Unverferth Mfg Co Inc v. Par-Kan Co
OPINION AND ORDER granting 35 Motion to Dismiss Defendants inequitable conduct counterclaim and to strike Defendant's inequitable conduct affirmative defense. Signed by Judge Theresa L Springmann on 5/27/14. (jld)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
UNVERFERTH MFG. CO., INC.
CAUSE NO.: 3:13-CV-97-TLS
OPINION AND ORDER
On February 12, 2013, the Plaintiff, Unverferth Manufacturing Company, Inc.
(“Unverferth”), filed this action against the Defendant, Par-Kan Co. (“Par-Kan”), alleging
infringement of United States Patent No. 8,211,047 (the “‘047 patent”). Par-Kan filed an
Amended Counterclaim [ECF No. 31] and an Amended Answer and Defenses to Complaint
[ECF No. 32] on May 28, 2013. This matter is before the Court on Unferverth’s Motion to
Dismiss Par-Kan’s Amended Inequitable Conduct Counterclaim and to Strike Par-Kan’s
Amended Inequitable Conduct Affirmative Defense [ECF No. 35] filed on June 14, 2013.
Unferverth filed its Memorandum in Support [ECF No. 36] on the same day, Par-Kan filed its
Response [ECF No. 39] on July 3, 2013, and Unferverth filed a Reply [ECF No. 41] on July 15,
2013. For the following reasons, the Court grants Unferverth’s Motion to Dismiss and strikes
Par-Kan’s affirmative defense of inequitable conduct.
On February 15, 2008, Unverferth filed a patent application for a seed carrier with a
pivoting conveyor, which eventually became the ‘047 patent. To overcome rejections by the
United States Patent and Trademark Office (“the PTO”), Unverferth, through its Vice President
of Sales and Marketing, submitted two declarations (“the Fanger Declaration” and “the
Supplemental Fanger Declaration”) under 37 C.F.R. §1.132. The two declarations attributed
commercial success of Unverferth’s seed runners solely to the patented features. The
declarations, however, did not mention that the seeding industry allegedly underwent a
transformative change in the meantime, which expanded the demand for seed tender products.
Par-Kan alleges that “[w]hen Unverferth submitted the Supplemental Fanger Declaration, the
declarant (Fanger) and the [sic] Unverferth knew the seed industry had earlier undergone a
transformative change in the manner by which seed was sold and delivered to farmers for
planting,” and that this change, rather than the claimed features, created and/or greatly expanded
the market for seed tender products like Unverferth’s. (Am. Countercl. ¶ 24, ECF No. 31; Am.
Answer. ¶ 22, ECF No. 32.) More specifically, the declarations included statements such as “I
am unaware of any other factors contributing to the success of the product,” and “[i]n my
opinion, Unverferth’s increased sales are not due to an increase in the market size.” (Def.’s Resp.
6, ECF No. 39.) Following the submission of the Supplemental Fanger Declaration, the PTO
issued a final Office Action on September 30, 2011, stating that “[t]he supplemental declaration
filed under 37 CFR 1.132 filed 07/05/2011 is insufficient to overcome the rejection of claims 1-5
and 9-11 based upon a rejection under 35 U.S.C §103 as set forth in the last Office Action.” (Pl.
Mem. Supp. Mot. Dismiss. Ex. 1, at UM-Pkan0000206-212.) The PTO also noted that Mr.
Fanger’s declarations were based in opinion, not fact. (Id.) The ‘047 patent only issued later after
claims 1-5 and 9-11 were cancelled and new claims were submitted. (See id. at UMPkan0000220-221.) The patent issued on the new claims unrelated to the affidavits at issue here
and without any relation to commercial success arguments. (Id.)
Par-Kan asserted inequitable conduct as a counterclaim and as an affirmative defense to
the Complaint. Both filings claimed that Unverferth made false representations in the two Fanger
Declarations. Unverferth then moved the Court to strike Par-Kan’s inequitable conduct defense
and dismiss the inequitable conduct counterclaim pursuant to Federal Rules of Civil Procedure
12(f) and 12(b)(6) for failure to state a claim upon which relief can be granted.
Standard of Review
Motion to Dismiss under Rule 12(b)(6)
The purpose of a motion to dismiss pursuant to Rule 12(b)(6) for failure to state a claim
is to test the sufficiency of the pleading, not to decide the merits of the case. See Gibson v. City
of Chi., 910 F.2d 1510, 1520 (7th Cir. 1990). Federal Rule of Civil Procedure Rule 8(a)(2)
provides that a complaint must contain “a short and plain statement of the claim showing that the
pleader is entitled to relief.” However, “recitals of the elements of a cause of action, supported
by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 661, 678 (2009)
(citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007))1. As the Supreme Court has stated,
“the tenet that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions.” Id. Rather, “a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting
Twombly, 550 U.S. at 570). A complaint is facially plausible if a court can reasonably infer from
factual content in the pleading that the defendant is liable for the alleged wrongdoing. Id. (citing
Twombly, 550 U.S. at 570). The Seventh Circuit has synthesized the standard into three
requirements. See Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009). “First, a plaintiff must
In Twombly the Supreme Court “retooled federal pleading standards, retiring the oft-quoted [Conley v. Gibson, 355
U.S. 42, 47 (1957)] formulation that a pleading ‘should not be dismissed for failure to state a claim unless it appears
beyond doubt that the [pleader] can prove no set of facts in support of his claim which would entitle him to relief.’”
Killingsworth v HSBC Bank Nevada, N.A., 507 F.3d 614, 618, (7th Cir. 2007).
provide notice to defendants of her claims. Second, courts must accept a plaintiff’s factual
allegations as true, but some factual allegations will be so sketchy or implausible that they fail to
provide sufficient notice to defendants of the plaintiff’s claim. Third, in considering the
plaintiff’s factual allegations, courts should not accept as adequate abstract recitations of the
elements of a cause of action or conclusory legal statements.” Id.
Motion to Strike under Rule 12(f)
Rule 12(f) provides that the Court may strike from a pleading an insufficient defense or
any redundant, immaterial, impertinent, or scandalous matter. Fed.R.Civ.P. 12(f). The court “has
considerable discretion in striking” such matters. Delta Consulting Grp., Inc. v. R. Randle
Constr., Inc., 554 F.3d 1133, 1141 (7th Cir.2009). Usually, motions to strike are disfavored, but
such motions may be granted if they remove unnecessary clutter and expedite the case. Heller
Financial, Inc. v. Midwhey Powder Co., 883 F.2d 1286, 1294 (7th Cir. 1989). While Rules
12(b)(6) and 12(f) relate to different challenges, they both test the legal sufficiency of a party’s
pleadings. Therefore, they are both subject to the pleading requirements of the Federal Rules of
Civil Procedure. Id. As a result, the Court considers both the Plaintiff’s motion to dismiss the
inequitable conduct counterclaim and its motion to strike Par-Kan’s inequitable conduct defense
under the same pleading standard.
Inequitable Conduct and Heightened Pleading Standard under Rule 9(b)
To successfully plead claims of fraud, Rule 9(b) requires a party to “state with
particularity the circumstances constituting fraud or mistake.” This heightened standard applies
to claims of inequitable conduct. Ferguson Beauregard/Logic Controls, Div. of Dover Res., Inc.
v. Mega Syst., LLC, 350 F.3d 1327, 1344 (Fed. Cir. 2003). Because inequitable conduct renders
an entire patent (or even a patent family) unenforceable, as a general rule, this doctrine should
only be applied in instances where the patentee’s misconduct resulted in the unfair benefit of
receiving an unwarranted claim. Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276,
1292 (Fed. Cir. 2011). After all, the patentee obtains no advantage from misconduct if the patent
would have issued anyway. Id. Moreover, enforcement of an otherwise valid patent does not
injure the public merely because misconduct, lurking somewhere in patent prosecution, was
immaterial to the patent’s issuance. Id.
Due to the severe penalty of inequitable conduct, the accused infringer must prove by
clear and convincing evidence that the patent applicant (1) made an affirmative
misrepresentation of material fact, failed to disclose material information, or submitted false
material information, and (2) intended to deceive the PTO. Star Scientific, Inc. v. R.J. Reynolds
Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008).
The materiality prong of the inequitable conduct test requires a showing of “but-for”
materiality. Hence, in assessing the materiality of the alleged withholding of information, the
Court must determine whether the PTO would have allowed the claim if it had been aware of the
undisclosed information. Therasense, 649 F.3d at 1291. To satisfy this requirement, a pleading
must provide “who, what, when, where, and how the material misrepresentation or omission
committed before the PTO.” Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1328 (Fed.
Cir. 2009). Specifically, a pleading must name the specific individual associated with the filing
or prosecution of the patent, who both knew of the material information and deliberately
withheld or misrepresented it. See id. at 1329. Second, the accused infringer must identify which
claims, and which limitations in those claims, the withheld references are relevant to, and where
in those references the material information is found—i.e., the “what” and “where” of the
material omissions. Id. Third, the pleading should identify the particular claim limitations, or
combination of claim limitations, that are supposedly absent from the information of record.
Such allegations are necessary to explain both “why” the withheld information is material and
not cumulative, and “how” an examiner would have used this information in assessing the
patentability of the claims. Id. at 1329–30.
Deceptive intent is a separate component of the inequitable conduct standard and is not
assumed from materiality. The accused infringer must prove that the other party had a specific
intent to mislead or deceive the PTO. In a case involving nondisclosure of information, the
accused infringer must show that the applicant made a deliberate decision to withhold a known
material reference. The absence of a good faith explanation for withholding a material reference
does not, by itself, prove intent to deceive. Therasense, 649 F.3d at 1290–91. Furthermore, mere
allegation of improper performance of, or omission of, an act one ought to have performed does
not satisfy this intent requirement. Star Scientific, 537 F.3d at 1366. Because direct evidence of
deceptive intent is rare, a district court may infer intent from indirect and circumstantial
evidence. Deceptive intent, however, must be the single most reasonable inference drawn from
the evidence. Therasense, 649 F.3d at 1291.
The Therasense court did identify an egregious affirmative misconduct exception to the
“but-for” materiality requirement. Id. at 1292–93. The exception is based on a line of Supreme
Court cases dealing with “unclean hands.” Id. This exception, though, applies only in a very
narrow set of circumstances. In particular, this exception was designed to address extraordinary
circumstances and “deliberately planned and carefully executed scheme[s].” Id. at 1292 (quoting
Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238, 245 (1944)). Furthermore, the
creation of the exception was done in the context of tightening the inequitable conduct standard,
not broadening it. Id. at 1290. In noting the extraordinary conduct that might fall under the
exception, the court specifically made a point of explaining that neither the nondisclosure of
prior art references nor the failure to mention such references in an affidavit constituted
egregious affirmative misconduct. Id. at 1292–93.
As mentioned above, Rule 9(b) and Exergen require a pleading to identify “who, what,
when, where and how” the inequitable conduct was committed. Par-Kan’s Amended Answer and
Amended Counterclaim have properly pleaded the “who” and “when” prongs, but fail to meet
the “what, where, how, and why” requirements.
Par-Kan’s pleadings contain a conclusory statement that the undisclosed information was
material. (Am. Answer. ¶¶24 – 25; Am. Countercl. ¶¶26–27.) Par-Kan failed to identify the
specific claims or limitations to which the Supplemental Fanger Declaration was relevant. In
addition, even though Par-Kan alleged that the Supplemental Fanger Declaration attempted to
deceive the PTO into believing that the claimed features were the only factor leading to
Unverferth’s increased sales (Am. Answer. ¶23; Am. Countercl. ¶25), Par-Kan did not state how
an examiner would have used this piece of information in assessing patentability and why this
information was material in granting the patent. Even more importantly, the PTO explicitly
stated that the Supplemental Fanger Declaration was insufficient to overcome the rejections. (Pl.
Mem. Supp. Mot. Dismiss, Ex. 1, at UM-Pkan0000206) (“The supplemental declaration filed
under 37 CFR 1.132 filed 07/05/2011 is insufficient to overcome the rejection of claim 1-5 and
9-11 based upon a rejection under 35 USC 103 as set forth in the last Office action because: As
noted in the previous office action, in order to provide a sufficient showing of secondary
considerations based upon commercial success, a nexus is required between the success of the
commercial embodiment and the claimed invention.”) In addition, the claims pending at the time
of the Supplemental Fanger Declaration were all subsequently cancelled by Unverferth for an
alternative set of claims. Id. at UM-Pkan0000220. Finally, the PTO’s notice allowance stated
that the reason for allowance was a set of arguments that did not contain any reference to the
Supplemental Fanger Declaration. (Pl. Mem. Supp. Mot. Dismiss. 17–18.) Therefore, Par-Kan
has failed to demonstrate “but-for” materiality.
Par-Kan does attempt to argue, for the first time in its Response, that it does not actually
need to show “but-for” materiality because an egregious affirmative misconduct exception
applies. Notably, Par-Kan only alleged “but-for” materiality in its Amended Counterclaim
without any mention of the exception. See Def.’s Am. Countercl. ¶25 (“But for the false
representations contained in the Supplemental Fanger Declaration that Unverferth submitted to
the PTO, and Unverferth’s conscious decision to withhold the Undisclosed Information from the
PTO, the PTO would not have issued the ‘047 Patent.”). Even if the Court looks past this
problem, the allegations still fail to satisfy the heightened requirements of Rule 9(b) because the
allegations do not state with sufficient particularity the necessary information to demonstrate that
the exception applies. Furthermore, the exception was designed to target extraordinary conduct,
not mere omissions in opinion affidavits. In Therasense, the Federal Circuit explained that this
exception is targeted at extraordinary circumstances like “deliberately planned and executed
schemes” and also stated that things like a “failure to mention prior art references in an affidavit”
do not fall under the purview of the exception. Therasense, 649 F.3d at 1292–93. The
circumstances alleged in this case are far more similar to a failure to mention a prior art reference
in an affidavit than they are to a carefully planned and executed scheme to deceive the PTO in
the form of an opinion affidavit. Thus, the exception does not apply in this case.
Even if Par-Kan successfully proved “but-for” materiality, it still must prove specific
intent to deceive. To satisfy the inequitable conduct standard, deceptive intent must be the most
reasonable inference drawn from the evidence. Therasense, 649 F.3d at 1291. Deceptive intent
may not be assumed from materiality and the accusing party has the burden of proof. A mere
allegation of an omission does not satisfy the intent requirement.
Par-Kan’s pleadings focus on Unverferth’s alleged omission in the Fanger Declaration
and Supplemental Fanger Declaration of a significant market change. But Par-Kan’s pleadings
offer mere conclusory arguments that Unverferth (and Fanger) knew the information was
material. Par-Kan, however, did not plead with specific circumstances that Unverferth came to
know the reference’s importance and deliberately decided to withhold it from the PTO. Even if
the market size had increased in recent years and Unverferth knew this was the case, Par-Kan
still failed to demonstrate that deceptive intent was the only reasonable inference that can be
drawn from the evidence. The affidavit was what amounts to an opinion affidavit. Specifically,
Par-Kan cites Fanger as saying “In my opinion, Unverferth’s increased sales are not due to an
increase in the market size.” (Def.’s Resp. at 6.) Par-Kan also quotes him as saying he is
“unaware of any other factors contributing to the success of the product.” (Id.) Par-Kan does not
offer anything showing that the only possible inference is that Unverferth and Fanger had a
specific intent to deceive. One reasonable inference available is that he believed his statements to
be true. There are a variety of other possible inferences that could be drawn from the evidence as
well. Simply put, Par-Kan has failed to meet the burden required by the deceptive intent prong
of the inequitable conduct standard.
Future Leave to Amend
Under Rule 15(a)(1), a party may amend its pleading once as a matter of course “within
(A) 21 days after serving it, or (B) if the pleading is one to which a responsive pleading is
required, 21 days after service of a responsive pleading or 21 days after service of a motion
under Rule 12(b), (e) or (f), whichever is earlier.” In all other cases, the party must obtain the
opposing party’s written consent or seek leave of the Court. Fed. R. Civ. P. 15(a)(2).
Unverferth urges the Court to foreclose Par-Kan from future leave to amend its pleadings.
Such a ruling, though, would be premature. Par-Kan has already amended its answer and
counterclaim. For any further amendments, Par-Kan must either obtain Unverferth’s consent or
file a motion with the Court for leave to amend. As of now, the Court has not received a motion
for another amendment. If Par-Kan files such a motion in the future, the Court will conduct a
Rule 15 analysis at that time.
For the above mentioned reasons, the Court GRANTS the Plaintiff’s motion to dismiss
Defendant’s inequitable conduct counterclaim and to strike Defendant’s inequitable conduct
affirmative defense [ECF No. 35].
SO ORDERED on May 27, 2014.
s/ Theresa L. Springmann
THERESA L. SPRINGMANN
UNITED STATES DISTRICT COURT
FORT WAYNE DIVISION
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