Free Reply - District Court of Arizona - Arizona

1 Terry E. Fenzl (#002485) C. Mark Kittredge (#013907) 2 PERKINS COIE BROWN & BAIN P.A. 3 2901 North Central Avenue Post Office Box 400 4 Phoenix, Arizona 85001-0400 (602) 351-8000 5 [email protected] 6 [email protected] 7 Attorneys for Defendants 8 9 10 11 12 Richard G. Krauth, an individual, and R.M. Wade & Co., an Oregon corporation, 13 Plaintiffs, 14 15 vs. No. CV 04-0544 PHX PGR UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA

16 Phelps Dodge Corporation, a New York 17 corporation, et al., 18 Defendants.

REPLY IN SUPPORT OF DEFENDANTS' MOTION FOR SANCTIONS AND FOR LEAVE TO AMEND THEIR ANSWER

19 Phelps Dodge Corporation, a New York 20 corporation, et al., 21 22 23 Counterclaim Plaintiffs, vs.

Richard G. Krauth, an individual, and R.M. 24 Wade & Co., an Oregon corporation, 25 26 27 28
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Counterclaim Defendants.

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Introduction The Court's August 16, 2004 written Order required "Plaintiff to provide defendant copy of reexamination petition within 1 week. Defendant argument for inclusion due 9/6/04." It is difficult to imagine a clearer statement of what was expected of Plaintiffs. Plaintiffs have now admitted that, rather than complying with that simple, unambiguous Order, "[Plaintiffs' counsel] deleted [fourteen pages of] plaintiffs' arguments in favor of patentability" just before sending the petitions to Defendants. [Response at 1 ("Resp.")] When the desired effect was obtained--Defendants decided not to submit additional argument--the fourteen pages of argument were "reinserted." [Id.] There is no legitimate explanation of why Plaintiffs would remove their argument prior to forwarding the petition for Defendants' review, and Plaintiffs have not offered one. Obviously, Plaintiffs removed the argument so that Defendants would not have a fair opportunity to respond, which violates the spirit and the letter of the Court's Order. Plaintiffs' sole argument seems to be that they were permitted to ignore the plain,

literal language of the written Order because of discussion that occurred at the hearing preceding issuance of that Order. The discussion at that hearing, however, does not support Plaintiffs' contention and, in any event, cannot be used to contradict the Court's later issued, unambiguous, written Order. Absent a legitimate purpose for Plaintiffs' conduct, the Court must conclude that Plaintiffs did so in order to prevent Defendants from responding to those arguments. Indeed, that is the only reason that possibly explains Plaintiffs' conduct. Of course, the fact that Plaintiffs did so with a deliberate plan was only and filed with documents Confidential information has been deleted revealed separately under seal produced on March 13, 2006. Accordingly, the court should grant Defendants' Motion and issue an Order As discussed more fully below, Plaintiffs' other arguments are equally unavailing.

(a) precluding Plaintiffs from relying on the United States Patent and Trademark Office's reexamination and expected re-allowance of the patent claims at issue as a sanction for
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their violation of this Court's written Order of August 16, 2004; and (b) permitting Defendants to file a proposed amended Answer adding additional affirmative defenses of unclean hands and inequitable conduct. For the Court's convenience, a [proposed] Order is attached as Exhibit A. Argument A. Plaintiffs' Attempt to Contravene the Court's Order Based on Discussion at the Preceding Hearing Cannot Succeed.

somehow justified because they complied with their version of the "letter and the spirit"

Plaintiffs apparently argue that their failure to follow the Court's written Order is

of discussions during the August 16, 2004 Scheduling Conference that preceded issuance of the Order. [Resp. at 1, 6-7] Plaintiffs' assertions are nonsensical, and, in any event, cannot relieve them from the plain language of the Court's Order. First, Plaintiffs' contentions about the Scheduling Conference are wrong because

the Court's Order expressly required them to provide the "reexamination petition" to Defendants, so that Defendants could meaningfully respond. Plaintiffs do not claim that anything in the Order itself permitted them to do otherwise. Plaintiffs certainly do not claim that anything in the plain language of the Order allowed them to furtively "delete" fourteen pages of argument from the petition they had written and were planning to file, provide that scaled-down version to Defendants, and then "reinsert" all arguments into the real "reexamination petition" to submit to the PTO. Second, despite Plaintiffs' assertions to the contrary, the hearing transcript makes

clear what Plaintiffs were required to provide to Defendants: the full reexamination petition. Plaintiffs cite nothing in the transcript that allowed them to intentionally

withhold fourteen pages from Defendants and then submit the real petition to the PTO. Indeed, Plaintiffs' quotations from the transcript belie their own arguments: they quote their counsel informing the Court that he had "drafted the reexamination request" by the time of the hearing, and that this was the version Plaintiffs "was prepared to file" that week with the PTO. [Resp. at 3 (quoting Hearing Tr. at 14:10, 18:10)] Plaintiffs further
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quote Defendants' counsel requesting "a copy of that" petition, the Court requiring Plaintiffs' counsel to "get him a copy," and Plaintiffs' counsel responding said he would provide "a copy." [Resp. at 3 (quoting Hearing Tr. at 18:18, 18:24-25, 19:1)]

To argue that discussion allowed Plaintiffs to delete fourteen pages of the petition that already had been written and was going to be provided to the Patent Office is "aggressive lawyering" gone amok [Resp. at 2]. Plaintiffs expressly admit that the 23page original was the real reexamination petition, and that the later prepared nine-page version provided to Defendants was not. [Id. at 1, 4, 7, 9] Plaintiffs admit that they intentionally withheld the real reexamination request, and instead purposely "delet[ed]" fourteen pages of arguments from the version they gave to Defendants. [Id. at 1, 7, 9 (emphasis added)] They also admit that they then "reinserted" those arguments and submitted the full request to the PTO. [Id. at 1 (emphasis added), at 4 ("it did not include the arguments Mr. Heuser planned to make"), at 9 ("reincorporate arguments he deleted")] "a copy," as Plaintiffs have represented--it was a deception.1 Plaintiffs admit that they intentionally prevented Defendants from seeing--and therefore addressing--all of Plaintiffs' "arguments in favor of patentability," and "arguments [Plaintiffs' counsel] planned to make . . . ." [Id. at 1, 4] Certainly, such actions cannot be condoned. B. Obviously, the nine page version was not a complete "draft" at all, and it was not

Plaintiffs' Assertion That There Was no Harm Because Defendants Could Have Presented Their Arguments After the Petitions Were Filed is Belied by the Facts and the Law.

Plaintiffs argue (Id. at 7-9) that their conduct here caused no harm because Defendants could have participated in the ex parte reexamination after they filed the petitions by either: (i) filing their arguments directly with the Patent Office, or Plaintiffs' own Exhibit B demonstrates their misrepresentation. In this letter forwarding the nine-page stripped-down versions of the real reexamination requests, Plaintiffs' counsel claims he is "appending a copy of the two reexamination requests." (Heuser Decl. Ex. B (emphasis added))
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(ii) submitting the arguments to Plaintiffs who would have included the same in later filings. Both of these assertions are demonstrably false. The rule cited by Plaintiffs (Id. at 7-8) does allow third parties to cite additional patents and printed publications to the Patent Office. for inclusion in Plaintiffs' petitions for reexamination. But that is not the issue. The Patent Office's rules Plaintiffs' tactics here prevented Defendants from presenting their counter-arguments

expressly limit subsequent filings (i.e., after the petition has been filed) to the citation of patents or printed publications and prohibit the filing of additional argument: "After filing of a request for ex parte reexamination, no papers directed to the merits of the reexamination other than citations of patents or printed publications . . . another complete request . . . or notifications [of court decisions] . . . should be filed with the Office prior to the date of the decision on the request for reexamination. Any papers directed to the merits of the reexamination other than those under 37 CFR 1.501, 1.555 or 1.915, or MPEP §2282, filed prior to the decision on the request will be returned to the sender . . . without consideration." Manual of Patent Examining Procedure ("MPEP") §2225.2 Plaintiffs' assertion (Resp. at 8) that they could have and would have included

Defendants' counter-arguments in the Patent Owner's Statement, to be filed after the Patent Office granted the reexamination, is highly suspect given their actual conduct. If

Plaintiffs were so ready and willing to submit Defendants' counter-arguments, why did they set out to deceive Defendants in the first place? The only possible motive for removing those arguments in the first place was to prevent Defendants from having a fair opportunity to respond. Indeed, why else would they revel in the "great" news that their plan had succeeded? [Motion Ex. 5] Based on this record, Plaintiffs' argument must be viewed with great suspicion.

Excerpted copies of cited portions of the MPEP are attached as Ex. B. The Court can also access and download the entire MPEP at the Patent Office's website: http://www.uspto.gov/web/offices/pac/mpep/index.html.
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C.

Plaintiffs' Conduct Here Demonstrates an Intent to Deceive Which Was Not Revealed Until the Recent Document Production.

Plaintiffs made the following representations and omissions to the Patent Office during the reexam: To support their arguments of patentability, Plaintiffs made numerous arguments and representations regarding the cited prior art (specifically, the Rudy Report) that were false and misleading. [Motion Ex. 1, ¶69] Plaintiffs did not disclose that on September 30, 2003, George T. Potter testified in a deposition regarding the exact same system described in the Rudy Report and that Mr. Potter's testimony directly contradicted the representations and arguments they were making to the Patent Office. [Id., ¶70-75] Mr. Potter testified, for example, that the system described in the Rudy Report included an emitter. By contrast, Plaintiffs argued and represented in their petitions that the system in the Rudy Report did not have an emitter. [Id., ¶72] Mr. Potter testified that the emitter of the Rudy Report had a precalibrated flow rate and he testified as to how that flow rate was set. Plaintiffs argued and represented in their petitions that the Rudy Report did not disclose pre-calibrated emitters. [Id., ¶73] Mr. Potter testified how the emitters described in the Rudy Report differed from prior art devices known as "wigglers." Plaintiffs argued and represented in their petitions that the Rudy Report discloses a wiggler or devices with similar behavior. [Id., ¶74] Mr. Potter testified how the drip irrigation system of the Rudy Report resulted in overlapping patterns of leaching solution. Plaintiffs argued and represented in their petitions that the system described in the Rudy Report would not result in overlapping patterns. [Id., ¶75]











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Plaintiffs' duty of candor to the Patent Office is express and unambiguous: "Each individual associated with the patent owner in a reexamination proceeding has a duty of candor and good faith in dealing with the Office, which includes a duty to disclose to the Office all information known to that individual to be material to the patentability in a reexamination proceeding. . . . [I]nformation is material to the patentability in a reexamination proceeding when it . . . refutes, or is inconsistent with, a position the patent owner takes in . . . [a]sserting an argument of patentability." 37 CFR §1.555(a) and (b). Plaintiffs have not even attempted to deny that the above information withheld from the Patent Office was "material" to patentability. Their only real argument is that Defendants should have known about these omissions and could have asserted the inequitable conduct defense in January. Once again, Plaintiffs either miss or purposely avoid the issue. Inequitable conduct requires more than a material omission or misrepresentation; the applicant must do so with an intent to deceive the Patent Office, which cannot be inferred based on a material omission alone. See e.g., Purdue Pharm. v. Endo Pharm. Inc., 438 F.3d 1123, 1134 (Fed. Cir. 2006) ("Intent to deceive, however, cannot be `inferred solely from the fact that information was not disclosed; there must be a factual basis for a finding of deceptive intent.'") quoting Hebert v. Lisle Corp, 99 F.3d 1109, 1116 (Fed. Cir. 1996). Because of the very high level of "intent to deceive" required to plead and prove inequitable conduct, Defendants did not include an inequitable conduct defense with their January pleading.3 While Defendants knew about the above described material omissions in January, they were not willing to make allegations of professional

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deceived

At that time Defendants were not aware that Plaintiffs had intentionally Defendants by removing the

su bject arguments from the petitions prior to the Defendants' review. Defendants assumed Plaintiffs had proceeded in good faith and had only developed and drafted the subject arguments after Defendants' review and just prior to filing.
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misconduct by opposing counsel without strong evidence of intentional misbehavior.4 Such evidence only came to light with Plaintiffs' document production on March 13, 2006. The attorney-client email letter produced by Plaintiffs on March 13, 2006 revealed for the first time that they purposely removed fourteen pages of misleading argument from their petitions prior to forwarding them for Defendants' review. [Motion Ex. 5] There can be no innocent purpose for this action and Plaintiffs have not suggested one. Plaintiffs' obvious purpose was to prevent Defendants from presenting contradictory Confidential information has been deleted and filed evidence and argument, thereby separately under seal preventing that evidence and argument from reaching the Patent Office. Why else would Plaintiffs have deleted their arguments from their petitions prior to forwarding them for review by Defendants? Plaintiffs' plan succeeded, at least for the time being, and they celebrated as they reinserted the same arguments after they received the "great" news that Defendants were not going to submit arguments for inclusion in the petitions. [Id.] D. Plaintiffs Have Failed to Demonstrate Bad Faith, Undue Delay or Prejudice That Would Justify Denial of the Motion to Amend.

As discussed in the immediately preceding section, Plaintiffs' conduct demonstrates an active, conscious intent to deceive Defendants, and thereby deceive the Moreover, Plaintiffs' deceptionhas been deleted and filed was not Confidential information was not discovered, and separately under seal discoverable, until they produced the attorney-client communication on March 13, 2006. Patent Office.5 [Id.] Hence, Plaintiffs' claims regarding purported prejudice, bad faith, and undue delay are unavailing.

Indeed, the Federal Circuit discourage the casual filing of inequitable conduct allegations. Burlington Indus., Inc. v. Dayco Corp, , 849 F.2d 1418, 1422 (Fed. Cir. 1988) ("A patent litigant should be" discouraged from filing "unsupported charge[s] of `inequitable conduct in the Patent Office.'"). That Plaintiffs violated their duty cannot reasonably be disputed and, hence, Plaintiffs' half-baked attempt to assert that the proposed amendment would be "futile" (Resp. at 9) cannot be taken seriously.
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Indeed, Plaintiffs concede that "there is ample time remaining" to prepare the case for trial, even with the proposed amendment. [Resp. at 10] Under the case law relied on by Plaintiffs, this alone justifies the amendment. See Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708, 712-13 (9th Cir. 2001) (allowing amendment where it "caused no delay in proceedings"). Thus, Plaintiffs' generalized contentions of "undue delay" are

meritless and, in any event, insufficient to justify denial of the motion. Id. (holding plaintiffs "may not demonstrate prejudice based solely on the untimely assertion" of a defense), Id. at 713; United States v. Pend Oreille Pub. Util. Co., 926 F.2d 1502, 1511 (9th Cir. 1991) (holding `"delay alone does not provide sufficient grounds for denying leave to amend'"). Plaintiffs make vague allegations of "substantial prejudice" [Resp. at 10-11] but they do not contend that adding the defenses now, instead of on January 17, will cause any of the types of prejudice recognized by the courts as justifying denial of motions to amend. See generally, WRIGHT, MILLER & KANE, Federal Practice and Procedure: Civil 2d §§ 1487 and 1488. For example, Plaintiffs do not allege, nor could they, that: They will be forced to take additional discovery to defend against the new affirmative defense. Id. at p. 674. All of the facts and evidence that they will use for such a defense are in their possession and, hence, there is no added cost in preparing their defense. They will not have an adequate opportunity to prepare their case on the new defense. Id. at p. 671. They admit that there is "ample time remaining." [Resp. at 10] That there has been a loss of evidence due to the delay from January to March. Id. at p. 673.





Plaintiffs' only allegation of prejudice seems to be that additional discovery will be sought from them. [Resp. at 10] But of course, any such discovery would have been sought from them if the new defenses were asserted in January 2006 (when plaintiffs allege such defenses should have been asserted) rather than a mere two months later in March 2006. In any event, Plaintiffs make no attempt to demonstrate that such discovery will be extensive or burdensome. Defendants believe that any additional discovery will
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be minimal, such as: (i) a handful of questions of witnesses who are going to be deposed in any event; (ii) perhaps a document request; and (iii) perhaps a single deposition pursuant to Fed. R. Civ. P. 30(b)(6). This is a patent infringement case in which

Plaintiffs have sued seven different entities on two patents. Such additional discovery is miniscule in the grand scheme of this case. Regardless, Defendants cannot be blamed if Plaintiffs' own conduct leads to additional discovery. Conclusion For the foregoing reasons, Defendants respectfully request that their motion be granted and that an Order be entered in the form of Exhibit A. Dated: April 24, 2006 PERKINS COIE BROWN & BAIN P.A.

By s/ C. Mark Kittredge Terry E. Fenzl C. Mark Kittredge 2901 North Central Avenue Post Office Box 400 Phoenix, Arizona 85001-0400 Attorneys for Defendants and Counterclaim Plaintiffs

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CERTIFICATE OF SERVICE I hereby certify that on April 24, 2006, I electronically transmitted the attached documents to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Daniel R. Malinski [email protected] BURCH & CRACCHIOLO, P.A. 702 East Osborn, Suite 200 Phoenix, Arizona 85014 Attorneys for Plaintiffs and Counterclaim Defendants Peter E. Heuser [email protected] Kolisch Hartwell, P.C. 200 Pacific Building 520 S.W. Yamhill Street Portland, Oregon 97204 Attorneys for Plaintiffs and Counterclaim Defendants I hereby certify that on April 24, 2006, I served the attached document by hand delivery to: The Honorable Paul G. Rosenblatt United States District Court Sandra Day O'Connor U.S. Courthouse, Suite 621 401 West Washington Street, SPC 56 Phoenix, AZ 85003-2156 s/ Janet Roe

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