Free Motion to Dismiss - District Court of California - California

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Paul Adams (Bar No. 42,146) THE ADAMS LAW FIRM California Address 550 West C Street, Suite 2000 San Diego, California 92101 Telephone: 619-241-4810 Facsimile: 619-955-5318 Paul Adams THE ADAMS LAW FIRM 901 Rio Grande Blvd. NW, Suite H262 Albuquerque, NM 87104 Telephone: 505-222-3145 Facsimile: 505-222-3147 [email protected] Attorneys for Plaintiff

10 11 12 13 JOON PARK, an individual, 14 Plaintiff, 15 16 17 18 19 20 21 22 23 24 25 26 27 28 v. CAS ENTERPRISES, INC., an Iowa Corporation d/b/a KREG TOOL COMPANY, Defendant. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil No.: 08-cv-0385 DMS/NLS PLAINTIFF'S MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS ONE DECLARATORY JUDGMENT COUNTERCLAIM FOR LACK OF CASE OR CONTROVERSY AND TO STRIKE CERTAIN AFFIRMATIVE DEFENSES AND DISMISS CERTAIN COUNTERCLAIMS Hearing: September 19, 2008 Time: 1:30 p.m. Place: Courtroom 10 UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF CALIFORNIA

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TABLE OF CONTENTS MEMORANDUM OF POINTS AND AUTHORITIES . . . . . . . . . . . . . . . . . . . . . . . . . . 1 I. FACTUAL BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Factual Allegations With Respect to Defendant's Claim for Declaratory Judgment With Respect to United States Patent No. 7,374,373 (the `373 patent) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 The Factual Allegations With Respect to Inequitable Conduct in the Eighth and Ninth Affirmative Defenses and the Third Counterclaim for Declaratory Judgment of Inequitable Conduct as to All Three Patents Fail to Properly Plead Materiality or an Intent to Deceive as Required By Rule 9(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Defendant Has Failed to Properly Plead Allegations Sufficient to Establish That There is a Case or Controversy Upon Which a Declaratory Judgment May Be Predicated As to the `373 Patent and, Rule 12(b)(1) Permits Plaintiff to Attack the Factual Basis of the Allegations That Purport to Underlie the Case or Controversy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Defendant's Pleading of Inequitable Conduct in the Eighth and Ninth Affirmative Defenses and the Third Counterclaim Fails to Meet the Particularity Standard of Rule 9(b) and Should Be Dismissed with Prejudice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 1. An Intent to Deceive and Materiality of the Allegedly Omitted Prior Art are Two of the Necessary Elements of Inequitable Conduct . . . . . . . . . . . . . . . . Rule 9(b) Serves as a Check on Abusive Use of Inequitable Conduct as a Defense or Counterclaim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Plaintiff's Motion to Strike the Affirmative Defenses Is Well Taken . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Allegations for an Inequitable Conduct Defense or Claim Must Include Facts From Which an Intent to Deceive May Be Inferred . . . . . . . . . . . . . . . Pleading Materiality Requires More Than Simply Stating That Prior Art is "Material" . . . . . . . . . . . . . . . .

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TABLE OF CONTENTS (Continued) Defendant Has Had Three Opportunities to Plead Inequitable Conduct -- The Inequitable Conduct Counterclaim Should be Dismissed With Prejudice and the Eighth and Ninth Affirmative Defenses Should be Stricken without Leave to Amend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

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MEMORANDUM OF POINTS AND AUTHORITIES Plaintiff moves the Court pursuant to FRCP Rule 12(b)(1) for an Order dismissing Defendant's counterclaim for declaratory judgment with respect to U.S. Patent No. 7,374,373 (the `373 patent) on the grounds of lack of a justiciable controversy that deprives this Court of subject matter jurisdiction. This motion does not challenge the declaratory judgment counterclaims asserted with respect to the `988 and `814 patents in the Complaint. Plaintiff further moves the Court pursuant to Rule 12(b)(6) and/or 12(f) to strike the allegations of inequitable conduct as failing to comply with Rule 9(b). These allegations are asserted in Defendants's Eighth and Ninth Affirmative Defenses and Defendant's Third Counterclaim for declaratory judgment of inequitable conduct. On July 17, 2008, the parties appeared telephonically before the Court setting forth their informal positions as to why a Rule 12(b) motion was warranted. The Court ruled that Defendant would have through July 18, 2008 to file an amended pleading and Plaintiff would then have, if not satisfied with the pleading, the right to bring the above two motions. Defendant timely filed the amended pleading. Plaintiff continues to maintain that the allegations are insufficient with respect to the lack of subject matter jurisdiction and the charges of inequitable conduct. I. FACTUAL BACKGROUND A. The Factual Allegations With Respect to Defendant's Claim for Declaratory Judgment With Respect to United States Patent No. 7,374,373 (the `373 patent) Subsequent to the filing of the Complaint in this action, on May 29, 2008, the parties engaged in a prearranged settlement conference. For Defendant, the participants were Frank S. Farrell ("Farrell") representing CAS Enterprises, Inc., doing business as Kreg Tool Company ("Kreg Tool") and Todd A. Sommerfeld ("Sommerfeld") the president of Kreg Tool. Plaintiff, Joon Park ("Park") was represented bu Paul Adams ("Adams").

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The Complaint filed in this action alleged infringement of United States Patent No. 6,637,988 (the `988 patent) and Patent No. 7,134,814 (the `814 patent). Both of these patents cover a portable pocket hole drilling jig that may be secured to a workbench while the hole is drilled with a power hand drill. (Exhibit 1, Park Declaration, ¶ 1) This jig is used primarily by hobbyists and small cabinet shops. The `814 patent is a continuation-inpart of the `988 patent, it also covers a portable pocket hole drilling jig. The Complaint did not allege infringement of the `373 patent which had not issued as of the date the Complaint was filed.

Kreg K-3 Accused Device

`373 Patented Device

At the meeting, Sommerfeld presented various facts relating to past and current sales history of the K3 pocket hole drilling jig that is the product accused of infringement in the Complaint. (Exhibit 2, Adams Declaration, ¶ 6) Then Farrell gave a PowerPoint presentation relating primarily to prior art that Defendant wished to call to the attention of Plaintiff relating to the validity of the `988 and `814 patents. (Id. at ¶ 7) There followed some brief discussion regarding settlement possibilities and planned subsequent communication after the prior art had been assessed by Plaintiff. (Id. at ¶ 8) As set forth in detail in the Park Declaration, prior to the conference, Park informed Adams that an

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additional patent, the `373 patent had issued on May 20, 2008, less than 10 days prior to the settlement meeting. (Park Declaration, ¶ 4) This patent relates to a pocket hole drilling machine that is used in large cabinet shops or manufacturing facilities building cabinetry or furniture in mass production. (Id.) Essentially, this machine utilizes a plurality of motors driving individual drill bits for gang-drilling of pocket holes in a wooden board or panel that is automatically clamped in place immediately prior to drilling. (Id.) The complexity of the machine can be easily grasped from a review of the drawings above and in greater detail in the seven sheets and/or the 12 columns of specification. (Exhibit 1 to Park Declaration) By email dated May 21, 2008, Park informed Adams of the granting of the `373 patent inquiring whether the patent should be brought up at the settlement meeting. (Id.) After Farrell had completed his presentation and the brief discussion of settlement, Adams withdrew two copies of the `373 patent and informed Farrell and Sommerfeld that the patent had recently issued. (Adams Declaration, ¶ 8) Adams stated that he had not read the `373 patent, had not performed any infringement analysis, but that if a global settlement was contemplated, Kreg Tool might want to consider taking a license or purchasing the `373 patent. (Id.) Park then placed on the table two pages from a Kreg Tool catalog and stated that he believed that the `373 patent was infringed by the Kreg Tool pocket drilling machine. (Park Declaration ¶ 5) Adams then reiterated that he had not read the patent nor performed any infringement analysis of any Kreg Tool product but wished to make Kreg Tool aware of the recent issuance and requested they consider it as part of a global settlement of past infringement and future rights. (Adams Declaration, ¶ 9) While Park expressed his layman's opinion with respect to infringement of the `373 patent, it was clear that the patent had not been reviewed nor had the question of infringement been evaluated by counsel. It was never the intention of Park to add the `373 patent to the existing suit by amending the Complaint nor was any lawsuit contemplated on the `373 patent at that time, and no comparable statement was made by Adams or Park.

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In its counterclaims for a declaratory judgment with respect to the `373 patent, Defendant asserts in its First Counterclaim for Declaratory Judgment of Noninfringement, Paragraphs 61-83, that no claims of the `373 patent are infringed. In Defendant's Second Counterclaim for Declaratory Judgment of Invalidity, in Paragraphs 91-93, Defendant asserts that the `373 patent is invalid. In the Third Counterclaim for Declaratory Judgment of Inequitable Conduct, Paragraphs 97-102, Defendant asserts that the `373 patent is unenforceable because of a failure to disclose material prior art during prosecution of that patent. In the Fourth Counterclaim for Declaratory Judgment of an Exceptional Case, Paragraph 110, Defendant alleges that Park "failed to perform an adequate pre-filing investigation prior to initiating this action." Ironically, the statements made by Adams at the settlement conference and in his accompanying declaration is a fait accompli of a Rule 11 violation with respect to the allegation in Paragraph 110. That is, Adams admitted, indeed asserts, that he conducted no infringement investigation with respect to the `373 patent. B. The Factual Allegations With Respect to Inequitable Conduct in the Eighth and Ninth Affirmative Defenses and the Third Counterclaim for Declaratory Judgment of Inequitable Conduct as to All Three Patents Fail to Properly Plead Materiality or an Intent to Deceive as Required By Rule 9(b) The Eighth and Ninth Affirmative Defenses (Paragraphs 8 and 9), each having four subparagraphs, recite the duty of disclosure of prior art to the USPTO under 37 C.F.R. § 1.56(a) and then identifies three specific prior art references that should have been disclosed to the PTO by Park during prosecution of the applications that matured into the patents-in-suit. The Eighth Affirmative Defense addresses the alleged inequitable conduct with respect to the `988 patent and the Ninth Affirmative Defense with respect to the `814 patent. The prior art that Plaintiff allegedly failed to disclose is the same in both defenses. In the Third Counterclaim, in Paragraphs 95 and 96, Defendant simply realleges

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the facts set forth in the Eighth and Ninth Defenses seeking a declaratory judgment that each of the `988 and `814 patents are unenforceable because of inequitable conduct. As for the `373 patent, Paragraphs 97 - 101 make parallel allegations to those in the Eighth and Ninth Affirmative Defenses, but the prior art is different. Plaintiff does not contend that the affirmative defenses and third counterclaim in the First Amended Answer fails in any respect other than to adequately plead facts from which: (a) an intent to deceive could be inferred; and (b) materiality of the prior art allegedly not disclosed by Plaintiff could be established. Intent to deceive or mislead is one element of a charge of inequitable conduct. At the informal hearing on July 17, 2008 referred to above, counsel for Defendant expressed their view that to the extent that Plaintiff asserted that an intent to deceive was not pleaded, Defendant could simply recite that the conduct of Plaintiff -- the alleged omission of calling prior art to the attention of the Examiner -- was with an intent to deceive. Plaintiff maintains that additional facts must be alleged. Defendant on July 18, 2008 filed the Second Amended Complaint reciting as to the inequitable conduct allegations with respect to each of the three prior art references that Plaintiff failed to disclose the identified prior art with the intent to deceive. That bare allegation is insufficient to provide Plaintiff with notice. Inequitable conduct includes materiality of the non-disclosed prior art as an element. In order to meet the particularity requirements of Rule 9(b), Plaintiff must allege facts to apprise Plaintiff of how and why the prior art identified in Defendant's allegations is material. Thus the question for this motion is: (1) whether reciting an "intent to deceive" is sufficient under the applicable law; and (2) whether the materiality allegation meets the particularity requirements of Rule 9(b). II. ARGUMENT A. Defendant Has Failed to Properly Plead Allegations Sufficient to Establish That There is a Case or Controversy Upon Which a Declaratory Judgment May Be Predicated As to the `373 Patent and, Rule 12(b)(1)

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Permits Plaintiff to Attack the Factual Basis of the Allegations That Purport to Underlie the Case or Controversy There is no case or controversy with respect to the `373 patent. The lack of a case or controversy denies this Court subject matter jurisdiction. Under Rule 12(b)(1), the claim must be dismissed. It is well settled that a party asserting jurisdiction has the burden of proof; in the instant case, Defendant-Counterclaim bears this burden. Fina Research, S.A. Baroid Ltd., 141 F.3d 1479, 1481 (Fed. Cir. 1998) ("The declaratory judgment plaintiff [counterclaimant] bears the burden of proving that there is an actual controversy.") A motion under Rule 12(b)(1) may take one of two forms. As stated in Gwaltney of Smithfield, Ltd. v. Chesapeake Bay Foundation, Inc., 484 U.S. 49, 68, 108 S.Ct. 376, 387 (1987): "It is well ingrained in the law that subject-matter jurisdiction can be called into question either by challenging the sufficiency of the allegation or by challenging the accuracy of the jurisdictional facts alleged." (Emphasis in original) (Citations omitted) See also, Holt v. United States, 46 F.3d 1000, 1002-03 (10th Cir. 1995); Robinson v. Government of Malaysia, 269 F.3d 133, 140-41 (2d Cir. 2001). Plaintiff assets that the counterclaim with respect to the `373 patent fails to meet either of the tests for determining subject matter jurisdiction. First, Plaintiff asserts a facial challenge to the counterclaim that is tested by the "well-pleaded complaint" rule. Fina Oil & Chemical Co. Ewen, 123 F.3d 1466, 1470 (Fed. Cir. 1997) (citing Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 672, 70 S.Ct. 876, 879 (1950)). Paragraph 7 in the allegation as to jurisdiction and venue for the counterclaims (Second Amended Answer and Counterclaims, p. 10, Docket No. 16 states that Park has charged Kreg Tool with committing acts of infringement of U.S. Patent No. 7,374,373. A judiciable [sic] controversy exists between Park and Kreg Tool concerning Kreg Tool's alleged liability for infringement of the `373 patents [sic], as well as the enforceability, validity and scope of the `373 patent." The phrase, "a resolution should 6

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include reference to the `373 patent" is not an allegation that supports the alleged charge of infringement. The established approach in patent cases for the determination of the existence of an actual controversy was well stated in BP Chemical Ltd. v. Union Carbide Corp,, 4 F.3d 975 (Fed. Cir. 1993): "Thus in patent litigation there has evolved a pragmatic twopart test for determining declaratory justiciability. There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity. Jervis B. Webb Co. v. Southern Sys., Inc., 742 F.2d 1388, 1398-99, 222 USPQ 943, 949 (Fed.Cir. 1984). The element of threat or reasonable apprehension of suit turns on the conduct of the patentee, while the infringement element depends on the conduct of the asserted infringer. Arrowhead, 846 F.2d at 736, 6 USPQ2d at 1689. The purpose of the two-part test is to determine whether the need for judicial attention is real and immediate, see Aetna Life Insurance Co., 300 U.S. at 239-41, 57 S.Ct. at 463-64, or is prospective and uncertain of occurrence." Id. at 978. To the same effect is a statement of the court in Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1058-59 (Fed. Cir. 1995) quoting from BP Chemical Ltd. v. Union Carbide Corp., 4 F.3d at 978 (Fed. Cir. 1993): "There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the

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part of the declaratory plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity." (Emphasis in original) Accord, Fina Research, supra, 141 F.3d at 1481. The bare statement that there was a "reasonable apprehension" created based solely on the statement of Park, an unsophisticated litigant (though a prolific inventor), while counsel for Plaintiff disavowed any charge of infringement, is insufficient to establish subject matter jurisdiction. As stated in Indium Corp. of America v. Semi-Alloys, Inc., 781 F.2d 879, 883 (Fed. Cir. 1985): "A purely subjective apprehension of an alleged infringement suit is insufficient to satisfy the actual controversy requirement." While notice pleadings may not require detailed factual allegations establishing a case or controversy, it requires at least the pleading of facts inferring an "objective" apprehension. Todd Sommerfeld, Defendant's CEO, to whom the `373 patent was handed in the circumstances described above, cannot in good conscience state that he had an objective apprehension that Plaintiff intended to bring an infringement suit on the `373 patent when Plaintiff's attorney was stating that he had not read the patent nor conducted an infringement investigation or even a cursory infringement analysis as required to meet Plaintiff's obligation of an adequate investigation required by Rule 11. As to the factual challenge, Plaintiff asserts that there is not merely an inadequacy in the pleadings, but that there is a fatal lack of facts to support the pleading of a charge of infringement. As stated in Holt v. United States, 46 F.3d. 1000, 1002 (10th Cir. 1995): "When reviewing a factual attack on subject matter jurisdiction, a district court may not presume the truthfulness of the complaint's factual allegations. . . . A court has wide discretion to allow affidavits, other documents, and a limited evidentiary hearing to resolve disputed jurisdictional facts

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under Rule 12(b)(1). (Citation omitted) In such instances, a court's reference to evidence outside the pleadings does not convert the motion to a Rule 56 motion." Plaintiff's factual challenge addresses the first of the two-part test for establishing subject matter jurisdiction set forth above. The critical element in the two-part test is whether there has been a threat which creates a reasonable apprehension. The declarations of Plaintiff Joon Park and Paul Adams who attended the settlement conference mentioned above contradict the allegation that a charge of infringement was made. There is simply no way that the facts set forth in the Counterclaim will support such critical allegation in establishing the existence of an actual controversy. It is simply impossible to construe the statements made by Park and Adams as set forth in their declarations as a "threat" of imminently bringing a patent infringement suit on the `373 patent. Of course Defendant will rebut that when a patentee owns three patents, sues on two of the patents, merely handing the third patent to the party already sued, is a threat. But not in the context of the meeting and the statements set forth in the declaration. Defendant may go further and argue that given the existence of the Complaint based on two of the Park patents, Sommerfeld would with objective reasonableness be apprehensive that the third patent will be asserted. While those generalities may be logical, they are simply inconsistent with the specific facts that accompany the activity in this case. In the first place, the statement was made clearly in the context of settlement discussions. While Rule 408 may not directly apply, the policy behind the rule -- to encourage open and frank discussions that may lead to settlement -- is not served by Defendant's counterclaim. The overall context of the meeting, its purpose, and its objective, was to explore the possibility of settlement. It had no other purpose. It was certainly not a meeting called for the purpose of notifying Kreg Tool of the grant of the `373 patent. Second, as stated in the Indium case: "Declaratory judgment jurisdiction under 28 U.S.C. § 2201 exists where an examination of the `totality of the circumstances' indicates that an `actual controversy' exists between the parties involved." 781 F.2d at 882. (Citing

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Maryland Casualty Co. v. Pacific Co. & Oil Co., 312 U.S. 270, 272, 61 S.Ct. 510, 511-12 (1941).) The totality of circumstances test requires that the statement and activity of the parties be placed in context. What could be less threatening than a statement that the patentee's attorney had not read the patent and had conducted no investigation when even the dullest plaintiff's patent attorney well understands the necessity of an adequate investigation of infringement prior to charging a party with infringement. Defendant's counsel is not naive, a factor that should be taken into account in assessing whether a statement by an individual inventor who has never been involved in the enforcement of a patent should be taken literally. At least not where that inventor's counsel is stating that he had not read the patent or performed an infringement analysis. Third, if it can be said that bringing up the patent was a sufficient threat to cause objective reasonable apprehension, was the threat "imminent?" While it certainly could not be imminent so long as Plaintiff's counsel had not read the `373 patent which remains true today. Even if there is a clear case of infringement of a valid `373 patent, there may be good reason for refraining from an infringement suit against Kreg Tool at this time. Certainly adding the `373 patent to the present Complaint would result in a quantum leap in complexity of the case to be tried. At least compared to the portable pocket hole drilling jig, the machine is certainly much more complex as indicated above. It will require more discovery, more expert testimony, more prior art, a more complex accused product, and a more complicated trial. Furthermore, there is no indication that at the present time, assuming that Kreg Tool is manufacturing an infringing product, that the sales have been sufficient to even justify a charge of infringement. In short, there is not evidence that bringing a suit based on the `373 patent would be worthwhile, but from a point of view of settlement, it certainly constituted a "sweetener" even if Kreg Tool is not manufacturing an infringing product. It could provide Kreg Tool with exclusivity in a product that it may wish to manufacture in the future under license. It is said that the Supreme Court has lowered the bar for what constitutes a case or controversy in a patent context in its decision in Medimmune, Inc. v. Genentech, Inc., 127

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S.Ct. 764, 549 U.S. 118 (2007). That case involved a patent licensor-licensee dispute in which the licensee contended that the patent was invalid and not infringed but continued to pay royalties under "protest." The licensee contended that there was a justiciable controversy because it was facing the risk of treble damages or an injunction on a product that constituted 80% of its sales if it discontinued paying royalties whereupon the licensor could sue for patent infringement. The court found that its earlier decision in Altvater v. Freeman, 319 U.S. 359, 63 S.Ct. 1115 (1943) where an injunction had been granted in earlier litigation against the licensee and except for the existence of that license, the injunction terms would be applied, therefore the licensee was under coercion even though it continued to pay royalties. The court stated that the Federal Circuit had distinguished Altvater in its decision in Gen-Probe, Inc. v. Vysis, Inc., 359 F.3d 1376 (Fed. Cir. 2004) incorrectly. The Federal Circuit relied on the fact that the preexisting injunction constituted governmental coercion. In Medimmune the court found that a private party can cause as much coercion as the government by imperiling "a man's livelihood, its business enterprises, or his solvency." 127 S.Ct. at 774. The court stated that the Altvater case contradicted the Federal Court's "reasonable apprehension of suit" or its "reasonable apprehension of imminent suit" standard. However, the Medimmune case can only be read as modifying the Federal Circuit rule in cases between a licensee and licensor. In the absence of a license, the only rule by which to the measure "coerciveness" which the court stated was the "principle upon which we rely today" is to use some form of apprehension. There must be some measure of "coercion" such as that a patentee can obtain treble damages. But treble damages are awarded only in the case of willful infringement. Willfulness requires that the accused infringer had received notice that its conduct was an infringement. Such speculative basis for coercion is much more tenuous than the coercion in the Medimmune case where if royalties are not paid and infringement was found, there would clearly be willfulness. And with respect to the potential of an injunction, the Supreme Court has essentially reduced the possibility of an injunction to cases involving direct competitors and meeting the four

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factor test. eBay, Inc. v. MercExchange, LLC, 547 U.S. 388, 126 S.Ct. (2006). It is generally accepted that if the Plaintiff is not an entity manufacturing and selling the product covered by the patent and infringed by the defendant, no injunction will issue. Thus, the Medimmune case has not altered the standard of what constitutes a justiciable controversy in the context of patent infringement where no license is involved. Based on the totality of circumstances test, and the clear and unequivocal statements with respect to the activities that took place at the settlement meeting on May 29, there has been no "charge" of infringement of the `373 patent. Therefore, there is no actual controversy and no subject matter jurisdiction in this Court, and the Counterclaims relating to the `373 patent identified above should be dismissed with prejudice. B. Defendant's Pleading of Inequitable Conduct in the Eighth and Ninth Affirmative Defenses and the Third Counterclaim Fails to Meet the Particularity Standard of Rule 9(b) and Should Be Dismissed with Prejudice 1. An Intent to Deceive and Materiality of the Allegedly Omitted Prior Art are Two of the Necessary Elements of Inequitable Conduct Whether an affirmative defense or counterclaim alleging inequitable conduct is adequately pled is a procedural matter. However, because it bears on an issue that "pertains to or is unique to patent law," the Federal Circuit in Central Admixture Pharmacy Services, Inc. v. Advanced Cardiac Solutions, P.C.. 482 F.3d 1347, 1356 (Fed. Cir. 2007) held that Federal Circuit law applies. In that same case, the court held that inequitable conduct, while a "broader concept than fraud, must be pled with particularity." Id. Inequitable conduct may comprise a failure to disclose material information, or submission of false material information, with an intent to deceive; the elements including materiality and intent, must be proven by clear and convincing evidence. Kingsdown Medical Consultants v. Holister, Inc., 863 F.2d 867, 872 (Fed.Cir. 1988), cert. denied, 490 U.S. 1067 (1989). Both "[m]ateriality and intent to deceive are distinct factual inquiries,

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and each must be shown by clear and convincing evidence." Syntex (U.S.A.) LLC v. Apotex, Inc., 407 F.3d 1371, 1384 (Fed. Cir. 2005). See also, Life Techs., Inc. v. Clontech Labs, 224 F.3d 1320, 1324 (Fed. Cir. 2000). The party urging unenforceability must show by clear and convincing evidence that the applicant met "thresholds" of both materiality and intent. Molin PLC v. Textron, 48 F.3d 1172, 1178 (Fed. Cir. 1995). Thus, there are two distinct bases for asserting inequitable conduct: (1) failure to disclose material information; or (2) submission of false material information. It is unclear in Defendant's pleading whether it asserts that both types of inequitable conduct have been committed. Specifically, Defendant pleads that Plaintiff "failed to comply with their duty of candor and good faith in their dealings with the Unites States Patent and Trademark Office and failed to and did not disclose to the United States Patent and Trademark Office prior art known to that individual. . . ." (Eighth Affirmative Defense, ¶ 8, ll. 21-23) The defense goes on to detail various prior art references that allegedly should have been disclosed to the PTO but there is no further pleading as to any failure to comply with a duty of candor and good faith. Plaintiff must assume that Defendant is alleging a single form of inequitable conduct -- failure to disclose -- rather than the submission of false material information for which no facts are alleged. 2. Rule 9(b) Serves as a Check on Abusive Use of Inequitable Conduct as a Defense or Counterclaim "[M]any courts have cited the Federal Circuit's concern over the potential abuse of the inequitable conduct claim, and have concluded that stricter pleading requirements might act as a check on such abuses." Systemation, Inc. v. Engel Industries, Inc., 183 F.R.D. 49, 51 (D. Mass 1998). There has long been a hostility to inequitable conduct charges in patent cases. In Burlington Industries, Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988) the court stated: We add one final word: the habit of charging inequitable
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conduct in almost every major patent case has become an absolute plague. Reputable lawyers seem to feel compelled to make the charge against other reputable lawyers on the slenderest grounds, to represent their client's interests adequately, perhaps. They get anywhere with the accusation in but a small percentage of the cases, but such charges are not inconsequential on that account. They destroy the respect for one another's integrity, for being fellow members of an honorable profession, that used to make the bar a valuable help to the courts in making a sound disposition of their cases, and to sustain the good name of the bar itself. A patent litigant should be made to feel, therefore, that an unsupported charge of "inequitable conduct in the Patent Office" is a negative contribution to the rightful administration of justice. (Emphasis added) Although the court has been less critical of inequitable conduct cases recently, it is likely because they are less often alleged in light of the stern comments in the Burlington case. In Eisai Co., Ltd. v. Teva Phamaceuticals USA, Inc., 247 F.R.D. 445, n. 3 (D. N.J. 2007) the court coupled the displeasure of the Federal Circuit expressed in Burlington with Rule 9(b) as follows: "The application of Rule 9(b)'s strict pleading requirement, however, guards against the potential fishing expedition brought on by vague allegations of inequitable conduct." Or as stated in the Chiron case cited above, "Rule 9(b)'s requirement that averments of fraud be plead with particularity is a simple, logical and fair way to protect patent litigants." 3. Plaintiff's Motion to Strike the Affirmative Defenses Is Well Taken In addressing a motion to strike, like a motion to dismiss, the pleadings are construed most favorably to the non-moving party. Indeed some courts have stated that
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motions to strike are generally disfavored. State of California v. United States, 512 F.Supp. 36, 39 (N.D. Cal. 1981). "However, where the motion may have the effect of making the trial of the action less complicated, or have the effect of otherwise streamlining the ultimate resolution of the action, the motion to strike will be well taken." Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1528 (9th Cir. 1993). 4. The Allegations for an Inequitable Conduct Defense or Claim Must Include Facts From Which an Intent to Deceive May Be Inferred "In treating inequitable conduct, a party cannot merely rely on vague allegations of fraud and deception, but instead must specify the time, place and content of any alleged misrepresentations to the [PTO]." Sun Microsystems, Inc. v. Dataram Corp., 1997 WL 50217, *4 (N.D. Cal. 1997). In Ferguson Beauregard/Logic Control, Div. of Dover Resources, Inc. v. Megasystems, LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003) the Federal Circuit has stated that courts should "decline to infer facts to support a claim that must be pled with particularity." In Chiron Corp. v. Abbot Labs, 156 F.R.D. 219, 222-23 (N.D. Cal. 1994) the court found that both intent to deceive and materiality must be specifically pled. If intent is properly pled, then Defendant will have established at trial that the patents in suit are unenforceable for inequitable conduct if the proof meets the allegations. Addressing that question in Xilinx, Inc. v. Altera Corp., 1994 WL 782236 (N.D. Cal. Feb. 8, 1994) the court noted that even if a defendant proved every allegation in the applicable paragraphs, "it would not have proven that Xilinx [Plaintiff] intended to deceive the PTO, and, as noted, an intent to deceive the PTO is a necessary element of this defense." Id. at *3. "Materiality does not presume intent, which is a separate and essential component of inequitable conduct." Allen Organ Co. v. Kimball Int'l., Inc., 839 F.2d 1556, 1567 (Fed. Cir.), cert. denied, 488 U.S. 850, 109 S.Ct. 132 (1988). "Intent to deceive cannot be inferred solely from the fact that information was not disclosed; there must be a factual

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basis for a finding of deceptive intent." Hebert v. Lisle Corp., 99 F.3d 1109, 1116 (Fed. Cir. 1996). The Hebert court went on to state that, "a finding of deceptive intent cannot be based on mere inference or even on gross negligence; there must be `conduct, viewed in light of all the evidence, including evidence indicative of good faith, [that] must indicate sufficient culpability to require a finding of intent to deceive'." Id. "We agree with Astro and conclude that a failure to disclose a prior art device to the PTO, where the only evidence of intent is the lack of a good faith explanation for the nondisclosure, cannot constitute clear and convincing evidence sufficient to support a determination of culpable intent." N. Eagles Tool Warehouse, Inc. v. Fisher Tooling Co., Inc., 439 F.3d 1335, 1341 (Fed. Cir. 2006). The court went on to state: "Intent is generally inferred from the facts and circumstances surrounding the applicant's overall conduct, especially where there is no good faith explanation for a nondisclosure. (Citation omitted) There still must be a factual basis, however, for a finding of intent." Id. In Paragon Podiatry Laboratory, Inc. v. KLM Laboratory, Inc., 984 F.2d 1182, 1190 (Fed. Cir. 1993) the court commented that it is the rare circumstance in which an inequitable conduct claim can be defeated by summary judgment. As the court stated, "if the facts of materiality or intent are reasonably disputed, the issue is not amenable to summary judgment." (Citing Baker Oil Tools, Inc. v. Geo Vann, Inc., 828 F.2d 1558, 1566 (Fed. Cir. 1987)) It is for this reason that a party relying upon an inequitable conduct defense or counterclaim must plead facts that will support the inference of an intent to deceive otherwise summary judgment is placed outside the reach of the plaintiff who is put at a severe disadvantage at trial. In Minegar Environmental Systems, Inc. v. Concrete Washout Systems, Inc., 2007 WL 5246862 (C.D. Cal. Aug. 1, 2007) the court held that an inequitable conduct defense including one allegation that the patentee intended to deceive the PTO "by failing to disclose [patentee's] `invention' is inadequate. This contention is irrelevant to [patentee's] alleged intent to deceive the PTO, and therefore, [the accused's] allegation of [patentee's] intent to deceive the PTO is unsupported by any particular factual allegation." Id. at *3. The court then dismissed the inequitable conduct claim.
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While it is true that, with respect to inequitable conduct, "intent may be inferred from the surrounding circumstances," (citation omitted) there is a difference between what Tandberg must show to prove inequitable conduct and what Tandberg must allege to plead inequitable conduct. This distinction between evidence and pleading was recognized in Xilinx. There, the court held that the party's "eventual ability to prove [the applicant's] intent to deceive and [the party's] need to plead that intent in its answer, are two entirely different matters." Xilinx, 1994 WL 782236 at *3. The court went on to hold that, if the party "believes it can later prove that [the applicant] intended to deceive the PTO-whether through direct or circumstantial evidence-[the] pleading should, at the very least, reflect that belief."

While Rule 9(b) may not require evidentiary level allegations of an intent to deceive, it certainly requires that circumstantial facts should be stated with particularity to give notice as to the source of the inference of the intent to deceive. Some basis is required in order to properly notify plaintiff as to how defendant arrived at the speculative conclusion that Mr. Park harbored an intent to deceive in failing to disclose the identity of prior art about which he has not been informed. 5. Pleading Materiality Requires More Than Simply Stating That Prior Art is "Material" 37 C.F.R. § 1.56(b) sets forth an applicant's duty of disclosure with respect to materiality. A copy of that section appearing in the Manual of Patent Examination Procedure (Chapter 2000) is attached as Exhibit 1 to the Declaration of Paul Adams. It clearly provides the parameters for alleging materiality of alleged omitted prior art. This

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standard for materiality has been construed to mean a matter that "a reasonable examiner would have considered . . . important in deciding whether to allow the . . . application." Dayco Prods., Inc. v. Total Containment, Inc., 329 F.3d 1358, 1363 (Fed. Cir. 2003). See also, Dippin'Dots, Inc. v. Mosey, 476 F.3d 1337, 1345 (Fed. Cir. 2007). But even assuming that the prior art is properly pled with respect to materiality, it has been held that a pleading "is defective insofar as it references the entire patent as being affected by the material omissions. Rather, [defendant] must state with specificity what aspects of the patent were implicated by the complained of material omission." Applied Interact, LLC v. Continental Airlines, Inc., 2008 WL 177740 (E.D. Va. Jan. 17, 2008). In Reid Ashman Mfg., Inc. v. Swanson Semiconductor Service, 2007 WL 1394427 (N.D. Cal. Mar. 10, 2007) the court considered that even where the prior art references are specifically identified, it may be "insufficient because [defendant] has failed to identify with particularity facts showing that the alleged omissions were material or that [plaintiff's] omission was done with an intent to deceive." The court was relying upon Energy Absorption Sys. Inc. v. Roadway Safety Servs., Inc., 1993 WL 389014 (N.D. Ill. Sep. 16, 1003) holding that inequitable conduct was not adequately pled under Rule 9(b) because the defendant failed to explain how the omission was material. C. Defendant Has Had Three Opportunities to Plead Inequitable Conduct -- The Inequitable Conduct Counterclaim Should be Dismissed With Prejudice and the Eighth and Ninth Affirmative Defenses Should be Stricken without Leave to Amend Dismissing a claim with leave to amend is only appropriate "when justice so requires." Fed.R.Civ.P. 15(a). Also, the Federal Circuit has noted that "an unsupported charge of inequitable conduct in the Patent Office is a negative contribution to the rightful administration of justice." (Citation omitted) After three unsuccessful attempts to

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adequately plead a claim of inequitable conduct, Plaintiff has shown that it cannot. Justice requires the Court to dismiss Plaintiff's inequitable conduct claim with prejudice. Although Federal Rule of Civil Procedure 15(a) reflects a liberal attitude toward the amendment of pleadings, courts in their sound discretion may deny a proposed amendment that the moving party has unduly delayed in filing the motion if the pleading is futile. Compania Mgmt. Co., Inc. v. Rooks, Pitts & Poust, 290 F.3d 843, 848-49 (7th cir. 2002). "Despite the fact that the deficiencies could be cured through an appropriate pleading, a district court properly exercises its discretion in dismissing the case when the plaintiff continually fails to provide a valid pleading in compliance with the federal rules." US ex rel Fowler v. Caremark Rx, LLC, 496 F.3d 730 (7th Cir. 2007). III. SUMMARY In summary, it is respectfully submitted that the inequitable conduct defense (Eighth and Ninth Affirmative Defenses) should be stricken with no leave to amend and the corresponding counterclaim (Third Counterclaim) as to each of the three patents that are the subject of Defendants' declaratory judgment counterclaim should be dismissed with prejudice. Moreover, as to the `373 patent, the declaratory judgment counterclaims as to that patent should be dismissed for lack of subject matter jurisdiction. Dated this 25th day of July, 2008. Respectfully submitted, THE ADAMS LAW FIRM

By

s: Paul Adams Paul Adams, (Bar No. 42,146) 550 West C Street, Suite 2000 San Diego, California 92101 Telephone: 619-241-4810 Attorney for Plaintiff

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CERTIFICATE OF SERVICE The undersigned hereby certifies that on July 25, 2008, I electronically filed the foregoing with the Clerk of the Court using the CM/ECF system, which will send notification of such filing to: John L. Haller Susan Meyer Gordon & Rees LLP 101 West Broadway, Suite 1600 San Diego, CA 92101 [email protected] [email protected]

s: Paul Adams Paul Adams

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