FootBalance System Inc. et al v. Zero Gravity Inside, Inc.

Filing 70

ORDER on 59 Motion to Strike. The Court grants in part and denies in part Plaintiffs' Motion to Strike ECF No. 59 . However, the Court grants Defendants leave to amend their answers to address the pleading deficiencies in their affirmative defenses. Accordingly, Defendants shall file their amended answers on or before 14 days from the date on which this Order is electronically docketed. Signed by Judge Janis L. Sammartino on 9/5/2017. (mpl)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 FOOTBALANCE SYSTEM INC. and FOOTBALANCE SYSTEM OY, 15 ORDER ON MOTION TO STRIKE Plaintiffs, 13 14 Case No.: 15-CV-1058 JLS (DHB) v. (ECF No. 59) ZERO GRAVITY INSIDE, INC., et al., Defendants. 16 17 18 Presently before the Court is Plaintiffs’ Motion to Strike Defendants’ Affirmative 19 Defenses. (“MTS,” ECF No. 59.) Also before the Court are Defendants’ Response in 20 Opposition to Plaintiffs’ MTS, (“Opp’n,” ECF No. 65), and Plaintiffs’ Reply in Support of 21 their MTS, (“Reply,” ECF No. 66). The Court vacated the hearing on the matter and took 22 the motion under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). 23 (ECF No. 67.) After considering the parties’ arguments and the law, the Court rules as 24 follows. 25 LEGAL STANDARD 26 Rule 12(f) provides that the court “may strike from a pleading an insufficient defense 27 or any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). 28 “The function of a 12(f) motion to strike is to avoid the expenditure of time and money that 1 15-CV-1058 JLS (DHB) 1 must arise from litigating spurious issues by dispensing with those issues prior to trial . . . .” 2 Whittlestone, Inc. v. Handi–Craft Co., 618 F.3d 970, 973 (9th Cir. 2010) (quoting Fantasy, 3 Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir. 1993), rev’d on other grounds, 510 U.S. 517 4 (1994)). Accordingly, “[a] defense may be struck if it fails to provide ‘fair notice’ of the 5 basis of the defense.” Inc. v. eHelp Corp., 315 F. Supp. 2d 1046, 1048 (N.D. 6 Cal. 2004); see also Wyshak v. City Nat’l Bank, 607 F.2d 824, 826 (9th Cir. 1979). 7 “Motions to strike are ‘generally disfavored because they are often used as delaying 8 tactics and because of the limited importance of pleadings in federal practice.’” Cortina v. 9 Goya Foods, Inc., 94 F. Supp. 3d 1174, 1182 (S.D. Cal. 2015) (quoting Rosales v. Citibank, 10 133 F. Supp. 2d 1177, 1180 (N.D. Cal. 2001)). “[M]otions to strike should not be granted 11 unless it is clear that the matter to be stricken could have no possible bearing on the subject 12 matter of the litigation.” Colaprico v. Sun Microsystems, Inc., 758 F. Supp. 1335, 1339 13 (N.D. Cal. 1991). “When ruling on a motion to strike, this Court ‘must view the pleading 14 under attack in the light most favorable to the pleader.’” Id. (citing RDF Media Ltd. v. Fox 15 Broad. Co., 372 F. Supp. 2d 556, 561 (C.D. Cal. 2005)). 16 Finally, this Court recently held that the Twombly and Iqbal pleading standard 17 applies to affirmative defenses. Rahman v. San Diego Account Service, No. 16CV2061- 18 JLS (KSC), 2017 WL 1387206 (S.D. Cal. Apr. 18, 2017). While the Court acknowledged 19 that district courts are split on the issue, it ultimately determined that Wyshak’s “fair notice” 20 standard, which relied on the sole case of Conley v. Gibson, 355 U.S. 41 (1957), had 21 necessarily been abrogated by the Supreme Court’s decisions in Twombly and Iqbal. Id. at 22 *2. “Accordingly, ‘fair notice’ necessarily now encompasses the ‘plausibility’ standard; 23 whatever standard ‘fair notice’ previously encompassed no longer exists.” Id. Thus, the 24 Court here reviews Defendants’ affirmative defenses for plausibility. 25 ANALYSIS 26 Plaintiff seeks to strike Defendants’ Second Affirmative Defense of Invalidity, 27 Fourth Affirmative Defense of Equitable Doctrines, Seventh Affirmative Defense of 28 Inadequate Pre-Suit Investigation, Eighth Affirmative Defense of Inequitable Conduct, and 2 15-CV-1058 JLS (DHB) 1 Ninth Affirmative Defense of Fraud on the United States Patent and Trademark Office 2 (“USPTO”). (See generally MTS.) The Court considers each in turn. 3 I. Second Affirmative Defense of Invalidity 4 Defendants’ second affirmative defense of invalidity alleges: “One or more claims 5 of the ’433 patent and ’589 patent are invalid for the failure to satisfy the preconditions of 6 patentability set forth in 35 U.S.C. §§ 101, 102, 103, 112, and/or 116.” (MTS 7–81 (citing 7 Def. Zero Gravity Inside, Inc.’s (“ZGI”) Ans. 9, ECF No. 54).) Plaintiffs argue that this 8 assertion fails to place Plaintiffs on notice of the particular factual or legal basis for this 9 alleged defense. (Id. at 8.) 10 The Court agrees. As discussed above, in the absence of binding authority to the 11 contrary, the Court applies the Twombly/Iqbal standard to Defendants’ pleading of their 12 affirmative defenses. The Court previously explained that 13 14 [s]ince Twombly and Iqbal, district courts in the Ninth Circuit have come to differing conclusions regarding whether those cases necessitate a different interpretation of Wyshak’s “fair notice” standard. See, e.g., J & J Sports Prods., Inc. v. Scace, No. 10CV2496-WQH-CAB, 2011 WL 2132723, at *1 (S.D. Cal. May 27, 2011) (discussing split). Ultimately, this Court agrees with the numerous district courts that have concluded the Twombly and Iqbal “plausibility” standard applies with equal force to the pleading of affirmative defenses. Although there is a valid question as to whether the logic of Twombly and Iqbal—rendered in the context of Rule 8(a)—applies with equal force to Rule 8(c) governing affirmative defenses, this Court concludes that Wyshak compels application of the plausibility standard to pleading affirmative defenses. Specifically, the only case Wyshak cited to support its “fair notice” standard is Conley v. Gibson, 355 U.S. 41, 47–48 (1957), Wyshak, 607 F.2d at 827, and Conley has since been abrogated insofar as it permitted pleading at a standard lower than Twombly's plausibility standard, see Twombly, 550 U.S. at 555, 560–61 (citing Conley for “fair notice” rule statement immediately prior to articulating “plausibility” standard and expressly abrogating Conley's “no set of facts” language). Accordingly, “fair notice” necessarily now encompasses the “plausibility” standard; whatever 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1 Pin citations to docketed material refer to the CM/ECF numbers electronically stamped at the top of each page. 3 15-CV-1058 JLS (DHB) 1 2 3 4 standard “fair notice” previously encompassed no longer exists. E.g., Madison v. Goldsmith & Hull, No. 5:13-CV-01655 EJD, 2013 WL 5769979, at *1 (N.D. Cal. Oct. 24, 2013); Gonzalez v. Heritage Pac. Fin., LLC, No. 2:12CV-01816-ODW, 2012 WL 3263749, at *2 (C.D. Cal. Aug. 8, 2012); Perez v. Gordon & Wong Law Grp., P.C., No. 11-CV-03323-LHK, 2012 WL 1029425, at *6–8 (N.D. Cal. Mar. 26, 2012). 5 6 7 Rahman, 2017 WL 1387206, at *2; see also Malibu Media, LLC v. Peterson, No. 16-CV- 8 786 JLS (NLS), 2017 WL 1550091, at *3 (S.D. Cal. May 1, 2017) (applying the 9 Twombly/Iqbal standard to pleading affirmative defenses). Although Defendants urge the 10 Court to reverse course, (Opp’n 10–11), the Court will not do so based simply on non- 11 binding caselaw that predates this Court’s Rahman decision. (See id. (citing Kohler v. 12 Staples the Office Superstore, LLC, 291 F.R.D. 464, 468 (S.D. Cal. 2013).) 13 To be sure, Defendants attempt to distinguish Rahman in their efforts to avoid 14 applicability of the Twombly/Iqbal pleading standards to their affirmative defenses. They 15 first argue that “the clear distinguishing point” is that Rahman did not involve patent 16 infringement claims. (Opp’n 11.) But there is nothing inherently clear about that. Nor do 17 Defendants explain why that difference matters, much less why it clearly matters. To the 18 contrary, this Court—and others—have recently held that Twombly/Iqbal applies, for 19 example, to complaints for patent infringement. See, e.g., Scripps Research Inst. v. 20 Illumina, Inc., No. 16-CV-661 JLS (BGS), 2016 WL 6834024, at *5 (S.D. Cal. Nov. 21, 21 2016) (explaining that Twombly/Iqbal apply to pleading patent infringement claims); 22 Footbalance Sys. Inc. v. Zero Gravity Inside, Inc., No. 15-CV-1058 JLS (DHB), 2016 WL 23 5786936, at *3 (S.D. Cal. Oct. 4, 2016) (same and further noting that the Court “is not 24 convinced that holding [plaintiff’s] complaint for patent infringement to the same standard 25 as nearly every other civil action filed in federal court would be unjust or impracticable”). 26 Defendants’ argument that the Patent Local Rules obviate the need for plausible 27 pleadings is a bit stronger, but still fails to carry the day. Specifically, Defendants argue 28 that Patent Local Rule 3.3 addresses the timing for the disclosure of factual support for an 4 15-CV-1058 JLS (DHB) 1 affirmative defense. (Opp’n 11–12.) That is partially true, but Defendants’ characterization 2 is misleading. Specifically, Defendants are right that Patent Local Rule 3.3, titled 3 “Invalidity Contentions,” requires each party opposing a claim of patent infringement to 4 serve its invalidity contentions, which, among other things, contain the party’s factual 5 support and legal arguments that a patent is invalid. 6 But Defendants are wrong that Patent Local Rule 3.3 “addresse[s] the timing for the 7 disclosure of factual support for an affirmative defense.” (Opp’n 11–12 (emphasis added); 8 see also id. at 12 n.2 (“This Court’s Local Patent Rule 3.3 sets forth the time in which 9 Defendants must detail facts to support an affirmative defense. Through the motion to 10 strike, Plaintiffs attempt to impose a different schedule on Defendants to set forth their 11 invalidity theories, which is plainly inconsistent with this Court’s Rules.”).) As an initial 12 matter, Patent Local Rule 3.3 does not reference a party’s pleading obligations, much less 13 specifically address the time to disclose factual support for the same. So Defendants’ 14 argument is wrong on its face. 15 Furthermore, even if it did, these Patent Local Rules cannot supplant the Supreme 16 Court’s directives in Twombly/Iqbal, which clarified the pleading standards under the 17 Federal Rules of Civil Procedure. See, e.g., Fed. R. Civ. P. 83(a)(1) (noting that a local rule 18 must be consistent with federal statutes and rules adopted under 28 U.S.C. §§ 2072 and 19 2075). In other words, Defendants are bound by the pleading standards announced in 20 Twombly and Iqbal, regardless of what a local rule says. 21 Finally, the requirements of pleading under Twombly and Iqbal and the information 22 contained in invalidity contentions under Patent Local Rule 3.3 are separate and not 23 inconsistent. The Court does not here suggest that Defendants’ affirmative defenses must 24 contain the same depth of analysis and factual support required by this District’s local rules. 25 All that Twombly and Iqbal require is plausibility. As the Court previously explained when 26 discussing a similar argument made as to the Patent Local Rules governing infringement 27 contentions: 28 5 15-CV-1058 JLS (DHB) [T]he Court’s holding does not require a patentee to plead with the specificity required in its infringement contentions, which Plaintiff seems to suggest. (Opp’n 5, ECF No. 23.) As Plaintiff explains, its infringement contentions “will provide information concerning how each limitation of the asserted claims [is] met by the accused products.” (Id. (emphasis added).) Here, however, Plaintiff must simply provide sufficient factual allegations concerning how each limitation of the asserted claims is plausibly met by the accused products. See e.Digital, 2016 WL 4427209, at *4 (“To require a patentee to plausibly allege that the accused product practices each of the limitations in at least one asserted claim should not impose an undue burden on most plaintiffs, because a patentee is already required to perform an adequate pre-filing investigation before bringing suit.”) (citation omitted); see also TeleSign Corp. v. Twilio, Inc., No. CV 16-2106 PSG (SSX), 2016 WL 4703873, at *4 (C.D. Cal. Aug. 3, 2016) (“[I]t is irrelevant at this stage whether Plaintiff’s allegations are accurate, as the Court accepts all of Plaintiff’s allegations as true . . . . The Court only requires that Plaintiff plausibly alleges that a product or products of Defendant infringes on at least one claim of the [asserted] patent.”). 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Scripps, 2016 WL 6834024, at *6. 16 Finally, Defendants argue that “[a]lthough not required to do so, [they] have 17 nonetheless addressed in their proposed amended answers Plaintiffs’ arguments regarding 18 the invalidity defense” and have ostensibly provided more factual allegations that might 19 nudge their affirmative defenses from conclusory to plausible. (Opp’n 14.) But the Court 20 does not here assess the plausibility of Defendants’ proposed amended answers, which are 21 not the target of Plaintiffs’ Motion to Strike. Defendants will, of course, have an 22 opportunity to amend their answers to include whatever information they believe will 23 support their affirmative defenses. And the Court may have occasion to assess their 24 plausibility should Plaintiffs file another motion to strike. But that would be a question for 25 another day. Today the Court simply concludes that Defendants’ affirmative defense of 26 invalidity is conclusory and thus implausible. Accordingly, the Court GRANTS this 27 portion of Plaintiffs’ Motion to Strike. 28 /// 6 15-CV-1058 JLS (DHB) 1 II. Fourth Affirmative Defense of Equitable Doctrines 2 Defendants’ fourth affirmative defense of equitable doctrines alleges “Plaintiffs are 3 barred from asserting the patents-in-suit against Zero Gravity, in whole or in part, by the 4 equitable doctrines of laches, estoppel, unclean hands, and/or waiver.” (MTS 8 (citing Def. 5 ZGI’s Ans. 9).) Plaintiffs argue the Court should strike this affirmative defense because it 6 fails to plead any facts to support their alleged equitable defenses. (Id.) 7 The Court agrees—without any factual allegations the Court is unable to determine 8 whether these defenses are plausible. Defendants again argue that they are not subject to a 9 heightened pleading standard, (Opp’n 14), which the Court again rejects for the reasons 10 already stated. Defendants also appear to argue that their amended answers will provide 11 the necessary factual allegations to support these defenses. (Id. at 15.) As discussed, the 12 Court does not here assess the adequacy of Defendants’ proposed amended answers, 13 focusing instead on what has been filed and what is before the Court. Defendants are now 14 on notice that their defenses, including these, must include factual allegations sufficient to 15 make them plausible. Accordingly, the Court GRANTS this portion of Plaintiffs’ Motion 16 to Strike. 17 III. Seventh Affirmative Defense of Inadequate Pre-Suit Investigation 18 Defendants’ seventh affirmative defense of inadequate pre-suit investigation alleges 19 that “Plaintiffs failed to conduct a proper or adequate investigation prior to filing this suit, 20 for had they done so, they would have recognized that the thermoplastic component of Zero 21 Gravity’s product does not extend to the metatarsal phalangeal joint of the foot, which is a 22 claimed element in all claims of Plaintiffs’ patents, as described in the specification of the 23 asserted patents and as admitted by Plaintiffs before the PTAB.” (See, e.g., Def. ZGI Ans. 24 10.) Plaintiffs argue the Court should strike Defendants’ defense of an inadequate pre-suit 25 investigation because the defense “simply states a legal conclusion and fails to inform 26 Plaintiffs as to the theory underpinning their alleged defense.” (MTS 9.) While Defendants 27 do not agree with Plaintiffs’ argument, they note that they have removed this defense from 28 their proposed amended answers, thus rendering moot this issue. (Opp’n 15–16.) Because 7 15-CV-1058 JLS (DHB) 1 the Court will grant Defendants an opportunity to amend their answers, which will 2 presumably exclude this affirmative defense, the Court DENIES AS MOOT this portion 3 of Plaintiffs’ Motion to Strike. 4 IV. Eighth Affirmative Defense of Inequitable Conduct Defendants’ eighth affirmative defense of inequitable conduct alleges that: 5 6 7 Plaintiffs are not entitled to any legal or equitable relief due to their inequitable conduct before the United States Patent and Trademark Office regarding the origin and development of Plaintiffs’ patents. The asserted patents, U.S. Patent No. 7,793,433 (“the ‘433 patent”) and U.S. Patent No. 8,171,589 (“the ‘589 patent”), are unenforceable due to the inequitable conduct of Erkki Hakkala, the sole named inventor of the asserted patents and the founder and CEO of Plaintiffs. Mr. Hakkala filed for exceedingly broad claims covering subject matter that was unquestionably found in prior art that Mr. Hakkala was aware of at the time the patent applications were filed. Mr. Hakkala deliberately withheld the existence of this prior art from the United States Patent & Trademark Office (“USPTO”) in order to obtain allowance of these broad and plainly invalid claims. Mr. Hakkala also violated his duty of candor by failing to disclose material information to the examiner through the Information Disclosure Statement. 8 9 10 11 12 13 14 15 16 17 18 (Def. ZGI Ans. 10.) 19 20 Plaintiffs argue that this affirmative defense fails to meet the heightened pleading standard required for pleading inequitable conduct. (MTS 4–7.) 21 “Inequitable conduct resides in failure to disclose material information, or 22 submission of false material information, with an intent to deceive, and those two elements, 23 materiality and intent, must be proven by clear and convincing evidence.” Kingsdown Med. 24 Consultants, Ltd. v. Hollister Inc., 863 F.2d 867, 872 (Fed. Cir. 1988). Intent and 25 materiality are separate requirements. See Therasense, Inc. v. Becton, Dickinson & Co., 26 649 F.3d 1276, 1289–90 (Fed. Cir. 2011). But-for materiality is required to establish 27 inequitable conduct. Id. at 1291–92. 28 /// 8 15-CV-1058 JLS (DHB) 1 Under Federal Rule of Civil Procedure 9(b), “[i]n alleging fraud or mistake, a party 2 must state with particularity the circumstances constituting fraud or mistake.” The Federal 3 Circuit has held that inequitable conduct must be pled with specificity in accordance with 4 Rule 9(b). See Ferguson Beauregard/Logic Controls, Div. of Dover Res., Inc. v. Mega Sys., 5 LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003) (“[I]nequitable conduct, while a broader 6 concept than fraud, must be pled with particularity.”).2 “[T]o plead the circumstances of 7 inequitable conduct with the requisite particularity under Rule 9(b), the pleading must 8 identify the specific who, what, when, where, and how of the material misrepresentation 9 or omission committed before the PTO.” Exergen, 575 F.3d at 1328. A pleading of 10 inequitable conduct must include sufficient facts from which a court can “reasonably infer 11 that a specific individual both knew of invalidating information that was withheld from the 12 PTO and withheld that information with a specific intent to deceive the PTO.” Delano 13 Farms Co. v. Cal. Table Grape Comm’n, 655 F.3d 1337, 1350 (Fed. Cir. 2011). “A 14 reasonable inference is one that is plausible and that flows logically from the facts alleged, 15 including any objective indications of candor and good faith.” Exergen, 575 F.3d at 1329 16 n.5. 17 Plaintiffs argue that Defendants fail to plead with particularity the who, what, when, 18 where, and how of the material misrepresentation committed before the USPTO. (MTS 5– 19 7.) Defendants do not argue that their affirmative defenses, as they currently stand, are 20 sufficiently pled under this exacting pleading standard. (Opp’n 9.) Rather, Defendants 21 argue that “as detailed [in their opposition brief], as well as in the proposed amended 22 23 24 25 26 27 28 2 Although procedural matters such as motions to dismiss are typically governed by regional circuit law rather than Federal Circuit law, the Federal Circuit has expressly held that its law controls over the question of whether inequitable conduct has been pled with particularity under Rule 9(b). Central Admixture Pharmacy Servs., Inc. v. Adv. Cardiac Sols., P.C., 482 F.3d 1347, 1356 (Fed. Cir. 2007) (“Whether inequitable conduct has been adequately pled is a procedural matter, but since it bears on an issue that pertains to or is unique to patent law, we will apply our own law to the question of whether the pleadings were adequate.” (internal quotation marks omitted)); Exergen Corp. v. Wal–Mart Stores, Inc., 575 F.3d 1312, 1326–27 (Fed Cir. 2009) (“[W]e apply our own law, not the law of the regional circuit, to the question of whether inequitable conduct has been pleaded with particularity under Rule 9(b).”). 9 15-CV-1058 JLS (DHB) 1 answers, the available information regarding . . . inequitable conduct and fraud on the 2 USPTO is plentiful and more than enough to set forth the defenses.” (Id.) Of course, the 3 Court cannot consider this information in assessing Plaintiff’s Motion to Strike 4 Defendants’ filed Answers. But Defendants will have an opportunity to amend their 5 answers to provide this—and other—detail they believe will support a plausible affirmative 6 defense of inequitable conduct. Accordingly, the Court GRANTS this portion of Plaintiffs’ 7 Motion to Strike.3 8 CONCLUSION 9 For the foregoing reasons, the Court GRANTS IN PART and DENIES IN PART 10 Plaintiffs’ Motion to Strike (ECF No. 59). However, the Court GRANTS Defendants 11 LEAVE TO AMEND their answers to address the pleading deficiencies in their 12 affirmative defenses. Accordingly, Defendants SHALL FILE their amended answers on 13 or before fourteen days from the date on which this Order is electronically docketed. 14 15 IT IS SO ORDERED. Dated: September 5, 2017 16 17 18 19 20 21 22 23 24 25 26 27 28 The Court also GRANTS Plaintiffs’ Motion to Strike Defendants’ ninth affirmative defense of fraud on the USPTO. Specifically, Plaintiffs’ arguments against this affirmative defense mirror their arguments as to Defendants’ defense of inequitable conduct. (MTS 4–7.) And Defendants’ response in opposition does the same. (Opp’n 9–10.) As discussed, Defendants will have an opportunity to amend their answers to include more detail as to their affirmative defense of fraud on the USPTO. 3 10 15-CV-1058 JLS (DHB)

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