Free Counterclaim - 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 Richard G. Krauth, an individual, and R.M. 12 Wade & Co., an Oregon corporation, 13 14 15 16 Phelps Dodge Corporation, a New York corporation, et al., 17 Defendants. 18 19 Phelps Dodge Corporation, a New York corporation, et al., 20 Counterclaim Plaintiffs, 21 vs. 22 23 Richard G. Krauth, an individual, and R.M. Wade & Co., an Oregon corporation, 24 Counterclaim Defendants. 25 26 27 28
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UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA No. CV 04-0544 PHX PGR

Plaintiffs, vs.

DEFENDANTS' AMENDED ANSWER TO FIRST AMENDED COMPLAINT AND COUNTERCLAIM - AND DEMAND FOR JURY TRIAL

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Defendants Phelps Dodge Corporation, Phelps Dodge Bagdad, Inc., Phelps Dodge Chino, Inc., Phelps Dodge Morenci, Inc., Phelps Dodge Sierrita, Inc., Phelps Dodge Tyrone, Inc. and Phelps Dodge Miami, Inc. answer the Complaint filed by plaintiffs Richard G. Krauth ("Krauth") and R.M. Wade & Co. ("Wade") as follows: ANSWER 1. Defendants lack knowledge or information sufficient to form a belief as to

the allegations set forth in paragraph 1 of the Complaint and, on that basis, deny those allegations. 2. Defendants lack knowledge or information sufficient to form a belief as to

the allegations set forth in paragraph 2 of the Complaint and, on that basis, deny those allegations. 3. Defendants admit that Phelps Dodge Corporation is a New York

corporation and that its principal place of business is in Phoenix, Arizona. Defendants admit that Phelps Dodge Bagdad, Inc., Phelps Dodge Chino, Inc., Phelps Dodge Morenci, Inc., Phelps Dodge Sierrita, Inc., Phelps Dodge Tyrone, Inc. and Phelps Dodge Miami, Inc. are subsidiaries of Phelps Dodge Corporation. allegations of paragraph 3. 4. 5. 6. Defendants admit the allegations contained in paragraph 4. Defendants admit the allegations contained in paragraph 5. Defendants admit that Phelps Dodge Morenci, Inc. is a Delaware Defendants deny the remaining

corporation. Defendants deny the remaining allegations contained in paragraph 6. 7. 8. 9. 10. Defendants admit the allegations contained in paragraph 7. Defendants admit the allegations contained in paragraph 8. Defendants admit the allegations contained in paragraph 9. Defendants admit that this Court has jurisdiction. The remainder of

paragraph 10 states legal conclusions to which no response is required. 11. Defendants admit that venue is proper in this district. Defendants deny the

remaining allegations contained in paragraph 11.
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12.

Defendants admit that U.S. Patent No. 5,005,806 ("the `806 patent")

indicates on its face that it issued on April 9, 1991 and that U.S. Patent No. 5,030,279 ("the `279 patent") indicates on its face that it issued on July 9, 1991. Defendants deny that Krauth conceived and reduced to practice the inventions disclosed in the `806 Patent and the `279 Patent. Defendants lack knowledge or information sufficient to form a belief as to the truth of the remaining allegations in paragraph 12 and, on that basis, deny those allegations. 13. Defendants lack knowledge or information sufficient to form a belief as to

the truth of the allegations in paragraph 13 and, on that basis, deny those allegations. 14. Defendants lack knowledge or information sufficient to form a belief as to

the truth of the allegations in paragraph 14 and, on that basis, deny those allegations. 15. Defendants admit that the Court stayed this action on August 16, 2004

pending reexamination, that plaintiffs presented certain prior art uncovered by defendants to the United States Patent and Trademark Office, and that the United States Patent and Trademark Office issued Office Actions dated October 5, 2005. Defendants respectfully refer to those Office Actions with respect to the nature of any statements contained therein, and deny any allegations in paragraph 15 inconsistent with those Office Actions. Defendants deny all allegations contained in paragraph 15 not expressly admitted herein. 16. 17. 18. 19. 20. 21. 22. 23. Defendants deny the allegations contained in paragraph 16. Defendants deny the allegations contained in paragraph 17. Defendants deny the allegations contained in paragraph 18. Defendants deny the allegations contained in paragraph 19. Defendants deny the allegations contained in paragraph 20. Defendants deny the allegations contained in paragraph 21. Defendants deny the allegations contained in paragraph 22. Defendants deny the allegations contained in paragraph 23.

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24.

Defendants admit that in May 2003, personnel from Wade and Phelps Defendants deny the remaining allegations contained in

Dodge Corporation met. paragraph 24. 25.

Defendants deny all allegations in the complaint not expressly admitted

AFFIRMATIVE DEFENSES General Allegations 26. Sometime in 1986, a company called Coeur d' Alene Mines established a "heap leach mining" operation at its Coeur-Rochester mine in northern Nevada. 27. In heap leach mining, a leaching solution is applied to the top of a pile of metal-bearing ore (the "heap"), the solution percolates down through the heap dissolving metals out of the ore and into solution, and the solution is collected at the bottom of the heap such that it can be further processed to recover the dissolved metals. 28. The Coeur-Rochester heap leach mine initially used a sprinkler system to

spray the leaching solution over the heaps. 29. In or about November 1986, Coeur-Rochester began to experience icing

problems with the leaching solution sprayed over the heaps. 30. In or about November or December 1986, engineers at the Coeur-Rochester

mine determined that the icing problem could be solved by switching from sprinklers to a drip irrigation system to apply leaching solution to the heaps. The Coeur-Rochester engineers recognized that spraying of leaching solution through sprinklers resulted in significant energy loss, which promoted the freezing problem, and that such energy losses would be eliminated by the use of drip irrigation in place of sprinklers. The CoeurRochester engineers also recognized that a drip irrigation system would allow the leaching solution to percolate into the heap more quickly and without the icing that resulted from spraying through sprinklers. The Coeur-Rochester engineers also

recognized that it would be possible to bury a drip irrigation system, thus further

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preventing the icing that results from spraying the leaching solution over the heaps through sprinklers. 31. Subsequently in or about December 1986, the engineers at Coeur-Rochester

contacted an agriculture drip irrigation company named Irridelco to purchase a drip irrigation system for application of leaching solution to the Coeur-Rochester heaps (the "Coeur-Rochester drip irrigation process"). 32. Irridelco sold Coeur-Rochester a standard agriculture drip irrigation system

according to the specifications provided by the Coeur-Rochester engineers. 33. Krauth was an employee of Irridelco working at the facility that provided

the drip irrigation system purchased by Coeur-Rochester and through that employment became aware of the Coeur-Rochester drip irrigation process. 34. The engineers at Coeur-Rochester believed that the use of drip irrigation for

the application of leaching solution in heap leach mining was an obvious use of existing technology and never considered applying for a patent on the same. 35. On or about November 3, 1987, Krauth (now employed by Wade) and Wade secretly filed a patent application (the "patent application") in the United States Patent Office, falsely naming Krauth as the inventor of the Coeur-Rochester drip irrigation process. In connection with the patent application, Krauth executed a declaration, pursuant to 18 U.S.C. § 1001, in which he falsely swore that he was the sole inventor of the subject matter for which a patent was sought. That patent application eventually lead to the two patents at issue in this suit, the `806 and `279 patents. 36. To support their arguments of patentability, Krauth and Wade relied on and

submitted to the United States Patent and Trademark Office work performed and data developed at Coeur-Rochester by Coeur-Rochester engineers. 37. Krauth and Wade did not disclose to Coeur-Rochester or its engineers that

they intended to file or had filed the secret patent application.

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38.

Krauth and Wade did not disclose to Coeur-Rochester or its engineers that

they were relying on work performed at Coeur-Rochester to support their arguments for patentability made to the United States Patent and Trademark Office. 39. Krauth deliberately misrepresented to the Patent and Trademark Office that

he was the sole inventor of the Coeur-Rochester drip irrigation process. Wade knew or should have known that Krauth was not the sole inventor of the Coeur-Rochester drip irrigation process. 40. issuance of two patents to Krauth in 1991, the `806 and `279 patents. 41. The original patent application filed in Krauth's name resulted in the Because of Krauth's intentional misrepresentations to the Patent and

Trademark Office, Krauth knew the `806 and `279 Patents were invalid for improper inventorship. 42.

Even if Krauth is deemed to be an inventor of the Coeur-Rochester drip

irrigation process, the engineers of Coeur-Rochester who conceived the idea of using drip irrigation in heap leach mining are co-inventors. On information and belief, Krauth deliberately misrepresented to the Patent and Trademark Office that he was the sole inventor of the heap leach mining process. 43. Even if Krauth is deemed to be an inventor of the Coeur-Rochester drip

irrigation process, he deliberately failed to disclose to the Patent and Trademark Office the contributions and efforts by the Coeur-Rochester engineers in the conception and development of the Coeur-Rochester drip irrigation process so that he would be identified as the sole inventor. 44. The contributions by the Coeur-Rochester engineers were material to a

determination of inventorship. 45. Wade assisted Krauth, and was materially involved, in prosecution of the patent applications that led to the issuance of the `806 and `279 patents.

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First Defense for failure to comply with the requirements of 35 U.S.C. §§ 102, 103, 111, 112 and 116. Second Defense Krauth and Wade violated their duty of candor to the Patent and Trademark The claims of the `806 and `279 patents are invalid and/or unenforceable

Office by not disclosing the contributions of the Coeur-Rochester engineers. 48. Krauth and Wade acted intentionally, and with intent to deceive the Patent

and Trademark Office, when they knowingly failed to disclose to the Patent and Trademark Office the contributions of the Coeur-Rochester engineers. 49. Krauth and Wade committed inequitable conduct when they did not

disclose the contributions of the Coeur-Rochester engineers to the Patent and Trademark Office. In light of this inequitable conduct, the `806 and `279 patents are unenforceable. Moreover, this case is therefore "exceptional," as that word is used in 35 U.S.C. § 285. Third Defense application, Serial No. 116,465 (the `465 application), filed on November 3, 1987. The The `806 and `279 patents claim priority from a related United States patent

Patent Office issued a final rejection of the claims asserted in the `465 application in January 1989, which Krauth appealed. The Board of Patent Appeals and Interferences affirmed that final rejection in May 1990. Krauth requested reconsideration of that decision in July 1990. That same month, Krauth filed the continuation application that eventually issued as the `806 patent. 51. The `806 patent application was assigned to a new examiner, different than Notwithstanding the fact that the examiner responsible for the `806 patent

the examiner who had been responsible for the `465 application. 52.

application had not been involved in examination of the `465 application, Krauth did not disclose the fact that he had received a final rejection of the `465 application, that he had appealed that rejection, and that the Board of Patent Appeals and Interferences had affirmed that final rejection.
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53.

Krauth filed the patent application that eventually issued as the `279 patent

in January 1991. 54. The Board of Patent Appeals and Interferences issued its decision on Krauth's request for reconsideration in the `465 application on April 15, 1991, again affirming the final rejection of the `465 application. The `279 patent did not issue until July 9, 1991. 55. Board of Patent Appeals and Interferences' affirmance of that rejection in May 1990 and again in April 1991 were material to the patentability of the claims of the `806 and `279 patents. 56. patent applications that ultimately issued as the `806 and `279 patents were being examined by a different examiner than had been responsible for examination of the `465 application. 57. On information and belief, Krauth had actual knowledge that the patent applications that ultimately issued as the `806 and `279 patents were being examined by a different examiner than had been responsible for examination of the `465 application. 58. Krauth's patent attorney, Paul Lempio, had actual knowledge that the The final rejection of the claims asserted in the `465 application and the

Neither Krauth nor Lempio disclosed the final rejection of the claims

asserted in the `465 application, the appeal of that rejection, the Board's affirmance of that rejection in May 1990, and the Board's second affirmance of that rejection in April 1991, to the examiner responsible for the `806 and `279 patent applications. 59.

Krauth and Lempio each violated their duty of candor by not disclosing

such information. 60. Krauth and Lempio each committed inequitable conduct when they did not disclose the final rejection of the claims asserted in the `465 application, the appeal of that rejection, or either of the Board's affirmances of that final rejection to the examiner responsible for the `806 and `279 patent applications.

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61.

unenforceable. Moreover, this case is therefore "exceptional," as that word is used in 35 U.S.C. § 285.

In light of this inequitable conduct, the `806 and `279 patents are

Fourth Defense 62. Plaintiffs' assertion of infringement of the `806 and `279 patents is barred

by virtue of the equitable doctrines of laches, estoppel and acquiescence. Fifth Defense 63. The parties have reached a settlement, which resolved this lawsuit in its

entirety and, pursuant to that settlement, all claims purported to be set forth in the Complaint have been released. Sixth Defense 64. inventor of the `806 and `279 patents, Phelps Dodge is licensed under such patents. Seventh Defense 65. On or about October 5, 2004, Plaintiffs filed Requests for Ex Parte Reexamination of the `806 and `279 patents with the Patent Office. The Court ordered the Plaintiffs to provide Defendants with a copy of the Requests for Reexamination ("Requests") so that Defendants could submit arguments to Plaintiffs for inclusion in the Requests. 66. Plaintiffs intentionally removed arguments from the Requests before providing copies to Defendants in violation of the Court's Order and then reinserted those arguments before filing the Requests with the Patent Office. 67. Such actions by Plaintiffs violated the Court's Order and constitute unclean In the event an employee of Coeur d' Alene Mines is found to be a co-

hands and fraud on the Court. Eighth Defense 68. One of the prior art references cited in those Requests was the 1978 publication by William Rudy entitled "Heap Leaching at Cyprus Johnson" ("the Rudy Report").
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69.

To support their arguments of patentability, Plaintiffs made arguments and

representations in their Requests regarding the Rudy Report that were false and misleading. Plaintiffs knew or had reason to know that their statements to the Patent Office were false and misleading. Furthermore, Plaintiffs knew or had reason to know about material information that contradicted the arguments and representations they made concerning the Rudy Report but failed to disclose that material information to the Patent Office. In making their statements and failing to disclose material information, Plaintiffs falsely represented the meaning of the Rudy Report, and knew or had reason to know they were doing so. 70. On September 30, 2003, George T. Potter testified in a deposition in the

case that plaintiffs had previously filed in the Eastern District of California, which was later dismissed for lack of jurisdiction. Plaintiffs and Defendants both attended the deposition, and had agreed that the deposition testimony could be used in this action. 71. Mr. Potter testified first-hand about the system described in the Rudy

Report. Mr. Potter's testimony was material to the patentability of the patents. Mr. Potter's testimony contradicts arguments and representations made by Plaintiffs with respect to the Rudy Report in their Requests. 72. Mr. Potter testified that the system described in the Rudy Report included

an emitter. By contrast, Plaintiffs argued and represented in their Request that the system in the Rudy Report did not have an emitter. 73. Mr. Potter testified that the emitter of the Rudy Report had a pre-calibrated Plaintiffs argued and

flow rate and he testified as to how the flow rate was set.

represented in their Requests that the Rudy Report did not disclose pre-calibrated emitters. 74. 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 Requests that the Rudy Report discloses a wiggler or devices with similar behavior.

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75.

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 Requests that the "drip tubes" of the Rudy Report are not configured to emit leaching solution in overlapping patterns. 76. The above described arguments and representations by Plaintiffs were false.

Plaintiffs were aware that their representations concerning the Rudy Report in their Requests were false, when they filed the Requests on or about October 5, 2004. Most importantly, however, Plaintiffs did not disclose Mr. Potter's deposition testimony to the Patent Office in their Requests, even though it was material to those Requests and directly contradicted the arguments and representations they were making in their Requests. Plaintiffs did not disclose Mr. Potter's deposition testimony to the Patent Office during the year leading up to the Patent Office Actions dated October 5, 2005. 77. Plaintiffs violated their duty of candor to the Patent Office by making

statements they knew were false, and by failing to disclose material information. 78. Plaintiffs acted intentionally, and with intent to deceive the Patent Office by

making statements they knew were false, and by failing to disclose material information, concerning the Rudy Report. 79. Plaintiffs committed inequitable conduct when they made statements they

knew were false, and failed to disclose material information, concerning the Rudy Report. 80. unenforceable. Moreover, this case is therefore "exceptional," as that word is used in 35 U.S.C. § 285. In light of this inequitable conduct, the `806 and `279 patents are

Phelps Dodge Corporation reserves the right to amend and supplement its responses and affirmative defenses after further discovery. COUNTERCLAIM For their counterclaim against Krauth and Wade, defendants/counterclaim plaintiffs incorporate paragraphs 1-80 above and allege further as follows:
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81.

Defendant and counterclaim plaintiff Phelps Dodge Corporation is a New

York corporation doing business in the State of Arizona. Defendant and counterclaim plaintiff Phelps Dodge Bagdad, Inc. is a Delaware corporation doing business in the State of Arizona. Defendant and counterclaim plaintiff Phelps Dodge Chino, Inc. is a Defendant and

Delaware corporation doing business in the State of New Mexico.

counterclaim plaintiff Phelps Dodge Morenci, Inc. is a Delaware corporation doing business in the State of Arizona. Defendant and counterclaim plaintiff Phelps Dodge Sierrita, Inc. is a Delaware corporation doing business in the State of Arizona. Defendant and counterclaim plaintiff Phelps Dodge Tyrone, Inc. is a Delaware corporation doing business in the State of New Mexico. Defendant and counterclaim plaintiff Phelps Dodge Miami, Inc. is a Delaware corporation doing business in the State of Arizona. 82. Krauth and Wade caused events to occur in the District of Arizona out of

which this counterclaim arises. Count 1 Declaratory Judgment of Invalidity 83. Defendants and counterclaim plaintiffs incorporate and reallege paragraphs The claims of the `806 and `279 patents are invalid for failure to satisfy the

84.

requirements of 35 U.S.C. §§ 102, 103, 111, 112 and 116.

Count 2 Declaratory Judgment of Non-Infringement 85. Defendants and counterclaim plaintiffs incorporate and reallege paragraphs

86.

Defendants and counterclaim plaintiffs have not and are not infringing any

valid and enforceable claim of the `806 patent, either literally, under the doctrine of equivalence, contributorily or by inducement.

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87.

Defendants have not and are not infringing any valid and enforceable claim

of the `279 patent, either literally, under the doctrine of equivalence, contributorily or by inducement. Relief Requested WHEREFORE, defendants and counterclaim plaintiffs respectfully pray for:
A. B.

Dismissal of plaintiffs' Complaint with prejudice;

A judicial determination and declaration that the `806 and `279 patents are A judicial determination and declaration that the `806 and `279 patents are

invalid;
C.

unenforceable;
D.

Damages sufficient to compensate defendants, together with prejudgment

interests and costs;
E. F. G.

Punitive damages; An award of attorney's fees and costs; and Such other and further relief as the Court may deem just and proper.

Dated: June 13, 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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DEMAND FOR JURY TRIAL Defendants and Counterclaim Plaintiffs request a trial by jury of all issues triable by jury. Dated: June 13, 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 June 13, 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 June 13, 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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