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Sloan Valve Company, A Delaware Corporation v. Zurn Industries

April 1, 2012

SLOAN VALVE COMPANY, A DELAWARE CORPORATION, PLAINTIFF,
v.
ZURN INDUSTRIES, INC., A DELAWARE CORPORATION, AND ZURN INDUSTRIES, LLC, A ) DELAWARE LIMITED LIABILITY COMPANY, DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

Plaintiff Sloan Valve Company ("Sloan") moves to dismiss, pursuant to Federal Rule of Civil Procedure ("Rule") 12(b)(6), Defendants Zurn Industries, Inc.'s and Zurn Industries, LLC's (collectively, "Zurn") inequitable conduct counterclaims (Counts III and IV) for failure to comply with Rule 9(b), and it seeks an award of attorney's fees and costs associated with its motion. For the reasons explained below, the Court grants in part and denies in part Sloan's motion to dismiss, and denies its request for attorney's fees and costs. Specifically, the Court denies Sloan's motion with respect to Count III and grants the motion with respect to Count IV.

Zurn, however, has cited additional factual information it has obtained from discovery regarding Count IV in its response brief, which, if added to its counterclaims, would render Count IV sufficient under Rule 9(b). Importantly, allowing Zurn to amend its allegations will not prejudice Sloan. This case has been pending for over two years, and the parties have engaged in extensive discovery. Sloan has had notice, through such discovery, of the factual basis for Zurn's claim. See Vicom, Inc. v. Harbridge Merchant Servs., 20 F.3d 771, 777 (7th Cir. 1994) (stating that Rule 9(b) "serve[s] three main purposes: (1) protecting a defendant's reputation from harm; (2) minimizing 'strike suits' and 'fishing expeditions'; and (3) providing notice of the claim to the adverse party.") (citation omitted); see also Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009) (in adopting a Rule 9(b) pleading standard for inequitable conduct claims, the court "follow[ed] the lead of the Seventh Circuit in fraud cases"). Therefore, pursuant to Rule 15(a)(2), the Court grants Zurn leave to amend its Counterclaims consistent with the terms of this Memorandum Opinion and Order by April 9, 2012.

BACKGROUND

I. Procedural Background

Sloan filed this lawsuit on January 13, 2010, alleging that Zurn had appropriated its "dual mode flush valve invention," therefore infringing U.S. Patent No. 7,607,635, entitled "Flush Valve Handle Assembly Providing Dual Mode Operation" (the "'635 Patent") and the corresponding U.S. Patent Application Publication No. 2006/0151729 (the "'729 Patent Application"). (R. 1.) On February 8, 2010, Zurn filed its Answer, Counterclaims, and Affirmative Defenses, asserting invalidity and non-infringement of the '635 Patent as well as inequitable conduct during the prosecution of the '635 Patent. (R. 17.) Sloan moved to dismiss certain counterclaims and affirmative defenses, arguing in relevant part that Zurn failed to plead materiality of the withheld information. (R. 24.) On May 4, 2010, the Court granted in part and denied in part Sloan's motion to dismiss, holding that Zurn had adequately alleged materiality of the withheld information. (R. 70.) Zurn subsequently filed an Amended Answer, Counterclaims, and Affirmative Defenses and, later, a Second Amended Answer, Counterclaims, and Affirmative Defenses. (R. 72, 85.) Sloan answered Zurn's Second Amended Counterclaims on August 12, 2010. (R. 104.)

On December 16, 2010, upon Zurn's motion, the Court stayed the proceedings because the U.S. Patent and Trademark Office ("PTO") had granted its request for an ex parte reexamination of the '635 Patent. (R. 149, 157.) On September 27, 2011, the PTO issued an Ex Parte Reexamination Certificate for the '635 Patent, which provides that certain of Sloan's claims in the '635 Patent were amended and others were added. (R. 184-1, Ex Parte Reexamination Certificate.) On October 7, 2011, Sloan filed a motion to re-open the case and lift the stay, which the Court granted on November 10, 2011. (R. 183, 192.)

On November 29, 2011, Sloan filed its Amended and Supplemental Complaint (the "Complaint"),*fn1 asserting direct and willful infringement of claims 1, 4-6, 10-12, 14, 19, 29-31, and 33-34 of the '635 Patent, infringement of the '729 Patent Application, induced infringement of the '635 Patent, and contributory infringement of the '635 Patent. (R. 197.) On December 9, 2011, Zurn filed its Answer, Counterclaims, and Affirmative Defenses to Sloan's Complaint, in which Zurn asserts four counterclaims, including two for inequitable conduct (the "Counterclaims"). (R. 202, 207.) In its motion, Sloan seeks dismissal of the Counterclaims.

II. Factual Background

A. Sloan's Complaint

Sloan's Complaint contains the following allegations.*fn2 Sloan is a leading manufacturer of plumbing products. (R. 197, Compl. ¶ 8.) In 2004, John Wilson, an engineer working in Sloan's research and development group, conceived a new dual flush valve and handle assembly that distributed one amount of water when pushed down and a reduced quantity of water when lifted up. (Id. ¶ 12.) Sloan recognized Wilson's invention as a solution to satisfy the need for a dual mode flush product for commercial application and accordingly decided to invest in testing, developing, and commercializing Wilson's invention. (Id. ¶¶ 12-13.) After testing a number of experimental handle assemblies, Sloan announced the commercial introduction of its dual flush product on August 1, 2005. (Id. ¶¶ 14, 17.)

On August 4, 2005, Zurn announced a water-saving valve and handle assembly that Sloan alleges Zurn derived by copying Sloan's dual mode flush handle. (Id. ¶¶ 19-22, 24.) Since December 2005, Zurn has offered for sale dual mode handle assemblies and dual mode flush valves, including Zurn Commercial Brass product P6000-M-ADA-DF, which incorporate features of Wilson's invention and are covered by the '635 Patent's claims and the '729 Patent Application. (Id. ¶ 32.)

Sloan filed a patent application with the PTO, claiming the unique features of the dual mode flush handle assembly and valves, which the PTO published as the '729 Patent Application on July 13, 2006. (Id. ¶¶ 35-36.) On October 27, 2009, the PTO issued the '635 Patent. (Id. ¶ 37.)

Sloan's Complaint contains four counts. Count I alleges that Zurn's making, using, offering to sell, importing or selling dual mode handle assemblies and dual mode flush valves infringes claims 1, 4-6, 10-12, 14, 19, 29-31, and 33-34 of the '635 Patent. (Id. ¶ 78.) Count II alleges that Zurn infringed the '729 Patent Application by making, using, or offering for sale the invention in at least claims 10-11 and 15 between the publication of the '729 Patent Application and the issuance of the '635 Patent. (Id. ¶¶ 83-85.) Sloan also alleges claims against Zurn for inducement to infringe the '635 Patent (Count III) and for contributory infringement of the '635 Patent (Count IV). (Id. ¶¶ 86-95.)

B. Zurn's Answer, Counterclaims, and Affirmative Defenses

Zurn seeks a declaration of invalidity (Count I) and non-infringement (Count II) of the asserted '635 Patent claims, as well as unenforceability of the '635 Patent due to inequitable conduct (Counts III and IV). (R. 202, Answer, Counterclaims, and Aff'tive Defs.) Zurn also asserts an affirmative defense of invalidity and unenforceability of the '635 Patent. (Id.) Zurn's allegations with respect to its inequitable conduct counterclaims are discussed more fully below.

LEGAL STANDARD

Although this is a patent case, the Court applies the Seventh Circuit's Rule 12(b)(6) standard. Exergen Corp., 575 F.3d at 1318 (regional circuit law applies to procedural issues that are not specific to patent law); see also Ferguson Beauregard/Logic Controls v. Mega Sys., LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003) ("This court reviews the dismissal of a claim under Rule 12(b)(6), a matter of procedure, by applying the law of the regional circuit.") (citation omitted). "A motion under Rule 12(b)(6) challenges the sufficiency of the complaint to state a claim upon which relief may be granted." Hallinan v. Fraternal Order of Police of Chicago Lodge No. 7, 570 F.3d 811, 820 (7th Cir. 2009). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." AnchorBank, FSB

v. Hofer, 649 F.3d 610, 614 (7th Cir. 2011) (quoting Caremark, Inc. v. Coram Healthcare Corp., 113 F.3d 645, 648 (7th Cir. 1997)). "In evaluating the sufficiency of the complaint," the court must "view it in the light most favorable to the plaintiff, taking as true all well-pleaded factual allegations and making all possible inferences from the allegations in the plaintiff's favor." Id. (citing Wilson v. Price, 624 F.3d 389, 391 (7th Cir. 2010)).

To survive a Rule 12(b)(6) motion, "the complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Indep. Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 934 (7th Cir. 2012) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1949, 173 L. Ed. 2d 868 (2009)). It is not enough to put "a few words on paper that, in the hands of an imaginative reader, might suggest that something has happened to her that might be redressed by the law." AnchorBank, 649 F.3d at 614 (quoting Swanson v. Citibank, N.A., 614 F.3d 400, 403 (7th Cir. 2010) (emphasis in original)). An asserted claim, however, "need not be probable, only plausible: 'a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.'" Indep. Trust Corp., 665 F.3d at 935 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)).

ANALYSIS

I. Pleading Requirements for Inequitable ...


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