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Waters Industries, Inc., An Illinois Corporation v. Jji International

November 28, 2012

WATERS INDUSTRIES, INC., AN ILLINOIS CORPORATION, PLAINTIFF,
v.
JJI INTERNATIONAL, INC., A RHODE ISLAND CORPORATION AND STEIN MART, INC., A FLORIDA CORPORATION, DEFENDANTS.



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

MEMORANDUM OPINION AND ORDER

On June 3, 2011, Plaintiff Waters Industries, Inc. ("Waters") filed the present lawsuit against Defendants JJI International, Inc. ("JJI") and Stein Mart, Inc. ("Stein Mart") alleging that the lighted reading glasses Defendants sell or offer under the name "LIGHT-UP READERS" infringe four patents, namely, U.S. Patent No. 6,612,695 (the "'695 patent"); U.S. Patent No. 6,863,416 (the "'416 patent"); U.S. Patent No. 7,377,664 (the "'664 patent"); and U.S. Patent No. 7,938,553 (the "'553 patent"). Defendants filed their Answer and Counterclaim on June 28, 2011. Before the Court is Defendants' motion for leave to amend its Answer and Counterclaim pursuant to Federal Rule of Civil Procedure 15(a)(2). For the following reasons, the Court, in its discretion, denies Defendants' motion for leave to amend.

LEGAL STANDARD

Although this is a patent case, the Court applies the Seventh Circuit's procedural standards. See Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1318 (Fed. Cir. 2009) (regional circuit law applies to procedural issues that are not specific to patent law). Under Rule 15(a)(2), a plaintiff may amend its complaint "only with the opposing party's written consent or the court's leave." Fed.R.Civ.P. 15(a)(2). "Although leave to amend should be 'freely given,' that does not mean it must always be given." Hukic v. Aurora Loan Servs., 588 F.3d 420, 432 (7th Cir. 2009); see also Crest Hill Land Dev., LLC v. City of Joliet, 396 F.3d 801, 804 (7th Cir. 2005) (noting that despite the liberal nature of Rule 15(a), "leave to amend is not automatically granted"). Indeed, district courts "'have broad discretion to deny leave to amend where there is undue delay, bad faith, dilatory motive, repeated failure to cure deficiencies, undue prejudice to the [non-moving party], or where the amendment would be futile.'" Hukic, 588 F.3d at 432 (quoting Arreola v. Godinez, 546 F.3d 788, 796 (7th Cir. 2008)); see also Independent Trust Corp. v. Stewart Info. Servs. Corp., 665 F.3d 930, 943 (7th Cir. 2012) ("[I]t is well settled that a district court may refuse leave to amend where amendment would be futile."). An amendment is futile if the amended claims could not survive a motion to dismiss pursuant to Rule 12(b)(6). See Arlin-Golf, LLC v. Village of Arlington Heights, 631 F.3d 818, 822-23 (7th Cir. 2011).

BACKGROUND

In their motion for leave to amend, Defendants seek to add Counterclaim V and an Eleventh Affirmative Defense alleging that the '553 patent is unenforceable due to inequitable conduct. The '553 patent is a continuation of U.S. Patent No. 7,699,486 (the "'486 patent") that the Patent and Trademark Office ("PTO") issued on April 20, 2010. Both the '553 patent and the '486 patent name Edward Beiner ("Beiner") as the inventor. Through counsel, Beiner filed a continuation application that the PTO issued as the '553 patent. Beiner's counsel at the law firm of Malloy & Malloy, P.L. prosecuted the '486 patent and also the continuation application until Beiner assigned the '486 patent and pending continuation application to Waters on July 20, 2010. Thereafter, on September 28, 2010, Waters' counsel at Fitch, Even, Tabin & Flannery assumed the prosecution of the continuation patent. On October 19, 2010, the Examiner issued a non-final rejection of the continuation application based on double patenting that could be overcome by filing a terminal disclaimer -- which Waters' counsel subsequently filed. The PTO then issued the '553 patent on May 10, 2011.

In support of the newly alleged inequitable conduct in Counterclaim V and the Eleventh Affirmative Defense, Defendants maintain that Waters should have disclosed the following four documents during the prosecution of the '553 Beiner patent: (1) U.S. Application No. 12/835,508, which matured into U.S. Patent 8,235,524 ("'524 patent"); (2) the non-published provisional application 60/681,852 filed May 15, 2005; (3) the non-published provisional application 60/745,217 filed May 2, 2006; and (4) the Patent Cooperation Treaty ("PCT") application PCT/US2006/018968 filed May 17, 2006. The PTO issued the '524 patent to Michael Waters on August 7, 2012. That same day, Waters Industries filed a lawsuit alleging infringement of the '524 patent against JJI International, Inc.

ANALYSIS

In their motion for leave to amend, Defendants seek to add Counterclaim V and an Eleventh Affirmative Defense alleging that the '553 Beiner patent is unenforceable due to inequitable conduct. In response, Waters argues that Defendants' proposed Counterclaim V and Affirmative Defense are untimely and futile. The Court agrees.

I. Timeliness

Waters filed the present lawsuit on June 3, 2011 and the parties filed their joint initial status report on July 19, 2011. On July 26, 2011, the Court entered an order setting the case schedule based on the Northern District of Illinois Local Patent Rules. In this schedule, the fact discovery deadline was February 28, 2012. According to the original order, the final infringement, unenforceability, and invalidity contentions pursuant to Local Patent Rule 3.1 were due on or before December 20, 2011.

In the meantime, Defendants deposed Beiner on November 22, 2011. At a November 29, 2011 status hearing, Defendants' counsel informed the Court that during Beiner's deposition, it became apparent that there may be "an unenforceability issue that would cause us to seek leave to amend our answer to [the] claim that the '553 patent is unenforceable." (R. 57-6, Ex. 7, 11/29/11 Hr'g Tr., at 5.) Defendants' counsel then asked the Court for a 60-day extension for all deadlines. The Court granted the extension explaining that "[a]lthough it is a lot of time and the local patent rules are in place for a reason, given the holidays, I will give the 60-day extension of all deadlines. But you certainly should not expect another extension." (Id. at 6.) The Court also notes that pursuant to Local Patent Rule 2.1, Waters produced the file history for the '553 Beiner patent prior to Beiner's November 2011 deposition.

Despite the extension, on February 21, 2012, Defendants served their Local Patent Rule 3.1 Final Contentions without including any inequitable conduct claims. Thereafter, in May 2012, Defendants deposed Waters' patent attorney, Stephen Favakeh, who testified as follows:

Q. During the prosecution of the '553 application you determined it wasn't material to disclose the provisional ...


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