J. LEON HOLMES, District Judge.
Mitsubishi Heavy Industries, Ltd., and Mitsubishi Power Systems Americas, Inc. (collectively "Mitsubishi"), allege that General Electric Company has violated the antitrust laws by monopolizing and attempting to monopolize the market in the United States for variable speed wind turbines in violation of Section 2 of the Sherman Act. According to the complaint, GE has monopolized and attempted to monopolize the market by obtaining patents by fraud and enforcing those patents through sham litigation, which has had the effect of excluding Mitsubishi and other potential competitors from the market. In addition to the antitrust claims, Mitsubishi alleges that GE has engaged in unfair competition in violation of Section 43(a) of the Lanham Act and has committed the tort of interference with contractual and prospective business relations. GE has filed a motion to dismiss for failure to state a claim or, in the alternative, to stay this action pending resolution of the infringement actions that Mitsubishi alleges are sham litigation. The motion to dismiss will be denied. The alternative motion for a stay will be granted.
Mitsubishi Heavy Industries, Ltd., is a Japanese company engaged in the design, manufacture, and distribution of variable
In February 2008, GE filed a complaint before the International Trade Commission alleging that Mitsubishi was importing variable speed wind turbines that infringe GE's patents '039, '985, and '221. After an evidentiary hearing, investigation, and briefing from the parties, the administrative law judge issued a 126-page final initial determination in August 2009. The ALJ held that: Mitsubishi had infringed the patents; Mitsubishi did not prove that the patents were invalid; and Mitsubishi did not prove that GE obtained the '985 patent through inequitable conduct by failing to name Thomas Wilkins as one of the inventors when applying for that patent. In October 2009, the ITC issued notice of its determination to review the ALJ's initial determination, except with respect to the ALJ's finding that GE lacked culpable intent in failing to name Wilkins as one of the inventors of the '985 patent (which finding was the foundation for the ALJ's determination of no inequitable conduct). In March 2010, the ITC reversed parts of the ALJ's initial determination in a 45page opinion. The ITC held that Mitsubishi did not infringe the '039 and '221 patents, and that GE failed to establish a domestic industry with respect to the '985 patent. The ITC did not rule on whether GE obtained the '985 patent through inequitable conduct because the ITC chose not to review that finding. GE has appealed the ITC opinion to the Federal Circuit.
In September 2009, GE commenced an action in the Southern District of Texas (Corpus Christi), alleging violations of patents '039, '985, and '221 (the same patents at issue before the ITC).
In February 2010, GE commenced an action in the Northern District of Texas (Dallas),
Mitsubishi alleges that GE instituted the ITC/Corpus Christi and Dallas actions knowing that all five of the patents that it seeks to enforce were procured or enforced through fraud. Part of the fraud allegations relate to a project in 1980 when the United States government hired GE to design and build a particular wind turbine generator. To document the design, development, and analysis of the system, GE published in 1984 its final report, known as the "1984 DOE Report." The 1984 DOE Report also cites to and incorporates a study by T.A. Lipo (the "1981 Lipo Report"). Mitsubishi alleges that the 1984 DOE Report and the Lipo Report contained therein constitute material prior art that was not disclosed to the PTO in the application for the '039 patent.
Mitsubishi alleges that GE obtained the '221 patent fraudulently because the patent application intentionally withheld material prior art—"the E.ON standard"—which GE had previously disclosed in its patent application in Germany, where "the E.ON standard" was developed and is well known.
Mitsubishi alleges that GE obtained the '985 patent fraudulently by knowingly failing to include the name of one of the inventors, Thomas Wilkins, who had not assigned his rights to GE; by failing to disclose its own prior art (the 1984 DOE Report and GE's '192 patent); and by failing to disclose that it had copied the E.ON standard. Mitsubishi alleges that GE obtained the '055 patent fraudulently by failing to disclose the 1984 DOE Report,
Finally, Mitsubishi alleges that GE obtained the '705 patent fraudulently by withholding the E.ON standard and other prior art and by deceptively submitting an amendment that obtained a patent for a voltage control system that the Examiner had previously found to be obvious.
According to Mitsubishi's complaint, GE has threatened to enforce these patents and has brought the infringement actions knowing that the patents were fraudulently obtained and therefore unenforceable. GE has done so, Mitsubishi alleges, as a part of its plan to monopolize the market in the United States for variable speed wind turbines.
GE argues that Mitsubishi's complaint should be dismissed for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). Mitsubishi's claims in large part depend on two Supreme Court decisions: Walker Process Equipment, Inc. v. Food Machinery and Chemical Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965); and Prof'l Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. ("PRE"), 508 U.S. 49, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993). In Walker Process, the Court held that the maintenance and enforcement of a patent obtained by fraud may be the basis of an action under Section 2 of the Sherman Act. In PRE, the Court defined the sham litigation exception to the Noerr-Pennington
On Mitsubishi's claims of sham litigation, GE argues that the preliminary success that it had before the ALJ establishes that the action was not sham litigation. GE also argues that Mitsubishi failed to file a motion to dismiss in the Dallas action, after saying that it would file such a motion, and so has conceded that the Dallas action is not a sham. Neither of those arguments has merit.
Although the decision of the ALJ may be evidence that the ITC/Corpus Christi action is not a sham, that decision by the ALJ does not conclusively establish that the action is not a sham. See Boulware v. State of Nevada, Dept. of Human Resources, 960 F.2d 793, 798 (9th Cir.1992) (initial success in a trial court is a factor to be considered in determining whether litigation is sham but is not dispositive). See
Even though Mitsubishi first said it would file a motion to dismiss the Dallas action but then did not file one, that fact does not constitute an admission by Mitsubishi that the Dallas action is not a sham. A complaint can meet all the pleading requirements of the Federal Rules of Civil Procedure and still, as a factual matter, be frivolous. Here, Mitsubishi's claim is not that the complaint in the Dallas action failed to state a claim upon which relief may be granted; Mitsubishi's claim here is that GE knew that the patents that it seeks to enforce in Dallas were obtained by fraud, which is not an issue that could be resolved on a motion filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
GE also argues that the complaint fails to allege the circumstances of fraud with particularity as required by Rule 9(b) of the Federal Rules of Civil Procedure.
The Eighth Circuit has held, however, that Rule 9(b) does not require a complaint to include highly specific allegations with respect to facts that would be known to the defendants but not to the plaintiffs before the plaintiffs have had some opportunity to conduct discovery. Abels v. Farmers Commodities Corp., 259 F.3d 910, 921 (8th Cir.2001). In Exergen, the defendant had had an opportunity to conduct discovery before moving to amend the complaint to add the affirmative defense of inequitable conduct. See Exergen, 575 F.3d at 1317 (leave to amend was sought more than 13 months after the action was commenced). Here, Mitsubishi has not had an opportunity to conduct discovery. Thus, Abels, not Exergen, is more on point. The court explained in Abels that the purpose of Rule 9(b) is to enable the defendant to respond "at an early stage of the case, to potentially damaging allegations of immoral and criminal conduct." Id. at 920. Thus, a plaintiff must allege with specificity the time, place, and contents of the alleged false representations, as well as the identity of the person who made the false statement and what was obtained or released as a result. Id. Mitsubishi has done that here. Mitsubishi has identified with specificity each patent application that it contends was fraudulent and specifically what aspect of patent application allegedly was fraudulent. The time, place, and contents of the frauds, as well as what was obtained, are all alleged with specificity. GE has the information necessary to respond to these allegations. True, the complaint does not name the specific individuals within GE who were responsible for the alleged fraud, but for the reasons stated in Abels, that is not required at this stage. The degree of specificity that GE demands cannot reasonably be required absent discovery.
GE's argument that the complaint should be dismissed for failing to allege facts to show deceptive intent fails because Rule 9(b) provides that intent may be alleged generally. In re Netflix Antitrust Litigation, 506 F.Supp.2d at 317 ("A party need not plead the intent element of its Walker Process claim with particularity.").
Mitsubishi's complaint satisfies the requirements of Rules 8(a) and 9(b) of the Federal Rules of Civil Procedure as interpreted and applied in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964-65, 167 L.Ed.2d 929 (2007), Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir.2008), and Abels v. Farmers Commodities Corp. Therefore, the motion to dismiss is denied.
Alternatively, GE asks this Court to stay the litigation pending resolution of the infringement actions. "[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co., 299 U.S. 248, 254, 57 S.Ct. 163, 166, 81 L.Ed. 153 (1936). A court may stay an action to maximize the effective use of judicial resources and to minimize the possibility of conflicts between different courts. 5C Charles A. Wright and Arthur R. Miller, Federal Practice and Procedure § 1360 (3rd ed.2004). A motion for stay may be warranted when a similar action is pending in another court. Id.; International Ass'n of Entrepreneurs of America v. Angoff, 58 F.3d 1266, 1271 (8th Cir.1995); see also Contracting Northwest, Inc. v. City of Fredericksburg, Iowa, 713 F.2d 382, 387 (8th Cir.1983).
Here, a stay is warranted. First, if GE prevails in any of the infringement actions, then Mitsubishi's claims in this
Because the decisions in the ITC/Corpus Christi and Dallas actions could render this case moot or narrow the issues considerably, this Court's discretion is best exercised in granting a stay. Otherwise, the parties will have no choice but to go forward with what undoubtedly will be enormously expensive discovery,
Mitsubishi resists the conclusion that this action should be stayed, arguing that the issues in this action and the issues in the infringement actions are sufficiently dissimilar that it may prevail here even if GE prevails in the infringement actions. Mitsubishi also argues that it will be prejudiced by a stay in this action because GE's claims of patent infringement have scared and continue to scare customers into thinking that Mitsubishi's turbines are subject to protracted litigation and legal uncertainty. Mitsubishi's argument, at least in part, is based on the fact that Mitsubishi decided not to assert the affirmative defense of inequitable conduct in the Dallas action. In other words, Mitsubishi has reserved its claim that the '055 and '705 patents were fraudulently obtained for adjudication in this action, rather than in the Dallas action where GE is seeking to enforce those two patents, so that it is logically possible that the court in the Dallas action could find that the patents were enforceable and that Mitsubishi had infringed them, while this Court could, without contradicting the court in the Dallas action, find that the patents are invalid and that the Dallas action was sham litigation because GE knew that the patents at issue in the Dallas action were fraudulently obtained. The distinction is between "technical fraud" that might result from an honest mistake and fraud involving the willful misrepresentation of facts to the Patent and Trademark Office. See Kearney & Trecker Corp. v. Giddings & Lewis, Inc., 452 F.2d 579, 594 (7th Cir.1971) (citing Walker Process, 382 U.S. at 177, 86 S.Ct. at 350). Absent fraudulent intent, the invalidity of one claim does not render the remaining claims invalid. 35 U.S.C. § 288; Kearney & Trecker, 452 F.2d at 596. Deceptive intent, however, renders the entire patent invalid. Id. What Mitsubishi proposes to do, then, is to litigate "technical fraud," which would only invalidate certain claims, in the Dallas action, while litigating deceptive intent, which would invalidate an entire patent, here.
While Mitsubishi's strategy is innovative, it would put this action on a road down which this Court believes it would be unwise to go. As already noted, according to the Supreme Court, a winning lawsuit is by definition not a sham. This Court may have the discretion in effect to evade that holding by allowing Mitsubishi to argue here that the Dallas action is a sham for reasons that Mitsubishi could assert in the Dallas action but chooses not to do so. Allowing that course of action, however, would result in two different actions in two different courts simultaneously examining the validity of the same patents—which would be wasteful of judicial resources. For example, Mitsubishi's counterclaim in the Dallas action alleges that the '055 patent is invalid because the 1984 DOE Report is material prior art. Here, Mitsubishi's fraud claim alleges that GE obtained the '055 patent fraudulently by failing to disclose the 1984 DOE Report, which was
Just as it would be improper if GE withheld evidence in its possession material to the merits of the issues in the ITC action (as Mitsubishi alleges happened), so also it would be improper for Mitsubishi to withhold evidence material to the resolution of the Dallas action, even if the reason for withholding that evidence is to enable Mitsubishi to present it here. The goal of the court in every case is to reach a determination that truthfully finds all of the available, relevant facts and accurately applies the law to those facts. Our judicial system pursues that goal through the adversary process based on the assumption that in the adversary process each party will have an incentive to present all of the facts and arguments that may support a determination in that party's favor. Mitsubishi proposes a course of action contrary to the assumption that underlies the adversary process. Mitsubishi would forego an available defense in the Dallas action so as to litigate the basis for that defense here, ostensibly because an action here typically can proceed to trial more quickly than an action in Dallas. To go forward here based on Mitsubishi's argument would put the district court in the Dallas action in the position of adjudicating a claim where one party has an incentive not to present all of its relevant evidence and available arguments, which then would undermine the integrity of the process and undercut the reliability of the outcome there. This Court will not facilitate that prospect. If GE succeeds in the infringement actions because Mitsubishi decides not to assert a defense available to it, not to present evidence in its possession, or not to make arguments available to it, that decision by Mitsubishi will not affect this Court's determination to follow the Supreme Court in holding that a winning lawsuit by definition is not a sham. It is rare for this Court to say in advance how it will rule on an issue that is not ripe for decision, but in this instance it is necessary to do so in order fully to explain the reason for granting a stay.
If GE were to succeed in the ITC/Corpus Christi and Dallas actions by defrauding the Court (as Mitsubishi alleges happened in the proceedings before the ALJ), Rules 60(b)(2) and (3) of the Federal Rules of Civil Procedure could provide relief in the defrauded court, after which Mitsubishi might succeed in arguing that the prior action was a sham despite GE's initial success (see page 7 supra); but a final judgment in favor of GE in those actions will defeat a claim in this Court that those actions were a sham.
No one hates delay more than the undersigned judge. Nevertheless, for the reasons stated, this action should be stayed while the infringement actions are being litigated. Mitsubishi's motion to dismiss or, in the alternative, to stay is GRANTED IN PART and DENIED IN PART. Document #14. The motion to dismiss is denied; the motion to stay is granted.
No discovery will be conducted in this action unless and until this stay is lifted. The time within which GE must file a responsive pleading pursuant to Rule 12(a)(4)(A) of the Federal Rules of Civil Procedure will not begin to run until the stay is lifted. GE's responsive pleading will be due within fourteen days after the entry of an order lifting the stay.
This order should not be construed as an irrevocable stay regardless of what happens in the infringement actions or how long it may take for them to be resolved. If GE engages in conduct designed deliberately to delay one or both of the infringement actions, or if it becomes apparent that one or both of the infringement actions cannot be litigated to a conclusion within a reasonable time, this Court may lift the stay and permit discovery here to commence. Likewise, the Court may lift the stay and permit discovery to commence even if new infringement actions are filed hereafter. In other words, this stay will not continue indefinitely while numerous infringement actions are litigated.
The parties are ordered to file status reports on the first business day of each quarter of the year, beginning October 1, 2010, until this stay is lifted.