AMY J. ST. EVE, District Judge:
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 CIVIX-DLI, 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.
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 Officer'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 Trans-Core, L.P. v. Electronic Transaction Consultants Corp., 563 F.3d 1271 (Fed.Cir.2009)
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.
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).
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).
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.
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:
(R. 515-1, Hotels.com Amend. Ans., Affirm. Def./Countercl. ¶ 18.) Similarly, Yahoo alleges:
(529-1, Yahoo Amend. Ans., Affirm. Def. ¶ 42.)
Second, Defendants allege that Civix possessed the NavTech conception documents. In particular, Yahoo alleges:
(Yahoo Affirm. Def. ¶ 46.) Yahoo further alleges:
(Id. ¶ 47.) Likewise, Hotels.com alleges:
(Hotels.com Affirm. Def./Countercl. ¶¶ 16, 19; see also ¶ 20.)
Viewing these well-pleaded allegations as true and construing all reasonable inferences in a light most favorable to Defendants—as the Court is required to do at this procedural posture—Yahoo and Hotels.com have alleged the who, what, when, where, and how concerning Civix's alleged failure to disclose material information concerning the NavTech litigation to the PTO during the prosecution of the '622, '307, and '291 patents. See Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 705 (7th Cir.2008) ("Even when a plaintiff is required by Rule 9(b) to plead facts (such as the when and where of an alleged fraudulent statement), the court must treat the pleaded facts as true and
Moreover, Yahoo and Hotels.com have sufficiently alleged circumstances concerning Civix's overall conduct in prosecuting the '622, '307, and '291 patents from which the Court can reasonably infer that Civix acted with the requisite intent. See Exergen, 575 F.3d at 1327, 1330. In particular, Defendants allege that based on Nav-Tech's assertion that it was the first inventor of the subject matter covered by the '622, '307, and '291 patents, Civix, through its inventors and prosecuting attorneys, knew the NavTech litigation information was highly material. See Bruno Indep. Living Aids, Inc. v. Acorn Mobility Serv., Ltd., 394 F.3d 1348, 1354 (Fed.Cir.2005) ("intent to deceive is generally inferred from the facts and circumstances surrounding a knowing failure to disclose material information"); see also Praxair, 543 F.3d at 1313-14 (inference to deceive appropriate when highly material information is withheld and applicant knew of information). In other words, Defendants' factual allegations support a reasonable inference that Civix's inventors and prosecuting attorneys knew of the materiality of the NavTech litigation, yet withheld it. See Exergen, 575 F.3d at 1330. Because Defendants have sufficiently alleged this basis for their inequitable conduct counterclaims and affirmative defenses pursuant to the mandates of Exergen and Rule 9(b), the Court denies Civix's Rule 12(c) motion for judgment on the pleadings and grants Defendants' motion for leave to file amended answers and counterclaims on this basis.
Next, Yahoo and Hotels.com allege that Civix engaged in inequitable conduct by withholding materials from Civix's prior litigation with Microsoft—known as the "Microsoft litigation" or the "Colorado litigation"—from the PTO during the prosecution of the '622, '307, and '291 patents. The Microsoft litigation involved the '525 patent.
In its inequitable conduct claims and defenses, both Hotels.com and Yahoo allege that Civix failed to inform the PTO examiner about the Microsoft litigation, including the fact that the Colorado court construed terms of the '525 patent that are also present in the '622, '307, and '291 patents. See CIVIX-DDI v. Microsoft Corp., 84 F.Supp.2d 1132 (D.Colo.2000). Hotels.com further alleges that Civix's failure to disclose the Microsoft litigation to the PTO examiner violates section 2001.06(c) of the MPEP. Hotels.com specifically alleges that:
(Hotels.com Affirm. Def./Countercl. ¶¶ 21, 22, 25; see also ¶¶ 16, 17.)
In its proposed Amended Answer and Counterclaims, Yahoo similarly sets forth the following allegations concerning the Microsoft litigation:
(See Yahoo Affirm. Def. ¶¶ 50-57.)
Construing these well-pleaded allegations as true and all reasonable inferences in Defendants' favor, Yahoo and Hotels.com have sufficiently alleged that Civix withheld highly material litigation documents in which a federal judge had construed the meaning of terms that appeared in the relevant claims before the PTO examiner. See Manual of Patent Examining Procedure ("MPEP") Section 2001.06(c) ("Where 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 Patent and Trademark Office"). As the Federal Circuit explains, the existence of such litigation "is important because it signals the examiner that other material information relevant to patentability may become available through the litigation proceedings." Nilssen v. Osram Sylvania, Inc., 504 F.3d 1223, 1234 (Fed.Cir.2007). Moreover, Defendants sufficiently allege
In addition, Yahoo and Hotels.com also have sufficiently alleged the when, where, and how concerning Civix's alleged failure to disclose material information concerning the Microsoft litigation to the PTO during the prosecution of the '622, '307, and '291 patents. See Exergen, 575 F.3d at 1327. Specifically, the "when" is between 1999 and 2002, the "where" is in the District Court in Colorado and at the PTO, and the alleged "how" is that Microsoft litigation documents would have informed the PTO examiner's interpretation of prior art and enabled the PTO examiner to compare it to the alleged invention in the '622, '307, and '291 patents. See id. at 1329-30. As such, the Court denies Civix's motion for judgment on the pleadings and grants Hotels.com's and Yahoo's motions for leave to amend their counterclaims and affirmative defenses based on Civix's alleged failure to disclose the Microsoft litigation to the PTO examiner.
During the prosecution of the '291 and '307 patents, Yahoo and Hotels.com maintain that Civix submitted Information Disclosure Statements ("IDS") to the PTO containing approximately 598 prior art references, thus burying the Microsoft-cited prior art in what the Examiner described as "a mountain of material including approximately 244 U.S. patents, 64 published patent applications, and 290 non-patent references." (See Hotels.com Affirm. Def./Countercl. ¶ 26). Specifically, Hotels.com alleges that Civix intended to deceive or mislead the PTO when it either "(i) submitted a mountain of largely irrelevant material to the Examiner and then failed to inform the Examiner which material was most relevant, or (ii) submitted no IDS at all." (Id. ¶ 30.)
Furthermore, Yahoo alleges that Civix initially failed to disclose to the PTO the prior art references discussed in the invalidity summary judgment motions from the Microsoft litigation. Instead, Civix subsequently filed lengthy IDSs in the '307 and '291 prosecution that buried the relevant prior art. Civix, according to Yahoo, never filed an IDS in the '622 prosecution. In particular, Yahoo alleges:
(See Yahoo Affirm. Def. ¶¶ 58-68, see also Hotels.com Affirm. Def./Countercl. ¶¶ 25, 27-29.)
In its motion for judgment on the pleadings, Civix argues that Defendants do not identify the references which Civix buried or the who, what, where, why, and how as to the specific information in those references. Civix also argues that its prosecuting attorney had no obligation to inform the PTO examiner which material was most relevant—which is an argument concerning the underlying merits of Defendants' allegations—not whether Defendants sufficiently alleged their counterclaims and affirmative defenses under Rule 9(b). See Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir. 1993) ("appropriate standard" when attempting "to dispose of the case on the basis of the underlying substantive merits" is "that applicable to summary judgment"). Indeed, Civix attempts to make other arguments based on the merits of Defendants' allegations throughout its Rule 12(c) motion, which are best left for summary judgment or trial. See id.
In any event, despite Civix's argument to the contrary, Defendants have sufficiently alleged with particularity that Civix's prosecuting attorney, Curtis Vock, filed a February 12, 2007 IDS and a January 17, 2002 IDS in connection with the prosecution of the '307 and '291 patents that contained approximately 598 prior art references in which Civix failed to identify the relevant prior art pertaining to invalidity, namely, the Microsoft-cited prior art. In fact, Civix was on notice that the Colorado pleadings would have pinpointed the most pertinent of the prior art for the examiner to consider. See Civix-DDI, LLC, 387 F.Supp.2d at 906. Further, Yahoo and Hotels.com allege that the PTO examiner specifically requested a clarification or explanation of the prior art references, and thus sufficiently allege with particularity the materiality of submitting a "mountain" of prior art. See id. at 907-08. Last, Defendants sufficiently allege that Civix intended to deceive or mislead the PTO during the prosecution of the '622, '307, and '291 patents because it submitted a mountain of largely irrelevant material to the PTO examiner and then failed to inform the PTO examiner which material was relevant, and, in the case of the '622 patent, submitted no IDS at all. In sum, Defendants' factual allegations support a reasonable inference that prosecuting attorney Vock attempted to deceive the PTO examiner by burying the highly relevant Microsoft-cited prior art in its submissions to the PTO. See Exergen, 575 F.3d at 1330. The Court thus denies Civix's motion for judgment on the pleadings and grants Defendants' motions for leave to amend on this basis.
In its motion for judgment on the pleadings, Civix argues that the Court should dismiss Yahoo's allegations that Civix was
(Yahoo Affirm. Def. ¶ 70.)
Yahoo also alleges that following the interview the Patent Office examiner issued a Notice of Allowance for the '307 patent on December 17, 2001, stating:
Yahoo further alleges that the false information regarding the reference in the IDS was material to the question of patentability. (See Yahoo Affirm. Def. ¶¶ 69-75.)
Viewing these allegations as true and all reasonable inferences in Yahoo's favor, Yahoo sufficiently alleges that Civix's prosecuting attorney, Curtis Vock (who), made false statements (what) at an interview with the PTO examiner (where) on October 17, 2001 (when) with the intent to mislead or deceive the PTO when he indicated that none of the references in the IDS filed on February 8, 2001 teach the fetching of spatial data from a remote database as recited in the claims (what). Vock's statements to the PTO examiner were material because Yahoo alleges that the prior art
Next, Yahoo and Hotels.com base their allegations of inequitable conduct on a declaration
More specifically, in its proposed Amended Answer and Counterclaims, Yahoo alleges:
(Yahoo Affirm. Def. ¶ 81.)
Yahoo further alleges that both prosecuting attorney Druce and Semple, who co-signed the swear-behind declaration, must have known of Bouve's diminished mental capacity, yet they failed to alert the PTO of Bouve's condition during reexamination. Moreover, Yahoo maintains that Bouve's diminished mental capacity was material to the Patent Office's determination of patentability because "a reasonable examiner would have considered it important in deciding whether to rely on Mr. Bouve's declaration and because false or misleading affidavits are inherently material." (See Yahoo Affirm. Def. ¶¶ 81-85.) Hotels.com's allegations are equally detailed and mirror Yahoo's allegations. (See Hotels.com Affirm. Def./Countercl. ¶¶ 32-38.) Hotels.com further alleges that the swear-behind declaration was material to the PTO because it "effectively removes Hershey, U.S. Patent 5,482,535 as a prior art reference." (Id. ¶ 37.)
In its motion for judgment on the pleadings, Civix does not argue that Defendants have failed to sufficiently allege the who, what, when, where, and how or the requisite intent for inequitable conduct. Instead, Civix's argues that Defendants' position is based on a misrepresentation of Civix's letter to Yahoo, namely, that Bouve was not incapacitated or unfit to give a deposition. Civix's arguments, however, attack the veracity of Defendants' factual allegations, not whether Defendants sufficiently alleged this claim under the mandates of Exergen and Rule 9(b). At this juncture, the Court must view Defendants' allegations as true and construe all reasonable inferences in Defendants' favor. See Makor Issues & Rights, 513 F.3d at 705. Civix may challenge the merits of Defendants' inequitable
Finally, Yahoo and Hotels.com base their inequitable conduct defenses and counterclaims on Semple's declaration regarding the distinction between "internet" and "Internet." Defendants maintain that the Semple Internet declaration wrongfully represents to the PTO that "Internet" and "internet" have the same narrow meaning, contrary to positions Civix has advanced in the present litigation and the Expedia litigation.
Yahoo specifically alleges:
(Yahoo Affirm. Def. ¶¶ 87-88.)
Yahoo further alleges that Semple's positions in his Internet declaration directly contradicted Civix's arguments to the Court during claim construction in the Expedia litigation, in which the Court stated:
(Yahoo Affirm. Def. ¶ 89.) Yahoo also maintains that during reexamination, Semple submitted his Internet declaration to the PTO conflating the meanings of "Internet" and "internet" and that Civix's conflicting positions were highly material to patentability of the pending claims on reexamination. (See Yahoo Affirm. Def. ¶¶ 87-94.) Hotel.com's allegations concerning the Semple Internet declaration are similar and equally detailed. (See Hotels.com Affirm. Def./Countercl. ¶¶ 39-47.)
For the reasons discussed above, the Court denies Civix's motion for judgment on the pleadings (R. 531-1) and grants Yahoo's and Hotels.com's motions for leave to amend their answers and counterclaims. (R. 514-1, 529-1.)