest in [the Asserted Patents] by assignment.” (Id. ¶¶ 17, 27, 37, 47, 57, 64, 74, 83.)

On August 22, 2022, KT Health answered and asserted various defenses and counterclaims.

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(D.I. 17.) The “Fifteenth Defense” and the “Seventeenth Counterclaim” allege that the inventor of the Asserted Patents, Mr. Bushby, committed inequitable conduct during prosecution of the '511 and '818 patents, which renders unenforceable all of the Asserted Patents “due to infectious inequitable conduct.” (Id. ¶¶ 37-78 (affirmative defense), 217-236 (counterclaim).^[1]) The relevant allegations are discussed in more detail below.

On September 6, 2022, ABK moved to strike the...