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Civix-DDI, LLC v. Hotels.com

February 1, 2010

CIVIX-DDI, LLC, PLAINTIFF,
v.
HOTELS.COM, L.P., HOTELS.COM GP LLC, AND YAHOO! INC., DEFENDANTS.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

Defendants Hotels.com, L.P., Hotels.com GP, LLC (collectively "Hotels.com"), and Yahoo! Inc. ("Yahoo") move the Court for leave to file Second Amended Answers and Counterclaims pursuant to Federal Rule of Civil Procedure 15(a). In response, Plaintiff CIVIXDLI, LLC's ("Civix") filed a motion for judgment on the pleadings regarding Defendants' inequitable conduct claims pursuant to Rule 12(c). The Court presumes familiarity with its previous orders in this litigation and the related Expedia litigation. See Civix-DDI, LLC v. Cellco P'ship, 387 F.Supp.2d 869 (N.D. Ill. 2005). For the following reasons, the Court, in its discretion, grants Defendants' motions. The Court denies Civix's motion for judgment on the pleadings.

BACKGROUND

On August 24, 2006, Civix filed a Second Amended Complaint in this matter alleging that Defendants infringed U.S. Patent Nos. 6,385,622 (the "'622 patent"), 6,408,307 (the "'307 patent"), 6,415,291 (the "'291 patent"), and 6,473,692 (the "'692 patent"). On September 17, 2007, the Court stayed the present litigation pending the Patent and Trademark Office's ("PTO") ex parte reexamination of these four patents. On September 25, 2009, Civix advised the Court that -- as a result of the re-examination proceedings -- it would pursue its infringement allegations only as to the '622 patent and the '291 patent.

In its motion for leave to amend, Hotels.com seeks to (1) add an affirmative defense of patent exhaustion based on the Federal Circuit's recent decision in TransCore, L.P. v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed. Cir. 2009) and (2) update its existing counterclaim for a declaratory judgment of unenforceability to account for Civix's alleged inequitable conduct during the recently concluded reexamination proceedings. In its motion to amend, Yahoo also seeks to (1) add an affirmative defense of patent exhaustion based on the Federal Circuit's recent decision in TransCore and (2) update its existing inequitable conduct defense and related counterclaim to reflect Civix's alleged misconduct during the reexamination proceedings.

In response to Defendants' motions for leave to amend, Civix solely objects to the claims of inequitable conduct maintaining that Defendants' new inequitable conduct allegations based on the PTO's reexamination fall short of the pleading standard articulated in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009). In its motion for judgment on the pleadings, Civix also argues that previously alleged inequitable conduct defenses and counterclaims based on Civix's conduct during the prosecution of the original patent applications similarly fail under the Exergen standard.

LEGAL STANDARDS

Although this is a patent case, the law of the Seventh Circuit controls procedural issues that are not unique to patent law. See Exergen, 575 F.3d at 1318 ("a motion to amend a pleading under Rule 15(a) is a procedural matter governed by the regional circuit"); see also Imation Corp. v. Koninklijke Philips Elec. N.V., 586 F.3d 980, 984 (Fed. Cir. 2009) ("In reviewing a grant of judgment on the pleadings, this court applies the procedural law of the regional circuit.").

Defendants' motions for leave to file amended answers and counterclaims are governed by Federal Rule of Civil Procedure 15(a)(2), which states that after a responsive pleading is filed, "a party may amend its pleading only with the opposing party's written consent or the court's leave. The court should freely give leave when justice so requires." Fed.R.Civ.P. 15(a)(2). "Although Federal Rule of Civil Procedure 15(a) instructs that leave to amend shall be freely given 'when justice so requires,' a district court may deny a plaintiff leave to amend if 'there is undue delay, bad faith[,] or dilatory motive.'" Sound of Music Co. v. Minnesota Mining & Mfg. Co., 477 F.3d 910, 922 (7th Cir. 2007) (citations omitted). The Court may also deny a plaintiff's motion for leave to amend if either "undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of amendment" would occur. Id. at 922-23 (citations omitted); see also Arreola v. Godinez, 546 F.3d 788, 796 (7th Cir. 2008). An amendment is "futile if it sets forth facts or legal theories that are redundant, immaterial, or unresponsive to the allegations in the complaint." Campania Mgmt. Co., Inc. v. Rooks, Pitts & Poust, 290 F.3d 843, 850 (7th Cir. 2002). "[T]he district court's decision to grant or deny a motion for leave to file an amended pleading is 'a matter purely within the sound discretion of the district court.'" Guise v. BWM Mortgage, LLC, 377 F.3d 795, 801 (7th Cir. 2004) (citation omitted); see also Schor v. City of Chicago, 576 F.3d 775, 780 (7th Cir. 2009).

Rule 12(c) motions for judgment on the pleadings differ from Rule 12(b) motions to dismiss because they are brought after the pleadings are closed. See Fed. R. Civ. P. 12(c); Buchanan-Moore v. County of Milwaukee, 570 F.3d 824, 827 (7th Cir. 2009). Despite the difference in timing, the Court reviews Rule 12(c) motions under the same standards that apply to motions to dismiss under Rule 12(b)(6). See Buchanan-Moore, 570 F.3d at 827; Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007). Under Rule 12(c), the Court accepts all well-pleaded allegations in the complaint as true and draws all reasonable inferences in favor of the plaintiff. See Buchanan-Moore, 570 F.3d at 827; Pisciotta, 499 F.3d at 633. A motion for judgment on the pleadings should be granted "only if it appears beyond doubt that the plaintiff cannot prove any facts that would support his claim for relief." Buchanan-Moore, 570 F.3d at 827 (citation omitted).

ANALYSIS

The present motions concern Yahoo's and Hotels.com's allegations that the patents-in-suit are unenforceable due to Civix's inequitable conduct in prosecuting these patents. To clarify, "[e]ach individual associated with the filing and prosecution of a patent application has a duty of candor and good faith in dealing with the [PTO], which includes a duty to disclose to the [PTO] all information known to that individual to be material to patentability...." 37 C.F.R. § 1.56(a). The elements of inequitable conduct in breach of this duty can be shown if a patent applicant: (1) made an affirmative misrepresentation of material fact, submitted false material information, or failed to disclose material information; and (2) intended to deceive the PTO. See Rentrop v. Spectranetics Corp., 550 F.3d 1112, 1119 (Fed. Cir. 2008); Praxair, Inc. v. ATMI, Inc., 543 F.3d 1306, 1314 (Fed. Cir. 2008).

In its present motion, Civix argues that the Court should deny Defendants' motions to amend their answers and counterclaims because any amendment would be futile and that the Court should grant judgment on the pleadings in its favor as to Defendants' inequitable conduct claims and defenses. In particular, Civix maintains that the newly alleged inequitable conduct counterclaims and affirmative defenses, as well as the earlier inequitable conduct counterclaims and affirmative defenses, do not meet Rule 9(b)'s heightened pleading requirements. See Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009). Thus, at issue is whether Defendants have alleged their inequitable conduct counterclaims and defenses with sufficient particularity under Rule 9(b). See id. at 1318 ("Whether inequitable conduct has been pleaded with particularity under Rule 9(b) is a question governed by Federal Circuit law"); Central Admixture Pharm. Servs., Inc. v. Advanced Cardiac Solutions, P.C., 482 F.3d 1347, 1356 (Fed. Cir. 2007) (same).

Federal Rule of Civil Procedure 9(b) requires that a plaintiff plead "the circumstances constituting fraud" with "particularity," although "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.R.Civ.P. 9(b). Although inequitable conduct is a "broader concept than fraud," the Federal Circuit has long held that a party must plead inequitable conduct with particularity. See Central Admixture, 482 F.3d at 1356-57; Ferguson Beauregard/Logic Controls, Div. of Dover Res., Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003). In Exergen, the Federal Circuit reiterated the requirements of Rule 9(b) -- a "pleading that simply avers the substantive elements of inequitable conduct, without setting forth the particularized factual bases for the allegation, does not satisfy Rule 9(b)." Id. at 1326-27. The Federal Circuit further explains, as "the Seventh Circuit has held, the 'circumstances' in Rule 9(b) must be set forth with 'particularity,' i.e., they 'must be pleaded in detail' -- '[t]his means the who, what, when, where, and how' of the alleged fraud." Id. at 1327 (quoting DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990)); see also Rao v. BP Prods. N. Am., Inc., 589 F.3d 389, 401 (7th Cir. 2009). Indeed, the Exergen decision adopts the Seventh Circuit's Rule 9(b) standard, holding that "pleading inequitable conduct in patent cases [] requires identification of the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO." Exergen, 575 F.3d at 1327.

The Exergen decision further explains that "Rule 9(b) also states that '[m]alice, intent, knowledge, and other conditions of mind of a person may be averred generally' [and that the] relevant 'conditions of mind' for inequitable conduct include: (1) knowledge of the withheld material information or of the falsity of the material misrepresentation, and (2) specific intent to deceive the PTO." Id. at 1327. "Although 'knowledge' and 'intent' may be averred generally, our precedent, like that of several regional circuits, requires that the pleadings allege sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind." Id. (citing Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824, 833 (7th Cir. 2007)). "A reasonable inference is one that is plausible and that flows logically from the facts alleged, including any objective indications of candor and good faith." Exergen Corp., 575 F.3d at 1329 n.5. Meanwhile, in "contrast to the pleading stage, to prevail on the merits, the accused infringer must prove both materiality and intent by clear and convincing evidence." Id.; see also Vita-Mix Corp. v. Basic Holding, Inc., 581 F.3d 1317, 1332 (Fed. Cir. 2009) ("Both intent and materiality must ultimately be proven by clear and convincing evidence."). Finally, the Exergen decision instructs that "[p]leading on 'information and belief' is permitted under Rule 9(b) when essential information lies uniquely within another party's control, but only if the pleading sets forth the specific facts upon which the belief is reasonably based." Id. at 1330-31.

I. Previously Raised Bases for Inequitable Conduct*fn1

A. NavTech Litigation

Defendants maintain that Civix failed to disclose, or inadequately disclosed, to the PTO material information relating to litigation with Navigation Technologies ("NavTech"), which concerned the parent patent -- U.S. Patent No. 5,682,525 (the "'525 patent") -- to the '622, '307, and '291 patents while the prosecutions of these patent applications were pending. First, Hotels.com specifically alleges:

Just prior to the NavTech litigation, NavTech attempted to provoke an interference at the PTO between itself and CIVIX by filing U.S. Patent Application No. 09/179,299 (the "Interference Application"). NavTech sought to have itself declared as the first and true inventor of certain mapping technologies described in both the Interference Application and the issued '525 patent.

(R. 515-1, Hotels.com Amend. Ans., Affirm. Def./Countercl. ¶ 18.) Similarly, Yahoo alleges: On October 27, 1998, NavTech attempted to provoke a patent interference at the Patent Office between it and CIVIX by filing U.S. Patent Application no. 09/179/299 (the "'299 application"). The purpose of the application was to have NavTech declared the first inventor of certain mapping technologies described in the '299 application, owned at the time by NavTech, and U.S. Patent No. 5,682,525 (the "'525 patent"), owned by CIVIX. (529-1, Yahoo Amend. Ans., Affirm. Def. ¶ 42.)

Second, Defendants allege that Civix possessed the NavTech conception documents. In particular, Yahoo alleges:

In order to settle the lawsuit and contemplated interference, CIVIX and NavTech entered into a settlement agreement on January 18, 2000. Under the settlement agreement, NavTech agreed to assign the '299 application to CIVIX, and to provide documents to CIVIX relating to NavTech's conception and reduction to practice of the invention described in the '299 application and '525 patent (the "NavTech Conception Documents"). On information and belief, NavTech fulfilled both of these commitments. (Yahoo Affirm. Def. ¶ 46.) Yahoo further alleges:

The prosecution histories of the '622, '307, and '291 patents show no record that: a) CIVIX told the Patent Office examiner who was handling the prosecution of these patents about the CIVIX -- NavTech lawsuit, the contemplated interference, or the settlement; b) CIVIX provided the Patent Office examiner with the settlement agreement or the NavTech Conception Documents; and c) the Patent Office examiner otherwise knew about the CIVIX -- NavTech lawsuit, the contemplated interference, the settlement, or the NavTech Conception Documents. (Id. ¶ 47.) Likewise, Hotels.com alleges:

The '622, '291, and '307 patents ("the CIVIX patents") are unenforceable because CIVIX, W. Lincoln Bouve, William T. Semple, Steven W. Oxman, and the prosecuting attorneys, including Curtis Vock, failed to comply with their duties of candor and good faith. Breach of the duties of candor, good faith, and honesty when prosecuting patent applications constitutes inequitable conduct. Thus, CIVIX engaged in inequitable conduct, and in doing so intentionally deceived the United States Patent and Trade Office ("PTO") and its examiners into issuing patent claims that are unenforceable. Intent to deceive is generally inferred from the facts and circumstances surrounding a knowing failure to disclose material information.

According to section 2001.06(c) of the Manual of Patent Examining Procedure ("MPEP"), "[w]here the subject matter for which a patent is being sought is or has been involved in litigation, the existence of such litigation and any other material information arising therefrom must be brought to the attention of the [PTO]." (emphasis added). Nevertheless, the prosecution histories of the '622, '307, and '291 patents ...


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