Milwaukee Electric Tool Corporation et al v. Snap-On Incorporated

Filing 162

ORDER signed by Judge J.P. Stadtmueller on 6/8/2017: GRANTING 135 Defendant's Motion For Leave to File Amended Answer and GRANTING 136 , 141 and 144 Parties' Motions to Seal Documents. (cc: all counsel) (jm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
MILWAUKEE ELECTRIC TOOL CORPORATION,
METCO BATTERY TECHNOLOGIES LLC, AC
(MACAO COMMERCIAL OFFSHORE) LIMITED,
and TECHTRONIC INDUSTRIES CO. LTD.,

Case No. 14-CV-1295-JPS

Plaintiffs,
v.
POSITEC TOOL CORPORATION and POSITEC
USA INC.,
Defendants.

MILWAUKEE ELECTRIC TOOL CORPORATION,
METCO BATTERY TECHNOLOGIES LLC, AC
(MACAO COMMERCIAL OFFSHORE) LIMITED,
and TECHTRONIC INDUSTRIES CO. LTD.,

Case No. 14-CV-1296-JPS

Plaintiffs,
v.
SNAP-ON INCORPORATED,

ORDER

Defendant.

In these two related patent infringement actions, Defendants seek
leave to amend their answers to add defenses and counterclaims.
Defendants Positec Tool Corporation and Positec USA Inc. (collectively,
“Positec”) seek to add allegations related to inequitable conduct by
Plaintiffs with respect to the U.S. Patent and Trademark Office during the
prosecution of the patents-in-suit. Defendant Snap-On Incorporated
(“Snap-On”) wants to join these allegations plus a defense of patent
exhaustion based on third-party licenses. In two other related cases
involving different defendants, Plaintiffs did not oppose similar requests

for amendment.1 This time, however, they have changed their tune, and
they now oppose Defendants’ motions for leave to file amended answers.
For the reasons stated below, the Court will grant Defendants’ motions.
Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that
courts should freely grant leave to amend a pleading where justice so
requires. See Fed. R. Civ. P. 15(a)(2); Foman v. Davis, 371 U.S. 178, 182
(1962). Indeed, “[a]s a general rule, district courts should liberally grant
leave to amend pleadings.” Mulvania v. Sheriff of Rock Island County, 850
F.3d 849, 854 (7th Cir. 2017). That said, courts enjoy discretion to deny
such leave “where there is undue delay, bad faith, dilatory motive,
repeated failure to cure deficiencies, undue prejudice to defendants, or
where the amendment would be futile.” Arreola v. Godinez, 546 F.3d 788,
796 (7th Cir. 2008).
Plaintiffs urge the Court to deny the motions because Defendants’
requests are untimely and futile. Neither contention has merit. First,
Plaintiffs claim that Snap-On’s motion was untimely even when it was
first filed prior to the long stay in this matter. Snap-On originally filed this
motion, in materially identical form, on September 25, 2015, after
summary judgment briefing was complete. Plaintiffs assert that Snap-On
knew of the facts underlying these proposed amendments since mid-2015
at the latest, so its pre-stay filings alone reflect dilatoriness worthy of
denying its motion. As for Positec, Plaintiffs note that it never filed a pre-

One of those cases, Milwaukee Electric Tool Corporation v. Hilti, Inc., Case
No. 14-cv-1288-JPS, was recently dismissed by stipulation of the parties. The
other, Milwaukee Electric Tool Corporation v. Chervon North America, Inc., Case No.
14-cv-1289-JPS, remains pending.
1

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stay motion to amend their answer at all, making the present motion even
less timely than Snap-On’s. Plaintiffs also contend that Defendants’
motions, which were filed in mid-April 2017, are untimely when
considered against the expeditious progress of litigation since the Court
lifted its stay in December 2016.
While the Court appreciates that these cases are beginning to enter
their later stages, the delays Plaintiffs cite do not warrant denial of leave to
amend. Only in especially egregious cases should delay, standing alone,
require such a result. Feldman v. Allegheny Int’l, Inc., 850 F.2d 1217, 1225
(7th Cir. 1988); Perrian v. O’Grady, 958 F.2d 192, 195 (7th Cir. 1992). More
often, an initial delay in seeking amendment justifies denial of leave
where it would work prejudice against the other parties or cause
unacceptable additional delay in the ultimate resolution of the case. See
Dubicz v. Commonwealth Edison Co., 377 F.3d 787, 793 (7th Cir. 2004); McCoy
v. Iberdrola Renewables, Inc., 760 F.3d 674, 687 (7th Cir. 2014) (“The
underlying concern is the prejudice to the [party] rather than simple
passage of time.”).
For instance, in the related case involving Defendant Chervon
North America, Inc. (“Chervon”), Plaintiffs recently sought to join
Chervon’s foreign parent corporation. Milwaukee Elec. Tool Corp. v. Chervon
N. Am., Inc., Case No. 14-CV-1289-JPS, 2017 WL 1322183, at *2 (E.D. Wis.
Apr. 10, 2017). The Court denied Plaintiffs leave to do so, observing that
Plaintiffs not only knew from the very start of the litigation that Chervon’s
parent might be joined as a defendant, but also that joining a foreign
defendant at this time would substantially delay discovery and trial. Id.

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Such added delay was inconsistent with the Court’s prerogative to move
these now nearly three-year-old cases to a final resolution. Id.
By contrast, here Defendants’ proposed amendments would not
cause any disruption to the Court’s schedule. In fact, because Chervon has
already been granted leave to pursue a similar inequitable conduct
defense, discovery on these matters is ongoing. Thus, this is not an
eleventh-hour attempt to change the scope of the litigation or delay trial.
See Perrian, 958 F.2d at 195. Instead, it is simply a matter of whether SnapOn and Positec are allowed to join in the discovery efforts on these issues.
Allowing them to so participate will not force Plaintiffs to scramble to
combat new allegations, since the inequitable conduct allegations are
already being litigated by Chervon. See Select Creations, Inc. v. Paliafito Am.,
Inc., 830 F. Supp. 1213, 1217 (E.D. Wis. 1993) (“The proscribed prejudice is
that which ‘outweighs the moving party’s right to have the case decided
on the merits.’”) (quoting Alberto–Culver Co. v. Gillette Co., 408 F. Supp.
1160, 1161–62 (N.D. Ill. 1976)).
Moreover, while Plaintiffs raise the specter that Snap-On’s patent
exhaustion defense, which Chervon has not raised, will require additional
time and discovery, it does not offer sufficient details to permit the Court
to draw such a conclusion. J.P. Morgan Chase Bank, N.A. v. Drywall Serv. &
Supply Co., 265 F.R.D. 341, 352 (N.D. Ind. 2010) (rejecting conclusory
assertions that opposing party will be prejudiced by a need for timeconsuming new discovery). Nor can Plaintiffs credibly contest that they
have known the factual bases for the patent exhaustion defense—whether
or not they agree with them—since Snap-On filed first filed this motion in

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September 2015. In this way, this case is different from Inline Connection
Corp. v. AOL Time Warner Inc., 237 F.R.D. 361, 366 (D. Del. 2006), relied on
by Plaintiffs, where the court refused the defendants leave to join entirely
new factual claims to support novel defense theories. In sum, viewed in
context, it does not appear that Defendants’ attempt to join these defenses
at this time bespeaks “carelessness or gamesmanship.” Feldman, 850 F.2d
at 1225; see also Mulvania, 850 F.3d at 855 (affirming district court’s denial
of leave to add a claim that was strategically delayed for years into the
litigation). Accordingly, untimeliness is not an obstacle to their request.
Plaintiffs next argue that Snap-On’s proposed patent exhaustion
defense is futile.2 Plaintiffs’ complaint appears to be that Snap-On needed

Plaintiffs complain that Defendants’ proposed inequitable conduct
defense is also without merit, but recognizing the lenient standard of review
applicable here, see Runnion ex rel. Runnion v. Girl Scouts of Greater Chicago & N.W.
Ind., 786 F.3d 510, 517 (7th Cir. 2015), they devote only a footnote to the
argument. In any event, such a challenge would not be successful. In connection
with the inequitable conduct defense, Defendants assert that Gary Meyer, a
named inventor of the patents-in-suit, made several misrepresentations and
omissions in declarations submitted to the Patent Office which helped convince
the patent examiner to issue the patents-in-suit. This included lying about the
existence and capabilities of battery packs provided to him by a Canadian
company, E-One Moli Energy (Canada) Ltd. (“Moli”), which Defendants assert
rendered Plaintiffs’ patents obvious. Without delving too deeply into the details
of the allegations, which are nearly identical to those recently discussed in depth
in an order in the Chervon case, see Milwaukee Elec. Tool Corp. v. Chervon N. Am.,
Inc., Case No. 14-CV-1289-JPS, 2017 WL 2312905, at *1–2 (E.D. Wis. May 26,
2017), the Court finds that Defendants have pled with sufficient particularity
those representations which they believe were fraudulent. See Fed. R. Civ. P. 9(b);
Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1291–93 (Fed. Cir. 2011).
Although the state of the record in the Chervon matter was insufficiently
developed for the Court to find that fraud in fact occurred, Chervon, 2017 WL
2312905, at *3–5, in the present posture, there is certainly enough to these
allegations to permit them to be pled and for discovery to proceed on them.
2

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to plead more—or more credible—facts supporting its position, but the
Court finds, accepting Snap-On’s allegations as true for present purposes,
that its proposed amendments contain sufficient factual matter to state a
patent exhaustion defense.
The patent exhaustion doctrine provides that “the initial authorized
sale of a patented item terminates all patent rights to that item.” Quanta
Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008). This defense
requires that (1) the sale be authorized by the patent holder and (2) the
product sold must embody essential features of the patented invention
and must have as “their only reasonable and intended use. . .to practice
the patent.” Id. at 631, 636 (citing United States v. Univis Lens Co., 316 U.S.
241, 249–51 (1942)). Snap-On says that Plaintiffs’ rights under the patentsin-suit were exhausted as to certain accused products because the
products’ batteries were sold to them by Moli under a licensing agreement
with Plaintiffs. Plaintiffs deny that such an agreement exists, arguing that
the contract they have with Moli does not allow it to sell the patented
inventions, only the lithium-ion cells which form a component part of the
inventions. Moreover, Plaintiffs claim that Moli eventually assigned all of
its rights in the patents-in-suit to Plaintiffs. Snap-On disagrees with
Plaintiffs’ characterization of the agreement and maintains that the
contract at issue authorizes Moli to sell Plaintiffs’ battery packs—not just
the lithium-ion cells therein—notwithstanding the later assignment of
rights, thereby raising a plausible inference of exhaustion.
On the facts as Snap-On pled them, the Court must agree.
Whatever the merit of Plaintiffs’ interpretation of its contract with Moli,

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Snap-On’s view is, at a minimum, plausible. This is enough to pass the
pleading stage. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Indeed, when the
Seventh Circuit affirms a decision to deny leave to amend on futility
grounds it usually involves much more obvious pleading failures than
any Snap-On may have committed. See, e.g., McCoy, 760 F.3d at (noting
obvious defects in certain proposed contract and prima-facie tort claims,
like failure to allege any breach); Gandhi v. Sitara Capital Mgmt., LLC, 721
F.3d 865, 870 (7th Cir. 2013) (proposed fraud claim was futile because,
despite having the benefit of substantial discovery, the plaintiffs could not
identify with sufficient particularity the substance of the purported
misrepresentations). Thus, the Court concludes that Defendants offer nonfutile defenses and counterclaims that are not so untimely as to justify
denial of leave to join them in these suits. As a result, the Court will grant
Defendants leave to amend their answers.
Accordingly,
IT IS ORDERED that the following motions for leave to file
amended answers be and the same are hereby GRANTED:
(1)

14-cv-1295, Docket #125; and

(2)

14-cv-1296, Docket #135; and

IT IS FURTHER ORDERED that that the following motions for
leave to file under seal the specified briefs and other documents in
connection with these motions be and the same are hereby GRANTED:
(1)

14-cv-1295, Docket #126, #134, and #139; and

(2)

14-cv-1296, Docket #136, #141, and #144.

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Dated at Milwaukee, Wisconsin, this 8th day of June, 2017.
BY THE COURT:

J.P. Stadtmueller
U.S. District Judge

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