Cloverleaf Golf Course, Inc. v. FMC Corporation
Filing
49
ORDER denying defendant's 39 MOTION to Stay. The Court defers ruling on defendant's 14 MOTION to Dismiss and Claim of Constitutionality and 17 MOTION to Transfer Case. Signed by Chief Judge David R. Herndon on 7/15/2011. (msdi)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
CLOVERLEAF GOLF COURSE, INC.,
Plaintiff,
v.
FMC CORPORATION,
Defendant.
Case No. 11-cv-190-DRH
ORDER
HERNDON, Chief Judge:
Before the Court are three pending motions: defendant’s motion
to dismiss and claim of constitutionality (Doc. 14), defendant’s motion to transfer the
case (Doc. 17), and defendant’s motion to stay discovery (Doc. 39). In the latter
motion, defendant requests that the Court stay discovery in this case until the Court
decides defendant’s motion to dismiss (Doc. 14) and the Federal Circuit decides
FLFMC v. Wham-O, No. 11-1067. Specifically, defendant contends that the Court
should stay discovery until it decides whether relator’s complaint satisfies Federal
Rule of Civil Procedure 9(b)’s heightened pleading requirement and the Federal
Circuit decides in Wham-O whether the false marking statute is unconstitutional.
For the reasons that follow, the Court denies defendant’s motion to stay discovery
(Doc. 39) and defers ruling on defendant’s motion to dismiss (Doc. 14) and motion
to transfer (Doc. 17) until the time period for filing briefs on the constitutionality
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issue in the motion to dismiss has passed. See Doc. 34 (allowing plaintiff and
defendant until August 13, 2011, to file their response briefs, if any, and giving the
government until August 27, 2011, to file any replies thereto).
I. Background
On March 11, 2011, relator filed its complaint (Doc. 2), alleging that
defendant violated 35 U.S.C. § 292(a) by falsely marking articles with expired patents
for the purpose of deceiving its competitors and the public into believing that such
articles are covered by falsely marked patents. Specifically, relator alleged ten
counts, claiming that defendant falsely marked its products with the following patent
numbers: 1) 4,024,163 (the “163 patent”); 2) 4,238,505 (the “505 patent”); 3)
4,394,506 (the “506 patent”); 4) 4,547,215 (the “215 patent”); 5) 4,818,275 (the “275
patent”); 6) 4,921,696 (the “696 patent”); 7) 4,976,886 (the “886 patent”); 8)
5,125,958 (the “958 patent”); and 9) 5,163,995 (the “995 patent”). In count ten,
relator alleged that defendant marked its products with the following language: “U.S.
Patent No. XXXXXXXXXX” or “U.S. Patent No. XXX XXXX.”
Attached to the
complaint were fifty-eight exhibits.
On May 11, 2011, defendant filed its motion to dismiss and claim of
constitutionality (Doc. 14), its notice to the government of its constitutionality claim
(Doc. 16), and a motion to transfer the case (Doc. 17). The government filed a
motion to intervene (Doc. 32), and the Court granted that motion (Doc. 34), giving
the government until July 13, 2011, to file a brief defending the constitutionality of
§ 292. The order also gave the parties until August 13, 2011, to file a responsive
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brief (if any), and the government until August 27, 2011, to file a reply to any
response filed. The government has filed its motion (Doc. 47) but as of the date of
this order no responses have been filed by either party.
On June 22, 2011, relator filed a response (Doc. 37) to defendant’s
motion to dismiss, and the next day the government filed a reply (Doc. 38). On June
27, 2011, defendant filed its motion to stay discovery (Doc. 40). Relator filed its
response to that motion (Doc. 42) and defendant filed a reply (Doc. 43). On July 11,
2011, defendant filed a reply (Doc. 48) to relator’s response to the motion to dismiss.
That same day, Magistrate Judge Williams held a telephone status conference, noting
that a scheduling order would not be entered at this time, and scheduled a telephone
status conference for August 15, 2011, at 10:30 a.m.
II. Analysis
A movant does not have an absolute right to a stay. Instead, the
movant bears the burden of proof to show that the Court should exercise its
discretion in staying the case. Ind. State Police Pension Trust v. Chrysler LLC,
129 S. Ct. 2275, 2277 (2009). District courts have extremely broad discretion in
controlling discovery. See Crawford-El v. Britton, 523 U.S. 574, 598 (1998);
Patterson v. Avery Dennison Corp., 281 F.3d 676, 681 (7th Cir. 2002). The
Court has discretion under Federal Rule of Civil Procedure 26 to limit the scope
of discovery or to order that discovery be conducted in a particular sequence.
Britton, 512 U.S. at 598. Limitation or postponement of discovery may be
appropriate when a defendant files a motion to dismiss for failure to state a claim
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on which relief can be granted, although the mere filing of the motion does not
automatically stay discovery. SK Hand Tool Corp. v. Dresser Indus., Inc., 852
F.2d 936, 945 (7th Cir. 1988). However, a stay of discovery is generally only
appropriate when a party raises a potentially dispositive threshold issue such as a
challenge to a plaintiff’s standing, see United States Catholic Conference v.
Abortion Rights Mobilization, Inc., 487 U.S. 72, 79-80 (1988), or pending
resolution of qualified immunity claims, see Landstrom v. Ill. Dep’t of Children &
Family Servs., 892 F.2d 670, 674 (7th Cir. 1990), see also Ashcroft v. Iqbal, 129
S.Ct. 1937, 1953 (2009)(“The basic thrust of the of the qualified-immunity
doctrine is to free officials from the concerns of litigation, including avoidance of
disruptive discovery.”). “When and how to stay proceedings is within the sound
discretion of the trial court.” Cherokee Nation of Okla. v. United States, 124
F.3d 1413, 1416 (1997) (citing Landis v. N. Am. Co., 299 U.S. 248, 254-55
(1936)).
Here, the defendant relies primarily on the Federal Circuit’s decision
In re BP Lubricants USA Inc., 637 F.3d 1307 (Fed. Cir. 2011), in which the
Federal Circuit held that Rule 9(b)’s particularity requirements apply to false
marking claims, to support its argument that the discovery should be stayed
pending a decision on whether plaintiff has met the pleading requirements of Rule
9(b). Id. at 1309. In In re BP Lubricants USA Inc., the Federal Circuit took the
extraordinary measure of issuing a writ of mandamus directing the district court
to dismiss the complaint with leave to amend because it was the first time the
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Federal Circuit had decided whether Rule 9(b) applied to false marking cases and
the requisite level of pleading required in those cases. Id. at 1313.
In that case, the complaint alleged that defendant’s patent expired on
February 12, 2005, and defendant continued to mark its product with the patent
numbers after the patent expired. The complaint asserted that “upon information
and belief” defendant “knew or should have known” that the patent expired, that
defendant was a sophisticated company who had experience applying for,
obtaining, and litigating patents, and that defendant marked its products with the
patent numbers for the purpose of deceiving the public and its competitors into
believing that something contained or embodied in the products is covered or
protected by the expired patent.
Before addressing the merits of whether the complaint was
sufficiently plead, the Federal Circuit began by holding that Rule 9(b)’s
particularity requirements, i.e., to plead “with particularity the circumstances
constituting fraud or mistake,” apply to false marking claims under § 292. The
Court reasoned that “[t]he Rule acts as a safety value to assure that only viable
claims alleging fraud or mistake are allowed to proceed to discovery.” Id. at 1310.
“Permitting a false marking complaint to proceed without meeting the
particularity requirement of Rule 9(b) would sanction discovery and adjudication
for claims that do little more than speculate that the defendant engaged in more
than negligent action.” Id. at 1311.
Accordingly, the Federal Circuit looked to its decision in Exergen
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Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009), for its holding
that “although ‘knowledge’ and ‘intent’ may be averred generally and that a
plaintiff may plead upon information and belief under Rule 9(b), ‘our precedent . .
. requires that the pleadings allege sufficient facts from which a court may
reasonably infer that a party acted with the requisite state of mind.’” Id. at 1311
(quoting Exergen, 575 F.3d at 1327). “[A] complaint must in the § 292 context
provide some objective indication to reasonably infer that the defendant was
aware that the patent expired.” Id. at 1311; see Clontech Labs, Inc. v. Invitrogen
Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005) (“Intent to deceive, while subjective
in nature, is established by objective criteria. Thus, ‘objective standards’ control
and ‘the fact of misrepresentation coupled with proof that the party making it had
knowledge of its falsity is enough to warrant drawing the inference that there was
a fraudulent intent.’”) (citations omitted).
With those principles in mind, the Federal Court rejected each
of plaintiff’s arguments. First, the court found that plaintiff’s bare assertion that
defendant is a “sophisticated company and has experience applying for, obtaining,
and litigating patents” provided “no more of a basis to reasonably distinguish a
viable complaint than merely asserting the defendant should have known the
patent expired.” Id. at 1312. Second, the court rejected plaintiff’s contention that
a false marking claim inherently shows scienter, requiring more than a mere
statement that something is false. Id. Third, the court found, despite plaintiff’s
argument to the contrary, that Exergen’s pleading requirements were applicable,
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they just “must be applied in a fashion that relates to false marking claims.” Id.
For example, intent to deceive could reasonably be inferred by alleging “that the
defendant sued a third party for infringement of the patent after the patent
expired or made multiple revisions of the marking after expiration.” Id. Finally,
the court clarified that its holding in Pequignot v. Solo Cup Co., 608 F.3d 1356,
1362-63 (Fed. Cir. 2010), that “the combination of a false statement and
knowledge that the statement was false creates a rebuttable presumption of intent
to deceive the public, rather than irrebuttably proving such intent,” was simply a
factor in determining whether Rule 9(b) was satisfied. Id. at 1312-13. “‘[T]he bar
for proving deceptive intent [in false marking cases] is particularly high,’ requiring
that the relator show ‘a purpose of deceit, rather than simply knowledge that a
statement is false.’” Id. at 1313 (quoting Pequignot, 608 F.3d at 1363). Thus, the
court directed the district court to dismiss the complaint with leave to amend. In
re BP Lubricants USA Inc., 637 F.3d at 1313.
From In re BP Lubricants USA Inc., the Court concludes that a
plaintiff must allege sufficient facts from which the Court can reasonably infer an
intent to deceive, that is, a plaintiff must show a purpose of deceit rather than
simply knowledge that a statement is false. Id. at 1311-13. “[A] complaint must
in the § 292 context provide some objective indication to reasonably infer that the
defendant was aware that the patent expired.” Id. at 1311. Alleging that
defendant should have known the patent expired, that defendant is a
sophisticated company with experience in patents, and that defendant made a
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false statement that it knew was false is not enough. Id. at 1312-13. If plaintiff
has not shown a purpose of deceit, then the case should not proceed to discovery.
Id. at 1310-11.
Here, we find that relator’s complaint has shown in at least one of its
counts a purpose of deceit by alleging sufficient facts from which the Court can
reasonably infer an intent to deceive. In plaintiff’s complaint, plaintiff alleges that
defendant made the representation in its 2009 annual report which it attached to
the complaint that “[t]he duration of our patents depends on their respective
jurisdictions” and that “[t]heir expiration dates range through 2029.” Plaintiff
then alleges in several places throughout the complaint that defendant marked its
products with expired patents presumably after this annual report was issued.
This provides some objective indication from which the Court can reasonably
infer that defendant was aware that its patent expired. By stating that defendant’s
patent’s “expiration dates range through 2029" it can be inferred that defendant
calculated its patent expiration dates and knew when they expired. The fact that a
patent was expired coupled with proof that defendant had knowledge that it was
expired is enough to warrant drawing the inference that there was a purpose to
deceive.
Furthermore, intent to deceive could also be reasonably inferred
from plaintiff’s allegations that defendant made multiple revisions to the marking
after the patent expired. For example, plaintiff makes multiple allegations that
labels for many of defendant’s products were reviewed and/or revised after the
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expiration of several patents, yet the “label, insert and/or packaging” of the
products continued to contain the expired patents. Accordingly, this case should
proceed to discovery.
Based upon the reasons stated above, the Court finds that defendant
has not met its burden regarding a stay of discovery. The Court cannot presume
that the motion to dismiss will be granted and at first blush it does not appear
well founded. Moreover, even if defendants’ motion to dismiss is successful and
the Court concludes relator‘s claims are insufficient, dismissal, without an
opportunity to file an amended complaint, is rare. See Fidelity Nat’l Title Ins. Co.
of N.Y. v. Intercounty Nat’l Title Ins. Co., 412 F.3d 745, 749 (7th Cir. 2005). In
fact, in relator’s response to defendant’s motion to dismiss (Doc. 37), relator
seeks leave to amend if the complaint fails to meet Rule 9(b), contending that “it
can cite numerous [defendant] documents where [defendant] rampantly marked
products with expired patents that identify multiple modifications of the patent
markings at issue and witnesses with knowledge.” If what relator claims is true, it
would behoove relator to file a motion to amend its complaint with these specific
allegations prior to the Court ruling on the motion to dismiss. While the Court
has found that relator’s complaint generally survives Rule 9(b) scrutiny, it does
not conclude that each of relator’s ten counts necessarily do.
As to defendant’s argument with regard to the Wham-O case pending
before the Federal Circuit, the Court will not speculate as to the outcome of that
case or when it will be decided. It could take months before that case is decided
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and then even more time if a petition for rehearing is filed or if a petition for a writ
of certiorari is filed with the Supreme Court. If the Court granted that writ, the
parties would again likely ask for another stay. Furthermore, relator contends
that the Federal Circuit will not likely entertain the constitutionality issue in
Wham-O because it was not raised in the district court and was not properly
raised on appeal. Again, the Court refuses to speculate on what rulings and
issues the Federal Circuit will make. Rather, the Court will entertain arguments
based on the Wham-O case after that case is decided, whenever that time may be.
The Court just refuses to stay this case for an indefinite period of time based upon
mere speculation. For the reasons noted above, the Court denies defendant’s
motion to stay (Doc. 39) and reserves ruling on defendant’s motion to dismiss
(Doc. 14) and motion to transfer (Doc. 17).
IT IS SO ORDERED.
Signed this 15th day of July, 2011.
Digitally signed by David
R. Herndon
Date: 2011.07.15
14:20:32 -05'00'
Chief Judge
United States District Court
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