Spectrum Dynamics Medical Limited v. General Electric Company et al

Filing 620

OPINION AND ORDER ON MOTION TO AMEND COMPLAINT re: 540 MOTION for Leave to File Second Amended Complaint filed by Spectrum Dynamics Medical Limited. Spectrum's motion to file a Second Amended Complaint is GRANTED. In ad dition to the amendments that Spectrum has already proposed, Spectrum shall remove all claims from the pleading that it is no longer pursuing and all claims that it agrees are no longer viable. The Second Amended Complaint shall be filed within t hirty days of this Order. Fact discovery is reopened to permit discovery as to any added claims. The parties are directed to meet and confer regarding what additional discovery will be needed and shall include in their next status letter to the Court a proposal regarding extension of the discovery deadlines and plan for discovery on the additional claims. The Court will discuss the extension of deadlines and will issue guidelines as to this additional discovery at the next case management conference, which is scheduled to occur on February 2, 2023 at 10:00 a.m. The Clerk of the Court is respectfully directed to terminate the motion at ECF No. 540. SO ORDERED. (Signed by Magistrate Judge Katharine H. Parker on 1/18/2023) (vfr)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

01/18/2023

SPECTRUM DYNAMICS MEDICAL
LIMITED,

OPINION AND ORDER
ON MOTION TO AMEND COMPLAINT
18-CV-11386 (VSB) (KHP)

Plaintiff,

-againstGENERAL ELECTRIC COMPANY et al.,
Defendants.

Before the Court is Plaintiff Spectrum Dynamics Medical Limited’s (“Spectrum”) motion
for leave to file a Second Amended Complaint (“SAC”). (ECF No. 540.) The SAC would (i) fix
typographical errors; (ii) remove certain claims and one defendant that the Court has already
dismissed, (iii) remove some patents from Spectrum’s correction-of-inventorship claims; and
(iv) add one additional patent to Spectrum’s claims. Defendants General Electric Company
(“GE”), GE Healthcare, Inc., GE Medical Systems Israel Ltd., Jean-Paul Bouhnik, Sergio Steinfeld,
Arie Eshco, and Nathan Hermony (collectively, “Defendants”) do not object to the requested
amendments except to the extent Spectrum seeks to add a new patent to its claims and to the
extent the amendments do not remove certain claims. For the reasons stated below,
Spectrum’s motion for leave to amend the Complaint is GRANTED.
BACKGROUND
Beginning in or around 2009, Spectrum was developing a medical imaging device called
the Veriton. At the same time that Spectrum was developing the Veriton, it was engaging in
discussions with GE regarding a proposed acquisition by GE of Spectrum’s business and
technologies. Spectrum shared its confidential information with GE during these discussions.
The discussions ultimately broke down and no acquisition occurred. Spectrum alleges that after
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the discussions broke down, GE misused Spectrum’s confidential information, including trade
secrets, to design and develop the StarGuide, a similar medical imaging device that now
competes with the Veriton. (See ECF No. 530.)
On December 6, 2018, Spectrum filed the initial complaint in this action asserting,
among other things, correction-of-inventorship claims under 35 U.S.C. § 256 concerning 20 GE
patents. (ECF No. 2.) On March 11, 2019, Defendants moved to dismiss the complaint. (ECF
No. 22.) On May 15, 2019, Spectrum filed a First Amended Complaint (“FAC”). (ECF No. 38.)
The FAC involves 18 patents and patent applications and seeks relief concerning “any other GE
patents covering” the Veriton and “any patent applications which use or otherwise incorporate
the Spectrum Information, including Spectrum Trade Secrets and inventions embodied
therein.” (Id. at Prayer for Relief ¶¶ n, p(iv).) Defendants answered the FAC and GE asserted
counterclaims against Spectrum for infringement of two patents. (ECF No. 82.)
In approximately October 2020, discovery in this matter began in earnest. The Court
granted numerous extensions of time for the completion of discovery and the fact discovery
deadline was ultimately set as December 21, 2022. 1 Per the Court’s order at ECF No. 616, the
deadline for expert discovery is September 4, 2023. (ECF No. 515.)
After the FAC was filed, GE applied for a new patent related to the StarGuide machine
(“New Patent”), and that patent application was published in December 2020. The Patent and
Trademark Office (“PTO”) issued the New Patent to GE in October 2021. Spectrum alleges that
the New Patent is directed at the technology at issue in this action and is “plain[ly] relevant” to
the FAC. (Pl. Br. at 2.) However, the new patent is not a member of the same families as the

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The deadline for document discovery and local fact depositions was November 30, 2022.

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patents named in the FAC. Spectrum alleges that it did not learn of the New Patent through
discovery, 2 but rather, Spectrum employee Nathaniel Roth discovered the patent on
approximately June 20, 2022. (Pl. Br. at 2.) Upon discovery, Spectrum investigated whether its
employees were the true inventors of the New Patent, and it completed this investigation three
months later, in September 2022.
On September 20, 2022, Spectrum served a supplemental interrogatory response
contending that its employees—Nathaniel Roth and Yoel Zilberstien—are the New Patent’s true
inventors. Defendants objected to the contention as untimely. Spectrum then asked
Defendants if they would consent to Spectrum amending the complaint to include the New
Patent. On October 8, 2022, Defendants advised that they do not consent to the amendment.
On October 11, 2022, Spectrum moved for leave to amend the FAC under Rule 15(a)(2) to add
the New Patent to its claims, and to make certain other revisions. On October 25, 2022,
Defendants filed an opposition to the motion. Defendants object to Spectrum’s request to add
the New Patent to its claims because, they argue, Spectrum unduly delayed in seeking to add
the New Patent, this amendment would unduly prejudice Defendants, and this amendment
would, to an extent, be futile. Defendants also argue that the proposed amendments “do not
go far enough” because the amendment would not remove claims that Spectrum represented it
is no longer pursuing, as well as claims that discovery has shown are not accurate.
LEGAL STANDARD
Under Rule 15(a) of the Federal Rules of Civil Procedure, “a party may amend its
pleading once as a matter of course within” certain proscribed time limits. Fed. R. Civ. P.

2

Defendants contend that this patent was not implicated in any of Spectrum’s discovery requests.

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15(a)(1). “In all other cases, a party may amend its pleading only with the opposing party's
written consent or the court's leave. The court should freely give leave when justice so
requires.” Fed. R. Civ. P. 15(a)(2). Leave to amend should be granted unless there is “evidence
of undue delay, bad faith or dilatory motive on the part of the movant, undue prejudice to the
opposing party, or futility.” Monahan v. N.Y.C. Dep't of Corrs., 214 F.3d 275, 283 (2d Cir. 2000).
The Second Circuit has stated that “[t]his permissive standard is consistent with our strong
preference for resolving disputes on the merits.” Williams v. Citigroup Inc., 659 F.3d 208, 21213 (2d Cir. 2011) (citation omitted).
“The period of ‘liberal’ amendment [under Rule 15] ends if the district court issues a
scheduling order setting a date after which no amendment will be permitted.” Sacerdote
v. N.Y. Univ., 9 F.4th 95, 115 (2d Cir. 2021). No such scheduling order was issued in this action,
and the parties’ joint scheduling order does not set a deadline for seeking leave to amend the
causes of action. Accordingly, the liberal Rule 15 standard applies.
ANALYSIS
Spectrum amended its pleading once as a matter of course and Defendants do not
consent to a second amendment. Therefore, leave to amend should be granted unless there is
evidence of undue delay, bad faith or dilatory motive on Spectrum’s part; undue prejudice to
Defendants; or futility. Defendants have not shown that any of these factors is present.
i.

Undue Delay, Bad Faith, or Dilatory Motive
When a motion “is made after an inordinate delay, no satisfactory explanation is offered

for the delay, and the amendment would prejudice [the non-moving party],” the undue delay
weighs against granting leave to amend. Cresswell v. Sullivan & Cromwell, 922 F.2d 60, 72 (2d
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Cir. 1990). Mere delay is not a sufficient reason to deny leave to amend; the delay must be
“undue” in the sense that there was some bad faith or prejudice inherent in it. Ruotolo v. City
of New York, 514 F.3d 184, 191 (2d Cir. 2008) (citation omitted). In considering whether delay
is undue, the court also considers whether a trial date has been set, whether discovery has
ended, and whether dispositive motions were already filed. Guadagno v. M.A. Mortenson Co.,
2018 WL 4870693, at *8 (W.D.N.Y. Oct. 2, 2018).
Defendants argue that Spectrum engaged in undue delay in bringing this motion
because it should have known about the New Patent as early as December 2020, when the
patent application was published. (Def. Opp. Br. at 9-10 (citing Zirvi v. Flatley, 433 F. Supp. 3d
448, 459 (S.D.N.Y.), aff'd, 838 F. App'x 582 (2d Cir. 2020)). However, courts have rejected the
notion that constructive notice applies to correction of inventorship claims or that such claims
begin to accrue before a patent is issued. See Advanced Cardiovascular Sys. v. SciMed Life Sys.,
988 F.2d 1157, 1161-62 (Fed. Cir. 1993) (holding, in the context of laches, that constructive
notice does not apply to claims for correction of inventorship); see also Pei-Herng Hor v. ChingWu Chu, 699 F.3d 1131, 1336-37 (Fed. Cir. 2012) (holding that the period for laches does not
begin until the omitted inventor knew or should have known of the issuance of the patent,
rather than the publication of the patent application).
The New Patent was not issued until October 2021. Even assuming Spectrum had
constructive knowledge of the New Patent on this date, it did not unduly delay by moving to
amend the complaint less than a year later, following its investigation into the patent. See, e.g.,
Speedfit LLC v. Woodway USA, Inc., 2015 WL 6143697, at *3 (E.D.N.Y. Oct. 19, 2015) (finding no
undue delay where plaintiffs sought to add correction-of-inventorship claims, including as to a
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patent that had issued eight months prior); Memry Corp. v. Kentucky Oil Tech., N.V., 2007 WL
3343125, at *1-2 (N.D. Cal. Nov. 7, 2007) (no undue delay where plaintiff sought to add
correction-of-inventorship claims, including as to a patent that had issued 15 months prior). GE
publishes thousands of patents every year, and it is not surprising or suspicious that it took
Spectrum a few months to notice this patent and investigate it after it was issued. Spectrum’s
delay in noticing and investigating this patent is understandable, and GE has not provided any
evidence that the delay is attributable to bad faith or improper motive.
Moreover, Spectrum moved to amend before a trial date was set and before discovery
ended, which counsels against a finding of undue delay. Guadagno, 2018 WL 4870693, at *8.
ii.

Undue Prejudice
In considering whether a party will be unduly prejudiced by an amended pleading,

courts consider whether the proposed amendment 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, 214 F.3d at 284 (citation omitted). Courts also consider
whether the proposed new claims are related to the existing ones and whether a party has had
prior notice of a proposed new claim. Id. Courts are “most hesitant” to permit amendment if
doing so would result in an unfair surprise to the non-movant or would impede the fair
prosecution of the claim. Id. It is well established that “the need for new discovery is not
sufficient to constitute undue prejudice on its own.” Duling v. Gristede's Operating Corp., 265
F.R.D. 91, 100-01 (S.D.N.Y. 2010) (collecting cases).

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Defendants argue that they will be prejudiced if Spectrum is permitted to amend the
pleading at this late stage of discovery because such amendment will require Defendants to
evaluate the claim language and inventorship of new patent claims and will require additional
discovery as to these claims. (Def. Opp. Br. at 13.) Spectrum argues that any additional
discovery should not be significant because the New Patent “is directed to the same technology
as” the other patents at issue, and Defendants should have already reviewed and produced
“the bulk of the documents that allegedly support their claim to inventorship” of this patent.
(Pl. Br. at 9.)
Spectrum filed its motion to amend shortly before the close of fact discovery and the
amendment will certainly entail additional time and expense for both parties. This is not
sufficient for a finding of undue prejudice. Duling, 265 F.R.D. at 100-01. Defendant has not
provided evidence that any additional discovery will be especially significant so as to be unduly
prejudicial. Moreover, if Spectrum is not permitted to amend its complaint in this action,
Defendants may be required to litigate a separate action regarding these claims, which would
result in an equal or greater expense for all parties. Additionally, the proposed new claims are
closely related to the existing ones and there is no concern regarding undue surprise to
Defendants.
Accordingly, Defendants have not shown that they will be unduly prejudiced by the
addition of these claims.

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iii.

Futility
A proposed amendment is generally considered futile when it fails to state a claim or if

the claim would otherwise not survive a motion to dismiss. Duling, 265 F.R.D. at 103-04
(collecting cases); see also Lucente v. Int’l Bus. Machs. Corp., 310 F.3d 243, 258 (2d Cir. 2002).
Defendants argue that Spectrum’s proposed amendment is futile to the extent it seeks
to assert a claim for fraud on the PTO as to the New Patent because Spectrum lacks Article III
standing to assert this claim in light of the fact that Defendants have not sought to enforce the
New Patent against Spectrum. (Def. Opp. Br. at 16.) Defendants made the same argument as
to Spectrum’s existing fraud on the PTO claims in their motion to dismiss the FAC, and the Court
rejected this argument. (See ECF No. 73 at 36.) In considering the argument, Judge Broderick
found that Spectrum had “adequately alleged standing” as to its fraud on the PTO claims
because “the fact that both Spectrum and GE have begun marketing their respective . . .
devices, in conjunction with GE’s threatening letters and the parties’ failed communication
regarding the scope of their intellectual property and corresponding liability, gives rise to more
than a purely subjective fear of future harm.” (Id. at 38-39.) GE has not explained why Judge
Broderick’s finding would not also apply to the claim as to the New Patent such that the new
claim is at least plausible under Rule 12(b)(6). Defendants’ argument regarding futility also
does not apply to Spectrum’s correction of inventorship claims. Therefore, Spectrum’s
proposed amendment states a plausible claim for the same reasons stated by Judge Broderick
at ECF No. 73.
Defendants also argue that discovery has shown that certain allegations in the FAC
relating to statutes of limitations and equitable tolling are not accurate, yet Spectrum has left
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these allegations in its proposed SAC. Defendants do not appear to raise a futility argument as
to these allegations, and such an argument would not be successful because these claims
would—and did—survive a motion to dismiss.
Accordingly, Defendants have not met their burden to show that amendment would be
futile.
iv.

Defendants’ Argument that the Amendments “Do Not Go Far Enough”
Defendants argue that “[w]hile Spectrum’s amendments sweep too broadly in some

ways, they do not go far enough in other ways.” (Def. Opp. Br. at 5.) In particular, Defendants
state that Spectrum “recently announced that it is no longer asserting its alleged trade secrets
H and P as a basis for its claims against Defendants,” but the proposed SAC does not remove
these trade secrets. (Id.) Additionally, Defendants argue that discovery has shown that certain
allegations relating to statutes of limitations and equitable tolling are inaccurate, but Spectrum
has not removed these allegations from the proposed amended pleading. (Id.)
Defendants do not provide a legal argument that Spectrum’s failure to remove these
claims from the amended pleading should prevent the Court from granting Spectrum leave to
amend. That said, because Spectrum has the opportunity to clean up its pleading by virtue of
this amendment, the Court directs Spectrum to remove from the amended pleading all claims
that it is no longer pursuing and/or that it agrees would not survive a motion for summary
judgment. The Court is not in a position to evaluate the accuracy of Spectrum’s claims as to the
statutes of limitations and equitable tolling at this time, but the Court notes Spectrum could
face Rule 11 sanctions if it “reaffirm[s]” claims or “advocat[es] positions” after those claims or
positions were shown to be inaccurate. Galin v. Hamada, 753 F. App'x 3, 8 (2d Cir. 2018) (citing
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Fed. R. Civ. P. 11 1993 Advisory Committee's Note) (affirming decision to impose sanctions
based on plaintiff's refusal to withdraw claims after discovery made clear they were not viable).
CONCLUSION
Spectrum’s motion to file a Second Amended Complaint is GRANTED. In addition to the
amendments that Spectrum has already proposed, Spectrum shall remove all claims from the
pleading that it is no longer pursuing and all claims that it agrees are no longer viable. The
Second Amended Complaint shall be filed within thirty days of this Order.
Fact discovery is reopened to permit discovery as to any added claims. The parties are
directed to meet and confer regarding what additional discovery will be needed and shall
include in their next status letter to the Court a proposal regarding extension of the discovery
deadlines and plan for discovery on the additional claims. The Court will discuss the extension
of deadlines and will issue guidelines as to this additional discovery at the next case
management conference, which is scheduled to occur on February 2, 2023 at 10:00 a.m.
The Clerk of the Court is respectfully directed to terminate the motion at ECF No. 540.
Dated:

January 18, 2023
New York, New York

SO ORDERED,

KATHARINE H. PARKER
United States Magistrate Judge

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