Planet Bingo, LLC v. VKGS, LLC

Filing 39

OPINION ; signed by Judge Robert Holmes Bell (Judge Robert Holmes Bell, kcb)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
PLANET BINGO, LLC,
Plaintiff,
File No. 1:12-CV-219
v.
HON. ROBERT HOLMES BELL
VKGS, LLC,
Defendant.
/
OPINION
This matter is before the Court on Defendant VKGS, LLC’s motion for leave to file
answer to complaint, amended affirmative defenses, and amended counterclaims. (Dkt. No.
27.) On March 7, 2012, Planet Bingo, LLC sued VKGS for infringement of U.S. Patent Nos.
6,398,646 (the ‘646 patent) and 6,656,045 (the ‘045 patent). (Dkt. No. 1.) Previously, this
Court denied without prejudice VKGS’s motion for summary judgment on invalidity
grounds. (Dkt. No. 34.) The present motion will be granted in part and denied in part for the
following reasons.
I.
The ‘646 patent is directed at an automated method and system for managing a Bingo
game while allowing a repeat player to play the same sets of numbers in multiple games of
Bingo. (Dkt. No. 1, Ex. A, ‘646 Patent, Abstract.) Essentially, the system allows (1) players
to select their own numbers and store them for later use, (2) players to print off game tickets
at the Bingo playing site with those pre-selected numbers, and (3) the Bingo hall to track and

validate these sets of numbers. (Id.) The ‘045 patent is similar. It is directed to an
automated method and system for storing preselected Bingo numbers which allow a player
to play the same sets of Bingo numbers in multiple sessions. (Dkt. No. 1, Ex. B, ‘045 Patent,
Abstract.) The player can pay to purchase the sets of Bingo numbers and also input them into
the computer to verify a winning set of Bingo numbers. (Id.)
On July 9, 2012, the Court scheduled a Markman hearing for April 18, 2013, and set
deadlines for disclosure. (Dkt. No. 16.) The present motion was timely brought on
September 28, 2012. (Dkt. No. 21.)
II.
Federal Rule of Civil Procedure 15(a)(2) provides that a party may amend its pleading
with the Court’s leave. “The court should freely give leave when justice so requires.” Fed.
R. Civ. P. 15(a)(2). “A motion to amend a complaint should be denied if the amendment is
brought in bad faith, for dilatory purposes, results in undue delay or prejudice to the opposing
party, or would be futile.” Crawford v. Roane, 53 F.3d 750, 753 (6th Cir. 1995). Defendant
seeks the Court’s leave to amend its affirmative defenses and counterclaims to include an
affirmative defense that subject matter jurisdiction is lacking and counterclaims of
declaratory judgment of unenforceability as to both the ‘045 and ‘646 patents due to
inequitable conduct in the prosecution of the ‘045 patent. Tied to these counterclaims,
Defendant also seeks to add an affirmative defense of invalidity due to inequitable conduct
as to both patents.

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A. Affirmative Defense of Lack of Subject Matter Jurisdiction
First, Defendant seeks to add the affirmative defense of lack of subject matter
jurisdiction – the proposed Eighth Affirmative Defense – because the United States Patent
and Trademark Office (“USPTO”) lists Melange Computer Services, Inc. as the owner of
both the ‘646 and ‘045 patents. To have standing in a patent infringement suit, a plaintiff
must be the patentee or a successor in title to the patent, or, in the alternative, be the
exclusive licensee suing with the patentee. See Morrow v. Microsoft Corp., 499 F.3d 1332,
1339-40 (Fed. Cir. 2007). Defendant thus alleges that first, Plaintiff is not the patentee
(Melange is), and second, Plaintiff is not the exclusive licensee of either patent (Plaintiff
licenses the patents in suit to third parties) and is not suing with the patentee.
Additionally, Defendant contends that it did not have the information necessary to
bring the affirmative defense of lack of subject matter jurisdiction initially. In support,
Defendant cites interrogatory responses by Plaintiff that it received after filing the initial
affirmative defenses. (See Dkt. No. 27, at 3.) Defendant offers no arguments opposing this
proposed amendment, and the Court does not believe it is brought in bad faith, for dilatory
purposes, results in undue delay or prejudice to the opposing party, or would be futile. Thus,
the Court will grant Defendant’s motion to the extent it pertains to amending the affirmative
defenses to include lack of subject matter jurisdiction.
B. Counterclaims Alleging Inequitable Conduct
Second, Defendant seeks to add counterclaims for declaratory judgment of

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unenforceability – Counts V and VI of the amended counterclaims – due to inequitable
conduct in the prosecution of the ‘045 patent. Tied to these proposed counterclaims,
Defendant seeks to add the proposed Seventh Affirmative Defense of invalidity due to
inequitable conduct. In particular, Defendant alleges that counsel for Plaintiff’s predecessor
in interest, Melange, (Ian McLeod and Mary Moyne of the law firm McLeod & Moyne) and
the alleged inventors of the ‘045 patent intentionally violated their duty of disclosure in
prosecuting the ‘045 patent. Defendant alleges that they failed to disclose the prior art of
Fioretti (U.S. Patent No. 5,351,970) and the fact that, in a patent application by Melange
virtually identical to the application that resulted in the ‘045 patent, the Canadian Intellectual
Property Office (“CIPO”) rejected, as invalid on the ground of obviousness in light of
Fioretti, claims alleged to teach “control identifiers.” Days before this CIPO rejection based
on Fioretti, this “control identifiers” element was directly cited by the USPTO examiner as
missing in the prior art and the reason the ‘045 patent recited patentable subject matter.
Defendant alleges that the firm McLeod & Moyne was connected to this CIPO prosecution
and thus knew of Fioretti and the CIPO rejection (which occurred during the pendency of the
‘045 patent application) and intentionally failed to disclose them to the U.S. patent examiner.
1. The ‘045 Patent Counterclaim
Plaintiff contends that leave to add the counterclaim regarding the ‘045 patent – Count
V of the amended counterclaims – should be denied on the basis of futility. See Crawford,
53 F.3d at 753. “A proposed amendment is futile if the amendment could not withstand a

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Rule 12(b)(6) motion to dismiss.” Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417,
420 (6th Cir. 2000); see also Riverview Health Inst. LLC v. Med. Mutual of Ohio, 601 F.3d
505, 512 (6th Cir. 2010).
The Sixth Circuit imposes a heightened pleading standard for allegations of
inequitable conduct:
Rule 9(b) requires that “[i]n all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with particularity.”
“[I]nequitable conduct, while a broader concept than fraud, must be pled with
particularity” under Rule 9(b). Ferguson Beauregard/Logic Controls, Div. of
Dover Resources, Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1344 (Fed. Cir.
2003). 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).
...
In sum, to plead the “circumstances” of inequitable conduct with the requisite
“particularity” under Rule 9(b), the pleading must identify the specific who,
what, when, where, and how of the material misrepresentation or omission
committed before the PTO. Moreover, although “knowledge” and “intent” may
be averred generally, a pleading of inequitable conduct under Rule 9(b) must
include sufficient allegations of underlying facts from which a court may
reasonably infer that a specific individual (1) knew of the withheld material
information or of the falsity of the material misrepresentation, and (2) withheld
or misrepresented this information with a specific intent to deceive the PTO.
Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1326-29 (Fed. Cir. 2009). Thus,
Exergen requires a defendant to identify the “who,” “what,” “when,” “where,” and “how”
of the alleged inequitable conduct, in addition to sufficient allegations of fact to create a
reasonable inference of scienter.
Plaintiff contends that Defendant failed to satisfy its pleading burden as to the “how,”
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“what,” “when,” and scienter requirements of Exergen. First, Plaintiff argues that Defendant
has not alleged “how” any of the named inventors would have been aware of either Fioretti
or the CIPO’s rejection. (Dkt. No. 31, at 9.) However, Exergen’s “how” requirement refers
to how the patent examiner would have used the withheld information. See, e.g., Somanetics
Corp. v. CAS Med. Sys., Inc., No. 09-13110, 2010 WL 2178836, at *7 (E.D. Mich. May 26,
2010); Jordan Acquisition Group, L.L.C. v. TSI Inc., No. 10-11988, 2011 WL 2650491, at
*2 (E.D. Mich. July 6, 2011); Everlight Elecs. Co., Ltd. v. Nichia Corp., No. 12-CV-11758,
2012 WL 5389696, at *3 (E.D. Mich. Nov. 2, 2012). It requires a counterclaimant to show
“the causal link between the activity alleged and the granting of the patents in suit.”
McKechnie Vehicle Components USA, Inc. v. Lacks Ind., Inc., No. 09-CV-11594, 2010 WL
4643081, at *5 (E.D. Mich. Nov. 9, 2010).
In the proposed amended counterclaims, Defendant has sufficiently pleaded how the
patent examiner would have used the undisclosed information. Notably, Defendant quoted
the patent examiner’s statement in an Office Action that the ‘045 patent recited allowable
subject matter because “[t]he prior art of record . . . do not teach the feature of assigning a
control identifier to each set of Bingo numbers.” (Dkt. No. 27, Ex. 1, Am. Countercl, ¶ 30.)
This “feature” was found obvious by the CIPO in light of Fioretti. (Id. at ¶ 38.) Thus, the
amended pleading shows that the patent examiner would have used the disclosure of Fioretti
and the CIPO rejection to find the ‘045 patent invalid on the ground of obviousness.
Plaintiff also contends that Defendant failed to satisfy the “what” requirement because

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it did not allege that the named inventors had actual knowledge of Fioretti or the CIPO
rejection. (Dkt. No. 31, at 9.) Once again, this misconstrues Exergen. The “what”
requirement mandates identification of the material misrepresentation or omission and what
claims it impacted. See, e.g., Dura Operating Corp. v. Magna Intern., No. 10-1156, 2011
WL 869372, at *11 (E.D. Mich. Mar. 10, 2011); McKechnie, 2010 WL 4643081 at *4.
Defendant satisfies this burden because it identifies what the material omission was – Fioretti
and the CIPO rejection – and which claims of the ‘045 patent it impacted – those reciting
control identifiers. (Dkt. No. 27, Ex. 1, Am. Countercl., ¶¶ 21-51.)
Similarly, Plaintiff contends that Defendant failed to satisfy the “when” requirement
because it did not allege when any of the implicated attorneys communicated the existence
of Fioretti or the CIPO rejection to the named inventors. As before, this misconstrues
Exergen. The “when” requirement requires an allegation of when the alleged inequitable
conduct occurred. See, e.g., Dura Operating Corp., 2011 WL 869372 at *11; McKechnie,
2010 WL 4643081 at *4. Defendant satisfied this burden because it identified when the
alleged inequitable conduct occurred. (Dkt. No. 27, Ex. 1, Am. Countercl., ¶¶ 39-48.)
Lastly, Plaintiff contends that Defendant failed to satisfy the two-part scienter
requirement, first as to McLeod and Moyne, and second as to the named inventors. Plaintiff
applies too strict of a standard in reaching this conclusion, seeking this Court to require
probability or proof. Defendant does not have to prove knowledge and specific intent in its
pleadings. Instead, Exergen requires “sufficient allegations of underlying facts from which

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a court may reasonably infer” knowledge of the withheld material and specific intent to
deceive the patent examiner. 575 F.3d at 1328. “A reasonable inference is one that is
plausible and that flows logically from the facts alleged.” Id. at 1329 n.5. Plaintiff’s
argument that the Court must find that the intent to deceive is the “single most reasonable
inference to be drawn” is improper at this stage. (Dkt. No. 31, at 11 (citing Therasense, Inc.
v. Becton, Dickinson and Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011).) Therasense involved
review of a district court decision regarding inequitable conduct on the merits, not a 12(b)(6)
analysis as here. At this pleading stage, all that is required is plausibility based on the facts
alleged in the pleading. See Exergen, 575 F.3d at 1329 n.5. The Court will apply this
standard first to the pleadings as they relate to the attorneys and then to the pleadings as they
relate to the inventors.
Defendant pleaded facts alleging that McLeod and Moyne were involved in the CIPO
prosecution that invalidated virtually identical claims on the ground of obviousness in light
of Fioretti and thus knew of Fioretti and the CIPO rejection and had a specific intent to
deceive the U.S. patent examiner. First, Defendant pleaded facts showing that the CIPO
patent application was initiated by Melange (i.e. the same client) and was identical to the
patent application that resulted in the ‘045 patent. (Dkt. No. 27, Ex. 1, Am. Countercl.,
¶¶ 36-37.) Second, Defendant pleaded facts showing that the patent application before the
CIPO was filed by McRae & Co., a Canadian law firm, on behalf of McLeod & Moyne. (Id.
at ¶ 38.) Third, Defendant pleaded facts showing that while the ‘045 patent application was

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still pending (and after the patent examiner had indicated that patentable subject matter
hinged on “control identifiers”), the CIPO examiner on multiple occasions rejected claims
identical to those at issue in the ‘045 patent on the ground of obviousness in light of Fioretti
and disclosed these rejections to McRae & Co. (Id. at ¶¶ 39-51.) The Court finds it
plausible, based on these pleaded facts, that McLeod and Moyne, prosecuting the same
invention for the same client as the CIPO prosecution, were monitoring the CIPO prosecution
(which they referred to McRae & Co.) and as a result knew about Fioretti and the CIPO
rejection. Similarly, because the CIPO rejection involved the same invention and same client
at issue in the application for the ‘045 patent, the Court also finds it plausible based on the
pleaded facts that McLeod and Moyne chose not to disclose Fioretti with the specific intent
to deceive the U.S. patent examiner. Thus, Defendant has met its pleading burden in regard
to inequitable conduct of McLeod and Moyne.
However, the reasonable inferences about McLeod and Moyne drawn from the three
sets of pleaded facts just discussed do not extend to the named inventors. Defendant’s sole
reference in the pleadings to the knowledge of the inventors is that “[a]t least attorneys
McLeod and Moyne, if not also the alleged inventors, were fully aware . . .” (Id. at ¶ 60.)
While this was sufficient to plead knowledge on the part of the attorneys based on the
pleaded facts regarding their close connection to the CIPO prosecution, no such underlying
facts were pleaded in regard to the inventors. Moreover, Defendant’s argument in its brief
is that “on information and belief” the alleged inventors were aware of Fioretti and the CIPO

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rejection. (Dkt. No. 27, at 7.) The bare statement of “information and belief,” without any
pleaded facts implicating the inventors, is not sufficient to constitute pleaded facts supporting
a reasonable inference of scienter (i.e. a plausible inference of scienter that logically flows
from the pleaded facts).
Similarly, this phrase, “information and belief,” is used in the pleadings to plead intent
to deceive on the part of both the attorneys and inventors. (Dkt. No. 27, Ex. 1, Am.
Countercl., ¶ 61.) As with the knowledge pleading requirement, this is sufficient to plead
intent on the part of the attorneys because of the pleaded facts concerning the close
connection of the attorneys to the CIPO prosecution and the pleaded fact that within days of
the CIPO examiner highlighting the control identifiers in Fioretti, the U.S. examiner stated
the reason the ‘045 patent recited patentable subject matter was the absence of any prior art
reciting control identifiers. But there are no such facts establishing a connection of the
named inventors to the CIPO prosecution or establishing that the named inventors were
closely involved in the prosecution of the ‘045 patent. Thus, “information and belief,”
without any related pleadings involving the inventors, is insufficient to create a reasonable
inference of intent on the part of the inventors. Because there are insufficient allegations of
underlying facts from which a court may reasonably infer that the inventors had knowledge
of the withheld material and a specific intent to deceive, Defendant cannot make out a claim
that the inventors engaged in inequitable conduct.
Plaintiff does not challenge that Defendant has adequately pleaded the “who” and

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“where” of the inequitable conduct, the only two remaining requirements of Exergen, and the
Court agrees that Defendant met its pleading burden as to those two requirements. Thus,
Defendant has adequately pleaded inequitable conduct as to McLeod and Moyne, and the
addition of Count V of the amended counterclaims would not be futile as it pertains to the
two attorneys. Because the Court does not believe it is brought in bad faith, for dilatory
purposes, results in undue delay or prejudice to the opposing party, or would be futile, it finds
that the addition of the counterclaim is appropriate under Rule 15(a)(2). However, the
counterclaim as proposed (Dkt. No. 27, Ex. 1) includes allegations of inequitable conduct by
the inventors which the Court finds would be futile.
2. The ‘646 Patent Counterclaim
Plaintiff also contends that leave to add the counterclaim regarding the ‘646 patent –
Count VI of the amended counterclaims – should be denied on the basis of futility. This is
because the alleged inequitable conduct took place after the issuance of the ‘646 patent.
Defendant counters that a finding of inequitable conduct in the prosecution of one patent
application applies with equal force to related patents in the same technology family.
“[T]he taint of a finding of inequitable conduct can spread from a single patent to
render unenforceable other related patents and applications in the same technology family.”
Therasense, 649 F.3d at 1288-89 (citing Consol. Aluminum Corp. v. Foseco Int’l Ltd., 910
F.2d 804, 808-12 (Fed. Cir. 1990)). However, Consolidated Aluminum Corp. involved
inequitable conduct during the prosecution of the first-issued patent in the technology family

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at issue. The Federal Circuit has held that inequitable conduct during the prosecution of a
later-issued patent does render previously-issued patents unenforceable: “this court’s
inequitable conduct cases do not extend inequitable conduct in one patent to another patent
that was not acquired through culpable conduct.” Pharmacia Corp. v. PAR Pharm., Inc., 417
F.3d 1369, 1375 (Fed. Cir. 2005) (holding that a previously-issued patent was not invalidated
because inequitable conduct occurred in the prosecution of a later patent). “The fact that the
later issued patents [during the prosecution of which inequitable conduct allegedly occurred]
may relate in subject matter to the initial patent does not appear to be the kind of link relied
upon by the Courts [to apply infectious inequitable conduct].” Duhn Oil Tool, Inc. v. Cooper
Cameron Corp., 609 F. Supp. 2d 1090, 1101 (E.D. Cal. 2009) (denying a motion to amend
counterclaims as futile, which sought to challenge the enforceability of a previously-issued
patent). See also, e.g., Abbott Labs. v. Sandoz, Inc., 743 F. Supp. 2d 762, 781 (N.D. Ill.
2010) (“Federal Circuit precedent makes clear that inequitable conduct associated with the
prosecution of a later patent does not affect the enforceability of an earlier patent.”)
Defendant has not pleaded any facts at all regarding inequitable conduct during the
prosecution of the ‘646 patent. (See Dkt. No. 27, Ex. 1, Am. Countercl., ¶¶ 65-71.) Thus,
because inequitable conduct in the prosecution of a later-issued patent does not render
unenforceable a previously-issued patent, the proposed counterclaim is futile because it could
not withstand a Rule 12(b)(6) motion to dismiss. See Rose, 203 F.3d at 420. Consequently,
the Court denies leave to add Count VI of the amended counterclaims.

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For the same reasons state above, the Court denies leave to add the Seventh
Affirmative Defense as it pertains to Count VI and the ‘646 patent, but grants leave to add
this affirmative defense as it pertains to Count V and the ‘045 patent.
III.
The Court will grant Defendant’s motion as to Count V of the amended counterclaims
as it pertains to McLeod and Moyne, the proposed Seventh Affirmative Defense as it pertains
to Count V of the amended counterclaims and the ‘045 patent, and the proposed Eighth
Affirmative Defense. However, it will deny the motion as to Count V of the amended
counterclaims as it pertains to the inventors, Count VI of the amended counterclaims in its
entirety, and the proposed Seventh Affirmative Defense as it pertains to Count VI of the
amended counterclaims and the ‘646 patent. Defendant shall file with the Court an “Answer
to Complaint, Amended Affirmative Defenses, and Amended Counterclaims” consistent with
this opinion.
An order consistent with this opinion will be entered.

Dated: November 14, 2012

/s/ Robert Holmes Bell
ROBERT HOLMES BELL
UNITED STATES DISTRICT JUDGE

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