Xitronix Corporation v. KLA-Tencor Corporation
Filing
12
MEMORANDUM OPINION AND ORDER DENYING Defendant's 5 MOTION to Dismiss Plaintiff's Complaint. Signed by Judge Sam Sparks. (klw)
F L
!
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF T1k4UN 25 A1
AUSTIN DIVISION
.
9:
29
XITRONIX CORPORATION,
Plaintiff,
Case No. A-14-CA-1113-SS
-vs-
KLA-TENCOR CORPORATION,
Defendant.
ORDER
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause, and
specifically Defendant KLA-Tencor Corporation's Motion to Dismiss [#5], Plaintiff Xitronix
Corporation's Response [#7], and KLA-Tencor Corporation's Reply [#9]. Having reviewed the
documents, the relevant law, and the file as a whole, the Court now enters the following opinion and
orders DENYING the motion.
Background
Reading the allegations in Plaintiff Xitronix Corporation (Xitronix)' s favor, this lawsuit
involves Xitronix's attempt to compete in the dopant activation metrology marketplace and
Defendant KLA-Tencor Corporation (KLA) ' s repeated and sustained attempts to illegally prohibit
Xitronix from competing with KLA through the use of patent law. KLA is the assignee of the
following related patents: (1) United States Patent No. 8,817,260 (the '260 Patent); (2) U.S. Patent
No. 7,646,486 (the '486 Patent); and (3) United States Patent No. 7,362,441 (the '441 Patent). The
'260 Patent is a continuation of the '486 Patent, which is a continuation of the '441 Patent, which
itself was a continuation of an earlier patent, United States Patent No. 7,126,690 (the '690 Patent).
The patented technology involves, in general terms, a system which provides high resolution, nondestructive evaluation of semiconductor wafers as they pass through various semiconductor
manufacturing stages. More specifically, the patent claims the parties have disputed deal with the
wavelength of the probe beam used in this system. According to Xitronix, KLA prosecuted these
patents "with the central aim of capturing Xitronix' s technology within the scope of their respective
claims." Compi. [#1] ¶ 7.
In the current lawsuit, Xitronix has brought a Walker Process antitrust claim against KLA
based on KLA's allegedly fraudulent procurement of the '260 Patent, and KLA has filed a motion
to dismiss for failure to state a claim upon which relief can be granted. In order to assess whether
Xitronix's allegations satisfy Rule 12, the Court must first describe the litigation history between
these two parties, as the instant case is the third installment in a trilogy of lawsuits.
I.
The First Two Lawsuits
First, in September 2008, Xitronix sued KLA, asserting a declaratory judgment of non-
infringement with respect to the '441 Patent and its parent, the '690 Patent. See Compl. [#1] at 2,
Xitronix Corp.
v.
KLA-Tencor Corp., No. 1:08-CV-723-SS (W.D. Tex. Jan. 31, 2011) (the First
Lawsuit). KLA had apparently informed Xitronix through numerous letters of its beliefXitronix was
engaged in ongoing infringement of KLA's patents, prompting Xitronix to respond with its noninfringement suit. Id. at 4-9. In November 2010, the parties tried the case to a jury, which returned
a verdict finding Xitronix had infringed claim 7 of the '441 Patent but had not infringed any other
claims. Order of Jan. 31, 2011 [#210] at 1, the First Lawsuit. The jury also found, however, that
claim 7 of the '441 Patent was invalid as anticipated by prior art. Id. at 1-2. Thejury further found
all
of the asserted claimsclaims
7, 9, 11, and 12---of the '441 Patent were invalid due to
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obviousness. Id. at 2. Post-trial, the Court ordered the parties to brief whether the claims at issue
were also invalid due to indefiniteness, and the Court ultimately held the claims were indefinite. Id.
at 3, 5-9. Additionally, the Court held there was ample evidence to support the jury's verdict of
invalidity based on anticipation and obviousness. Id. at 10-12. KLA did not appeal the case.
Second, in March 2011, Xitronix filed a lawsuit against KLA in Texas state court, alleging
state law causes of action for business disparagement, tortious interference, and unlawful restraint
of trade, which was subsequently removed by KLA to this Court. See Notice Removal [#1], Xitronix
Corporation
v.
KLA-Tencor Corporation, No. 1:11-CV-358-SS (W.D. Tex. July 7, 2011) (the
Second Lawsuit). Xitronix' s state law claims were based on KLA' s conduct in and surrounding the
First Lawsuit, including: "(1) KLA's alleged knowing false statements of infringement of the '411
Patent by Xitronix; and (2) KLA' s alleged bad faith use of litigation to impair Xitronix' s business
operations." Order of July 7, 2011 [#161 at 2, the Second Lawsuit. Xitronix moved to remand, and
the Court granted the motion because the only substantial question of patent law (which supposedly
provided the basis for removal) was already decided in the First Lawsuit. Id. On remand, the state
court, according to Xitronix' s allegations, granted summary judgment in favor of KLA for
unspecified reasons, and on appeal, the Third District Court of Appeals of Austin affirmed the
summary judgment on res judicata grounds, holding Xitronix' s antitrust claims arose out of the same
nucleus of operative facts underlying its claims in the First Lawsuit. Compl. [#11 ¶ 34. Xitronix has
a petition for review
II.
of that decision pending before the Supreme Court of Texas. Id.
The Current Lawsuit
As previously stated, Xitronix has now filed a third lawsuit, asserting a Walker Process
antitrust claim based on KLA's alleged fraudulent procurement of the '260 Patent. KLA obtained
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the '260 Patent over a period of years involving back-and-forth exchanges with the PTO. KLA filed
its patent application for the '260 Patent on November 11, 2009, and on February 2, 2011, just two
days after the Court's entry of the final judgment in the First Lawsuit, the PTO examiner allowed
KLA's pending claims in the '260 Patent, claims which Xitronix contends are essentially identical
to the invalidated patent claims of the '441 Patent. Compi. [#1] ¶ 28. On February 10,2011, KLA' s
patent prosecution attorney, Michael Stailman, submitted a request for a continued examination of
the '260 Patent, and he concurrently submitted an information disclosure statement listing an
"Executed ORDER from the United States District Court for the Western District of Texas, Austin
Division, Case no. A-08-CA-723-SS, dated January 31, 2011, 13 pages in length." Id. ¶ 29.
Xitronix, however, alleges Stallman did not explain to the patent examiner how this Court's January
31, 2011 Order related to the then-pending '260 Patent; how the pending claims were identical to,
or broadened from, claims in the '441 Patent held in valid as a final judgment in the First Lawsuit;
and how, as a result, the pending claims were unpatentable. Id. ¶ 30.
On July25, 2013, the PTO examiner issued an initial rejection of the claims in the continuing
'260 Patent application, but, according to Xitronix, the examiner had still missed the significance
of the First Lawsuit. Id. ¶ 37. In response to the initial rejection, Xitronix contends Stailman
repeatedly submitted arguments for patentability which directly contradicted the final judgment in
the First Lawsuit. Id. The '260 Patent ultimately issued August 26, 2014, and Xitronix alleges that
but for Stailman' s fraudulent omissions and affirmative misrepresentations, the PTO would not have
issued the patent. Id. ¶J 35, 37.
Xitronix contends the '260 Patent has created artificial impediments to Xitronix's ability to
obtain the financing necessary to compete in the market and to the market's adoption of Xitronix' s
technology. Id. ¶ 11. Through the '260 Patent, Xitronix alleges KLA has "obtained the illegitimate
power to exclude its competitor Xitronix from the relevant market." Id. According to Xitronix,
KLAhas engaged in exclusionary conduct through its fraudulent procurement of the '260 Patent, and
this conduct "was, and is, specifically intended to monopolize and destroy competition in the market
for dopant activiation metrology, a market currentlyvalued at approximately $650 million." Id. ¶ 12.
Xitronix represents KLA's Therma-Probe 680 and Xitronix's XP700 system are the only two
products in the market, and KLA has now obtained the power to exclude Xitronix from
manufacturing or selling its product. Id. ¶ 13.
In response to these allegations, KLA has filed a motion to dismiss under Rule 12(b)(6),
arguing (1) it has never "enforced" the '260 Patent for purposes of a Walker Process claim, and (2) it
disclosed all relevant material to the PTO in prosecuting the '260 Patent, including this Court's final
order and judgment from the First Lawsuit. The parties fully briefed the motion, which is now ripe
for the Court's consideration.
Analysis
I.
Rule 12(b)(6)Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires a complaint contain "a short and plain
statement of the claim showing that the pleader is entitled to relief."
FED.
R. Civ. P. 8(a)(2). A
motion under Federal Rule of Civil Procedure 12(b)(6) asks a court to dismiss a complaint for
"failure to state a claim upon which relief can be granted."
FED.
R. Civ.
P.
12(b)(6). In deciding a
motion to dismiss under 1 2(b)(6), a court generally accepts as true all factual allegations contained
within the complaint. Leatherman v. Tarrant Cnty. Narcotics Intelligence & Coordination Unit, 507
U.s. 163, 164 (1993). However, a court is notbound to accept legal conclusions couched as factual
-5-
allegations. Papasan v. Allain, 478 U.S. 265, 286 (1986). Although all reasonable inferences will
be resolved in favor of the plaintiff, the plaintiff must plead "specific facts, not mere conclusory
allegations." Tuchman v. DSC Commc 'ns Corp., 14 F.3d 1061, 1067 (5th Cir. 1994). The plaintiff
must plead sufficient facts to state a claim for relief that is facially plausible. Ashcroft v. Iqbal, 556
U.s. 662, 678 (2009); Bell At!. Corp.
v.
Twombly, 550 U.S. 544, 570 (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." Iqbal, 556 U.. at 678. Although
a plaintiff's factual allegations need not establish the defendant is probably liable, theymust establish
more than a "sheer possibility" that a defendant has acted unlawfully. Id. Determining plausibility
is a "context-specific task," that must be performed in light of a court's "judicial experience and
common sense." Id. at 679. In deciding a motion to dismiss, courts may consider the complaint,
as well as other sources courts ordinarily examine when ruling on Rule 1 2(b)(6) motions to dismiss,
such as documents incorporated into the complaint by reference, and matters of which a court may
takejudicialnotice. Tellabs, Inc.
v.
Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).
II.
Application
A.
Walker Process Antitrust Claim and the Requisite Level of Enforcement
1.
Dispute Over Applicable Legal Standard
Xitronix has asserted only one claim in its complaint: a Walker Process antitrust claim, which
finds its origin in the Supreme Court opinion Walker Process Equipment, Inc.
v.
Food Machinery
& Chemical Corp., 382 U.S. 172 (1965). In that case, the Supreme Court held:
The enforcement of a patent procured by fraud on the Patent Office may be violative
of § 2 of the Sherman Act provided the other elements necessary to a § 2 case are
1.1
present. In such event the treble damage provisions of § 4 of the Clayton Act would
be available to an injured party.
Id. at 174. Section 2
of the Sherman Antitrust Act provides that a "person who shall monopolize,
or attempt to monopolize, or combine with any other person, to monopolize any part of the trade or
commerce.
. .
shall be deemed guilty of a felony." 15 U.S.C. § 2. Xitronix has asserted "attempted
monopolization" against KLA. See Compl. [#1] ¶J 144-48.
KLA's first argument for dismissal centers on a Walker Process claim's requirement for
enforcement of the patent. The parties agree KLA has not taken any affirmative action with respect
to the '260 Patent. For instance, KLA has not sent Xitronix a cease-and-desist letter charging
Xitronix with infringement of the '260 Patent nor has KLA filed an infringement lawsuit against
Xitronix concerning the '260 Patent. According to KLA, there must be an overt act of enforcement
before a plaintiff has standing to bring a Walker Process claim, and KLA cites cases holding mere
procurement of a patent, even if by fraud, cannot in itself violate antitrust laws. See Mot. Dismiss
[#5] at 7 (citing cases).
The Court agrees with KLA that there is an "enforcement" element to a Walker Process
claim, and mere procurement of the patent by fraud is insufficient to state a claim for antitrust
violations. KLA oversimplifies the matter, however, when it takes these two principles and leaps
to the assumption that "enforcement" must entail an overt act such as a cease-and-desist letter or an
infringement action. Notably, KLA cites no case holding the "enforcement" requirement can only
be satisfied by an overt action. The critical question then emerges: what level of "enforcement" is
required? Unfortunately, what is meant by "enforcement" has rarely been an issue in the case law
because a Walker Process claim is typically asserted as a counterclaim to an infringement lawsuit.
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See Nobeipharma AR v. Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998) ("An
antitrust claim premised on stripping a patentee of its immunity from the antitrust laws is typically
raised as a counterclaim by a defendant in a patent infringement lawsuit."). In other words, the
"enforcement" element is usually taken for granted.
The Federal Circuit, however, has addressed the "enforcement" requirement and made clear
the inquiry does not turn on the existence of an overt act. In Unitherm Food Systems, Inc.
v.
Swift-
Eckrich, Inc., 375 F.3d 1341 (Fed. Cir. 2004), the plaintiff sought a declaration that the
defendantcompetitor's patent was invalid and asserted an ancillary Walker Process claim. Id. at
1345. The defendant moved to dismiss the antitrust claim for lack of standing. Id. at 1347. In
considering the meaning of "enforcement," the Federal Circuit compared the standard for standing
under a Walker Process cause of action to the standard in a Declaratory Judgment Action. Id. at
1357-58. The court observed that "[s]trictly speaking, a Walker Process claim is premised upon 'the
enforcement of a patent procured by fraud on the Patent Office." Id. (quoting Walker Process, 382
U.S. at 174). In comparison, "[a] plaintiff may bring a Declaratory Judgment Action of patent
invalidity.
.
.
even in the absence of overt enforcement actions." Id. at 1358. To the extent there
was any tension between these two standards, the Federal Circuit clarified the law:
We therefore hold that, as a matter of Federal Circuit antitrust law, the standards that
we have developed for determining jurisdiction in a Declaratory Judgment Action of
patent invalidity also define the minimum level of 'enforcement' necessary to expose
the patentee to a Walker Process claim for attempted monopolization.
Id. This holding is critical to the issue presently before this Court, as it lies at the heart of the parties'
dispute, and therefore bears repeating: for Walker Process claims, "enforcement" does not mean
active, overt enforcement and instead refers to whatever is necessary to establish jurisdiction in a
Declaratory Judgment Action.
Having pegged the standard for Walker Process claim standing to the standard for
Declaratory Judgment Actions, the next question becomes: what is the applicable standard for
determining jurisdiction in a Declaratory Judgment Action? At the time of the Unitherm decision,
the prevailing standard in the Federal Circuit was "a two-part test that first consider[ed] whether
conduct by the patentee create[d] a reasonable apprehension on the part of the declaratory judgment
plaintiff that it will face an infringement suit, and second examine[dJ whether conduct by the
declaratory judgment plaintiff amount[ed] to infringing activity or demonstrate[d] concrete steps
taken with the intent to conduct such activity." SanDisk Corp.
v.
STMicroelectronics, Inc., 480 F.3d
1372, 1379 (Fed. Cir. 2007) (citingArrowheadlndus. Water, Inc. v. Ecolochem, Inc., 846 F.2d 721,
736 (Fed. Cir. 1988)). In 2007, however, the Supreme Court inMedlmmune, Inc. v. Genentech, Inc.,
549 U.S. 118 (2007), rejected the "reasonable apprehension of suit" aspect of the two-part test, and
instead held the proper test is whether "there is a substantial controversy, between parties having
adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory
judgment." Id. at 127; see also SanDisk Corp., 480 F.3d at 1380 ("The Supreme Court's opinion
in Medlmmune represents a rejection of our reasonable apprehension of suit test.")
KLA suggests that since Unitherm was decided before Medlmmune and since the Federal
Circuit has not specifically adopted the standard for Declaratory Judgment Action standing
announced in Medlmmune in the Walker Process context, then Unitherm 's status as currently viable
law is in doubt. See Reply [#9] at 3 n.3. The Court disagrees. First, Unitherm attached the Walker
Process standard to the Declaratory Judgment standard as a general principle and not to the specific
standard for Declaratory Judgment that existed at the time. KLA cites no reason, much less a case
since Medimmune, indicating the courts should not continue matching the Walker Process standard
to the Declaratory Judgment standard as held in Unitherm, even as the standard changes.
Second, KLA's argument is immaterial because neither the Declaratory Judgment standard
in existence pre-Medlmmune nor the standard established in Medlmmune include overt enforcement
of the patent as a requirement. In Unitherm, the court described the then-prevailing "reasonable
apprehension of suit" test for the specific purpose of explaining that overt enforcement actions are
unnecessary to establish Declaratory Judgment jurisdiction. See Unitherm, 375 F.3 d at 1358 (citing
Arrowhead, 846 F.2d at 736).1 The test announced in Medlmmune is an even more relaxed standard
which eliminated the "reasonable apprehension of suit" concept in favor of the more general idea
of a "substantial controversy." Either way, overt enforcement actions are not required as suggested
by KLA's arguments.
In sum, Federal Circuit antitrust law equates the standards for determining jurisdiction in a
Declaratory Judgment Action with those for defining the minimum level of "enforcement" necessary
to state a Walker Process claim, and the standard for determining Declaratory Judgment jurisdiction
is a flexible totality-of-the-circumstances approach focused on whether "there is a substantial
controversy, between parties having adverse legal interests, of sufficient immediacy and reality to
warrant the issuance of a declaratory judgment." Medlmmune, 549 U.S. at 127.
In Arrowhead, the court made clear that "[w]hen the defendant's conduct, including its statements, falls short
of an express charge [of infringement], one must consider the 'totality of the circumstances' in determining whether that
conduct meets the first prong of the test." Arrowhead, 846 F.2d at 736. The court continued: "If the circumstances
warrant, a reasonable apprehension may be found in the absence of any communication from defendant to plaintiff"
Id. (citation omitted) (emphasis in original).
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2.
Sufficiency of Xitronix's Pleadings
With the legal standard in place, the Court turns its attention to Xitronix' s allegations and
considers whether they satisfy the "substantial controversy" standard for Declaratory Judgments.
Xitronix's complaint is lengthy and details the history between the parties and how the issuance of
the '260 Patent has, in its view, created a substantial controversy.
See
Compi. [#1] ¶J 15-143. In
its response, Xitronix summarizes the allegations it contends support a finding
of standing [sic
throughout]:
The entirety of the six-plus year history of KLA's attempts to capture
Xitronix's technology within its patents. Compl.{#I] at 5, ¶IJ 19-20;
KLA's historic threats against Xitronix, including its expression of its intent
to enforce the '441 patent it obtained incorporating elements of Xitronix' s
technology id. at 5, ¶ 21;
KLA's knowledge that, as long as it maintained artificial "intellectual
property issues" surrounding Xitronix's technology, the market would not
adopt Xitronix '5 technology, id.; and
KLA's ongoing efforts, during the [First Lawsuit] and after, to do whatever
it could to obtain patent claims covering Xitronix's technology, including
pursuing the '260 patent claim that embedded this Court's claim construction
from, and carried forward claims that had been litigated essentially verbatim
in, the '441 litigation, id. at 6, ¶ 24; and
The exclusionary consequences of KLA's procurement of the '260 patent on
Xitronix's ability to enter the market, id. at 28-30, ¶J 120-25.
Resp. [#7] at 11-12 (footnote omitted).
Taking these specific citations and the complaint as a whole, the Court agrees with Xitronix
that its allegations support a finding of a substantial controversy between these two parties with
adverse legal interests as described in Medlmmune. In short, Xitronix alleges KLA purchased a
company active in the semiconductor optical inspection market for $75 million. When Xitronix
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introduced a supposedly superior competing product with more advanced technology, KLA modified
an already-existing patent application with the express purpose of capturing Xitronix's technology,
and that application ultimately resulted in the '441 Patent. KLA actively asserted the '441 Patent
against Xitronix, which caused Xitronix to file a declaratory judgment of non-infringement. A jury
eventually found the asserted claims of the '441 Patent invalid on anticipation and obviousness
grounds, and the Court additionally found the claims invalid for indefiniteness. Undeterred, KLA
went back to the PTO and was able, through fraud, to obtain a new patent, the '260 Patent, which
is essentially identical to the '441 Patent. While KLA has taken no action with respect to the '260
Patent, the effect of its existencewithin the context of these two parties'
historyis a variety of
exclusionary consequences for Xitronix in the marketplace. The Court finds these allegations
sufficient to survive Rule 12 scrutiny.
Additionally, the Court notes KLA has not actually disputed the sufficiency of Xitronix' s
allegations with respect to the "substantial controversy" standard from Medlmmune. Instead, KLA
has only argued the "enforcement" requirement necessarily means an overt
actan
argument
rejected by the Court. As such, KLA has not actually moved to dismiss on the ground Xitronix does
not adequately plead a "substantial controversy."
3.
Policy
By concluding Xitronix satisfies the "enforcement" requirement despite the fact KLA has
apparently done nothing with the '260 Patent since its issuance, the Court wants to be clear it is not
holding mere procurement of a patent can support a Walker Process claim. To the contrary, the
Court agrees with KLA and the cases it cites that a patentee should not be subject to a Walker
Process claim simply because it obtains a patent. What makes this case unique are Xitronix's
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allegations, in addition to KLA's simple procurement of the '260 Patent, about the history of
litigation between these parties and the connection between the '441 Patent and the '260 Patent.
Here, taking Xitronix ' s allegations as true, KLA actively enforced the '441 Patent before it was ruled
invalid through a final judgment in this Court. KLA, however, has since obtained the exact same
patent, only now it has a different number. Faced with an antitrust claim, KLA seeks to have the
claim dismissed because it has not technically taken any overt actions concerning the '260 Patent,
even though it did take such action with the '441 Patent. The resulting conundrum is that KLA is
actually best served by not actively asserting the patent at all. Put differently, KLA can benefit from
merely owning an invalid patent while also remaining immune from any Walker Process antitrust
claims as long as it never takes any action concerning the '260 Patent. In the Court's view, such an
outcome undermines both patent and antitrust law.
Relatedly, the Court's decision does not pose a danger ofbroadening Walker Process claims
beyond their intended scope. In Unitherm, the Federal Circuit made clear there are circumstances
under which a plaintiff may assert a Walker Process claim despite the absence of any overt
enforcement by the patent owner. This case presents the sort of unique allegations contemplated by
the Federal Circuit's holding and is the sort of case that, in the Court's view, occurs infrequently.
Moreover, declaratory judgment jurisdiction is discretionary with the courts, and each case requires
careful analysis of the specific allegations present in the complaint. See Medlmmune, 549 U.S. at
127 ("The Declaratory Judgment Act provides that a court may declare the rights and other legal
relations of any interested party, not that it must do so.") (emphasis in original); Wilton v. Seven Falls
Co., 515 U.S. 277, 286 (1995) (nothing the federal courts have "unique and substantial discretion
in deciding whether to declare the rights of the litigants"). The Court's decision is limited to the
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circumstances of this case, and the Court rejects any notion its decision could open the floodgates
of Walker Process litigation or expose patentees to such claims simply based on their procurement
of a patent.2
B.
Fraud on the PTO
KLA' s second ground for dismissal is the failure to allege fraud. Specifically, KLA argues
that, according to Xitronix's own pleadings, KLA provided all of the relevant material, including the
Court's final order and judgment from the First Lawsuit, to the PTO, and therefore it complied with
its duty to disclose. In order to prevail on the fraud components of its antitrust claim, Xitronix must
show either that "the patentee 'obtained the patent by knowingly and wilifullymisrepresenting facts'
to the [PTO]" or that it made a fraudulent omission. Nobelphcirmci, 141 F.3d at 1068-71. Xitronix
presents both an affirmative misrepresentation theory and a fraud-by-omission theory.
The Court notes the scholarship of Professor Christopher R. Leslie who has advocated for the abolishment
of the "enforcement" requirement altogether. In a law review article directly on point to the issue before the Court,
patentee in
Professor Leslie has challenged the notion that mere procurement of a patent, no matter the conduct of the
welfare of the consumer and in itself violate the antitrust laws.
obtaining the patent, cannotwithout moreaffect the
REv. 101(2006).
See Christopher R. Leslie, The Anticompetitive Effects of Unenforced Invalid Patents, 91 MINN. L.
and possession of an invalid patent can, in fact, injure competition
Instead, Professor Leslie contends "mere procurement
ways simple
and reduce consumer welfare." Id. at 113. Professor Leslie persuasively documents the variety of
help maintain an illegitimate monopoly, including (1) how the "[t]he fear of
possession of an invalid patent can
that the
infringement can deter entry into the monopolist's market, even if the potential competitor strongly believes
attempt
patent at issue is invalid"; (2) the "increase[d] entry costs by compelling rivals to research the patent's validity, to
can deter
patents
to design around the patent, or to pay (uimecessary) licensing fees"; (3) how "a monopolist's suspect
customers, business partners, and venture capitalists from doing business with them"; and (4) how "firms
its competitor's
and
may avoid entire fields of research out of fear of infringement litigation, a phenomenon that can distort innovation
factors are present in Xitronix' 5
reduce long term competition even further." Id. at 104, 114-39. Many of these
KLA has not
allegations, and Professor Leslie's research supports Xitronix's claims of antitrust injury despite the fact
overtly enforced the '260 Patent.
While Professor Leslie argued for elimination of the "enforcement" requirement in his article, which, notably,
Judgment
he wrote prior to Medlmmune and the adoption of an even more adaptable standard for Declaratory
function. Interestingly, however, in subsequent papers,
jurisdiction, such a decision is beyond this Court's limited
potential
Professor Leslie has noted how Medlmmune "has important implications for antitrust law" and that it has the
"enforcement" requirement. See Christopher R. Leslie, New
to move courts away from rigid applications of the
Possibilitiesfor Asserting Walker Process Claims, 21-SUM ANTITRUST 48, 50-51(2007).
2
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First, Xitronix argues KLA' s patent attorney, Staliman, made affirmative misrepresentations
the First Lawsuit, it
regarding the status of relevant prior art. In the Court's post-trial final order in
of the '441
discussed the ample evidence that existed to support the jury's finding of invalidity
Patent based on anticipation and obviousness.
See Order of Jan.
31, 2011 [#210] at 10-12, the First
prior art, Batista and
Lawsuit. In particular, the Court discussed to two specific examples of
355 to 410
Mansanares, and the probe beam wavelength they taught, which was a range of
nanometers (nm):
The inventors and the experts testified that it was known by persons of ordinary skill
that overcoming noise problems would improve the commercial embodiment of the
prior art Therma-Probe device, and this problem was overcome by increasing the
strength of the output signal. Batista and Mansanares each individually taught that
in
changing the probe beam wavelength from 670 to a particular wavelengths [sic]
factor often. This was
the range of 355 to 410 would increase the output signal by a
strong motivation for a person of ordinary skill to change the wavelengths [sic] of the
prior art Therma-Probe device and method using the teachings of Batista or
Mansanares. Thus, a reason existed at the time of the effective filing date of the '441
Patent that prompted a person of ordinary skill to change the wavelength of the probe
beam in the prior art Therma-Probe device to a wavelength that increased the strength
of the output signal, which reflects the obviousness of the claims.
Id. at 12 (citations to the trial record omitted).
and final
Soon after entrance of the January 31, 2011 Order, KLA submitted the final order
examiner
judgment to the PTO in February 2011. In 2013 and 2014, however, when a new patent
to the new
had taken over the ongoing '260 Patent application, Stailman made representations
the prior art
examiner regarding the prior art, which Xitronix alleges contradict the actual state of
March 12, 2014:
and this Court's statements about the prior art. For example, Stailman claimed on
silicon
[N]one of the prior art related to measuring modulated reflectivity on
semiconductor samples taught the claimed probe beam wavelength of3 60 to 410 nm.
Compl. [#1] ¶ 72.
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Similarly, in October 2013, Stallman represented:
[T]he prior art fails to teach [the 360 to 410 nm] wavelength range for use in
semiconductor samples when performing modulated optical reflectivity
measurement.
Id.
¶73.
the
On April 17, 2014, the examiner allowed claim 1 of the '260 Patent, and Xitronix argues
the
examiner's stated rationale reflects his acceptance of KLA's fraudulent misrepresentations of
prior art:
Regarding claim [1], the prior art of record fails to anticipate or render obvious a
method for evaluating a silicon semiconductor sample comprising, among other
essential features, focusing a fixed wavelength prove [sic] beam generated by a laser
onto the sample within the region that has been excited, wherein the wavelength of
the probe beam is between 360 and 410 nm; monitoring the changes in the power of
the reflected beam induced by the pump beam; and generating output signals in
response thereto, said output signals corresponding to the changes in the optical
reflectivity of the sample the output signals containing information which is used to
evaluate the sample, in combination with the rest of the limitations of claim [1].
Id. ¶78.
In the Court's view, these allegations are sufficient to satisfy the fraudulent misrepresentation
in
element of a fraud-on-the-PTO claim. While Stallman was certainly free to present argument
favor of patentability, he was not free to misrepresent the state of the prior art as alleged by Xitronix.
make
Moreover, the disclosure of all of the relevant prior art does not permit Stallman to
representations about that prior art that are false. Xitronix' s allegations support a theory whereby
410 nm
Stallman told the PTO there was no prior art teaching a probe beam wavelength of 360 to
when he was fully aware of the Batista and Mansanares references that taught those wavelength
those
ranges and this Court's final judgment that the '441 Patent was invalid as obvious due to
references.
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KLA
Xitronix' s second theory for fraud-on-the-PTO, which is related to its first, is that
had
explicitly inform the
more than a duty merely to disclose all material information but also a duty to
and the
examiner of the relationship between the pending claims of the '260 Patent
invalid claims
material
of the '441 Patent. When KLA failed to do so, Xitronix argues KLA fraudulently omitted
information.
arises under the
"A patent applicant's duty to disclose material information to the PTO
general duty of candor, good faith, and honesty embodied in 37 C.F.R.
§
1.56(a) (1996)." Critikon,
Cir. 1997). Materiality
Inc. v. Becton Dickinson Vascular Access, Inc., 120 F.3d 1253, 1256 (Fed.
consider important in
embraces "any information that a reasonable examiner would substantially
Container Corp.
deciding whether to allow an application to issue as a patent." Akron Polymer
v.
omitted).
Exxel Container, Inc., 148 F.3d 1380, 1382 (Fed. Cir. 1998) (quotation
its duty of
As an example of KLA's alleged fraudulent omissions and its failure to uphold
'441 Patent invalid for
candor, good faith, and honesty, Xitronix points to the fact the Court held the
describe the patented
indefiniteness because of its use of the term "substantially maximize" to
First Lawsuit. During
wavelengths at issue. See Order of Jan. 31, 2011 [#210] at 5-9, the
the same "substantially
prosecution ofthe '260 Patent, the examiner recommended KLA incorporate
had held this same
maximize" language. Instead of pointing out to the examiner that the Court
language indefinite, Stailman accepted the examiner's recommendation. According
to Xitronix, this
and the final judgment
failure to inform the examiner of the contradiction between his suggestion
faith.
of the First Lawsuit amounts to a breach of KLA' s duty of candor, honesty, and good
Again, the Court finds these allegations sufficient to state a claim for fraud.
To remain silent
ruled invalid for
and not inform the examiner that his suggested language had been previously
-17-
indefiniteness in a final judgment states a claim that Stallman fraudulently omitted material
information and did not comply with his duties of candor, honesty, and good faith.
Conclusion
After careful review of the applicable legal standards and the allegations in the complaint,
the Court concludes Xitronix has adequately pleaded "enforcement" for purposes of a
Process
Walker
antitrust claim and fraud in procuring the '260 Patent.
Accordingly,
IT IS ORDERED that Defendant KLA-Tencor Corporation's Motion to Dismiss [#5]
is DENIED.
SIGNED this the 2'1 day ofJune 2015.
U
SAM SPARKS
UNITED STATES DISTRICT JUDGE
lll3mtdord3jtw.wpd
18
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