Intel Corporation v. Tela Innovations, Inc.

Filing 70

ORDER DENYING DEFENDANT'S 43 MOTION TO DISMISS by Judge William H. Orrick also denying 42 , 53 , 57 , 67 Administrative Motions to File Under Seal. (jmdS, COURT STAFF) (Filed on 10/5/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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INTEL CORPORATION,
Plaintiff,

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United States District Court
Northern District of California

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Case No. 3:18-cv-02848-WHO
ORDER DENYING DEFENDANT’S
MOTION TO DISMISS

v.
TELA INNOVATIONS, INC.,

Re: Dkt. Nos. 42, 43, 53, 57, 66, 67

Defendant.

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INTRODUCTION

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Intel Corporation (“Intel”) filed this action against Tela Innovations, Inc. (“Tela”) seeking

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a declaratory judgment of noninfringement and unenforceability with respect to six Tela patents.

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It asserts noninfringement on the grounds that Intel products have features that make them

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distinguishable from the patented technology. It alleges unenforceability based on inequitable

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conduct, misuse, equitable estoppel, and the parties’ covenant not to sue. Tela moves to dismiss

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on the grounds that no case or controversy exists under the Declaratory Judgment Act and that

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Intel insufficiently pleaded its inequitable conduct, misuse, and equitable estoppel claims. I will

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deny the motion because there is a case or controversy and the complaint is sufficiently pleaded.
BACKGROUND

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In December 2005, Tela approached Intel about becoming an investor. First Amended

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Complaint (“FAC”) [Dkt. No. 38] ¶ 16. When Intel did invest in Tela in May 2007, the two

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companies entered into a Covenant Not to Sue (“CNTS”) “that cover[ed] patents claiming priority

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during the term of the CNTS.” Id.

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Between May 17, 2011 and September 13, 2016, the United States Patent and Trademark
Office (“PTO”) issued United States Patent Nos. 7,943,966 (“the ‘966 Patent”), 7,948,012 (“the

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‘012 Patent”), 8,030,689 (“the ‘689 Patent”), 8,258,522 (“the ‘522 Patent”), 9,425,272 (“the ‘272

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Patent”), and 9,443,947 (“the ‘947 Patent”) (collectively, the “patents in suit”). Id. ¶¶ 10–15. All

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of the patents in suit list Tela as the sole assignee. Id.

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In March 2013, Tela brought an action before the International Trade Commission (“ITC”)

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against five handset manufactures alleging infringement of the ‘689 and the ‘552 Patents, among

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others. Id. ¶ 30. In response to a subpoena from the manufacturers, Intel provided documents and

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testimony regarding several of its products for the manufacturers to use as prior art to the Tela

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patents. Id. ¶¶ 31–35. Tela settled the matter in May and July 2014. Id. ¶ 38.

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Between July 2014 and April 2016, Intel and Tela discussed licensing Tela patents not
covered by their CNTS. See Friedman Decl. Ex. A [Dkt. No. 56-1]; Gray Decl. [Dkt. No. 53-6] ¶¶

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United States District Court
Northern District of California

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2–3; Dyer Decl. 7/9/18 [Dkt. No. 30] ¶ 3. According to Intel, Tela alleged that Intel’s 22nm and

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14nm FinFET-based products infringed on Tela’s 1D gridded layout patent family. Gray Decl. ¶¶

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5, 7, 12; FAC ¶ 41. Intel began investigating the claims immediately after Tela first raised them.

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FAC ¶ 42. Tela canceled a February 2015 meeting at which it planned to present claim charts that

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would prove Intel’s infringement. Gray Decl. ¶¶ 8–9. There was a gap in communication until

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Tela reinitiated contact in March 2016. Id. ¶¶ 10–11.

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On May 25, 2016, Intel and Tela entered into an NDA to facilitate licensing conversations.

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Fitzpatrick Decl. Ex. A [Dkt. No. 42-4]. The NDA applies to “confidential discussions occurring

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on or after the Effective Date” of May 25, 2016. Id. After entry of the NDA, Tela provided Intel

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with claim charts for patents including those in suit. Dyer Decl. 7/9/18 ¶ 7.

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Intel filed this declaratory relief action on May 15, 2018. It seeks a declaratory judgment

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of noninfringement of all six patents. FAC ¶¶ 54, 59, 64, 69, 74, 79. It seeks declaratory

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judgment of unenforceability of the ‘272 and ‘947 Patents, alleging that Tela engaged in

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inequitable conduct by knowingly withholding material information from the PTO when it filed

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continuation applications for those two patents. Id. ¶¶ 104–05,120–22. It seeks a declaratory

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judgment of unenforceability of the ‘272 and ‘947 Patents, alleging that Tela misused them by

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seeking to license invalid patents that had priority dates falling during the CNTS period. Id. ¶¶

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129–30. It seeks a declaratory judgment of noninfringement of the ‘966, ‘012, ‘689, and ‘552
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Patents, arguing Tela is equitably estopped from asserting them because Intel relied on Tela’s

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misleading conduct. Id. ¶¶ 144–46. Finally, it seeks a declaratory judgment of noninfringement

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of all the patents in suit because given their true priority dates, they are covered by the CNTS. Id.

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¶ 151.
LEGAL STANDARD

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I. MOTION TO DISMISS UNDER 12(b)(1)
A motion to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure is a
challenge to the court’s subject matter jurisdiction. See FED. R. CIV. P. 12(b)(1). “Federal courts

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are courts of limited jurisdiction,” and it is “presumed that a cause lies outside this limited

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jurisdiction.” Kokkonen v. Guardian Life Ins. of Am., 511 U.S. 375, 377 (1994). The party

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United States District Court
Northern District of California

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invoking the jurisdiction of the federal court bears the burden of establishing that the court has the

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authority to grant the relief requested. Id.

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A challenge pursuant to Rule 12(b)(1) may be facial or factual. See White v. Lee, 227 F.3d

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1214, 1242 (9th Cir. 2000). In a facial attack, the jurisdictional challenge is confined to the

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allegations pled in the complaint. See Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004).

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The challenger asserts that the allegations in the complaint are insufficient “on their face” to

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invoke federal jurisdiction. See Safe Air Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th

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Cir. 2004). To resolve this challenge, the court assumes that the allegations in the complaint are

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true and draws all reasonable inference in favor of the party opposing dismissal. See Wolfe, 392

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F.3d at 362.

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II. MOTION TO DISMISS UNDER 12(b)(6)

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Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint

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if it fails to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). To survive a

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Rule 12(b)(6) motion to dismiss, the plaintiff must allege “enough facts to state a claim to relief

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that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). A claim is

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facially plausible when the plaintiff pleads facts that “allow the court to draw the reasonable

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inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,

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678 (2009) (citation omitted). There must be “more than a sheer possibility that a defendant has
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acted unlawfully.” Id. While courts do not require “heightened fact pleading of specifics,” a

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plaintiff must allege facts sufficient to “raise a right to relief above the speculative level.”

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Twombly, 550 U.S. at 555, 570.

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In deciding whether the plaintiff has stated a claim upon which relief can be granted, the
court accepts the plaintiff’s allegations as true and draws all reasonable inferences in favor of the

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plaintiff. Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is

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not required to accept as true “allegations that are merely conclusory, unwarranted deductions of

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fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir.

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2008). If the court dismisses the complaint, it “should grant leave to amend even if no request to

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amend the pleading was made, unless it determines that the pleading could not possibly be cured

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United States District Court
Northern District of California

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by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000).

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DISCUSSION
I. JURISDICTION UNDER THE DECLARATORY JUDGMENT ACT
The Declaratory Judgment Act allows potential infringers to bring claims against patent

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holders, but only if there is an actual case or controversy between the parties. Matthews Int’l

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Corp. v. Biosafe Eng’g, LLC, 695 F.3d 1322, 1327-28 (Fed. Cir. 2012). To satisfy Article III’s

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standing requirements, a plaintiff must demonstrate that “the facts alleged, under all the

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circumstances, show that there is a substantial controversy, between parties having adverse legal

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interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.”

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MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007), reversed-in-part on other grounds

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sub nom. Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2017 (2013). The

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Federal Circuit has held that a declaratory judgment plaintiff must allege “(1) an affirmative act by

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the patentee related to the enforcement of his patent rights, and (2) meaningful preparation to

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conduct potentially infringing activity.” Id. at 1318 (internal citations omitted).

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To find an affirmative act, “more is required than ‘a communication from a patent owner to

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another party, merely identifying its patent and the other party’s product line.’” 3M Co. v. Avery

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Dennison Corp., 673 F.3d 1372, 1378–79 (Fed. Cir. 2012). On the other end of the spectrum is an

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explicit infringement allegation, which shows “‘there is, necessarily, a case or controversy
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adequate to support declaratory judgment jurisdiction.’” See Hewlett-Packard Co. v. Acceleron

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LLC, 587 F.3d 1358, 1362 (Fed. Cir. 2009) (quoting Cardinal Chem. Co. v. Morton Int’l, 508 U.S.

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83, 96 (1993)). The factual scenarios that fall in between require case-by-case analysis, and the

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objective actions of the patentee are the subject of that inquiry. See 3M, 673 F.3d at 1379;

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Hewlett-Packard, 587 F.3d at 1363. The patentee need not explicitly threaten to sue or demand a

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license, but its actions must give reason to believe that it is asserting its rights under the patents.

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See Hewlett-Packard, 587 F.3d at 1362–63.
Tela argues that Intel has not established subject matter jurisdiction under the Declaratory

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Judgment Act because the pre-NDA interactions are insufficient to establish a case or
controversy.1 Mot. 9. Tela further argues that I should exercise my discretion to decline to hear

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United States District Court
Northern District of California

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this case because Intel allegedly violated the NDA in bringing this suit. Mot. 14–15. Intel

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counters that Tela’s conduct prior to entry of the NDA was sufficient to establish a case or

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controversy. Opp. 6. I find that Intel has alleged facts that show a dispute “of sufficient

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immediacy and reality” exists between the parties, and there is no evidence that the time passed

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has served to diminish it. See MedImmune, 549 U.S. at 127.

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A. There Is An Actual Controversy Between Intel and Tela
Tela argues that there is no case or controversy between the parties based on pre-NDA

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conduct because it did not threaten legal action, impose deadlines to respond, engage in

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substantive technical discussions, or identify specific patents. Reply 1–2. Intel counters that Tela

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alleged infringement by Intel products, said it was working on claim charts, said it was pursuing

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licensing deals with the rest of the logic industry, and provided a range for licensing payment.

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Oppo. 5–7.
In analyzing affirmative acts, courts consider numerous factors and look at the parties’

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conduct and interactions as a whole. See ActiveVideo Networks, Inc. v. Trans Video Elecs., Ltd.,

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975 F. Supp. 2d 1083, 1087–88 (N.D. Cal. 2013) (Chen, J.); Akeena Solar, Inc. v. Zep Solar Inc.,

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No. C-09-05040-JSW, 2010 WL 519838, at *4 (N.D. Cal. Feb. 9, 2010). As relevant here, courts

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Intel acknowledges that it cannot use post-NDA discussions to establish subject matter
jurisdiction. Oppo. 5; see 3M, 673 F.3d at 1375 n. 2.
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consider the strength of language used in the parties’ communications, the extent of infringement

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analysis done by the patentee, whether the patentee imposed a deadline, the patentee’s history of

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enforcement, whether the patentee has identified specific patents and products, and the time that

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has passed since the infringement allegations. See ActiveVideo, 975 F. Supp. 2d at 1087–88.

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In 3M, the Federal Circuit found jurisdiction proper because the declaratory judgment

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defendant had “effectively charged” the plaintiff with infringement. 3M, 673 F.3d at 1379. The

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defendant had called the plaintiff, identified a specific product that “[might] infringe,” and

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mentioned the possibility of licensing. Id. When the plaintiff declined the licensing offer two

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days later, the defendant stated that it had performed analysis and would provide claim charts. Id.
The court found these interactions sufficient to establish a case or controversy and noted that the

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United States District Court
Northern District of California

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absence of other factors, for example a deadline during licensing discussions, did not alter its

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conclusion. Id. at 1380. Though the plaintiff had delayed over one year in filing suit, the court

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found that “the relevant circumstances surrounding [the defendant’s] assertion of its patent rights

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appear to have remain unchanged.” Id. The court was “disinclined to hold that the case or

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controversy between the parties sufficiently dissipated” during that time. Id.

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I find that the facts Intel alleges are sufficient to establish that there is “a substantial

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controversy” between the parties that is “of sufficient immediacy and reality to warrant the

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issuance of a declaratory judgment.” See MedImmune, 549 U.S. at 127. On January 27, 2015,

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Kenneth Dyer of Tela told Keith Gray of Intel that Intel products infringed on Tela’s 1D gridded

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layout patent family and that Tela could prove that infringement with claim charts based on the

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reverse engineering it had performed. Gray Decl. ¶¶ 4, 6, 7; Friedman Decl. Exs. A, B.

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According to the Federal Circuit, such an explicit allegation of infringement “necessarily”

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establishes a case or controversy. Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d at 1362.

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Dyer also called Intel a “target” of its licensing negotiations during a January 27, 2015 phone call.

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Gray Decl. ¶ 7. After a canceled meeting and subsequent gaps in communication, Dyer

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effectively renewed Tela’s allegations against Intel in May 2015 and March 2016 by telling Gray

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that Tela “[had not] forgotten” about Intel or their discussions. Gray ¶¶ 9–11. In an April 21,

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2016, phone call Tela provided a range of expected licensing payment and again called Intel “a
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very significant target.” Gray Decl. ¶ 12.
There is also evidence that Tela was actively working to enforce its rights with respect to

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some of the patents in suit against other companies. It brought an ITC action against five handset

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manufacturers in 2013. FAC ¶ 30. On several occasions, Tela informed Intel that it was actively

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working to pursue licensing not only with Intel but with its competitors. Gray Decl. ¶¶ 5–7,

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Friedman Decl. Ex. B, 1/22/15 Dyer Email.
Tela asserts that it never specifically identified patents or products, it never imposed a

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deadline on Intel, and there is no history of litigation between the parties. Mot. to Dismiss 9;

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Reply 9. But these are merely factors to be considered in the totality of the circumstances, and

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their absence does not preclude jurisdiction. See 3M, 673 F.3d at 1380 (“[W]e have found that

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United States District Court
Northern District of California

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declaratory judgment jurisdiction existed in cases in which the patentee’s communications did not

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impose strict deadlines.”) (internal quotation marks omitted).

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Tela also argues that because Intel waited over two years to file suit, the controversy

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between them is not sufficiently immediate for jurisdiction. Mot. 9. It relies on a case in which a

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year and a half elapsed between the parties’ two communications, only to be reinitiated by the

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plaintiff “under circumstances suggesting preparation for this litigation.” Cepheid v. Roche

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Molecular Sys., Inc., No. C-12-4411 EMC, 2013 U.S. Dist. LEXIS 7446, at *32 (N.D. Cal. Jan.

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17, 2013). Two written communications listed over 100 patents and were sent to all the patent

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holder’s licensees. Id. at *30. A third letter called attention to a specific patent but no allegedly

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infringing products. Id. at *30–31. It included a deadline that came and went, yet neither party

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took further action until the plaintiff solicited licensing terms a year and a half later. Id. at *31.

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The court found that given the general nature of the communications and the circumstances

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surrounding the plaintiff reinitiating contact, “the majority of the factors considered by courts

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weigh[ed] against finding standing” to seek declaratory relief. Id.

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Here, the communications between Intel and Tela were more extensive and detailed. Tela,

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not Intel, reinitiated contact in March 2016 and renewed its infringement allegations. Tela has not

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provided any factual basis for its argument that the gap in time “diminished” the case or

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controversy between the parties regarding the 1D gridded layout patent family. See 3M, 673 F.3d
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at 1380. In addition, lapses in time—even up to four years—do not eliminate a controversy when

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the declaratory relief defendant “was busy negotiating with other leading [product]

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manufacturers.” See Micron Tech., Inc. v. Mosaid Techs., Inc., 518 F.3d 897, 901 (Fed. Cir.

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2008). Dyer told several times Gray that Tela was pursuing licensing with Intel competitors while

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calling Intel “an important target.” See Gray Decl. ¶¶ 5–7, 13, Friedman Decl. Ex. B, 1/22/15

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Dyer Email.
Tela also argues that Intel cannot tie the case or controversy to the ‘272 and ‘947 Patents

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because they were issued after these interactions had taken place. Mot. 11. But during the April

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21, 2016, conversation, Dyer informed Gray that Tela was working to strengthen its infringement

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allegations against Intel by prosecuting 1D gridded layout continuation applications. Gray Decl. ¶

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United States District Court
Northern District of California

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12. This comment allowed Intel to identify the two later-issued patents and brought them into

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dispute. Oppo. 10.

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Viewed in the light most favorable to Intel, Tela took the affirmative steps of alleging

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infringement against Intel products, calling Intel a “target,” creating claim charts, and providing an

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approximate figure for expected licensing payments. Under the totality of the circumstances, there

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is a “definite and concrete” dispute between the two parties regarding Tela’s 1D gridded layout

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patent family. See Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1364 (Fed. Cir. 2009).

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It was live before entry of the NDA, and Tela has alleged no facts to suggest why the parties’

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positions have changed such that it is no longer live.

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B. Discretion Under DJA

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The Declaratory Judgment Act on its face provides for discretion: “[i]n a case of actual

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controversy within its jurisdiction, . . . any court of the United States . . . may declare the rights

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and other legal relations of any interested party seeking such declaration . . . .” 28 U.S.C. §

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2201(a); see also Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995) (“[T]he Declaratory

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Judgment Act has been understood to confer on federal courts unique and substantial discretion in

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deciding whether to declare the rights of litigants.”); Leadsinger, Inc. v. BMG Music Publ'g, 512

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F.3d 522, 533 (9th Cir. 2008) (“Federal courts do not have a duty to grant declaratory judgment;

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therefore, it is within a district court’s discretion to dismiss an action for declaratory judgment.”).
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Tela argues that even if I find that a case or controversy exists, I should exercise my

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discretion to decline jurisdiction. Mot. 14; see EMC Corp. v. Norand Corp., 89 F.3d 807, 810

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(Fed. Cir. 1996) (noting that even if “there is an actual controversy, the district court is not

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required to exercise declaratory judgment jurisdiction, but has discretion to decline that

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jurisdiction”). To support its request, Tela argues that a great deal of time has passed and that

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Intel violated the NDA in order to bring this suit. Mot. 14–15. As I explained above, Tela asserts

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no reason why the time that has passed has diminished the concreteness of the controversy

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between the parties. See 3M, 673 F.3d at 1380.
Tela’s argument that Intel violated the NDA in bringing this suit seems to be based

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primarily on speculation that it would have been impossible for Intel to identify the six patents in

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United States District Court
Northern District of California

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suit from the longer lists of patents that it had prior to entry of the NDA. Mot. 15. Intel counters

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Tela’s assertion by describing connections between pre-NDA information and the six patents in

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suit. Oppo. 10–11. The ‘689 and ‘552 patents were part of the ITC proceedings,2 and the ‘966

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and ‘012 patents are substantially similar to those. Id. at 10. In addition, the features of ‘689 and

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‘552 Patents are broader than other patents in Tela’s 1D gridded layout family, which means that

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resolving them will be most helpful in resolving the parties’ overall dispute. Id. Finally, a

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conversation between Dyer and Gray on April 21, 2016 allowed Intel to identify the ‘272 and ‘947

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patents. Oppo. 10; Gray Decl. ¶ 12. Dyer informed Gray that Tela “was pursuing assertion of

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claim limitations in later-issued patents within the 1D gridded layout patent family.” Id.; Gray

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Decl. ¶ 12. From this information, Intel could select the ‘272 and ‘947 patents, which were

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pending as continuations at that time. Oppo. 10–11. In light of this information, Intel credibly

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asserts that it did not rely on covered information to bring this suit.
Tela’s motion to dismiss for lack of subject matter jurisdiction is DENIED.

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II. SUFFICIENCY OF PLEADINGS

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A. Inequitable Conduct
Tela argues Intel failed to plead inequitable conduct on the ‘272 and ‘947 Patents with

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The other five patents that were part of the proceedings are covered by the CNTS. Oppo. 10.
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particularity as required for fraud claims. Mot. 15.

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Rule 9(b) of the Federal Rules of Civil Procedure requires plaintiffs to plead fraud with

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particularity. FED. R. CIV. P. 9(b). Federal Circuit law establishes the standard for particularity

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for inequitable conduct in patent cases. Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312,

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1326 (Fed. Cir. 2009). Detailed pleadings must set out “the specific who, what, when, where, and

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how of the material misrepresentation or omission committed before the PTO.” Id. at 1327. The

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knowledge or intent elements may be pleaded more generally, but the plaintiff must still allege

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“sufficient underlying facts from which a court may reasonably infer that a party acted with the

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requisite state of mind.” Id. Tela challenges Intel’s pleadings on three grounds.
1. Who

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United States District Court
Northern District of California

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Tela argues that the FAC fails to identify who committed inequitable conduct because each

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allegation references all three individuals who were part of the patent prosecution without

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specifying each one’s particular role or actions. Mot. 17.

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The pleading must allege specifically who committed the material omissions and

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misrepresentation before the PTO rather than broadly accusing a patent holder’s “agents and/or

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attorneys.” Exergen, 575 F.3d at 1329. A court in this district found that a plaintiff adequately

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pleaded the “who” when it named a specific individual and alleged he failed to disclose known

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information to the patent examiner. Oracle Corp. v. DrugLogic, Inc., 807 F. Supp. 2d 885, 898

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(N.D. Cal. 2011). Where the complaint merely included the words, “each attorney or agent who

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prepared or prosecuted the application,” it was deficient. Id. (internal quotation marks omitted).

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Here, Intel lists the names Scott Becker, Michael Smayling, and Kenneth Wright, and

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alleges that each knowingly submitted new subject matter to the patent examiner as part of

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continuation applications. FAC ¶¶ 87–89, 99–102. Tela argues that this is substantively the same

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as listing “each attorney or agent who prepared or prosecuted the application” because those three

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individuals in fact prepared or prosecuted the applications. Mot. 17; see Oracle, 807 F. Supp. 2d

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at 898. But in the same case Tela cites, the court found that the complaint was adequate where it

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named a specific individual and alleged that he was aware of, but failed to disclose, certain

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information to the patent examiner. Oracle, 807 F. Supp. 2d at 898. Intel’s allegations meet that
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mark here. See FAC ¶¶ 87–89, 99–102.

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2. Materiality

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Tela argues that Intel fails to allege materiality because it does not properly allege any

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false statement or misrepresentation were actually made to the PTO, or that they were material.

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Mot. 18.

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Under the but-for test for materiality, a court must ask whether the PTO would have

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refused to allow a claim had it known of the misrepresentation or omission. Therasense, Inc. v.

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Becton, Dickinson & Co., 649 F.3d 1276, 1291 (Fed. Cir. 2011). At the pleading stage, requiring

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proof of but-for materiality is “premature.” Evonik Degussa GmbH v. Materia Inc., No. 09-CV636, 2012 WL 4503771, at *6 (D. Del. Oct. 1, 2012). The plaintiff must plead that the PTO would

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United States District Court
Northern District of California

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not have issued the patent had it known of the allegedly withheld information. Id. Such a

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pleading may not be conclusory but instead must show fact suggesting that “the truth, if presented

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to the PTO, would have rendered the invention unpatentable.” Human Genome Scis., Inc. v.

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Genentech, Inc., No. 11-CV-6519, 2011 WL 7461786, at *4 (C.D. Cal. Dec. 9, 2011).

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Intel properly alleges materiality. First, the complaint details new subject matter that was

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included in the two continuation applications. FAC ¶¶ 94–98, 100–104. Second, it alleges that,

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had the PTO known about the new subject matter in the ‘272 and ‘947 Patent applications, it

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would not have issued them as continuations. See FAC ¶¶ 94–97, 99. It details the release dates

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of Intel’s 22nm and 14nm products and alleges that, had it not been for the omissions, the PTO

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would have found that the Patents had later priority dates, determined that the Intel products were

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prior art, and declined to issue the ‘272 and ‘947 Patents. FAC ¶¶ 103, 119.

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3. Knowledge of Materiality

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Tela argues that Intel does not plead knowledge with particularity because it does not show

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that Smalying, Baker, or Wright knew of the alleged prior art. Mot. 21.
Under Rule 9(b), “intent . . . and other conditions of a person’s mind may be alleged

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generally.” Fed. R. Civ. P. 9(b); see Therasense, 649 F.3d at 1290 (“Because direct evidence of

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deceptive intent is rare, a district court may infer intent from indirect and circumstantial

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evidence.”). At the pleading stage, an inequitable conduct claim “must include sufficient
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allegations of underlying facts from which a court may reasonably infer that a specific individual

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knew of the withheld material information.” Abaxis, Inc. v. Cepheid, No. 10-CV-02840-LHK,

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2011 WL 1044396, at *3 (N.D. Cal. Mar. 22, 2011) (internal punctuation omitted) (citing

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Exergen, 575 F.3d at 1328). “A reasonable inference is one that is plausible and that flows

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logically from the facts alleged, including any objective indications of candor and good faith.” Id.;

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see also Human Genome, 2011 WL 7461786, at *3 (noting a plaintiff must show “merely a

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reasonable inference beyond the mere possibility that the applicant had an intent to deceive”).

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At least with respect to Becker, Intel alleges enough information to give rise to a
reasonable inference that he knew the misrepresentations were material. Intel alleges that Becker

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was involved in prosecuting the patents in suit against Intel products. FAC ¶¶ 103, 119. Because

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United States District Court
Northern District of California

9

of his role in working with Intel, it is reasonable to infer that he knew key facts about Intel’s

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products, including the dates the technologies were developed and made public. FAC ¶¶ 89, 100–

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02, 115–18.

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Intel does not yet have to show by clear and convincing evidence that “the applicant made

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a deliberate decision to withhold a known material reference.” See Therasense, Inc. v. Becton,

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Dickinson & Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011) (quoting Molins PLC v. Textron, Inc., 48

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F.3d 1172, 1181 (Fed. Cir. 1995)) (internal quotation marks omitted). The question on a motion to

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dismiss is whether Intel has properly pleaded facts that could give rise to such a finding. It has.

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B. Patent Misuse

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Tela argues that Intel’s claims for misuse of the ‘272 and ‘947 Patents fail to adequately

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state a claim. Mot. 22. Intel fails to show that it attempted to broaden the scope of the patents,

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fails to show an anticompetitive harm, and fails to plead the underlying inequitable conduct with

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particularity.

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“The purpose of the patent misuse defense was to prevent a patentee from using the patent

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to obtain market benefit beyond that which inheres in the statutory patent right.” U.S. Philips

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Corp. v. Int'l Trade Comm’n, 424 F.3d 1179, 1184 (Fed. Cir. 2005) (internal quotation marks

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omitted). The holder misuses a patent by “impermissibly broaden[ing] the scope of the patent

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grant with anticompetitive effect.” C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed.
12

1

Cir. 1998). Damages are not available; rather, a misused patent is unenforceable until the holder

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cures the misuse. B. Braun Med., Inc. v. Abbott Labs., 124 F.3d 1419, 1427 (Fed. Cir. 1997). “A

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patent misuse claim, at the pleading stage, requires only allegations of conduct that had the effect

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of impermissibly extending the limited protection from competition by the patent.”

5

Seville Classics, Inc. v. Neatfreak Grp., Inc., No. CV-16-06460, 2017 WL 3473932, at *4 (C.D.

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Cal. Feb. 14, 2017) (internal quotation marks and formatting omitted).

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Intel alleges that Tela broadened the scope of the ‘272 and ‘947 Patents by attempting to

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license them—and successfully licensing them to Qualcom, TSMC, and Samsung—despite

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knowing they were invalid. FAC ¶ 127. Intel also alleges that Tela knew the patents had a later
priority date, thus making them subject to the parties’ CNTS. Id. ¶ 128. The claim is premised on

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United States District Court
Northern District of California

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Intel’s inequitable conduct claims, which I found were pleaded with sufficient particularity. See

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FAC ¶¶ 123, 127; Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., No. C-95-3577 DLJ,

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1996 U.S. Dist. LEXIS 11696, at *40 (N.D. Cal. July 24, 1996) (noting that patent misuse resting

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on a claim of inequitable conduct must meet Rule 9(b) requirements).

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Intel also alleges that this behavior had anticompetitive effect. FAC ¶ 129. Where the

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Supreme Court has not held that a licensing arrangement is per se anticompetitive, “a factual

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determination must reveal that the overall effect of the license tends to restrain competition

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unlawfully in an appropriately defined relevant market.” Windsurfing Int'l Inc. v. AMF, Inc., 782

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F.2d 995, 1001–02 (Fed. Cir. 1986). Viewing the evidence in the light most favorable to Intel, the

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facts it alleges could have had the effect of restraining competition among the companies from

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whom Tela sought and obtained licenses.

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Given the facts underlying its inequitable conduct claims and the evidence that Tela

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continued to pursue licensing of the ‘272 and ‘947 Patents, Intel sufficiently pleads a claim for

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patent misuse. Matsushita Elec. Indus. Co. v. CMC Magnetics Corp., No. C-06-04538-WHA,

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2006 WL 3290413, at *2 (N.D. Cal. Nov. 13, 2006) (finding brief allegations sufficient because

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the party pointed to specific conduct that supported the patent misuse claim).

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C. Equitable Estoppel

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Tela argues that Intel’s claims for equitable estoppel of the ‘966, ‘012, ‘689, and ‘552
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Patents fail to state a claim. Mot. 24.
Equitable estoppel is a flexible doctrine that is “committed to the sound discretion of the

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3

trial judge.” ABB Robotics, Inc. v. GMFanuc Robotics Corp., 52 F.3d 1062, 1063 (Fed. Cir.

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1995). It is “not limited to a particular factual situation nor subject to resolution by simple or hard

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and fast rules.” A.C. Aukerman Co. v. R.L. Chaides Const. Co., 960 F.2d 1020, 1041 (Fed. Cir.

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1992), abrogated on other grounds by SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod.,

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LLC, 137 S. Ct. 954 (2017). Courts generally consider three factual elements: (i) the patent

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holder’s misleading conduct leads a party to reasonably infer the holder does not intend to enforce

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the patent; (ii) the party relies on that conduct; and (iii) the party will be harmed if the
infringement suit moves forward. ABB Robotics, Inc. v. GMFanuc Robotics Corp., 52 F.3d 1062,

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United States District Court
Northern District of California

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1063 (Fed. Cir. 1995); see A.C. Aukerman, 960 F.2d at 1041 (noting these factual elements “are

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generally are deemed significant”).
The complaint’s equitable estoppel allegations are sufficient to survive a motion to

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dismiss. Intel alleges it relied on actions giving the impression that Tela would not seek

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enforcement of the ‘966, ‘012, ‘689, and ‘552 Patents. FAC ¶ 133. Intel and Tela began

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investment talks in December 2005, one month before Intel began to publicize its work on

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technology that would later lead to its 22nm and 14nm products. Id. ¶¶ 134–35. Intel invested in

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Tela in May 2007, and the four patents were issued in 2011 and 2012. Id. ¶¶ 134, 137–38.

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Despite this ongoing relationship between the parties, Tela failed to mention the possibility of

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infringement or the need for licensing until 2014. Id. ¶¶ 141–42. In reliance on that silence, Intel

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continued to spend time and money to develop subsequent technologies. Id. ¶¶ 139, 143. Intel

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argues that it will suffer harm if Tela is permitted to assert infringement so many years later. Id. ¶

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145.

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Tela argues that Intel fails to plead a duty to disclose the possibility of infringement, but

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Intel need not show such a duty. Instead, “[m]isleading action by the patentee may be silence, if

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such silence is accompanied by some other factor indicating that the silence was sufficiently

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misleading to amount to bad faith.” ABB, 52 F.3d at 1064. Here, Intel alleges that Tela was

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misleading when it withheld information about possible infringement from a company with whom
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it had an ongoing business and investment relationship.
Tela also argues that Intel cannot show that it relied on Tela’s silence without pleading that

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3

it was aware of the four patents. Mot. 25. Not only have many courts rejected the need for

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awareness of the patents in equitable estoppel defenses to infringement, but such a bright line rule

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is inappropriate “in an area of law where the Federal Circuit expressly disfavors such rules.” See

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Activision Publ'g, Inc. v. Gibson Guitar Corp., No. CV-08-1653, 2008 WL 11342551, at *3 (C.D.

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Cal. June 5, 2008). Courts have applied equitable estoppel when the alleged infringer lacked

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awareness of the patent “so long as the entire course of conduct between the parties supported an

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inference that the patentee consented to the manufacturer and sale of the allegedly infringing
product.” Id. (internal quotation marks omitted).

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United States District Court
Northern District of California

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III. MOTIONS TO SEAL
Tela seeks to seal the date of the CNTS between the parties, the number of patents not

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covered by it, and a list of the patents not covered. Am. Mots. to Seal [Dkt. Nos. 66, 67]. Intel

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does not oppose Tela’s motion.3
A party seeking to seal court records must overcome a strong presumption in favor of the

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public’s right to access those records. See Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172,

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1178 (9th Cir. 2006). The Ninth Circuit imposes the “compelling reasons” standard on most

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motions to seal, which requires a court to explain its findings “without relying on hypothesis or

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conjecture.” Ctr. for Auto Safety v. Chrysler Grp., LLC, 809 F.3d 1092, 1096–97 (9th Cir.), cert.

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denied sub nom. FCA U.S. LLC v. Ctr. for Auto Safety, 137 S. Ct. 38 (2016). A “good cause”

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exception applies to some nondispositive motions, but those that are “more than tangentially

22

related to the merits of a case” remain subject to the compelling reasons standard. Id. at 1097,

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1101. The Civil Local Rules require supporting declarations that “‘articulate [ ] reasons supported

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by specific factual findings’” to warrant sealing. See CIV. L.R. 79-5(d)(1)(A); Kamakana, 447

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F.3d at 1178. My Standing Order clarifies that conclusory assertions of harm are insufficient.

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3

There remain on the docket three outstanding motions to seal documents related to this motion.
See Dkt. Nos. 42, 53, 57. They were filed before the amended motions I address here. As
described in my September 18, 2018 Order, those earlier motions failed to comply with the Civil
Local Rules and my Standing Order. They are DENIED.
15

1

Tela relies on a declaration from Kenneth Dyer which provides that Tela has maintained

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confidential the list of patents covered by the CNTS, and that revealing those not covered would

3

effectively reveal the covered patents to competitors. Dyer Decl. 7/9/18 ¶ 5; Am. Mot. to Seal 4.

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It asserts that public disclosure “would cause competitive harm to Tela by disadvantaging Tela in

5

its negotiations with prospective licensors.” Dyer Decl. 7/9/18 ¶ 5. Despite Tela’s assertions, it is

6

not clear how disclosure of this information would cause it harm. As an initial matter, Intel was

7

an investor in Tela rather than a licensee. This list would reveal little or nothing about Tela’s

8

licensing practices: it is far from a disclosure of specific terms or prices associated with a

9

confidential licensing agreement, which potential licensees might be able to exploit during
negotiations. The harm Tela alleges is no more than conclusory, and it is insufficient to overcome

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United States District Court
Northern District of California

10

the presumption in favor of public access to court records. The amended motions to seal are

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DENIED.
CONCLUSION

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For the foregoing reasons, Tela’s motion to dismiss the first amended complaint is
DENIED.
IT IS SO ORDERED.
Dated: October 5, 2018

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William H. Orrick
United States District Judge

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