On Track Innovations Ltd. v. T-Mobile USA, Inc.

Filing 117

MEMORANDUM AND ORDER granting 95 Motion for Leave to File Document: For the foregoing reasons, On Track Innovations' motion for leave to file an amended complaint (Docket no. 95) is granted. (Signed by Magistrate Judge James C. Francis on 1/31/2014) Copies Mailed By Chambers. (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - -:
ON TRACK INNOVATIONS LTD.,
:
:
Plaintiff,
:
:
:
- against :
:
T-MOBILE USA, INC.,
:
:
Defendant.
:
- - - - - - - - - - - - - - - - - -:
T-MOBILE USA, INC.,
:
:
Counter Claimant,
:
:
- against :
:
ON TRACK INNOVATIONS LTD.,
:
:
Counter Defendant. :
- - - - - - - - - - - - - - - - - -:
JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE

12 Civ. 2224 (AJN) (JCF)
MEMORANDUM
AND ORDER

Pursuant to Rule 15(a)(2) of the Federal Rules of Civil
Procedure, the plaintiff in this patent infringement action, OnTrack Innovations (“OTI”), seeks leave to amend its complaint to
include claims of active inducement of patent infringement under 35
U.S.C. § 271(b).

(On Track Innovations Ltd.’s Memorandum in

Support of its Motion for Leave to File Amended Complaint (“Pl.
Memo.”)).

The defendant, T-Mobile USA, Inc. (“T-Mobile”), opposes

the motion, arguing that it is untimely, prejudicial, made in bad
faith, and ultimately futile.

(T-Mobile’s Opposition to OTI’s

Motion for Leave to File Amended Complaint (“Def. Memo.”)).

For

the following reasons, the motion is granted.
Background
This
cellular

action

arises

telephone

from

a

technology

patent

dispute

“employing

both

involving

new

contact

and

contactless modes of communication, such as so-called ‘hybrid’
smart cards.”

(Memorandum and Order dated June 20, 2013 at 3).

Certain cell phones are equipped with a feature -- Near Field
Communications (“NFC”) -- enabling them to establish peer-to-peer
radio communications with nearby devices.
communicate

with

other

electronic

NFC-capable phones can

devices

in

their

proximity

without needing physical contact; for instance, the user of an NFCcapable cell phone can turn on his nearby stereo through his cell
phone.

OTI is the owner of U.S. Patent No. 6,045,043 (“the ‘043

Patent”), which “deals with connecting a microprocessor with both
the

contact

and

contactless

modes

of

communication

through

separate, dedicated lines of connection,” obviating the need for a
switching device between the two.

(Order at 3).

The plaintiff filed its original complaint on March 26, 2012,
claiming that T-Mobile’s NFC-capable devices directly infringe its
patent.

In October 2012, T-Mobile did a pilot launch of the ISIS

Mobile Wallet, a method of contactless payment using NFC-capable
phones in conjunction with enhanced SIM cards, in two major U.S.
cities.

(Def. Memo. at 4; Declaration of Ellisen S. Turner dated
2

Dec. 23, 2013, Exh. C).

The national launch of T-Mobile’s NFC

program occurred in November 2013.

(Pl. Memo. at 1-3; ISIS Mobile

Wallet FAQ, attached as Exh. B to Amended Complaint, at 29).

T-

Mobile subscribers were informed, through T-Mobile’s website, that
they could visit T-Mobile stores to receive Advanced SIM cards for
use in their NFC-capable cellular phones.
Mobile Wallet FAQ at 29).

(Pl. Memo. at 1-3; ISIS

OTI now seeks to amend its complaint to

allege that, by inviting its customers to obtain an Advanced SIM
card for insertion into an NFC-capable cell phone, T-Mobile was
“actively inducing infringement of the patent.” (Pl. Memo. at 1).
Discussion
Rule 15 of the Federal Rules of Civil Procedure provides that
leave to amend a pleading should be freely granted “when justice so
requires.”

Fed. R. Civ. P. 15(a)(2); see also Foman v. Davis, 371

U.S. 178, 182 (1962); Aetna Casualty & Surety Co. v. Aniero
Concrete Co., 404 F.3d 566, 603–04 (2d Cir. 2005); Carrion v.
Singh, No. 12 CV 0360, 2013 WL 639040, at *11 (E.D.N.Y. Feb. 21,
2013).

Under this liberal standard, motions to amend should be

denied only for reasons of undue delay, bad faith or dilatory
motive, undue prejudice to the non-moving party, or futility.

See

Burch v. Pioneer Credit Recovery, Inc., 551 F.3d 122, 126 (2d Cir.
2008) (citing Foman, 371 U.S. at 182); McCarthy v. Dun & Bradstreet
Corp., 482 F.3d 184, 200 (2d Cir. 2007); In re Alcon Shareholder
3

Litigation, 719 F. Supp. 2d 280, 281-82 (S.D.N.Y. 2010).

The same

standard applies when the party seeks to supplement the complaint
with events that happened after the date of the original pleading.
See Fed. R. Civ. P. 15(d); In re American International Group, Inc.
Securities Litigation, No. 04 Civ. 8141, 2008 WL 2795141, at *3
(S.D.N.Y. July 18, 2008) (noting that pleading is technically
“supplemental
governs).

pleading”

but

that

the

standard

of

Rule

15(a)

The court has broad discretion over such motions.

See

McCarthy, 482 F.3d at 200; Biosafe-One, Inc. v. Hawks, 639 F. Supp.
2d 358, 370 (S.D.N.Y. 2009).
Generally,

“[w]hen

deciding

issues

in

a

patent

case,

a

district court applies the law of the circuit in which it sits to
nonpatent issues and the law of the Federal Circuit to issues of
substantive patent law.” Paone v. Microsoft Corp., 881 F. Supp. 2d
386, 393–94 (E.D.N.Y. 2012) (internal quotation marks omitted); see
also In re Bill of Lading Transmission and Processing System Patent
Litigation, 681 F.3d 1323, 1331 (Fed. Cir. 2012) (applicable law of
regional circuit is applied to motions to dismiss for failure to
state a claim in patent cases).
A.

Delay

In the Second Circuit, a court may deny a motion to amend
“where

the

satisfactory

motion

is

explanation

made

after

is

offered
4

an
for

inordinate
the

delay,

delay,

and

no
the

amendment would prejudice other parties.” Grace v. Rosenstock, 228
F.3d 40, 53-54 (2d Cir. 2000) (internal quotation marks omitted);
accord State Farm Mutual Automobile Insurance Co. v. Grafman, No.
04 CV 2609, 2007 WL 7704666, at *3 (E.D.N.Y. May 22, 2007).
However, “[m]ere delay,

. . . absent a showing of bad faith or

undue prejudice, does not provide a basis for a district court to
deny the right to amend.”

Block v. First Blood Associates, 988

F.2d 344, 350 (2d Cir. 1993) (internal quotation marks omitted);
see also Rotter v. Leahy, 93 F. Supp. 2d 487, 497 (S.D.N.Y. 2000)
(“Typically, the moving party’s delay, standing alone, is not
sufficient reason to foreclose amendment.”).
The plaintiff seeks to add a new claim twenty months after the
filing of its original complaint.

However, this new allegation

centers on T-Mobile’s November 2013 national launch of its NFC
program, rather than on activities taking place at the time the
action was commenced.

T-Mobile argues that OTI was aware of

similar activities -- namely, its October 2012 pilot launch of the
NFC program -- at least one year earlier, and that this constitutes
undue delay.

(Def. Memo. at 3-5).

However, as far as OTI knew at

the time of the pilot launch, the only suggestions that customers
insert Advanced SIM cards into NFC-capable phones came from an
independent blogger and an ISIS press release, not from T-Mobile,
and thus OTI did not then possess facts that could have supported
5

an induced infringement claim against T-Mobile.

According to OTI,

the national launch was the first time that T-Mobile itself invited
subscribers to obtain new Advanced SIM cards for their NFC cellular
phones.

(On Track Innovations LTD.’s Reply in Support of its

Motion for Leave to File Amended Complaint (“Pl. Reply”) at 3).
Under these circumstances, there is no undue delay.

See TNS Media

Research, LLC v. TRA Global, Inc., No. 11 Civ. 4039, 2012 WL
2052679, at *1 (S.D.N.Y. June 4, 2012) (allowing party to add
counterclaim defendants where earlier suspicions were subsequently
borne

out

through

discovery);

Optigen,

LLC

v.

International

Genetics, Inc., 777 F. Supp. 2d 390, 400 (N.D.N.Y. 2011) (allowing
amendment where “the new allegations, including those giving rise
to

the

newly

asserted

cause

of

action,

were

facts

of

which

Plaintiff did not become aware until some point during discovery”).
Indeed, even if OTI had not offered a satisfactory explanation for
the one-year delay after the October 2012 pilot launch, courts have
allowed amendment after much longer periods of delay.

See, e.g.,

Commander Oil Corp. v. Barlo Equipment Corp., 215 F.3d 321, 333 (2d
Cir. 2000) (no abuse of discretion in grant of leave to amend after
seven year delay, in absence of prejudice); Rachman Bag Co. v.
Liberty Mutual Insurance Co., 46 F.3d 230, 235 (2d Cir. 1995)
(leave to amend properly granted after four-year delay); Block, 988
F.2d at 350-51 (amendment allowed four years after complaint
6

filed).
B.

Prejudice

“[P]rejudice alone is insufficient to justify a denial of
leave to amend; rather the necessary showing is ‘undue prejudice to
the opposing party.’” A.V. by Versace, Inc. v. Gianni Versace
S.p.A., 87 F. Supp. 2d 281, 299 (S.D.N.Y. 2000) (emphasis in
original) (quoting Foman, 371 U.S. at 182).

In deciding whether

undue prejudice exists, courts should consider whether the new
claim would “‘(i) require the opponent to expend significant
additional resources to conduct discovery and prepare for trial;
(ii) significantly delay the resolution of the dispute; or (iii)
prevent the plaintiff from bringing a timely action in another
jurisdiction.’”

Monahan

v.

New

York

City

Department

of

Corrections, 214 F.3d 275, 284 (2d Cir. 2000) (quoting Block, 988
F.2d at 350); Zoll v. Jordache Enterprises Inc., No. 01 Civ. 1339,
2002 WL 485733, at *1 (S.D.N.Y. March 29, 2002).

This “inquiry

involves a balancing process,” weighing any potential prejudice to
the opposing party against the prejudice that the moving party
would experience if the amendment were denied.

Oneida Indian

Nation of New York v. County of Oneida, 199 F.R.D. 61, 77 (N.D.N.Y.
2000).
T-Mobile

claims

that

introducing

a

theory

of

induced

infringement after fact discovery has closed prevents them from
7

obtaining relevant evidence for their defense.

T-Mobile contends

that without previous notice of induced infringement claims, it had
no reason to seek an opinion of counsel letter, which the Federal
Circuit recognizes as probative of lack of intent.

See Bettcher

Industries, Inc. v. Bunzl USA, Inc., 661 F.3d 629, 649 (Fed. Cir.
2011)

(finding

opinion

of

counsel

regarding

non-infringement

“admissible, at least with respect to [defendant]’s state of mind
and

its

bearing

on

indirect

infringement”).

Because

expert

discovery has not yet closed, there is no reason that this evidence
cannot now be obtained.
T-Mobile’s prejudice argument goes one step further, and
argues that any opinion it obtains now will, at trial, be argued to
be untimely.
argue

that

(Def. Memo. at 8).
an

opinion

of

However, while OTI is free to

counsel

letter

obtained

after

the

allegedly infringing acts is immaterial to T-Mobile’s intent at the
time, it is statutorily barred from arguing that any failure to
obtain the advice of counsel with respect to the ‘043 Patent is
probative of T-Mobile’s intent to induce infringement.

35 U.S.C.

§ 298 (“The failure of an infringer to obtain the advice of counsel
with respect to any allegedly infringed patent, or the failure of
the infringer to present such advice to the court or jury, may not
be used to prove that the accused infringer willfully infringed the
patent or that the infringer intended to induce infringement of the
8

patent.”).
T-Mobile has not identified any way in which the amendment
would require significant additional discovery.
claim

of

induced

infringement

requires

To be sure, a

proving

elements

of

knowledge and specific intent that are not required in a direct
infringement claim, and T-Mobile complains that it has not had the
opportunity to elicit any evidence of intent.1

However, the

defendant “should have accessible to it the evidence bearing on its
own state of mind.”

Perfect Pearl Co., Inc. v. Majestic Pearl &

Stone, Inc., 889 F. Supp. 2d 453, 461 (S.D.N.Y. 2012).

As the

proposed amendment is not likely to “require [T-Mobile] to expend
significant additional resources to conduct discovery and prepare
for trial” or “significantly delay the resolution of the dispute,”
there is no undue prejudice.

See Block, 988 F.2d at 350.

Similarly, there is no undue prejudice in the revised list of
accused products in OTI’s proposed amended complaint.

Although T-

Mobile states that three new accused devices are included for the
first time (Def. Memo. at 14), OTI explains that this is due to the
industry’s

regular

updating

of

1

cell

phone

models,

and

the

T-Mobile’s contention that it needs fact discovery from the
suppliers that designed the accused products “to confirm that they
were not aware of the patent [and] did not intend their products to
(Def. Memo. at 14).
At issue are Tinfringe” is baseless.
Mobile’s intent and actions, not the suppliers’.
9

underlying technical basis for claiming infringement remains the
same

(Pl. Reply at 8).
C.

Futility

Leave to amend may also be denied when the pleading would not
survive a motion to dismiss.

See AEP Energy Services Gas Holding

Co. v. Bank of America, N.A., 626 F.3d 699, 726 (2d Cir. 2010);
Penn Group, LLC v. Slater, No. 07 Civ. 729, 2007 WL 2020099, at *4
(S.D.N.Y. June 13, 2007) (collecting cases).

A court may deny a

motion to amend for futility only where no colorable grounds exist
to support a claim or defense.
Civ.

2704,

2011

WL

3278918,

See Slay v. Target Corp., No. 11
at

*2

(S.D.N.Y.

July

20,

2011)

(“Futility generally turns on whether the proposed amended pleading
states a viable claim.”); Estate of Ratcliffe v. Pradera Realty
Co., No. 05 Civ. 10272, 2007 WL 3084977, at *4 (S.D.N.Y. Oct. 19,
2007).

As when deciding a motion to dismiss, all reasonable

inferences must be drawn in favor of the plaintiff. See, e.g.,
Henneberry v. Sumitomo Corp. of America, 415 F. Supp. 2d 423, 433
(S.D.N.Y. 2006) (“[T]he Court will review the amended complaint
through the prism of a Rule 12(b)(6) analysis and, consequently,
accept as true all of the proposed complaint’s factual allegations,
and draw all reasonable inferences in favor of plaintiff.”).

The

opposing party bears the burden of establishing that an amendment
would be futile.

See Amaya v. Roadhouse Brick Oven Pizza, Inc.,
10

285 F.R.D. 251, 253 (E.D.N.Y. 2012).
To state a claim for induced infringement under § 271(b), “the
patentee

must

establish

first

that

there

has

been

direct

infringement, and second that the alleged infringer knowingly
induced infringement and possessed specific intent to encourage
another’s

infringement.”

ACCO

Brands,

Inc.

v.

ABA

Locks

Manufacturer Co., 501 F.3d 1307, 1312 (Fed. Cir. 2007) (internal
quotation

marks

omitted);

MEMC

Electronic

Materials,

Inc.

v.

Mitsubishi Materials Silicon Corp., 420 F.3d 1369, 1378 (Fed. Cir.
2005); Pecorino v. Vutec Corp., 934 F. Supp. 2d 422, 447 (E.D.N.Y.
2012). Induced infringement thus requires both “knowledge that the
induced

acts

constitute

patent

infringement,”

Global-Tech

Appliances, Inc. v. SEB S.A., __ U.S. __, __, 131 S. Ct. 2060, 2068
(2011), as well as active steps “directed to encouraging another’s
infringement,” DSU Medical Corp. v. JMS Co., 471 F.3d 1293, 1306
(Fed. Cir. 2006).

In short, “the inducer must have an affirmative

intent

direct

to

cause

infringement.”

Id.

The

knowledge

requirement may be satisfied by showing actual knowledge or willful
blindness.

Global-Tech Appliances, __ U.S. at __, 131 S. Ct. at

2072.
Notably,

“advertising

materials,

and

particularly

instructions, can sufficiently allege specific intent to induce
infringement.” Smartwater, Ltd. v. Applied DNA Sciences, Inc., No.
11

12 CV 5731, 2013 WL 5440599, at *9 (E.D.N.Y. Sept. 27, 2013); see
also Golden Blount, Inc. v. Robert H. Peterson Co., 438 F.3d 1354,
1364 n.4 (Fed. Cir. 2006) (upholding finding of inducement where
defendant “provided [an] instruction sheet to customers directing
them to perform specific acts leading to the assembly of infringing
devices, from which the district court could draw an inference of
intent”).
Here, OTI asserts that T-Mobile had knowledge of the ‘043
Patent, knew that combining an Advanced SIM card with an NFCcapable cell phone constituted direct infringement of that patent,
and subsequently instructed its subscribers to visit T-Mobile
stores to receive an Advanced SIM card to insert into their NFCcapable

cell

infringement.

phones,

with

the

specific

intent

to

(Pl. Memo. at 2-3; Pl. Reply at 11-12).

induce
OTI

supports these factual allegations by attaching information from TMobile’s website instructing subscribers to visit a T-Mobile store
for an Advanced SIM card to use in NFC-capable cell phones.
Mobile Wallet FAQ).

(ISIS

Drawing all inferences in OTI’s favor, this

supports a plausible claim of active inducement.

As recently

emphasized by the Federal Circuit, a plaintiff is not required to
prove its case at the pleading stage.
681 F.3d at 1339.

See In re Bill of Lading,

At this stage, it is plausibility and not

probability that governs pleadings.
12

See id. at 1331 (citing

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
C.

Bad Faith

To the extent that T-Mobile raises a bad faith objection to
OTI’s motion, that assertion also fails.

T-Mobile claims that, in

what it deems an improper “quid pro quo,” OTI refused to consent to
T-Mobile’s request to amend its answer unless T-Mobile allowed OTI
to amend its complaint.

(Def. Memo. at 5-6).

This is now moot, as

OTI has agreed to allow T-Mobile to amend its answer. (Pl. Reply at
9).

Moreover, while there is little law in the Second Circuit on

what constitutes bad faith in the context of a motion for leave to
amend a pleading, see Oneida Indian Nation, 199 F.R.D. at 80, the
precedent that exists indicates that the amendment itself must
embody unfair strategic maneuvering, see, e.g., State Trading Corp.
of India v. Assuranceforeningen Skuld, 921 F.2d 409, 417–18 (2d
Cir.

1990)

(denying

motion

to

amend

where

plaintiff

sought

strategic advantage by reserving certain claims until after court’s
choice of law determination).
Conclusion
For the foregoing reasons, On Track Innovations’ motion for
leave to file an amended complaint (Docket no. 95) is granted.

13

SO ORDERED.

C. FRANCIS IV
STATES MAGISTRATE JUDGE
Dated: New York, New York
January 31, 2014
Copies mailed this date:

Clyde A. Schuman, Esq.

Guy Yonay, Esq.

Jessica W. Lin, Esq.

Pearl Cohen Zedek Latzer LLP

1500 Broadway, 12th Floor

New York, NY 10036

Eric J. Lobenfeld, Esq.

Ira J. Schaefer, Esq.

Robert R. L. Kohse, Esq.

Hogan Lovells US LLP

875 Third Ave.

New York, NY 10022

John C. Hueston, Esq.

Douglas J. Dixon, Esq.

Irell & Manella, LLP

840 Newport Center Drive, Suite 400

Newport Beach, CA 92660

Ellisen S. Turner, Esq.

Benjamin M. Haber, Esq.

Irell & Manella, LLP

18900 Avenue of the Stars

Suite 900

Los Angeles, CA 90067

14