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Itex, Inc. v. Westex

July 21, 2010

ITEX, INC., ET AL. PLAINTIFFS/COUNTER-DEFENDANTS,
v.
WESTEX, INC., ET AL. DEFENDANTS/COUNTER-PLAINTIFFS.



The opinion of the court was delivered by: Wayne R. Andersen District Judge

MEMORANDUM OPINION AND ORDER

This matter is before the court on a motion by Defendants/Counter-Plaintiffs Westex, Inc. ("Westex"), King America Finishing, Inc. ("King America"), and Western Dyers & Finishers, Inc. ("Western," collectively "Defendants") for leave to file amended answer and counterclaims. For the following reasons, the motion is granted in part and denied in part.

BACKGROUND

This case involves U.S. Patent No. 5,468,545 (the "'545 Patent"), a patent for treated, flame resistant cotton blended fabrics. The '545 Patent was originally issued on November 21, 1995, and was subsequently confirmed by two reexaminations by the United States Patent and Trademark Office ("PTO") on July 17, 2007 and February 19, 2008. (Dkt. No. 1521-1).

Itex, Inc., ("Itex") and MF&H Textiles, Inc. ("MF&H," collectively "Plaintiffs") filed the instant lawsuit on October 21, 2005. Plaintiffs' complaint alleged that Westex was infringing on the '545 Patent by making or selling certain flame retardant cotton blended fabrics. Other defendants were subsequently added to the lawsuit, including King America, Western, Workrite Uniform Company Inc., VF Imagewear, Inc., Cintas Corporation, Unifirst Corporation, G&K Services, Aramark Uniform & Career Apparel, LLC, and Greenwood Mills, Inc.

On February 29, 2008, Plaintiffs initiated a second lawsuit in the Northern District of Illinois also involving alleged infringement of the '545 Patent (08 CV 1224).

On August 5, 2009, Defendants filed their first motion for leave to file amended answer and counterclaims (Dkt. No. 148), but that motion was withdrawn on September 18, 2009 (Dkt. No. 158). On September 25, 2009, Defendants filed a second motion for leave to file amended answer and counterclaims. Defendants seek to "add additional specific allegations that the ['545 Patent] was obtained through inequitable conduct." (Defs.' Second Mot. at 1). The inequitable conduct allegations contained in the proposed amended affirmative defenses and the proposed amended counterclaims are identical. Defendants assert that the motion resulted from recently discovered evidence, including depositions of the named inventors of the '545 Patent. Id. at 5. While some discovery has taken place, "Defendants anticipate that further fact discovery in this case, including third party discovery -- which the parties have not yet begun because the case is in the claim construction phase -- will unearth further evidence to support their inequitable conduct allegations." Id. Plaintiffs oppose the motion, arguing that the inequitable conduct counterclaim is insufficiently pled and unsupported by facts.

LEGAL STANDARD

"To successfully prove inequitable conduct, the accused infringer must present evidence that the applicant (1) made an affirmative misrepresentation of material fact, failed to disclose material information, or submitted false material information, and (2) intended to deceive the [PTO]." Star Scientific, Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008) (internal citations omitted). These elements are distinct -- "materiality does not presume intent, which is a separate and essential component of inequitable conduct." Id. at 1366 (quoting GFI, Inc. v. Franklin Corp., 265 F.3d 1268, 1274 (Fed. Cir. 2001)).

The Federal Circuit explained the pleading standard for inequitable conduct in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009). "'Inequitable conduct, while a broader concept than fraud, must be pled with particularity' under Rule 9(b)." Id. at 1326 (quoting Ferguson Beauregard/Logic Controls, Div. of Dover Resources, Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003)).

[T]o plead the "circumstances" of inequitable conduct with the requisite "particularity" under Rule 9(b), the pleading must identify the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO. Moreover, although "knowledge" and "intent" may be averred generally, a pleading of inequitable conduct under Rule 9(b) must include sufficient allegations of underlying facts from which a court may reasonably infer that a specific individual (1) knew of the withheld material information or of the falsity of the material misrepresentation, and (2) withheld or misrepresented this information with a specific intent to deceive the PTO.

Id. at 1328-29.

Plaintiffs repeatedly suggest that Exergen requires Defendants to set forth allegations that the intent to deceive is the "single most reasonable inference" to be drawn from the facts. (Pls.' Opp'n at 2, 3, 4, 6, 8, 9, 14). We disagree. Deceptive intent must be the "single most reasonable inference" in order to meet the clear and convincing standard required to prevail on the merits, but at the pleading stage, an inference of deceptive intent simply must be "reasonable," meaning that it must be "plausible and [] flow[] from the facts alleged." Exergen, 575 F.3d at 1329, n. 5.

Pleading deceptive intent "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. A court must be careful about drawing any permissive inference of deceptive intent, "lest inequitable conduct devolve into 'a magic incantation to be asserted against every patentee' and its 'allegation established upon a mere showing that art or information having some ...


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