Nalco Company v. Chem-Mod, LLC

Filing 107

MEMORANDUM Opinion and Order Signed by the Honorable John W. Darrah on 10/15/2015. Mailed notice(sr, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
NALCO COMPANY,
Plaintiff,
v.
CHEM-MOD, LLC; ARTHUR J. GALLAGHER & CO.;
GALLAGHER CLEAN ENERGY, LLC;
AJG COAL, INC.; AJG IOWA REFINED COAL LLC;
MANSFIELD REFINED COAL LLC;
COPE REFINED COAL LLC;
CROSS REFINED COAL LLC;
JEFFERIES REFINED COAL LLC;
JOPPA REFINED COAL LLC;
THOMAS HILL REFINED COAL LLC;
WAGNER COALTECH LLC;
WALTER SCOTT REFINED COAL LLC;
WINYAH REFINED COAL LLC;
BEDFORD MIX LLC;
BRANDON SHORES COALTECH LLC;
CANADYS REFINED COAL, LLC;
CORONADO REFINED COAL LLC;
FRM TRONA FUELS LLC;
FRM VIRGINIA FUELS LLC;
GEORGE NEAL NORTH REFINED COAL LLC;
GEORGE NEAL REFINED COAL LLC;
LOUISA REFINED COAL, LLC;
REFINED FUELS OF ILLINOIS, LLC; and
BELLE RIVER FUELS COMPANY, LLC,
Defendants.

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Case No. 14-cv-2510
Judge John W. Darrah

MEMORANDUM OPINION AND ORDER
Plaintiff Nalco Company (“Nalco”) filed a Third Amended Complaint against
Defendants Chem-Mod, LLC (“Chem-Mod”); Arthur J. Gallagher & Co. (“A.J. Gallagher”);
Gallagher Clean Energy, LLC (“Gallagher Clean Energy”); AJG Coal, Inc. (“AJG Coal”); and
21 limited liability companies named: AJG Iowa Refined Coal LLC; Mansfield Refined Coal

LLC; Cope Refined Coal LLC; Cross Refined Coal LLC; Jefferies Refined Coal LLC;
Joppa Refined Coal LLC; Thomas Hill Refined Coal LLC; Wagner Coaltech LLC; Walter Scott
Refined Coal LLC; Winyah Refined Coal LLC; Bedford Mix LLC; Brandon Shores Coaltech
LLC; Canadys Refined Coal, LLC; Coronado Refined Coal LLC; FRM Trona Fuels LLC;
FRM Virginia Fuels LLC; George Neal North Refined Coal LLC; George Neal Refined Coal
LLC; Louisa Refined Coal, LLC; Refined Fuels of Illinois, LLC; and Belle River Fuels
Company, LLC (collectively “Refined Coal LLCs”). The Complaint alleges patent infringement
of United States Patent No. 6,808,692 (the “692 Patent”), entitled “Enhanced Mercury Control in
Coal-Fired Power Plants.” Defendants previously moved to dismiss Nalco’s First Amended
Complaint (“FAC”). On February 4, 2015, Defendants’ Motion was granted, and Plaintiff’s First
Amended Complaint was dismissed without prejudice. On April 24, 2015, Plaintiff filed a Third
Amended Complaint (“TAC”). Defendants filed Motions to Dismiss [68, 89] Plaintiff’s Third
Amended Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6), for failure to state a
claim. For the reasons set forth below, the Motions are granted.
BACKGROUND
The following is taken from the Third Amended Complaint, which is assumed to be true
for purposes of a motion to dismiss. See Reger Dev., LLC v. Nat’l City Bank, 592 F.3d 759, 763
(7th Cir. 2010). Nalco is the exclusive licensee of the 692 Patent, which claims a method to
reduce mercury emission from flue gases evolved during the combustion of coal. The 692 Patent
was issued by the United States Patent & Trademark Office (“USPTO”) on October 26, 2004,
and reexamined by the USPTO in April, 2014. Claim 1 of the 692 Patent is directed to:
A method of treating coal combustion flue gas containing mercury, comprising:
injecting a bromide compound that is a themolabile molecular bromine precursor
into said flue gas to effect oxidation of elemental mercury to a mercuric bromide
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and providing alkaline solid particles in said flue gas ahead of a particulate
collection device, in order to absorb at least a portion of said mercuric bromide.
(TAC Exh. 1.) The TAC alleges that Defendants infringed the 692 Patent through their use,
licensing, sale, and offer of a coal additive system known as “Chem-Mod Solution.” Chem-Mod
Solution is a method of treating coal combustion flue gas containing mercury. (TAC ¶ 24.) In
the Chem-Mod Solution, a proprietary additive, MerSorb, is mixed with coal when it is on feed
belts before the coal is fed into power plant furnaces for burning. (TAC ¶ 26.) The mixture of
coal and MerSorb (the “Chem-Mod Solution Mixture”) is pulverized and injected into a coalfired power plant via coal injectors. (TAC ¶ 27.) The Chem-Mod Solution also incorporates the
use of an additive called S-Sorb, which can be added at various locations in the coal-fired power
plant. S-Sorb can be added to the mixture of coal and MerSorb prior to injection, to the upper
level of the furnace, and/or to ash on the ash refiring distribution line. (TAC ¶ 30.) The two
additives react with elemental mercury in coal combustion flue gas and effect the oxidation of
elemental mercury to mercuric bromide (TAC ¶ 32.) The mercuric bromide adsorbs onto
alkaline solid particles in the coal combustion flue gas, allowing mercury to be removed with the
solid particles. (TAC ¶ 33.)
Nalco alleges that Defendants directly infringe the 692 Patent through their use of the
Chem-Mod Solution and/or through their control and direction of entities that have used the
Chem-Mod Solution. Nalco also alleges that Defendants indirectly infringe the 692 Patent by
inducing and contributing to the infringing use of the Chem-Mod Solution by others. Similar to
the FAC, the TAC asserts claims for direct infringement, indirect infringement, and contributory
infringement. Defendants filed two separate motions to dismiss. The Refined Coal LLCs join
the arguments made by the other Defendants, thus both motions will be addressed here.

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LEGAL STANDARD
Rule 12(b)(6) permits a defendant to move to dismiss a complaint for “failure to state a
claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). To survive a motion to
dismiss, a complaint must allege “enough facts to state a claim to relief that is plausible on its
face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). Facial plausibility exists when
the court can “draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare recitals of the elements of a
cause of action, supported by mere conclusory statements, do not suffice.” Id. (citing Twombly,
550 U.S. at 555). Rather, the complaint must provide a defendant “with ‘fair notice’ of the claim
and its basis.” Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008) (quoting Fed. R.
Civ. P. 8(a)(2) and Twombly, 550 U.S. at 555). When ruling on a motion to dismiss, the court
accepts all well-pleaded factual allegations as true and construes all reasonable inferences in
favor of the plaintiff. Tamayo, 526 F.3d at 1081.
A direct infringement claim that meets or exceeds Form 18 of the Federal Rules of Civil
Procedure meets Rule 8’s “short and plain statement” requirement. In re Bill of Lading, 681
F.3d 1323, 1332 (Fed. Cir. 2014). Form 18 requires:
(3) a statement that defendant has been infringing the patent ‘by making, selling,
and using [the device] embodying the patent’; (4) a statement that the plaintiff has
given the defendant notice of its infringement; and (5) a demand for an injunction
and damages.
Bill of Lading, 681 F.3d at 1334.
ANALYSIS
As a preliminary matter, Nalco argues at length that Defendants’ qualification for
Section 45 tax credits proves that the Refined Coal LLCs direct and control the injection of the

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Chem-Mod Mixture into an operating coal furnace and the alleged infringement of the 692
Patent. Nalco contends that the regulations governing Section 45 tax credits require that the
Chem-Mod Solution Mixture be sold to a power plant operator by a third party (here, the Refined
Coal LLCs) and then be used in combustion to produce steam through injection into coal
combustion flue gas in an operating coal furnace.
Section 45 tax credits are obtained by selling refined coal to an unrelated person with the
reasonable expectation that it will be used for the purpose of producing steam. 26 U.S.C.
§ 45(a)(2)(B), 45(c)(7)(A). The tax code requirements focus on the production and sale of
refined coal suitable for qualified use and require reasonable expectation as to that use.
Defendants are not required to inject any substance into flue gas or practice any other specific
process in order to qualify for Section 45 tax credits. The requirements of a Section 45 tax credit
do not automatically equate to the elements required for patent infringement. Any argument that
compliance with Section 45 of the tax code is evidence that Defendants direct and control the
infringement of a patent in this case is unpersuasive and unconvincing.
Direct Infringement
Defendants argue that Nalco’s claims of direct infringement must be dismissed because
the Chem-Mod Solution cannot infringe because it is a different method for reducing mercury
pollution than the process claimed in the 692 Patent. Defendants further argue that the TAC fails
to allege that any Defendant is responsible for all steps of the patent. Nalco argues that
Defendants’ argument is “based on an improper construction of the claims of the 692 Patent” and
that the claims of the patent are not restricted to Defendants’ interpretation. As in its response to
Defendants’ motion to dismiss Nalco’s FAC, Nalco responds that it has sufficiently alleged

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direct infringement and that Defendants’ arguments are a premature attempt at claim
construction.
Nalco argues that the claims of the 692 Patent do not provide when the step of “injecting
a bromide compound . . . into said flue gas” must be performed, how the injection must be
conducted, or the specific mechanism by which or location within the coal-fired power plant at
which the injecting must occur. (TAC ¶¶ 18, 29, 20.) The previous order in this case dismissed
Nalco’s claims because the allegations in the FAC and attached exhibits showed that the 692
Patent differed from the Chem-Mod Solution in both when it is applied (after the coal is burned
vs. before the coal is burned) and how it is applied (injected into the flue gas vs. mixed with cold
coal). In the TAC, Nalco argues that the Chem-Mod Solution infringes on the 692 Patent by
comparing and equating the steps of the Chem-Mod Solution to the steps of the method claimed
in the 692 Patent. In the Chem-Mod Solution, a bromide compound, MerSorb, is injected via
coal injectors into a coal-fired power plant furnace. In its response to Defendants’ Motion,
Nalco argues that when a coal furnace is operating, the furnace contains the gaseous products of
coal combustion, or coal combustion flue gas. However, there is no support for this allegation in
the TAC. The TAC refers to a process flow diagram that shows the addition of MerSorb to the
coal in three different locations: (1) on the coal feed belt before it reaches the coal bunker;
(2) between the coal bunker and the coal feeder; and (3) in the coal feeder before the coal is
pulverized. (TAC ¶ 27; Exh. B.) In all three of those locations, the MerSorb and coal mixture is
added to the process prior to coal combustion. Thus, the additives used in the Chem-Mod
Solution are introduced prior to any interaction with coal combustion flue gas and are not
“injected,” as required by the elements of the 692 Patent.

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Nalco also argues that it is inappropriate to ask the Court to construe the patent claim at
the motion to dismiss stage, citing to Pragmatus AV, LLC v. Yahoo! Inc., No. CIV.A. 11-902LPS, 2012 WL 6044793 (D. Del. Nov. 13, 2012), to support its argument. (Dkt. 76.) However,
the court in Pragmatus stated that, “where facts of record at the pleading stage will so clearly and
explicitly indicate that an ‘undivided’ claim of direct infringement cannot stand — in a manner
that could not plausibly be challenged at a later claim construction hearing” dismissal will be
appropriate, citing Desenberg v. Google, Inc., 392 Fed. App'x 868 (Fed.Cir.2010). Pragmatus,
2012 WL 6044793, at *8. Even accepting all well pled allegations as true, the TAC fails to cure
the issues leading to the FAC’s dismissal and does not establish a claim for direct infringement
by the use of the Chem-Mod Solution. Because claims of indirect and willful infringement
require proof of direct infringement, those remaining claims are also dismissed.
Even if the TAC adequately pled a claim that the Chem-Mod Solution meets the elements
of the 692 Patent, it fails to allege that Defendants are responsible for both preparing the
Chem-Mod Solution Mixture and injecting the treated coal into coal combustion flue gas.
Defendants contend that no Defendant controls the coal injectors that add the Chem-Mod
Solution Mixture to coal combustion flue gas and that all of the steps of the Chem-Mod Solution
are not attributable to one actor. To infringe a method patent, performance of all steps of the
method must be attributable to a single party. See Limelight Networks, Inc. v. Akami Techs., Inc.,
134 S. Ct. 2111, 2117 (2014). “Where more than one actor is involved in practicing the steps, a
court must determine whether the acts of one are attributable for the infringement. An entity is
responsible for others’ performance of method steps in two sets of circumstances: (1) where that
entity directs or controls others’ performance; and (2) where the actors form a joint enterprise.“
Akamai Technologies, Inc. v. Limelight Networks, Inc., No. 2009-1372, 2015 WL 4760450, at *1
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(Fed. Cir. Aug. 13, 2015) (finding that liability under 271(a) can be found if the actor acts
through an agent, contracts with another to perform one or more steps of a claimed method, or
when an alleged infringer conditions participation in an activity or receipt of a benefit upon
performance of a step or steps and establishes the manner or timing of that performance).
The TAC alleges that each of the Refined Coal LLCs operates one or more plants solely
for the purpose of preparing the Chem-Mod Solution Mixture and assisting an operator of a coalfired plant to use the Chem-Mod Solution. (TAC ¶ 21.) Nalco argues that the TAC supports
their argument that the Refined Coal LLCs direct and control the infringing acts of coal-fired
power plants, by alleging that Defendants participate in a joint enterprise to receive Section 45
tax credits. Nalco alleges that the scheme requires the Refined Coal LLCs to sell the Chem-Mod
Solution Mixture to coal-fired power plants at a loss, and then requires those power plants to
inject the Chem-Mod Solution Mixture into coal combustion flue gas in order for the
Refined Coal LLCs to receive Section 45 tax credits. Again, this argument is unconvincing. The
fact that the Refined Coal LLCs receive Section 45 tax credits is not evidence that they direct
and control the alleged infringing actions of each coal-fired power plant, and the TAC does not
sufficiently support the presence of a joint enterprise. Nalco claims that Defendants direct or
control the actions of the coal-fired power plants, but the TAC does not support these allegations.
Nalco also argues that Refined Coal LLCs must test the use of the Chem-Mod Solution in
order to qualify for Section 45 tax credits and that during the on-site full scale testing of the
Chem-Mod Solution at individual power plants, Defendants control all aspects of the infringing

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method1. (TAC ¶ 53.) While the TAC alleges that Defendants direct on-site full scale testing of
the Chem-Mod Solution for the individual coal-fired power plants, it does not allege that this
testing constitutes direct infringement of the 692 Patent. As Defendants point out, the TAC does
not describe the extent of this testing, whether it involves measurement of emissions, or whether
Defendants direct or control the operations of the individual power plant itself. Instead, Nalco
merely states Defendants direct on-site full scale testing of the Chem-Mod Solution, and makes
this assertion in support of its argument that the Refined Coal LLCs direct and control the
individual power plants. Nalco has not pled a plausible case of direct infringement of the 692
Patent, and its claim for direct infringement must be dismissed.
Indirect Infringement
To state a claim for inducement of infringement, the patentee must establish
“first that there has been direct infringement, and second that the alleged infringer knowingly
induced infringement and possessed specific intent to encourage another’s infringement.”
Broadcom Corp. v. Qualcomm, Inc., 543 F.3d 683, 697-98 (Fed. Cir. 2008). Nalco has failed to
sufficiently allege a claim for direct infringement, and even if Nalco had sufficiently stated its
claim, it fails to plead intent to cause infringement. Nalco again relies on Defendants’ receipt of
Section 45 tax credits to support its claim of intent. As noted before, this is unpersuasive. Thus,
Nalco’s claim for inducement of infringement under Section 271(b) must also be dismissed.
For contributory infringement, Nalco must allege direct infringement and that Defendants
“knew that the combination of its components was both patented and infringing with no
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Nalco asserts, for the first time, that that Refined Coal LLCs’ testing of the Chem-Mod
Solution in order to ascertain whether they qualify for Section 45 tax credits is direct
infringement of the 692 Patent. Nalco has not properly alleged facts in the TAC to support this
argument.
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substantial non-infringing uses.” Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1320
(Fed. Cir. 2009); 35 U.S.C. § 271(c). The TAC fails to adequately claim contributory
infringement because it does not plead any facts to support Nalco’s argument that MerSorb and
S-Sorb have no substantial non-infringing uses. Further, as with its inducement claim, Nalco’s
claim for contributory infringement must be dismissed because Nalco has not sufficiently alleged
direct infringement. Nalco was provided an opportunity to re-plead its allegations but has failed
to plead a plausible case of patent infringement. Thus, Nalco’s Third Amended Complaint is
dismissed without prejudice.
CONCLUSION
For the reasons set forth above, Defendants’ Motions to Dismiss [68, 89] are granted.
Nalco’s Third Amended Complaint is dismissed without prejudice. Nalco is granted leave to
amend, if it can do so pursuant to Rule 11, within thirty days of this Order.

Date:

October 15, 2015
JOHN W. DARRAH
United States District Court Judge

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