3D Medical Imaging Systems, LLC. v. Visage Imaging, Inc. et al
Filing
90
ORDER that Counterclaim Defendants Motion for Partial Summary Judgment 67 is DENIED and Defendants Cross-Motion for Partial Summary Judgment 72 is GRANTED. Signed by Judge Richard W. Story on 01/11/2017. (rsg)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
GAINESVILLE DIVISION
3D MEDICAL IMAGING
SYSTEMS, LLC,
Plaintiff,
v.
VISAGE IMAGING, INC., and
PRO MEDICUS LIMITED,
Defendants,
v.
3D MEDICAL IMAGING
SYSTEMS, LLC, MEDFLEX,
LLC, and MAURICE L. BAILEY,
Counterclaim Defendants.
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CIVIL ACTION NO.
2:14-CV-267-RWS
ORDER
This case comes before the Court on Counterclaim Defendants 3D
Medical Imaging Systems, LLC,1 MedFlex, LLC, and Maurice Bailey’s Motion
for Partial Summary Judgment [67] and Defendants Visage Imaging, Inc. and
Pro Medicus Limited’s Cross-Motion for Partial Summary Judgment [72].
1
While 3D Medical Imaging Systems, LLC is also the Plaintiff in this case, for
ease, the Court will refer to it solely as one of the Counterclaim Defendants.
AO 72A
(Rev.8/82)
After reviewing the record, the Court enters the following Order.
Background
This is a patent case. The patent in question is U.S. Patent No. 6,175,655
(“the ‘655 patent”), which the United States Patent and Trademark Office
(“PTO”) issued on January 16, 2001 to Integrated Medical Systems, Inc.
(“IMS”), a non-party to this case. The ‘655 patent expired on January 16,
2013, because IMS decided not to pay the relevant maintenance fee to the PTO.
After his company acquired the ‘655 patent out of IMS’s bankruptcy estate,
Counterclaim Defendant Maurice Bailey petitioned the PTO to reinstate the
‘655 patent under the “unintentional delay” standard for late payment of
maintenance fees. See 37 C.F.R. § 1.378(a)-(b). At the time, Mr. Bailey did
not know whether IMS’s non-payment of the maintenance fee was in fact
unintentional. Nonetheless, the PTO granted his Petition and reinstated the
‘655 patent. The sole issue here is whether Mr. Bailey’s certification that the
non-payment of the maintenance fee was “unintentional” constitutes
inequitable conduct such that the ‘655 patent is unenforceable.
I.
Statutory Background
To maintain a patent, its owner must pay maintenance fees to the PTO at
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various points throughout the patent’s life. See 35 U.S.C. § 41(b). Those
maintenance fees are due 3.5 years, 7.5 years, and 11.5 years after the patent is
granted. Id. § 41(b)(1)(A)-(C). “Unless payment of the applicable
maintenance fee . . . is received [by the PTO] on or before the date the fee is
due or within a grace period of 6 months thereafter, the patent shall expire as of
the end of such grace period.” Id. § 41(b)(2).
But even if a patent owner fails to pay a maintenance fee on time, 35
U.S.C. § 41(c)(1) authorizes the PTO Director to accept delayed maintenance
fees and to revive an expired patent under certain circumstances. It says, in
relevant part: “The Director may accept the payment of any maintenance fee
required by subsection (b) after the 6-month grace period if the delay is shown
to the satisfaction of the Director to have been unintentional.” 35 U.S.C. §
41(c)(1). PTO regulations then lay out the specific requirements for a petition
to accept an unintentionally delayed payment:
Any petition to accept an unintentionally delayed payment of a
maintenance fee must include:
(1) The required maintenance fee set forth in § 1.20(e)
through (g);
(2) The petition fee as set forth in § 1.17(m); and
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(3) A statement that the delay in payment of the
maintenance fee was unintentional. The Director may
require additional information where there is a question
whether the delay was unintentional.
37 C.F.R. § 1.378(b) (emphasis added). If the PTO grants a petition for late
payment, “the patent shall be considered as not having expired at the end of the
grace period.” 35 U.S.C. § 41(c)(1).
II.
Factual and Procedural Background
Just before the 11.5-year maintenance fee was due on the ‘655 patent,
IMS’s patent attorney sent letters to IMS’s president advising him that, to avoid
lapse of the ‘655 patent, IMS needed to pay the 11.5-year maintenance fee on
or before January 16, 2013. (July 13, 2012 Brunda Letter, Dkt. [72-31] at 2.)
IMS’s president responded, “[u]nfortunately, I think we will need to let [the
‘655 patent] go.” (Jan. 7, 2013 Kneale Email, Dkt. [72-15] at 1.) IMS’s patent
attorney then confirmed that they would take no further action as to the ‘655
patent. (Jan. 8, 2013 Delgadillo Email, Dkt. [72-15] at 1.) Because IMS did
not pay the 11.5-year maintenance fee, the ‘655 patent expired on January 16,
2013. (Not. of Patent Expir., Dkt. [72-16].) Shortly thereafter, IMS filed for
bankruptcy. (Counterclaim Defs.’ Resp. to Defs.’ Statement of Undisputed
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Mat. Facts (“CC Defs.’ SMF Resp.”), Dkt. [78-1] ¶ 26.)
On February 7, 2014, the bankruptcy court authorized the sale of IMS’s
patent portfolio by auction. (Id. ¶ 28.) On April 8, 2014, IMS’s bankruptcy
trustee assigned some of IMS’s patents, including the ‘655 patent, to
Counterclaim Defendant MedFlex, LLC (“MedFlex”). (Id. ¶ 29.) Mr. Bailey is
MedFlex’s sole owner and member. (Defs.’ Resp. to Counterclaim Defs.’
Statement of Undisputed Mat. Facts (“Defs.’ SMF Resp.”), Dkt. [72-3] ¶ 2).
MedFlex then assigned the ‘655 patent to Counterclaim Defendant 3D Medical
Systems, LLC (“3D Medical”). (CC Defs.’ SMF Resp., Dkt. [78-1] ¶ 8.) As
with MedFlex, Mr. Bailey is the sole owner and member of 3D Medical.
(Defs.’ SMF Resp., Dkt. [72-3] ¶ 1.) He is also 3D Medical’s only employee.
(Bailey Depo., Dkt. [72-8] at 17.)
When MedFlex acquired the ‘655 patent, Mr. Bailey knew that it had
expired because IMS failed to pay the 11.5-year maintenance fee. (Defs.’ SMF
Resp., Dkt. [72-3] ¶ 5.) He also knew that IMS had filed for bankruptcy
roughly two months after the 11.5-year maintenance fee was due. (Id. ¶ 14.)
Nonetheless, he understood that the PTO has a procedure by which an expired
patent can be reinstated if: (1) the owner pays the original maintenance fee plus
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a late fee; and (2) the delay in payment was unintentional. (Id. ¶ 6). So Mr.
Bailey submitted to the PTO a “Petition to Accept Unintentionally Delayed
Payment of Maintenance Fee in an Expired Patent (37 CFR 1.378(b))” (“the
Petition”). (Id. ¶ 8.) He did so using the PTO’s online standard form, which
was pre-populated with the statement: “The undersigned certifies that the delay
in payment of the maintenance fee to this patent was unintentional.” (Id. ¶¶ 910.) The online standard form did not provide any space for further
explanation about the delay in payment. (Id. ¶¶ 11-12.)
Mr. Bailey acknowledges that when he submitted the Petition he had no
personal knowledge of IMS’s motivations in not paying the maintenance fee on
time. (Id. ¶ 17.) He also acknowledges that he submitted the Petition without
any investigation into the circumstances of IMS’s non-payment of the
maintenance fee. (CC Defs.’ SMF Resp., Dkt. [78-1] ¶ 40.) The PTO granted
the Petition on the same day Mr. Bailey submitted it. (Defs.’ SMF Resp., Dkt.
[72-3] ¶ 13.)
On November 7, 2014, 3D Medical filed this suit against Defendants
Visage Imaging, Inc. (“Visage”) and Pro Medicus Limited (“Pro Medicus”)
(collectively “Defendants”), alleging infringement of the ‘655 patent. In their
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Amended Answers, Defendants raise the affirmative defense of inequitable
conduct, alleging that the ‘655 patent is unenforceable because Mr. Bailey
made a false statement in the Petition when he certified that IMS’s failure to
pay the 11.5-year maintenance fee was unintentional. (Visage’s First Am.
Answer, Dkt. [60] at 7-8; Pro Medicus’s First Am. Answer, Dkt. [61] at 20-21.)
Visage also filed four counterclaims against 3D Medical, MedFlex, and Mr.
Bailey (collectively “Counterclaim Defendants”) for: (1) a declaratory
judgment that the ‘655 patent is unenforceable due to inequitable conduct; (2)
bad faith assertions of patent infringement under O.C.G.A. § 10-1-770 et seq.;
(3) deceptive trade practices under O.C.G.A. § 10-1-370 et seq.; and (4)
attorney’s fees and costs under 35 U.S.C. § 285. (See Visage’s First
Counterclaims, Dkt. [62].) Counterclaim Defendants have now filed a Motion
for Partial Summary Judgment [67] on the issue of alleged inequitable conduct.
Defendants have filed a Cross-Motion for Partial Summary Judgment [72] on
the same issue.
Discussion
I.
Legal Standard
Federal Rule of Civil Procedure 56 requires that summary judgment be
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granted “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P.
56(a). “The moving party bears ‘the initial responsibility of informing the . . .
court of the basis for its motion, and identifying those portions of the
pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, which it believes demonstrate the absence
of a genuine issue of material fact.’” Hickson Corp. v. N. Crossarm Co., 357
F.3d 1256, 1259 (11th Cir. 2004) (quoting Celotex Corp. v. Catrett, 477 U.S.
317, 323 (1986) (internal quotations omitted)). Where the moving party makes
such a showing, the burden shifts to the non-movant, who must go beyond the
pleadings and present affirmative evidence to show that a genuine issue of
material fact does exist. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257
(1986).
The applicable substantive law identifies which facts are material. Id. at
248. A fact is not material if a dispute over that fact will not affect the outcome
of the suit under the governing law. Id. An issue is genuine when the evidence
is such that a reasonable jury could return a verdict for the non-moving party.
Id. at 249-50.
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In resolving a motion for summary judgment, the court must view all
evidence and draw all reasonable inferences in the light most favorable to the
non-moving party. Patton v. Triad Guar. Ins. Corp., 277 F.3d 1294, 1296 (11th
Cir. 2002). But, the court is bound only to draw those inferences that are
reasonable. “Where the record taken as a whole could not lead a rational trier
of fact to find for the non-moving party, there is no genuine issue for trial.”
Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
“If the evidence is merely colorable, or is not significantly probative, summary
judgment may be granted.” Anderson, 477 U.S. at 249-50 (internal citations
omitted); see also Matsushita, 475 U.S. at 586 (once the moving party has met
its burden under Rule 56(a), the nonmoving party “must do more than simply
show there is some metaphysical doubt as to the material facts”).
Finally, the filing of cross-motions for summary judgment does not give
rise to any presumption that no genuine issues of material fact exist. Rather,
“[c]ross-motions must be considered separately, as each movant bears the
burden of establishing that no genuine issue of material fact exists and that it is
entitled to judgment as a matter of law.” Shaw Constructors v. ICF Kaiser
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Eng’rs, Inc., 395 F.3d 533, 538-39 (5th Cir. 2004).
II.
Analysis
The sole issue here is whether, by certifying that IMS’s non-payment of
the 11.5-year maintenance fee was unintentional, Mr. Bailey engaged in
inequitable conduct. Inequitable conduct is an equitable defense to patent
infringement that, if proved, bars enforcement of the patent. Therasense, Inc.
v. Becton, Dickinson and Co., 649 F.3d 1276, 1285 (Fed. Cir. 2011) (en banc).
“To prove inequitable conduct, the challenger must show by clear and
convincing evidence that the patent applicant (1) misrepresented or omitted
information material to patentability, and (2) did so with specific intent to
mislead or deceive the PTO.” In re Rosuvastatin Calcium Patent Litig., 703
F.3d 511, 519 (Fed. Cir. 2012) (citing Therasense, 649 F.3d at 1287).
“Materiality and intent must be separately established.” Id. While inequitable
conduct is most often based on conduct occurring during patent prosecution,
the Federal Circuit has also applied it to conduct that takes place after a patent
has issued. See Ulead Sys., Inc. v. Lex Comput. & Mgmt. Corp., 351 F.3d
1139, 1144 (Fed. Cir. 2003) (extending the doctrine of inequitable conduct
“into other contexts, like the present one, where the allegation is that
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inequitable conduct has occurred after the patent has issued and during the
course of establishing and paying the appropriate maintenance fee”).
Before even arriving at the elements of inequitable conduct,
Counterclaim Defendants argue that Mr. Bailey’s certification cannot constitute
inequitable conduct due to the Federal Circuit’s decision in Network
Signatures, Inc. v. State Farm Mut. Auto Ins. Co., 731 F.3d 1239 (Fed. Cir.
2013). That case, like this one, involved allegations of inequitable conduct in
the process of paying a maintenance fee. There, the patent at issue lapsed when
the attorney for the patent owner—the Naval Research Laboratory
(“NRL”)—chose not to pay the 7.5-year maintenance fee because he did not
know of any commercial interest in the patent. Id. at 1241. Within two weeks
after the final payment deadline, Network Signatures contacted the NRL to
inquire about licensing the patent.2 Id. Network Signatures had been trying to
reach the NRL since before the deadline but with no success. Id. Immediately
after receiving the inquiry, the NRL’s attorney filed a petition with the
PTO—seemingly identical to the one Mr. Bailey filed—for delayed payment of
2
To be precise, the company that contacted the NRL was actually Network
Signatures’ predecessor.
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the maintenance fee. Id. That petition, like the one here, was on the PTO’s
standard form and was pre-populated with the statement that the delay in
payment was “unintentional.” Id. The PTO granted the NRL’s petition a week
later. Id. The NRL then licensed the patent to Network Signatures. Id.
Faced with infringement allegations, the defendant in Network
Signatures argued that the patent was unenforceable. It claimed that the NRL’s
attorney committed inequitable conduct in certifying that the delay in payment
was “unintentional” when, in truth, he paid the fee only after learning of
Network Signatures’ interest. Id. The district court found that the certification
was inequitable conduct, but the Federal Circuit reversed. Id. at 1243-44. In
doing so, it held that the NRL attorney’s “compliance with the standard PTO
procedure for delayed payment, using the PTO form for delayed payment, does
not provide clear and convincing evidence of withholding of material
information with the intent to deceive the Director.” Id. at 1243. The Federal
Circuit also noted an “‘unwillingness to extinguish the statutory presumption of
validity’ where the patentee’s conduct ‘did not affect the issuance of the
patent.’” Id. at 1244 (citing Therasense, 649 F.3d at 1291).
Counterclaim Defendants argue that the Federal Circuit’s language in
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Network Signatures immunizes them from a finding of inequitable conduct
because Mr. Bailey used the PTO’s standard form. (Counterclaim Defs.’ Br. in
Supp. of Mot. for Part. Summ. J. (“CC Defs.’ MPSJ Br.”), Dkt. [67-1] at 14.)
The Court rejects that argument for two reasons.
First, a key factual difference separates this case from Network
Signatures. The NRL’s attorney had personal knowledge of the reasons for
non-payment; Mr. Bailey did not. When he submitted the petition, the NRL’s
attorney knew that the reason he did not pay the maintenance fee was his
mistaken belief that there was a lack of commercial interest in the patent.
Whether he was right or not, he could have thought that his mistake of fact
meant his non-payment was indeed “unintentional.” Put another way, he at
least knew of facts that informed his certification. Not so with Mr. Bailey. It is
undisputed that Mr. Bailey had no personal knowledge of IMS’s motivations
for failing to pay the maintenance fee on time. (Defs.’ SMF Resp., Dkt. [72-3]
¶ 17.) Nor did he conduct any investigation into whether IMS’s failure to pay
was intentional or unintentional. (Bailey Depo., Dkt. [72-8] at 84:6-12.) So
unlike the NRL’s attorney, Mr. Bailey submitted the Petition without any idea
of whether his certification was true.
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Second, and perhaps more importantly, if Counterclaim Defendants’
interpretation of Network Signatures were correct, it would mean that
inequitable conduct could never arise from the payment of a late maintenance
fee as long as the patentee used the PTO’s standard form. But the Federal
Circuit’s holding in Network Signatures is not that broad. Again, it says that
“Mr. Karasek’s [the NRL attorney] compliance with the standard PTO
procedure . . . does not provide clear and convincing evidence of withholding
of material information with the intent to deceive the Director.” Network
Signatures, 731 F.3d at 1243 (emphasis added). That is not the language of a
sweeping rule. Rather, it reflects a holding limited to the particular
circumstances at hand.
A narrower reading of Network Signatures also follows from other
Federal Circuit cases, which confirm that inequitable conduct can arise in
circumstances similar to those here. For example, in Ulead, the Federal Circuit
noted that inequitable conduct can occur when a patentee “makes a request to
correct incorrect payment of [maintenance] fees as a small entity knowing that
it does not satisfy the good faith standard [required to make that request].”
Ulead, 351 F.3d at 1150; see also Nilssen v. Osram Sylvania, Inc., 504 F.3d
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1223, 1231 (Fed. Cir. 2007) (“[I]t is not beyond the authority of a district court
to hold a patent unenforceable for inequitable conduct in misrepresenting one’s
status as justifying small entity maintenance payments.”). Likewise, in
Aristocrat, the Federal Circuit addressed the importance of “the [patent]
applicant’s absolute compliance with the internal rules of patent examination.”
Aristrocrat Techs. Australia PTY Ltd. v. Int’l Game Tech., 543 F.3d 657, 663
(Fed. Cir. 2008). It noted that such compliance “becomes irrelevant after the
patent has issued,” but only “[a]bsent proof of inequitable conduct.” Id. Put
another way, “where the procedural irregularity involves an ‘affirmative
misrepresentation of a material fact . . . coupled with an intent to deceive,’ it
may rise to the level of inequitable conduct.” Id. (citing Innogenetics, N.V. v.
Abbott Labs., 512 F.3d 1363, 1378 (Fed. Cir. 2008)). So inequitable conduct
can arise in many different contexts—including post-issuance procedural
matters like the payment of maintenance fees—as long as its elements are met.
Network Signatures does not stand for the broad proposition that Counterclaim
Defendants argue, nor does it bar a finding of inequitable conduct in this case.
Even so, Defendants still bear the burden of proving, by clear and
convincing evidence: (1) that Mr. Bailey made a material misrepresentation or
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omission; and (2) that he did so with the specific intent to mislead or deceive
the PTO. See In re Rosuvastatin, 703 F.3d at 519 (citing Therasense, 649 F.3d
at 1287). The Court finds that Defendants have carried their burden.
First, the Court notes that Mr. Bailey’s certification was indeed a
misrepresentation. In certifying that IMS’s non-payment was “unintentional,”
Mr. Bailey represented to the PTO that he knew that to be true. In reality,
however, Mr. Bailey lacked any knowledge of why IMS did not pay the
maintenance fee. (Defs.’ SMF Resp., Dkt. [72-3] ¶ 17.) In that sense, Mr.
Bailey’s certification was a misrepresentation because it represented that he
knew something he did not. Going one step further, even if Mr. Bailey had
known why IMS did not pay the maintenance fee, he could not have truthfully
certified that its non-payment was “unintentional.” The correspondence
between IMS’s president and its patent attorney show a deliberate decision “to
let [the ‘655 patent] go.” (Jan. 7, 2013 Kneale Email, Dkt. [72-15] at 1.) So
even setting Mr. Bailey’s willful blindness aside, his certification was still a
misrepresentation.
Next, the Court finds that Mr. Bailey’s misrepresentation was material.
Materiality exists when “the PTO would not have allowed the claim but for the
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nondisclosure or misrepresentation.” Network Signatures, 731 F.3d at 1242
(quoting In re Rosuvastatin, 703 F.3d at 519). Here, materiality is
straightforward. The PTO regulations expressly require a petition for
acceptance of late maintenance fees to include “[a] statement that the delay in
payment of the maintenance fee was unintentional.” 37 C.F.R. § 1.378(b)(3).
Had Mr. Bailey not certified that he knew the delay was unintentional, he
would not have met the petition’s requirements and the PTO would not have
reinstated the ‘655 patent. That satisfies the “but for” materiality requirement.
See Ulead, 351 F.3d at 1146 (finding “no serious question” that patentee’s
misrepresentation that it qualified as a small entity was material “to the PTO’s
acceptance of reduced maintenance fees, and thus, survival of the patent.”).
Finally, the Court finds that Mr. Bailey made the misrepresentation with
the specific intent to deceive the PTO. “Because direct evidence of deceptive
intent is rare, a district court may infer intent from indirect and circumstantial
evidence.” Therasense, 649 F.3d at 1290. Still, the specific intent to deceive
must be “the single most reasonable inference able to be drawn from the
evidence.” Star Sci., Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1366
(Fed. Cir. 2008). Of course, Mr. Bailey denies submitting the Petition with the
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specific intent to deceive the PTO. (Counterclaim Defs.’ Reply in Supp. of
Mot. for Part. Summ. J. (“CC Defs.’ MPSJ Reply”), Dkt. [78] at 13-14.) But
the circumstantial evidence suggests otherwise. Mr. Bailey admitted during his
deposition that, when he submitted the Petition, he did not know whether
IMS’s non-payment was unintentional. (Bailey Depo., Dkt. [69] at 119:8-21.)
He also admitted that he had not investigated that question. (Id. at 84:6-12.)
Nonetheless, Mr. Bailey certified to the PTO—with no knowledge of whether it
was true—that the non-payment was in fact unintentional.
Despite that evidence, Mr. Bailey argues that he did not intend to
deceive because he “believed that he was allowed to reinstate the patent . . .
based on the facts as he understood them at the time, and that no further
investigation was required.” (CC Defs.’ MPSJ Reply, Dkt. [78] at 14.) The
Court is not convinced. The Petition contains an express certification “that the
delay in payment of the maintenance fee to this patent was unintentional.”
(Petition, Dkt. [72-22] at 1.) Even if, before filling out the Petition, Mr. Bailey
believed that he could reinstate the patent based only on the facts as he then
understood them, that language should have given him pause. But it did not,
and he proceeded with making a representation of which he admits he had no
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knowledge. The single most reasonable inference to be drawn from that
evidence is that Mr. Bailey made the misrepresentation with the specific intent
to deceive the PTO.
Because Mr. Bailey’s actions in reviving the ‘655 patent constituted
inequitable conduct, the Court DENIES Counterclaim Defendants’ Motion for
Partial Summary Judgment [67] and GRANTS Defendants’ Cross-Motion for
Partial Summary Judgment [72].
Conclusion
As discussed above, Counterclaim Defendants’ Motion for Partial
Summary Judgment [67] is DENIED and Defendants’ Cross-Motion for Partial
Summary Judgment [72] is GRANTED.
SO ORDERED, this 11th day of January, 2017.
________________________________
RICHARD W. STORY
United States District Judge
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