Jordan Acquisition Group, LLC v. TSI, Incorporated

Filing 37

OPINION AND ORDER finding as moot 25 Motion to Dismiss; granting 28 Motion for Leave to File. Signed by District Judge Patrick J. Duggan. (MOre)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
JORDAN ACQUISITION GROUP, L.L.C..,
d/b/a American Auto-Matrix, a Michigan
limited liability company,
Case No. 10-11988
Plaintiff,
Honorable Patrick J. Duggan
v.
TSI INCORPORATED, a Minnesota
corporation,
Defendant.
/
OPINION AND ORDER
At a session of said Court, held in the U.S.
District Courthouse, Eastern District
of Michigan, on July 6, 2011.
PRESENT:

THE HONORABLE PATRICK J. DUGGAN
U.S. DISTRICT COURT JUDGE

On May 17, 2010, Jordan Acquisition Group, L.L.C. (“Jordan”) filed this suit against
TSI Incorporated (“TSI”), seeking declaratory, injunctive, and monetary relief for TSI’s
alleged infringement of Jordan’s patent on laboratory fume hood control systems. Before
the Court is Jordan’s motion to strike the defense of inequitable conduct from TSI’s
Answer. Also before the Court is TSI’s motion for leave to file an amended Answer. The
matter has been fully briefed by the parties, and the Court heard oral argument on June 21,
2011. For the reasons stated below, the Court grants TSI’s motion for leave to file an
amended Answer and denies Jordan’s motion to strike as moot.

I. Factual and Procedural Background
On June 9, 1998, Jordan’s predecessor-in-interest, American Auto-Matrix, Inc.
(“AAM”), obtained U.S. Patent No. 5,764,579 (“the ‘579 patent”), “System for
Controlling Laboratories With Fume Hoods.” Compl. Ex. A. Jordan came to believe that
TSI was infringing on the ‘579 patent in connection with its sales of room pressure
controls and laboratory fume hoods. After licensing discussions failed, Jordan filed this
infringement action.
On March 14, 2011, Jordan moved to strike the affirmative defense of inequitable
conduct from TSI’s Answer, arguing that TSI had not pleaded the defense with sufficient
particularity. In response, TSI moved for leave to file an amended Answer containing a
more definite statement of the facts underlying this defense. Jordan argues that the Court
should deny TSI’s motion for leave because amendment would be futile.
II. TSI’s Motion for Leave to file an Amended Answer
A. Standard of Review
Federal Rule of Civil Procedure 15(a)(2) provides that the Court should freely give
leave to amend when justice so requires. The Court has discretion in granting leave to
amend. Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 230 (1962). In the absence of
any apparent or declared reason, such as undue delay, bad faith, repeated failure to cure
deficiencies, undue prejudice to the opposing party, and futility of amendment, leave to
amend should be freely given. Id. “A proposed amendment is futile if the amendment
could not withstand a Rule 12(b)(6) motion to dismiss.” Rose v. Hartford Underwriters
Ins. Co., 203 F.3d 417, 420 (6th Cir. 2000).
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The standard a pleading must meet to withstand a Rule 12(b)(6) challenge is clear. A
motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal
sufficiency of the complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d
1125, 1134 (6th Cir. 1996). Under Federal Rule of Civil Procedure 8(a)(2), a pleading
must contain a “short and plain statement of the claim showing that the pleader is entitled
to relief.” As the Supreme Court recently provided in Iqbal, “[t]o survive a motion to
dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, --- U.S. ----, 129 S. Ct.
1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct.
1955, 1974 (2007)). “A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556, 127 S. Ct. at 1965).
The plausibility standard “does not impose a probability requirement at the pleading stage;
it simply calls for enough fact to raise a reasonable expectation that discovery will reveal
evidence of illegal [conduct].” Twombly, 550 U.S. at 556, 127 S. Ct. at 1965.
In deciding whether the plaintiff has set forth a “plausible” claim, the court must
accept the factual allegations in the complaint as true. Id.; see also Erickson v. Pardus,
551 U.S. 89, 94, 127 S. Ct. 2197, 2200 (2007). This presumption, however, is not
applicable to legal conclusions. Iqbal, 129 S. Ct. at 1949. Therefore, “[t]hreadbare
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, 127 S. Ct. at 1964-65). Ultimately,
“[d]etermining whether a complaint states a plausible claim for relief will . . . be a
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context-specific task that requires the reviewing court to draw on its judicial experience
and common sense.” Id. at 1950. In conducting this analysis, the Court may consider the
pleadings, exhibits attached thereto, and documents referred to in the complaint that are
central to the plaintiff’s claims. See Greenberg v. Life Ins. Co. of Va., 177 F.3d 507, 514
(6th Cir. 1999).
B. Requirements for Pleading Inequitable Conduct
Federal Circuit law governs the determination of whether a party has sufficiently
pleaded the defense of inequitable conduct. Exergen Corp. v. Wal-Mart Stores, Inc., 575
F.3d 1312, 1318 (Fed. Cir. 2009). Inequitable conduct must be pleaded with particularity
under Federal Rule of Civil Procedure 9(b). Id. Rule 9(b) requires that “a party must state
with particularity the circumstances constituting fraud or mistake,” while “[m]alice, intent,
knowledge, and other conditions of a person’s mind may be alleged generally.”
The inequitable conduct defense has two elements: “(1) an individual associated with
the filing and prosecution of a patent application made an affirmative misrepresentation of
a material fact, failed to disclose material information, or submitted false material
information; and (2) the individual did so with a specific intent to deceive the PTO.”1
Exergen, 575 F.3d at 1327 n.3 (citing Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.,
537 F.3d 1357, 1365 (Fed. Cir. 2008)). “A pleading that simply avers the substantive
elements of inequitable conduct, without setting forth the particularized factual bases for
the allegation, does not satisfy Rule 9(b).” Id. at 1326–1327 (citing King Auto., Inc. v.

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“PTO” refers to the United States Patent and Trademark Office.
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Speedy Muffler King, Inc., 667 F.2d 1008, 1010 (C.C.P.A. 1981)).
As for the first element, “Rule 9(b) requires identification of the specific who, what,
when, where, and how of the material misrepresentation or omission committed before the
PTO.” Id. at 1327. A party must identify specific individuals who knew of the material
information and deliberately withheld or misrepresented it. Id. at 1329. The “what” and
“where” requirements mandate that a party identify the claims to which the information is
relevant. Id. The party must state why the information is material and how an examiner
would have used the information in assessing the patentability of claims. Id. at 1329-30.
The second element requires a party to establish that an individual had knowledge of
the withheld material information or the falsity of the material misrepresentation and acted
with specific intent to deceive the PTO. Id. at 1327 (citing Hebert v. Lisle Corp., 99 F.3d
1109, 1116 (Fed. Cir. 1996)). The pleadings must “allege sufficient underlying facts from
which a court may reasonably infer that a party acted with the requisite state of mind.” Id.
C. Application to TSI’s Proposed Amended Answer
TSI’s proposed Amended Answer identifies three separate bases for its inequitable
conduct defense, and provides additional detail relating to each.
1. Failure to Disclose Identities of Certain Inventors
TSI alleges that the applicants of the ‘579 patent intentionally failed to disclose the
identities of certain inventors who contributed to the invention. Proposed Am. Answer ¶¶
74-81, Dkt. #28-1. Specifically, TSI alleges that one or more employees of Voltec, Inc.
provided ideas that were incorporated into the invention with respect to claims 17 and 51
of the patent. Id. ¶¶ 77-78. TSI claims that the applicants “intentionally failed to disclose
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the one or more of those employees as inventors in order to maintain the applicants’ and
American Auto-Matrix’s sole and undiluted ownership of the ‘579 invention and the
resulting patent.” Id. ¶ 81.
This claim satisfies Exergen’s “who, what, when, where and how” requirements, as it
alleges that certain named individuals were aware of the Voltec employees’ documented
contributions to the invention, yet withheld that information from the PTO when applying
for the ‘579 patent. TSI claims that this information was material because American AutoMatrix would not have been granted undiluted patent ownership if it were disclosed. As
American Auto-Matrix had an obvious incentive to obtain undiluted ownership, these
facts, if true, allow the reasonable inference that the named individuals acted with the
specific intent to withhold material information.
2. Misrepresentation of Invalidating Prior Art
TSI claims that the applicants “knowingly misrepresented” the nature of a prior
patent (the “Sharp reference”) which would have invalidated the ‘579 patent. Id. ¶ 82.
TSI alleges that the Sharp reference includes a system for controlling air flow using a
damper, while the applicants represented to the PTO that it did not. Id. ¶ 83. TSI further
alleges that the Sharp reference includes a system for monitoring the laboratory state, and
the applicants represented to the PTO that it did not. Id. ¶ 84.
Again, this claim satisfies Exergen’s requirements, as it alleges that certain named
individuals were aware of features in the Sharp reference and intentionally misrepresented
those features to the PTO when applying for the ‘579 patent. TSI claims that this
misrepresentation was material, as without it, the PTO would have rejected claim 7 of the
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‘579 patent. Id. ¶ 86. Because a portion of the ‘579 patent may have been rejected absent
the misrepresentation, the pleaded facts, if true, allow the reasonable inference that the
named individuals acted with the intent to misrepresent the nature of the Sharp reference.
3. Misrepresentation to Avoid the “Public Use” Bar
TSI claims that two AAM employees submitted declarations in support of the ‘579
patent application which included affirmative misrepresentations. Id. ¶ 88. These
declarations allegedly stated that the invention had been “used, sold by, and disclosed to
Voltec, Inc. as early as 1988, but only under a ‘confidentiality agreement.’” Id. ¶ 89. This
confidentiality agreement purportedly ensured that the disclosures would not trigger the
“public use” bar of 35 U.S.C. § 102. Proposed Am. Answer ¶ 89. TSI alleges that the
confidentiality agreement applied only to financial statements relating to a “business
combination,” and therefore, did not protect against public disclosure. Id. ¶ 90.
This claim is stated with sufficient particularity. It names individuals who were
allegedly aware of the scope of the confidentiality agreement, yet misrepresented its scope
to the PTO in order to avoid the public use bar. As the alleged misrepresentation ensured
the patentability of an invention that would have otherwise been barred, it was obviously
material. Given the strong incentive to avoid the public use bar, these facts, if true, would
allow a reasonable inference that the named individuals acted with the specific intent to
deceive the PTO concerning the scope of the confidentiality agreement.
III. Conclusion
Although TSI bears the heavy burden of establishing both materiality and intent to
deceive by clear and convincing evidence, Star, 537 F.3d at 1365, it has at least pleaded
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inequitable conduct with sufficient particularity. The Court therefore concludes that TSI’s
proposed amendment is not futile, and leave to amend should be granted. Accordingly, the
Court denies as moot Jordan’s motion to strike the inequitable conduct defense from TSI’s
original Answer.
Jordan has raised the concern that TSI alleged inequitable conduct in order to launch
an unjustified “fishing expedition” of wide-ranging discovery. To address this concern,
the Court limits discovery relating to the inequitable conduct defense to the three claims
identified by TSI in its Amended Answer.
For the reasons stated above,
IT IS ORDERED that TSI’s Motion for Leave to File an Amended Answer is
GRANTED.
IT IS FURTHER ORDERED that Jordan’s Motion to Strike is DENIED AS
MOOT.
s/PATRICK J. DUGGAN
UNITED STATES DISTRICT JUDGE
Copies to:
Emily J. Zelenock, Esq.
Andrew M. Grove, Esq.
Robert C. Brandenburg, Esq.

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