Nalco Co. v. Turner Designs, Inc.
| Decision Date | 19 February 2014 |
| Docket Number | Case No. 13-cv-02727 NC |
| Court | U.S. District Court — Northern District of California |
| Parties | NALCO CO., Plaintiff, v. TURNER DESIGNS, INC., Defendant. |
This patent infringement suit arises from Turner Designs' sale of several products, including "The Little Dipper," a device that monitors concentrations of chemicals in industrial water systems. Nalco Company, a supplier of various products and services designed to reduce energy, water, and other natural resource consumption, brings suit for induced and contributory infringement of United States Patent No. 6,255,118, entitled "Method for Using an All Solid-State Fluorometer in Industrial Water System Applications." Nalco alleges that Turner provided, and continues to provide, directions, information, and other materials to its customers, which encourage them to use Turner's products in a manner that directly infringes Nalco's patented method. Nalco further alleges that Turner's products are specially designed for use in infringing the '118 patent and haveno substantial non-infringing use. Turner answered Nalco's complaint on August 15, 2013. Dkt. No. 9. Turner now moves for leave to amend its answer and counterclaims pursuant to Federal Rule of Civil Procedure 15(a)(2). Nalco opposes the motion solely on the ground that the proposed amendment would be futile. Because Turner's proposed amendment either already alleges sufficient facts to plead inequitable conduct, patent misuse, and antitrust claims, or may be amended to allege a set of facts that would adequately plead those claims, the Court finds that the proposed amendment would not be futile. The Court therefore grants Turner's motion for leave to amend its answer and counterclaims.
Turner seeks leave to add an inequitable conduct defense, a patent misuse defense, a Walker Process antitrust counterclaim, and an attempted monopolization counterclaim to its pleadings. Dkt. No. 24 at 4. Turner alleges that Nalco fraudulently procured Patent No. 6,255,118 ("the '118 patent") by failing to disclose Patent No. 4,992,380 ("the '380 patent") during prosecution of the '118 patent. Id. Turner contends that if the '380 patent had been disclosed, the '118 patent would not have issued because the '380 patent anticipates, or at the very least renders obvious, the '118 patent. Id. at 4, 8.
Turner argues that Nalco's patent is unenforceable under the equitable doctrine of patent misuse and alleges four facts to support its patent misuse defense. Id. at 8-9. First, Nalco asserted its fraudulently procured patent against Turner, the only supplier to Nalco's competitors. Id. at 9. Second, in light of the prosecution history and common meaning of the claim terms, no reasonable person could believe that Turner's products infringed the '118 patent. Id. at 8. Third, Nalco sued Turner solely for the purpose of subjecting Turner to costly litigation expenses. Dkt. No. 27 at 8-9. Finally, Nalco expected that the cost of the litigation would force Turner to discontinue its products, allowing Nalco to monopolize one hundred percent of the market. Id. Turner alleges that Nalco is liable for monopolization and attempted monopolization under § 2 of the Sherman Act for the same reasons. Dkt. No. 24 at 9-10.
Turner argues that the Court should grant leave to amend because (1) Nalco will suffer no prejudice, as there is ample time to conduct additional discovery in support of the new defenses and counterclaims, (2) the amendment is timely because the case is in its early stages and the fact discovery cut-off is not until May 2, 2014, (3) the amendment will conserve judicial resources, since the antitrust counterclaims could be brought in a separate action, but the antitrust issues substantially overlap with infringement issues, and (4) the defenses and counterclaims are not futile, as the proposed amendment alleges sufficient facts to support the new claims. Dkt. No. 24 at 5-7, 10.1
Nalco opposes Turner's motion for leave to amend solely on the ground that the proposed amendment would be futile. Dkt. No. 25 at 5. Nalco argues that adding the inequitable conduct defense would be futile because (1) the proposed amendment fails to adequately plead the intent and materiality prongs of inequitable conduct, and (2) the patent alleged not to have been disclosed during patent prosecution was in fact disclosed through the doctrine of incorporation by reference. Id. Nalco argues that adding the patent misuse and antitrust counterclaims would be futile because they either rely upon proof of inequitable conduct, which Turner fails to adequately plead, or rely on a premature and incorrect construction of the term "cell" in the '118 patent. Id.
Because this action arises under the patent laws of the United States, this Court has jurisdiction under 28 U.S.C. §§ 1338(a) and 1331. All parties have consented to the jurisdiction of a magistrate judge under 28 U.S.C. § 636(c).
Federal Rule of Civil Procedure 15(a) provides generally that leave to amend the pleadings before trial should be given freely "when justice so requires." Fed. R. Civ. P. 15(a)(2). "This policy is to be applied with extreme liberality." Eminence Capital, LLC v.Aspeon, Inc., 316 F.3d 1048, 1051 (9th Cir. 2003) (internal quotation marks omitted). "Five factors are taken into account to assess the propriety of a motion for leave to amend: bad faith, undue delay, prejudice to the opposing party, futility of amendment, and whether the plaintiff has previously amended the complaint." Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004) (citation omitted).
"Although there is a general rule that parties are allowed to amend their pleadings, it does not extend to cases in which any amendment would be an exercise in futility, or where the amended complaint would also be subject to dismissal[.]" Steckman v. Hart Brewing, Inc., 143 F.3d 1293, 1298 (9th Cir. 1998) (citations omitted). "[A] proposed amendment is futile only if no set of facts can be proved under the amendment to the pleadings that would constitute a valid and sufficient claim or defense." Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988). To determine whether a proposed amendment is futile, the Court must consider whether there is a set of factual allegations that, if pleaded, could satisfy the 12(b)(6) and 9(b) pleading standards. See In re Fritz Cos. Sec. Litig., 282 F. Supp. 2d 1105, 1111 (N.D. Cal. 2003) ().
To satisfy the 12(b)(6) pleading standard, a plaintiff must plead his claim with sufficient specificity to "give the defendant fair notice of what the claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009) (citation omitted) (internal quotation marks omitted). To plead fraud or mistake under Rule 9(b), Fed. R. Civ. P. 9(b).
The Federal Circuit's en banc decision in Therasense "tighten[ed] the standard[]" for proving inequitable conduct. Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011). After Therasense, "[t]o prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive the PTO." Therasense, 649 F.3d at 1290. "In a case involving nondisclosure of information, clear and convincing evidence must show that the applicant made a deliberate decision to withhold a known material reference." Id. Information is material if "the PTO would not have allowed the claim had it been aware of the undisclosed prior art." Id. at 1291. "[T]o meet the clear and convincing evidence standard, the specific intent to deceive must be 'the single most reasonable inference able to be drawn from the evidence.'" Therasense, 649 F.3d at 1290.
Although Therasense raised the bar for proving inequitable conduct on the merits, it did not change the standard for pleading inequitable conduct. See Delano Farms Co. v. Cal. Table Grape Comm'n, 655 F.3d 1337, 1350 (Fed. Cir. 2011) (); Human Genome Scis., Inc. v. Genentech, Inc., No. 11-cv-06519 MRP, 2011 WL 7461786, at *3 (C.D. Cal. Dec. 9, 2011) (following Delano Farms); Jersey Asparagus Farms, Inc. v. Rutgers Univ., 803 F. Supp. 2d 295, 312 (D.N.J. 2011) ().
Inequitable conduct must be pleaded with particularity under Federal Rule of Civil Procedure 9(b). Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1318 (Fed. Cir. 2009). "Whether inequitable conduct has been pleaded with particularity under Rule 9(b) is a question governed by Federal Circuit law." Exergen, 575 F.3d at 1318. "[T]o plead the 'circumstances' of inequitable conduct with the requisite 'particularity' . . . the pleading must identify the specific who, what, when, where, and how of the material misrepresentation or omission committed before...
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