Asghari-Kamrani v. United Servs. Auto. Ass'n

Decision Date09 December 2016
Docket NumberCIVIL NO. 2:15cv478
Parties Nader ASGHARI–KAMRANI and Kamran Asghari–Kamrani, Plaintiffs, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, Defendant.
CourtU.S. District Court — Eastern District of Virginia

Krystyna Colantoni, Reece Werner Nienstadt, Irene Huei–Min Chen, Laurence Michael Sandell, Lei Mei, Mei & Mark LLP, Washington, DC, Jeffrey Melvin Pearson, Mei & Mark LLP, Boca Raton, FL, Dirk Harris McClanahan, McClanahan Powers PLLC, Vienna, VA, for Plaintiffs.

Matthew Carl Berntsen, David Bruce Kuznick, Grant Thomas Rice, Fish & Richardson, P.C., Boston, MA, Ahmed Jamal Davis, Fish & Richardson PC, Washington, DC, David Richard Francescani, Michael T. Zoppo, Fish & Richardson, P.C., New York, NY, for Defendant.

OPINION AND ORDER

ROBERT G. DOUMAR, UNITED STATES DISTRICT JUDGE

This matter comes before the Court upon Nader Asghari–Kamrani and Kamran Asghari–Kamrani's ("Plaintiffs") Motion to Dismiss for Failure to State a Claim. ECF No. 204. For the reasons stated herein, Plaintiffs' Motion to Dismiss is DENIED .

I. PROCEDURAL AND FACTUAL HISTORY
A. PROCEDURAL HISTORY

As the result of the prolonged procedural history in this case, this Court will only recount the relevant portions. Plaintiffs filed their initial complaint against United Services Automobile Association ("USAA" or "Defendants") for patent infringement pursuant to 35 U.S.C. § 271 on October 30, 2015. ECF No. 1. On April 12, 2016, Plaintiffs filed a Second Amended Complaint. ECF No. 70. USAA filed a Motion to Dismiss for Failure to State a Claim on April 28, 2016. ECF No. 86. Of importance to the instant Motion, on April 28, 2016, USAA filed an Answer and Counterclaims to Plaintiffs' Second Amended Complaint; this Answer contains the Third Counterclaim (also the Eighth Affirmative Defense)—concerning alleged inequitable conduct by the Plaintiffs—that is at issue. ECF No. 88. Plaintiffs then filed a Motion to Dismiss Counterclaims on May 16, 2016. ECF No. 104.

On July 5, 2016, this Court found that the claims of the patent-in-suit were invalid because they were directed to an abstract idea and thus ineligible for patent protection under 35 U.S.C. § 101. Because the claims were invalid, Plaintiffs failed to state a claim for relief; accordingly, this Court granted USAA's Motion to Dismiss for Failure to State a Claim. ECF No. 140.

At the same time, the Court also dismissed as moot USAA's Counterclaims. Id. On July 19, 2016, USAA filed a Motion for Attorney's Fees, as well as a Motion to Amend/Correct the Judgment. ECF Nos. 151, 153. On August 15, 2016, this Court granted the Motion to Amend/Correct the Judgment to reflect that USAA's Third Counterclaim is not moot because USAA seeks attorney's fees as part of the Counterclaim. ECF No. 185.

On September 20, 2016, this Court held a hearing on Plaintiffs' Motion to Dismiss the Counterclaim. ECF Nos. 104, 195. At the hearing, the Court ordered USAA to file an Amended Counterclaim. ECF No. 196. On October 4, 2016, USAA filed its Amended Counterclaim (styled as "USAA's First Amended Counterclaims to Plaintiffs' Second Amended Complaint"). ECF No. 200. On October 18, 2016, Plaintiffs filed an Answer, ECF No. 206, as well as a Motion to Dismiss USAA's Amended Counterclaim (styled as "Motion to Dismiss USAA's Third Amended Counterclaim"), ECF No. 204. USAA then filed an Opposition to the Motion to Dismiss for Failure to State a Claim on November 3, 2016, ECF No. 210, to which Plaintiffs filed a Reply on November 10, 2016, ECF No. 211. On November 23, 2016, Plaintiffs filed a Motion for Leave to File a Sur–Reply to Plaintiffs' Motion to Dismiss, ECF No. 216, which this Court granted on November 30, 2016, ECF Nos. 217, 218.

B. FACTUAL HISTORY

Plaintiffs are the inventors of the previously sued-upon patent: Patent No. 8,266,432 ("the '432 patent"), filed on September 15, 2008 and issued on September 11, 2012. ECF No. 70, Ex. A. The patent is a method and system for the identification and authentication of users over the Internet. A "User"—for example, a potential customer of an online retailer—signs up with a "Central–Entity" and provides his or her personal and financial information. The Central Entity creates an account for the User and provides a Username and Password to the User. When the User wants to access the Central–Entity, the Central–Entity employs the Username and Password and also creates a "dynamic, non-predictable and time-dependent SecureCode" for the User when the User requests it. The Central–Entity keeps a record of the SecureCode. The User may then present his UserName and SecureCode to an "External–Entity." The External–Entity will then forward the UserName and SecureCode to the Central–Entity. The Central–Entity will validate the information and inform the External–Entity of the result. ECF No. 140, at 2–4.

As noted above, this Court previously held that the claims of the '432 patent at issue were invalid because they were directed to an abstract idea and thus ineligible for patent protection under 35 U.S.C. § 101. Id. at 5–13.

Currently at issue are representations made by the Plaintiffs to the United States Patent and Trademark Office ("PTO") during the prosecution of the '432 patent. Such representations concern at least three other patents in the same family of patents as the '432 patent : (1) Patent No. 7,356,837 ("the '837 patent"), filed on August 28, 2001 and issued on April 8, 2008; (2) Patent No. 7,444,676 ("the '676 patent"), filed on September 30, 2005 and issued on October 28, 2008; and (3) Patent No. 8,281,129 ("the '129 patent"), filed on January 18, 2006 and issued on October 2, 2012. ECF No. 200, Ex. 5, at 22.

The relationship between these patents is pertinent to the disposition of the instant Motion. In essence, Plaintiffs have either previously claimed or are currently claiming that the '432 patent is entitled to the benefit of the earlier filing date of the '837 patent (that is, August 28, 2001) because of one of two claimed chains of priority within this family of patents: either (1) the '432 patent claims priority to the '676 patent as a continuation or continuation-in-part of the '676 patent, see infra IV.B, which in turn claims priority to the '837 patent as a continuation or continuation-in-part of the '837 patent ; or (2) the '432 patent claims priority to the '129 patent as a continuation or continuation-in-part of the '129 patent, which in turn claims priority to the '837 patent as a continuation or continuation-in-part of the '837 patent. Id. at 22–23. USAA alleges that Plaintiffs made material misrepresentations to the PTO during the prosecution of the '432, '676 and '129 patent applications sufficient to render the '432 patent unenforceable. ECF No. 200, at 3.

II. ATTORNEY'S FEES

As discussed above, the issue of inequitable conduct comes before the Court as the result of USAA's Motion for Attorney's Fees. ECF Nos. 151, 185. The Patent Act includes its own attorney's fees provision, which authorizes district courts to award "reasonable attorney fees to the prevailing party" in "exceptional cases." 35 U.S.C. § 285 (1982). Exceptional cases are those that stand out "from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Octane Fitness, LLC v. ICON Health & Fitness, Inc. , –––U.S. ––––, 134 S.Ct. 1749, 1756, 188 L.Ed.2d 816 (2014). District courts "may determine whether a case is ‘exceptional’ in a case-by-case exercise of their discretion, considering the totality of the circumstances." Id. A totality of the circumstances assessment may include a consideration of "frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and ... considerations of compensation and deterrence." Id. at 1756 n. 6. Such an assessment also includes a consideration of unreasonable conduct that is not "independently sanctionable." Id. at 1751.

Inequitable conduct "may constitute the basis for an award of attorneys' fees under 35 U.S.C. § 285 (1982)." A.B. Chance Co. v. RTE Corp. , 854 F.2d 1307, 1312–13 (Fed. Cir. 1988). Indeed, a district court has erred when it "[does] not make a determination of whether or not [the patentee has] engaged in inequitable conduct before the PTO." Id.

USAA has generally set forth three grounds for attorney's fees: (1) Plaintiffs had no factual or legal basis to file their multiple complaints, ECF No. 152, at 5; (2) Plaintiffs engaged in bad-faith litigation conduct, id. at 10; and (3) Plaintiffs and their agents engaged in inequitable conduct before the PTO throughout the prosecution of the '432 patent, ECF No. 154, at 3–6. This third claim of inequitable conduct forms the basis of USAA's Third Counterclaim, and is currently at issue in both USAA's Amended Counterclaim and Plaintiffs' Motion to Dismiss. ECF Nos. 200, 204.

III. LEGAL STANDARDS
A. STANDARD FOR INEQUITABLE CONDUCT

"Every patent applicant owes a duty of candor and good faith to the PTO." Arrow International, Inc. v. Spire Biomedical, Inc. , 635 F.Supp.2d 46, 57 (D. Mass. 2009) (internal citations omitted). See also 37 C.F.R. § 1.56(a). A breach of this duty constitutes inequitable conduct and "renders all claims of the patent involved unenforceable." Synthon IP, Inc. v. Pfizer Inc. , 472 F.Supp.2d 760, 775–76 (E.D. Va. 2007) (internal citations omitted). Such impermissible inequitable conduct includes, inter alia , "affirmative misrepresentation of a material fact, failure to disclose material information, or submission of false material information, coupled with an intent to deceive." Molins PLC v. Textron, Inc. , 48 F.3d 1172, 1178 (Fed. Cir. 1995).

This duty extends throughout the patent's entire prosecution history. Semiconductor Energy Laboratory Co., Ltd. v. Samsung Electronics Co., Ltd. , 24 F.Supp.2d 537, 543 (E.D. Va. 1998), aff'd 204 F.3d 1368 (Fed. Cir. 2000...

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