Finisar Corporation v. Cheetah Omni, LLC

Filing 70

ORDER Granting 52 Motion for Leave to Add a Counterclaim - Signed by Magistrate Judge Mona K. Majzoub. (LBar)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

Finisar Corporation,
Plaintiff,

Civil Action No.: 11-CV-15625

vs.

District Judge Paul D. Borman
Magistrate Judge Mona K. Majzoub

Cheetah Omni, LLC
Defendant.
_____________________________/
OPINION AND ORDER GRANTING DEFENDANT’S MOTION FOR LEAVE TO ADD
A COUNTERCLAIM [52]
This matter comes before the Court on Defendant Cheetah Omni, LLC’s Motion for Leave
to Add a Counterclaim. (Docket no. 52.) Plaintiff Finisar Corporation filed a response. (Docket
no. 56.) Defendant filed a Reply. (Docket no. 60.) The motion was referred to the undersigned for
decision. (Docket no. 53.) The parties have fully briefed the motion; the Court has reviewed the
pleadings and dispenses with oral argument pursuant to Eastern District of Michigan Local Rule
7.1(f)(2). The Court is now ready to rule pursuant to 28 U.S.C. § 636(b)(1)(A).
I.

Background
Defendant is the owner of U.S. Patent No. 6,888,661 (“the ‘661 patent”) and U.S. Patent No.

6,847,479 (“the ‘479 patent”). (See docket no. 52 at 6.) In 2011, Defendant sued Plaintiff’s
customers for infringement of the ‘661 and ‘479 patents (the “Texas Action.”); Defendant did not
sue Plaintiff in the Texas Action even though the alleged infringement involved Plaintiff’s
customers’ use of an optical switch provided by Plaintiff. (See docket no. 56 at 3.) Plaintiff then

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filed the instant action for a declaratory judgment of non-infringement. (Id.)
Defendant filed its answer on February 27, 2012, and did not include any counterclaims
against Plaintiff for infringement. (Docket no. 16.) In response to Plaintiff’s allegations, however,
Defendant stated:
To the extent any claim of the [‘661 and ‘479] patent[s] cover any product made by
Finisar, that product, by definition, infringes. However, Cheetah has not sued Finisar
for infringing the [‘661 and ‘479] patent[s].
(Id. ¶¶ 27, 33, 39, 49, 55, 61.) Viewing this response as a failure to deny non-infringement, Plaintiff
filed a Motion for Judgment on the Pleadings.1 (Docket no. 19.)
On March 26, 2012, Defendant filed a Motion for Order (1) Declining Declaratory Judgment
Jurisdiction or, in the Alternative, (2) Staying This Action or Transferring it to the Eastern District
of Texas. (Docket no. 23.) In its Motion, Defendant took the position that the targets of its
infringement action in Texas were Plaintiff’s customers, not Plaintiff, and that Plaintiff’s only
involvement was that it provided parts that were necessary for its customers to create components
that infringe on Defendant’s patents. (Id. at 15 - 17.) During a July 6, 2012 Status Conference,
Defendant’s counsel stated the following with regard to the patents at issue:
One of the two patents in Texas, Finisar’s product doesn’t even infringe any claim,
not a single claim. Cheetah could never sue Finisar for infringement of any claim
of the ‘479 patent because every single claim requires a part that Finisar’s customers
add.
(Docket no. 51 at 28:8-16.) The “part” to which Defendant’s counsel was referring was an
amplifier, and Plaintiff’s counsel later added, “We heard a representation that Finisar doesn’t make
amplifiers. That is factually not correct. . . . We make products with amplifiers. There’s no reason

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Plaintiff’s Motion for Judgment on the Pleadings remains pending before the District
Judge. Thus, the Court will not address Plaintiff’s Motion and Defendant’s Motion concurrently.
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why they can’t come after us.” (Id. at 38:5-6, 12-14.) Defendant now wishes to add a counterclaim
alleging that Plaintiff infringes on the ‘661 and ‘479 patents. (Docket no. 52.)
II.

Governing Law
A court is to allow parties to amend their pleadings freely “when justice so requires.”

Fed.R.Civ.P. 15(a)(2).2 “A party seeking to amend an answer must act with due diligence if it
intends to take advantage of [Rule 15’s] liberality.” Saginaw Chippewa Indian Tribe of Michigan
v. Granholm, 05-10296, 2008 WL 4808823, at *8 (E.D. Mich. Oct. 22, 2008) (Ludington, J.)
(internal quotation omitted). “A court may deny leave to amend when a party unnecessarily delayed
in seeking amendment, thereby []causing prejudice to the other party or unduly delaying the
litigation.” Id. (citation omitted). “In determining what constitutes prejudice, the court considers
whether the assertion of the new claim or defense would: [(1)] require the opponent to expend
significant additional resources to conduct discovery and prepare for trial; [(2)] significantly delay
the resolution of the dispute; or [(3)] prevent the plaintiff from bringing a timely action in another
jurisdiction.” Id. (citation omitted). A court may also deny leave to amend when the proposed
amendment would be futile. See Yuhasz v. Brush Wellman, Inc., 341 F.3d 559, 569 (6th Cir. 2003).
To determine whether an amendment would be futile, the Court determines whether the amendment
could survive a motion to dismiss pursuant to Rule 12(b)(6). Keely v. Department of Veterans
Affairs, 10-11059, 2011 WL 824493, at *1 (E.D. Mich. Mar. 3, 2011) (Majzoub, M.J.) (citation
omitted).

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Plaintiff notes that because Defendant is not requesting leave to amend a counterclaim
but is, instead, seeking leave to add a counterclaim, Defendant’s motion should be addressed
under Fed.R.Civ.P. 15(d) instead of 15(a). (Docket no. 56 at 8 n.2.) Plaintiff also notes,
however, that the standards for Rules 15(a) and (d) are the same. (Id. (citations omitted).)
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When deciding a Motion under Rule 12(b)(6), the court must “construe the complaint in the
light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences
in favor of the plaintiff.” Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007); Inge v. Rock
Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002). The plaintiff must provide “‘a short and plain
statement of the claim’ that will give the defendant fair notice of what the plaintiff's claim is and the
grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957) (quoting Fed.R.Civ.P.
8(a)(2)). But this statement “must be enough to raise a right to relief above the speculative level.”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The plaintiff cannot rely on “legal
conclusions” or “[threadbare] recitals of the elements of a cause of action;” instead, the plaintiff
must plead “factual content that allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This “facial
plausibility” is required to “unlock the doors of discovery.” Id. To make this determination, the
Iqbal Court set out the following two-part test:
[A] court considering a motion to dismiss can choose to begin by identifying
pleadings that, because they are no more than conclusions, are not entitled to the
assumption of truth. While legal conclusions can provide the framework of a
complaint, they must be supported by factual allegations. When there are wellpleaded factual allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement to relief.
Id. at 679.
III.

Analysis
Defendant’s principal argument in support of its Motion is that its proposed counterclaims

are mirror images of Plaintiff’s non-infringement claims. (Docket no. 51 at 8.) That is, the claims
are logically related; “the issues of fact and law raised by the claims are largely the same and
substantially the same evidence would support or refute both claims.” (Id. at 6 (citing Sanders v.
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First Nat’l Bank & Trust Co., 936 F.3d 273, 277 (6th Cir. 1991)).) Second, Defendant asserts that
its infringement claims will be barred by Fed.R.Civ.P. 13(a) as a compulsory counterclaim if the
Court does not grant its Motion. (Id. at 8 (citing Vivid Technologies v. American Science &
Engineering, Inc., 200 F.3d 795, 802 (Fed. Cir. 2009) (“[I]t is generally recognized that when the
same patent is at issue in an action for declaration of non-infringement, a counterclaim for patent
infringement is compulsory and if not made is deemed waived. Such a counterclaim ordinarily
should not be refused entry.”)).) Finally, Defendant argues that adding its proposed counterclaims
will not prejudice Plaintiff because the claim construction process has not commenced, no discovery
dates have been assigned, and the counterclaims will not add any issues to the case, with the possible
exception of damages. (Id. at 9.)
Plaintiff argues (1) that it would suffer great prejudice by Defendant’s late addition of
counterclaims for infringement, (2) that Defendant takes contradictory positions with respect to its
Motion, and (3) that Defendant’s delay in filing its counterclaim is undue because it was in
possession of all the facts necessary to file such counterclaims with its original answer. (Docket no.
56 at 9, 11, 13.)
Plaintiff’s primary argument with regard to prejudice is that if Defendant is allowed to assert
its counterclaims, Plaintiff’s Motion for Judgment on the Pleadings will be undermined.3 (Docket

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Plaintiff also asserts that Defendant has violated E.D. Mich. L.R. 7.1(d)(1)(A) by filing
two briefs in support of its Motion. (Docket no. 56 at 10-11.) Plaintiff argues that this Motion is
duplicative of Defendant’s request to amend its Answer in response to Plaintiff’s Motion for
Judgment on the Pleadings. (Id.) Plaintiff is correct that Defendant has made similar requests to
the Court, but Defendant has not filed two briefs in support of the same Motion. Plaintiff’s first
brief was in response to Plaintiff’s Motion, not in support of its own Motion filed over three
months later, and the relief requested therein was made as an alternative to the Court denying
Plaintiff’s Motion.
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no. 56 at 6-8.) In essence, Plaintiff fears that the Court may grant its Motion for Judgment on the
Pleadings and issue a declaratory judgment of non-infringement and then allow Defendant’s
counterclaim for infringement to survive, thus creating an inconsistent result. The procedural
technicalities that may arise from the District Judge’s decision related to Plaintiff’s Motion are not
currently before this Court. Nevertheless, the Court’s ruling herein does not preclude Plaintiff from
raising its arguments at a later date should Plaintiff’s Motion for Judgment on the Pleadings be
granted.
Regarding Defendant’s alleged contradictory positions and intentional delays, Plaintiff points
to statements by Defendant’s counsel during the July 6, 2012 Status Conference where counsel
stated, “Cheetah could never sue Finisar for infringement of any claim of the ‘479 patent because
every single claim requires [an amplifier] that Finisar’s customers add.” (Id. at 12 (citing docket no.
51 at 28:9-12).) Plaintiff claims, as it did during the status conference, that Plaintiff informed
Defendant that it made amplifiers when it filed its Reply Brief (docket no. 26) in support of its
Motion for Injunction.4, 5 Plaintiff argues that Defendant intentionally delayed in attempting to file
a counterclaim even though it had this information in April 2012. Plaintiff contends that the reason
for this delay is simple: Defendant’s claims against Plaintiff’s customers are more lucrative, and
“[c]ounterclaiming and denying the allegations would effectively create a controversy between
Finisar and Cheetah, and would complicate its efforts to get rid of this case. Thus, Cheetah opted
to omit the compulsory counterclaim, hoping that one of its motions [declining jurisdiction or

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As part of it’s Reply, Plaintiff attached a brochure indicating that it makes amplifiers.
(Docket no. 26-2.)
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Plaintiff also notes that Defendant learned that Plaintiff supplies amplifiers through
extensive discovery in other cases between these two parties. (Docket no. 56 at 14.)
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staying the action] would succeed.” (Docket no. 56 at 14.)
Defendant draws the court’s attention to a statement contained in the parties May 4, 2012
Joint Proposed Discovery Plan: “Cheetah has not yet asserted counterclaims against Finisar. . . .
Cheetah has indicated that, if its pending motions to dismiss and to stay or transfer are not granted,
it may seek leave to amend its Answer to assert counterclaims of infringement.” (Docket no. 60 at
4 (citing docket no. 31 at 2, n1) (emphasis added).) Additionally, Defendant asserts that the
brochure Plaintiff cites in support of its contention that Defendant had notice that Plaintiff
manufactured amplifiers in does not contain enough information on which Defendant could have
filed a claim for infringement. (Id. at 4-5.) Defendant asserts that it was Plaintiff’s counsel’s
statement, “We heard a representation that Finisar doesn’t make amplifiers. That is factually not
correct,” that provided Defendant with its infringement claim. (Id. at 5.)
Defendant could have been more punctual in bringing it’s Motion to Add a Counterclaim,
but Plaintiff’s argument that Defendant mislead the court and delayed bringing such a claim in bad
faith is misplaced. To the contrary, Defendant notified the Court and Plaintiff that it intended to
bring such a motion if its previous motions were denied. Moreover, Plaintiff brought this claim for
declaratory judgment of non-infringement with the knowledge that a counterclaim for infringement
was a possible result. Aside from Plaintiff’s hope that its Motion for Judgment on the Pleadings
may succeed, Plaintiff has not shown the Court that any prejudice would befall it should the Court
grant Defendant’s Motion. The central issue in the controversy remains the same, that is, whether
Plaintiff has infringed on the ‘479 or ‘611 patents. The addition of Defendant’s counterclaim will
not require Plaintiff to expend any additional resources during discovery, and it will not delay the
resolution of the dispute. To the contrary, however, denying Defendant’s Motion would prevent

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Defendant from bringing a timely action in another jurisdiction.6 Therefore, the Court will grant
Defendant’s Motion.
IT IS THEREFORE ORDERED that Defendant’s Motion for Leave to Add a
Counterclaim is GRANTED.
NOTICE TO THE PARTIES
Pursuant to Federal Rule of Civil Procedure 72(a), the parties have a period of fourteen days
from the date of this Order within which to file any written appeal to the District Judge as may be
permissible under 28 U.S.C. § 636(b)(1).

Dated: November 1, 2012

s/ Mona K. Majzoub
MONA K. MAJZOUB
UNITED STATES MAGISTRATE JUDGE

PROOF OF SERVICE
I hereby certify that a copy of this Order was served upon Counsel of Record on this date.
Dated: November _1, 2012

s/ Lisa C. Bartlett
Case Manager

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Additionally, the Court has reviewed Defendant’s proposed counterclaim and finds that
it would survive a Rule 12(b)(6) Motion to Dismiss under the standards set forth in Iqbal and
Twombly. Thus, Defendant’s Motion to Add a Counterclaim is not futile.
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