Egregious Misconduct Finding as to Inequitable Conduct Not Appropriate as Litigation Misconduct Sanction

By R. David Donoghue on Posted in Uncategorized

Peerless Indus., Inc. v. Crimson AV, LLC, No. 11 C 1768, Slip Op. (N.D. Ill. Nov. 27, 2018) (Lefkow, J.).

After a patent infringement jury trial in June 2016, and a stipulation of judgment and damages in the amount of $40,000, the parties agreed to a stay of execution until Judge Lefkow ruled on all post-trial motions. The Court denied defendant Crimson’s Fed. R. Civ. P. 50(a) renewed motion for judgment as a matter of law as to its inequitable conduct defense in this patent dispute regarding mounting brackets for flat-screen televisions.

As an initial matter, Rule 50 did not apply in this instance because Rule 50 applied where no reasonable jury could come to a conclusion. Because the parties had agreed that inequitable conduct was an issue for the judge, not the jury, Rule 50 was inapplicable. Fed. R. Civ. P. 52 governs issued tried to a judge. Because the Court had not yet ruled on the inequitable conduct claim, a Rule 52 motion was also inappropriate.

The Court then issued its findings of fact and conclusions of law regarding the case and inequitable conduct. Of particular note, the Court held as follows:

  • Crimson’s materiality arguments failed because it either did not present evidence or otherwise did not sufficiently support its claims that the allegedly withheld prior art read on the claims.
  • While the Court held, pursuant to Rule 50(b), that no reasonable jury could have invalidated the patent in suit for failure to disclose its best mode, the Patent Office’s best mode standard was lower than the district court’s. But Crimson failed to meet even the lower standard.
  • Crimson did not show affirmative egregious misconduct in withholding the alleged prior art, which would be required absent a showing of materiality, because it did not allege anything “along the lines of the bribery, hush money, or manufactured evidence contemplated in the exception.”
  • Finally, Crimson did not offer sufficient evidence of intent to deceive the Patent Office. The Court could not infer intent from materiality – which it found was not proven. The Court also refused to infer intent based upon litigation misconduct. The case Crimson cited for that proposition actually issued an adverse finding on intent as a discovery sanction, not as a general sanction for litigation misconduct. Additionally, the parties chose to engage in “rancor[ous]” discovery and plaintiff Peerless had already been sanctioned, where appropriate, for discovery abuses and not sanctioned in other discovery disputes. Those issue having already been addressed, further sanctions for those actions were not appropriate.

Having held that there was no inequitable conduct, the Court ordered that final judgment be entered.

N.D. Illinois Requires Confidential Documents be Filed Electronically

By R. David Donoghue on Posted in Local Rules

The Northern District of Illinois has amended Local Rule 5.8 (Filing Materials Under Seal) to require that all documents filed either by counsel or a non-represented party with an e-filing account be filed electronically pursuant to Local Rule 26.2, unless the Court has held that the documents need not be filed electronically pursuant to Local Rule 26.2(d). Local Rule 26.2 requires that documents only be filed under seal where the party has a Court order sealing the document or where the party contemporaneously files a motion to seal. Local Rule 26.2(c). In the latter case, a party must contemporaneously:

  1. provisionally files the document under seal
  2. file a public record version of the submission with only the sealed document excluded; and
  3. file a motion for leave to file under seal, which must be noticed “promptly.”

Any sealed document filed without a motion to seal may be stricken. And pursuant to Local Rule 5.8, any document that does not follow the sealing procedures and / or that is not filed electronically will be processed like any other document and filed as unsealed and publicly available on Pacer. That is a big stick. I would expect that compliance will be high.

 

Liquid Cannabis Patent Survives Section 101 Challenge

By Anthony Fuga on Posted in Legal News

By: Anthony J Fuga|Taite R McDonald|Michael Obeiter

The U.S. District Court for the District of Colorado on April 17, 2019, upheld United Cannabis Corp.’s (UCANN) patent claims concerning a liquid cannabinoid formulation, “wherein at least 95% of the total cannabinoids is a specified cannabinoid or combination of them.”1

Pure Hemp challenged the claims in an early motion for summary judgment, arguing that UCANN’s claims are directed to “the unpatentable natural phenomenon of the specified chemical compounds (cannabinoids, terpenes, and flavonoids), as if UCANN is trying to secure a monopoly on those compounds.”

The court walked through the relevant precedent going back to the Funk Brothers 1948 U.S. Supreme Court opinion, which invalidated a new mixture of nitrogen-fixing bacteria: “Patents cannot issue for the discovery of the phenomena of nature. The qualities of these bacteria . . . are part of the storehouse of knowledge of all men.”

The court then acknowledged the current reality: the “proper application of the Supreme Court’s Alice standard is an evolving and sometimes hazy area of law . . . not as straightforward as the Supreme Court makes it sounds in Alice itself.”

Despite the “hazy area of law,” the court found that the challenged claims are not directed at unpatentable subject matter. Instead, “the obvious thrust of the patent is a supposedly new means by which humans can consume cannabinoids so that those cannabinoids can produce the pharmacological effect they are known to have, thus (hopefully) treating or ameliorating various diseases and symptoms.”

The court found Pure Hemp’s argument unpersuasive: “Pure Hemp has failed to establish beyond genuine dispute that a liquefied version of cannabinoids and related chemicals specified in the [patent claims] is anything like a natural phenomenon . . . Pure Hemp nowhere claims that these precise concentrations, or anything close to them, occur in liquid form in nature. Accordingly UCANN’s claims are not restatements of the ‘handiwork of nature.’ ”

The court finally noted that it sees reason to question whether the patent “claims anything novel, useful, or nonobvious” but its analysis here was limited to the Section 101 Alice inquiry.

Beyond the patent claims at issue in this case, it is important to note that cannabis-derived goods also occupy a “hazy area of law,” though one that is getting clearer every day. While hemp – defined as any part of the cannabis plant or a derivative with less than 0.3 percent delta-9-tetrahydrocannabinol (THC) on a dry weight basis – was legalized in the 2018 Farm Bill, in most states these products will continue to be illegal until the U.S. Department of Agriculture (USDA) issues regulations and states subsequently have their licensing and regulatory plans approved by USDA. And while changes are coming at the U.S. Food and Drug Administration, cannabis-derived products are still not permitted in food, drugs or supplements, and companies cannot make any unfounded and unproven claims of medical benefits.

In short, this is a rapidly evolving area of law at the federal and state level that requires all existing and potential market participants to remain vigilant.

Clients seeking further information on the District Court’s ruling and its impact or the current regulatory landscape may contact the authors.

Notes

1 United Cannabis Corp. v. Pure Hemp Collective, Inc., No. 18-cv-1922-WJM-NYW (D. Colorado, April 17, 2019)

Rule 12(c) Judgment on Pleadings Must be on at Least an Entire Claim

By R. David Donoghue on Posted in Pleading Requirements

Kenall Mfg. Co. v. Cooper Lighting, LLC, No. 17 C 4575, Slip Op. (N.D. Ill. Dec. 10, 2018) (Feinerman, J.).

Judge Feinerman granted in part plaintiff  Kenall’s Fed. R. Civ. P. 12(f) motion to strike defendants’ (collectively “Cooper”) affirmative defenses and denied Kenall’s Fed. R. Civ. P. 12(c) motion for partial judgment on the pleadings as to liability in this patent and breach of contract case regarding modular light fixtures.

After Kenall filed a first patent infringement suit, the parties settled their dispute in which Kenall waived its infringement claims for products manufactured and sold before the agreement’s effective date. Cooper also received a license to manufacture and sell such products in exchange for:

  1. an upfront fee;
  2. quarterly royalty payments;
  3. a marking requirement; and
  4. a no challenge clause.

Kenall claims breach alleging that Cooper failed to mark certain products, stopped making quarterly payments and failing to redesign certain Subject Single Products as required by the agreement. Cooper acknowledges accidentally selling certain existing products without proper marking and that it sold certain Subject Single Products, until it was made aware of the issues. Cooper also claims it sought to make royalty payments, but that Kenall refused to accept them.

As to the motion for partial judgment on the pleadings, the Court noted that it raised an unsettled issue – whether partial judgment on the pleadings was proper. This was not an instance of partial judgment as to one or more, but not all, claims. Kenall sought judgment as to certain elements of a claim – liability – but not all elements – damages. In contrast to Rule 56, which specifically authorizes partial summary judgment, Rule 12(c) was silent as to partial judgment. That differentiation between the Federal Rules counseled strongly against allowing partial judgment on a Rule 12(c) claim. Furthermore, Rule 12(c)’s use of the term “judgment” reinforced the determination that it was not intended to allow judgment on portions of a claim. Rule 54 defines judgment as a decree or order “from which an appeal lies.” But a partial determination of a claim would be non-final and not be appealable. The Court also noted that a Rule 12(c) motion directed to an entire single claim, but not all claims, may be permissible, as reasoned by several other courts. The Court, therefore, denied the motion for partial judgment on the pleadings.

As to the motion to strike Cooper’s affirmative defenses, the Court held as follows:

  • Because the Court had already limited Kenall’s infringement claims to Cooper’s Subject Single Products and because Cooper did not dispute that the patents in suit were covered by the agreement, the Court struck Cooper’s noninfringement contentions based upon the agreement’s no challenge clause. It was “natural” that a no challenge clause would bar future litigation over whether a defendant’s products infringed a plaintiff’s patents.
  • Cooper’s invalidity defense were barred for the same reasons as its noninfringement defenses. In fact, it is even more common for a no challenge clause to limit the ability to challenge validity.
  • Cooper’s failure to state a claim affirmative defense was stricken because it was not an affirmative defense.
  • Cooper’s laches defense was stricken because Cooper failed to address Kenall’s argument that Cooper did not plead the elements of laches or put Kenall on sufficient notice of Cooper’s claim.
  • Cooper’s unclean hands defense survived because Kenall did not dispute all grounds for Cooper’s defense, the argument was waived.
  • Cooper’s equitable estoppel defense failed because Cooper could not have been reasonably relying on the parties’ agreement in order to breach the agreement.
  • Cooper’s waiver defense survived because Kenall offered no support proving that its seven year delay in bringing suit could not support a waiver defense.
  • Because Kenall is attempting to enforce, not void, the parties’ agreement, Cooper’s ratification defense failed.
  • Cooper’s recoupment / setoff defense was stricken because those defenses were intended to off-set a defendant’s claims for loss against plaintiff’s claims, not to account for partial payment pursuant to a contract.
  • Cooper’s mitigation defense survived because Kenall did not offer any argument or support for the proposition that Kenall’s seven year delay in identifying Cooper’s alleged breaches could not support a mitigation defense.
  • Cooper’s statute of limitations defense was stricken because it sought to limit damages to those after a date more than six years before the suit was filed, but patent infringement claims were limited to six years prior to filing.
  • Cooper’s license defense was stricken because the Court already ruled that sales after April 1, 2008, were unlicensed.
  • Cooper’s intervening rights defense was stricken because it failed to respond to Kenall’s argument that an intervening rights defense tie specific patent claims to specific products.

Illinois State Bar Association Launches Legal Blog Aggregator

By R. David Donoghue on Posted in Legal News

The Illinois State Bar Association (ISBA) has launched Illinois Lawyer Now a legal blog aggregator that provides ISBA news combined with aggregating blog posts from ISBA members. As someone who for years kept and updated a list of regional IP blogs, I am interested to see how ISBA’s new aggregator works. ISBA, partnering with LexBlog (who built and maintains my blogs) plans to offer the best legal content from lawyers across Illinois. It should be a great asset for anyone doing business in or living in Illinois. I look forward for great things to come from ISBA and Illinois Lawyer Now.

Cursory Arguments Cannot Support Summary Judgment

By R. David Donoghue on Posted in Summary Judgment

Lecat’s Ventriloscope v. MT Tool & Mfg., No. 16 C 5298, Slip Op. (N.D. Ill. Nov. 20, 2018) (Castillo, C.J.).

Chief Judge Castillo granted in part each parties’ cross-motion for summary judgment in this patent case involving a training system for ausculation – the act of listening to sounds within the body to diagnose conditions.

As an initial matter, the Court admonished both parties for “conclusory” briefs that devoted “very little” attention, often less than a page for each substantive argument and “frequently” failed to cite any case law.

Of particular note, the Court held as follows on plaintiff’s summary judgment motion:

  • The presumed validity of the patent alone, without argument and evidence, does not meet a patentholder’s burden of proof in the face of a properly supported motion for summary judgment of invalidity.
  • The Court reasoned that there is no anticipation by equivalents, although an obviousness argument may be based upon an equivalent or obvious extension of one or more pieces of prior art.
  • Although technical experts are often valuable in understanding and explaining invalidity contentions, defendant’s invalidity contentions did not fail because it had no expert witness to support them. In this case, the relative simplicity of the technology did not require expert testimony. The technology at issue was, essentially, a modified stethoscope to help train doctors to recognizes particular sounds.
  • The Court granted plaintiff summary judgment as to two of defendant’s indefiniteness defenses – a lack of antecedent basis and that “human operator” was indefinite. In both cases, defendant was unable to make its case because it lacked an expert witness to offer testimony as to what one of ordinary skill in the art (POSITA) would understand about the terms.
  • Defendant was not allowed to offer POSITA evidence regarding invalidity from its noninfringement expert because that would be beyond the scope of the opinions in the expert’s report.
  • Defendant was not required to have an expert opine on the materiality prong of its inequitable conduct defense. The Court noted that some courts did not allow experts on inequitable conduct and, in the one page plaintiff devoted to its argument, it cited no case stating that expert opinion was required.

Of particular note, the Court held as follows on defendant’s summary judgment motion:

  • Noting that summary judgment of inequitable conduct was “permissible, but uncommon,” the Court held that defendant had not met its burden of proving that there was no material question of fact as to patentholder’s intent to deceive.
  • The Court denied defendant summary judgment of § 101 invalidity because defendant’s two-sentence argument was so conclusory that the Court could not consider it, let alone determine that the claims – which defendant did not individually address – were directed to unpatentable subject matter.
  • As to defendant’s anticipation arguments, defendant only specifically addressed claim 1. So, the Court denied summary judgment as to all other claims because defendant did not specifically address the alleged invalidity of those claims.
  • Regarding claim 1, the Court held that defendant’s cursory analysis did not allow the Court to assess the claims validity relative to the prior art. So, summary judgment was denied.
  • While the preamble of claim 1 used the unusual term “arrangement” instead of the more usual “system,” “method,” or “apparatus,” the Court held that it was an apparatus claim because each claim element, and its dependent claims, were directed to structural elements. This determination was reinforced by claim 12 and its dependents, which were identified as “methods”
  • Having determined that claim 1 and its dependents were apparatus claims, the Court held that the claims were indefinite for claiming both apparatus and method steps. Claim 1 taught a signal generator “wherein an operator” performed certain actions. The wherein clause made it unclear whether infringement would occur by creation of the device or whether it required use of the device. The Court’s conclusion was underscored by the parties’ dispute regarding whether claim 1 and its dependents were apparatus or method claims.
  • The Court was not persuaded by defendant’s noninfringement claims, each of which was about a half-page and largely were not supported by any legal citation.
  • The Court held that plaintiff’s failure to identify a specific direct infringer did not doom its indirect infringement claims because the underlying direct infringement could be proven by circumstantial evidence.
  • Defendant’s argument that there was no contributory infringement because of a substantial non-infringing uses failed because it did provide evidence to support that any of the four uses were substantial.
  • The Court denied summary judgment as to plaintiff’s induced infringement claims because the existence of an opinion of counsel was not per se preclude induced infringement.

Having granted in part both parties’ motions for summary judgment, the Court directed the parties to reevaluate their respective settlement positions and be prepared to discuss the remaining bounds of the case at a status hearing.

Patent Infringement Does Not Required Detailed Factual Pleadings Beyond Identification of Patent & Accused Products

By R. David Donoghue on Posted in Pleading Requirements

Cascades AV LLC v. Evertz Microsystems Ltd., No. 17 C 7881, Slip Op. (N.D. Ill. Jan. 11, 2019) (Durkin, J.).

Judge Durkin denied defendants’ Fed. R. Civ. P. 12(b)(6) motion to dismiss plaintiff’s patent infrignement claims in this patent case involving lip-synching patents and defendant Everetz’s accused fingerprint reading systems.

Direct Infringement

Citing Disc Disease Sols. Inc. v. VGH Sols., Inc., 888 F.3d 1256, 1260 (Fed. Cir. 2017), the Court held that specific facts were not necessary to plead infringement. Fair notice only required identification of the patents and a claim, even a general one, that they infringed an identified product. Plaintiff Cascades – a predecessor entity to J. Carl Cooper – went beyond that making specific allegations regarding each element of the asserted claims.

Indirect & Willful Infringement

Both indirect and willful infringement required knowledge of the patents. Cascade claimed that it put Evertz on notice via letters that sought resolution of patent disputes, without providing claim charts, identifying specific products, or any infringement analysis. The Court held those letters were sufficient to plead notice at the Rule 12 stage because they claimed infringement, offered to discuss the dispute and “at least implied” infringement by the eventually accused product. Cascades also pled sufficiently egregious circumstances for willfulness by providing details of Evertz’s various refusal to respond to Cascades’ pre-suit communications. Whether or not those communications actually led to willfulness was a question more appropriate at the summary judgment stage.

Induced Infringement

Even though Cascades’ claims otherwise lacked factual support beyond conclusory statements of the law, the Court denied Evertz’s motion as to induced infringement because Cascades pled knowledge of the patents, that Evertz sold products with infringing features and that Evertz used them at trade shows.

Contributory Infringement

As with the induced infringement claims, the additional elements for contributory infringement were “conclusory recitals” of claim elements. The Court held that was sufficient, noting that “numerous” courts had allowed similar claims because of the “obvious difficulty” plaintiffs have in pleading a negative without discovery first.

DMCA Requires Removal of Copyright Information from the Original Work, Not Just an Infringing One

By R. David Donoghue on Posted in Pleading Requirements

Design Basics, LLC v. WK Olson Architects, Inc., No. 17 C 7432, Slip Op. (N.D. Ill. Feb. 11, 2019) (Ellis, J.).

Judge Ellis denied defendants’ Fed. R. Civ. P. 12(b)(6) motion to dismiss as to plaintiffs’ copyright infringement claims and granted it as to plaintiffs’ Digital Millenium Copyright Act (DMCA) claims in this suit involving architectural plans.

The Court dismissed plaintiffs’ initial complaint because its allegations were too conclusory. Plaintiffs amended their complaint asserting additional facts. Plaintiffs’ allege infringement of twelve copyrighted works by eighteen of defendants’ plans, all specifically identified.

Defendants do not dispute plaintiffs’ copyright ownership. They dispute whether plaintiffs’ infringement claims are sufficiently pled. Plaintiffs specifically identified elements of their plans that defendants allegedly copied in their own plans. The Court acknowledged that “opportunities for originally are tightly constrained” in architectural plans, citing the Seventh Circuit in another case brought by plaintiffs. Design Basics, LLC v. Lexington Homes, Inc., 858 F.3d 1093, 1100-01 (7th Cir. 2017). But in this case, the Court could not hold at the Rule 12 stage that the elements plaintiffs identified were no protectable. The Court also noted that it could not do a more complete analysis of the alleged similarities because plaintiffs did not, and were not required to, attaching the alleged infringing plans to the compliant.

Plaintiffs’ allegations of defendants’ access to the copyrighted works based upon widespread advertising, including mailing advertisements directly to defendants, were sufficient. Additionally, plaintiffs pled that they had put the copyrighted plans on the internet. These allegations were sufficient to plead defendants’ access.

Plaintiffs’ allegations that defendants knew of plaintiffs’ copyrights and removed copyright notices from plaintiffs’ plans were sufficient to plead willfulness.

The Court allowed plaintiffs’ vicarious infringement claims for the same reasons it allowed the direct infringement claims.

Plaintiffs did not sufficiently plead their DMCA claim. Plaintiffs argued that defendants removed copyright management information (CMI) by making their own allegedly infringing plans without putting plaintiffs’ name and copyright information on them. But the DMCA required removal of CMI from plaintiffs’ original work. Not including CMI on a new, allegedly infringing work was not sufficient for a DMCA claim.

Seeking Questions for PTO Director Iancu

By R. David Donoghue on Posted in Legal News

I am honored to announce that I will be interviewing U.S. Patent & Trademark Office Director Andrei Iancu at the kickoff session of this year’s Rocky Mountain IP Institute in Denver, Colorado. First, I invite you to join me – register here. I have attended and spoken at the Institute for years and firmly believe that it is one of the best, if not the best IP conference in the country. Second, while there is a lot that I want to ask Director Iancu, I would love to get your thoughts on what I should ask. I am not promising I will ask every question you have. But I firmly believe collaboration and diversity build better results. So, I invite your thoughts. Please reply with questions or send them to me, if you would prefer.

 

Court Denies Dismissal of “Viable” Claim Years After Deadline to Amend

By R. David Donoghue on Posted in Pleading Requirements

DR Distribs., LLC v. 21 Century Smoking, Inc., No. 12 C 50324, Slip Op. (N.D. Ill. Feb. 12, 2019) (Johnston, Mag. J.).

Magistrate Judge Johnston denied defendants’ motion to amend dismissing their defamation counterclaim in this Lanham Act dispute.

At the outset, the Court explained that these “bizarre” circumstances – a party opposing its opponent’s decision to drop a claim – were created by an ESI “donnybrook” involving the loss of apparently relevant emails and instant messages. While it was not expressly stated, the “obvious” purpose of dismissing the claim was to moot the ESI dispute. And plaintiff’s reason for opposing was similarly obvious, plaintiff’s desire to leverage defendants’ ESI “blunder.” The Court also noted that plaintiff had promised to file a 75-page brief, “longer than a CVS receipt” addressing the ESI issues and seeking sanctions.

The case was filed in 2012 with a January 2015 deadline to amend pleadings. Defendants sought leave to amend in October 2018, three years and eight months after the deadline to amend. As an initial matter, because the motion was filed after a case management order was entered, it was governed by Rule 16’s good cause standard, not Rule 15’s liberal leave. The fact that defendants were removing a claim, not adding material, did not warrant applying the Rule 15 standard. The clear language of Rule 16 requires its application for all motions to amend after a case management order, not just those seeking to add claims.

The primary consideration under the Rule 16 standard is the amending party’s diligence. Litigation the claim for four years, including ongoing discovery disputes, and then seeking dismissal nearly four years after the deadline to dismiss while maintaining the viability of the claim did not evidence diligence. In fact, the Court noted that it would likely have dismissed the claim had defendant sought dismissal pursuant to Fed. R. Civ. P. 41(b), instead of continuing to state that the counterclaim was viable and that defendants would prosecute the counterclaim through trial, should it not be dismissed.

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