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The U.S. District Court for the District of Delaware Denied Motion to Amend Despite Defendants’ Belief of Stipulation
Cot’n Wash, Inc. and Big 3 Packaging, LLC v. Henkel Corp., et al.
In Cot’n Wash, Inc. and Big 3 Packaging, LLC v. Henkel Corp., et al., the United States District Court for the District of Delaware denied in part and affirmed in part Defendants’ motions for leave to file and amend. Plaintiff, Big 3 Packaging LLC (“B3P”) and Cot’n Wash, Inc. (“Cot’n Wash”), (collectively, “Plaintiffs”) filed suit against Henkel Corporation (“Henkel”), Dial Corporation (“Dial”), and Henkel Consumer Goods, Inc. (collectively, the Henkel defendants) for infringement of United States Patent No. 6,037,319 (“the #319 patent”). Plaintiffs also asserted claims regarding the patent against The Sun Products Corporation (“Sun”) on the same day. By way of background, the #319 patent is directed to “water-soluble packets containing liquid cleaning concentrates.” The court denied the Henkel Defendants’ motion for leave to file a second amended answer, affirmative defenses, and counterclaims as well as Sun’s motion to amend its answer, affirmative defenses, and counter claims with respect to the false marking counterclaim. The court granted Sun’s motion to amend its answer, affirmative defenses, and counterclaims with respect to the inequitable conduct counterclaim.
Throughout the course of litigation, parties had stipulated as to deadlines for motions and discovery including the motions at issue. Specifically relevant here are the facts surrounding defendants’ motion to amend their answers to include counterclaims of false marking under 35 U.S.C. §292, false advertising under 15 U.S.C. §1125, and deceptive trade practices under 6 Del. C. §2532. Sun, the second Defendant, sought to add a counterclaim of unenforceability due to inequitable conduct before the United States Patent and Trademark Office. On October 30, 2013, Plaintiffs asked the Henkel Defendants to leave the false marking claims to the damages phase of the case to which the Defendants agreed so long as Plaintiff’s stipulated to the filing of all new counterclaims and a resolution on amending the pleadings. Neither party, however, drafted a stipulation allowing for the amended counterclaims to be filed and determining when the counterclaims would be addressed. In January, when Defendants sent a proposed stipulation to Plaintiffs, the Plaintiffs expressed that they would oppose any motion to amend the pleadings. After several failed attempts to reach an agreement with Plaintiffs, both the Henkel and Sun filed motions to amend their answer and counterclaims.
The court noted that all motions to amend the pleadings would be governed by Federal Rule of Civil Procedure 15. The rule relegated to the court the power to allow parties leave to amend pleadings when justice so required. In assessing whether justice mandated a grant of leave, a court should consider (1) whether the amendment has been unduly delayed; (2) whether the amendment would unfairly prejudice the non-moving party; (3) whether the amendment is brought for some improper purpose; and (4) whether the amendment is futile. Further, the court underscored that, pursuant to Rule 15, the court could deny a motion to amend for reasons of “… bad faith, or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendment previously allowed … ”
Defendants argued that their motions to amend should be granted given that they proposed their counterclaims shortly after discovering the supporting evidence and thus there is no undue delay. Next they contended that the amended claims would not prejudice as the Plaintiffs already and the opportunity to conduct discovery on the issues and thus already have the relevant documents in their possession. Last, Defendants made a blanket assertion claiming that the counterclaims were not futile. In response, Plaintiffs argued that the amendment has been unduly delayed as Defendants waited until the end of factual discovery to request it. Next, they contended it would prejudice them as they would not have had the opportunity to conduct discover on the counterclaims. Last, Plaintiffs posited that Defendants’ counterclaims are futile because they did not state a claim upon which relief could be granted.
The court assessed each of the claims that Defendants wished to add in light of three of the four factors of Rule 15. The claims were grouped into two (2) categories with the first consisting of false marking, false advertising and deceptive trade practices and the second comprised of unenforceability due to inequitable conduct.
First, it addressed whether the claims resulted from undue delay. The court observed that it may deny a motion to amend where there is undue delay absent a justification. In regard to the first group of claims, false marking, false advertising and deceptive trade practices, the court found that the Defendants delay was undue and unjustified. It noted that Defendants waited three (3) months after sending their proposed motions to amend to Plaintiffs to actually file. Although the court acknowledged that Defendants were under the impression that the Plaintiffs had agreed to stipulate to their amendments based on previous correspondence, such a belief did not justify the delay of three months. The court also found it persuasive that the Defendants had been in possession of all of the documents relevant to the claims they sought to amend and yet they had still waiting three months to file. In contrast, the court found that the second claim, unenforceability due to inequitable conduct, did not amount to undue delay as Sun obtained the information relevant to the claim in early October 2013 and filed shortly thereafter.
Next, the court evaluated whether the claims prejudiced the Plaintiffs. It found that the first group of claims prejudiced the Plaintiffs, while the second claim would not. Although the court conceded that the Plaintiffs may have already had in its possession all of the documents relevant to the first group of claims, it found that the Plaintiffs had not had the opportunity to review the evidence in the context of the false marking claims. Thus, it found that allowing the Defendants to amend their counterclaims to add claims of false marking without allowing Plaintiffs a chance for discovery would greatly prejudice the Plaintiffs. In contrast, the court found that the second claim, unenforceability due to inequitable conduct, did not prejudice the Plaintiffs as Sun asserted it early enough to allow the Plaintiffs an opportunity to conduct discovery.
The court skipped the third consideration of Rule 15, whether the amendment is brought for some improper purpose, and moved to assess whether the claims appeared futile. Following the above trend, it found the first group of claims failed to meet the heightened pleading standard of Federal Rule of Civil Procedure 9 (b) and, thus, found the claims to be futile. Here, the court parsed out the elements necessary to prove false marking: (1) that the defendant marked an unpatented article; and (2) that the defendant intended to deceive the public. The court alluded to the possibility that the Defendants had provided sufficient evidence to demonstrate that the Plaintiffs knew that the product were falsely market, yet they failed to make a showing that the Plaintiffs intended to deceive the public. As a result, the court reasoned that the Defendants failed to sufficiently plead the false marking claim, rendering the claim futile.
The court held that the second claim, however, satisfied the heightened 9(b) standard applicable to proving inequitable conduct and as such, was not futile. The applicable standard required a party to prove that the patentee acted with the specific intent to deceive the Patent and Trademark Office. Here, the court expounded the standard to require a Defendant to identify who, what, when, where, and how of the material misrepresentation or omission committed before the Patent and Trademark Office. Sun argued that the patent applicants, Plaintiffs, (1) misrepresented the identity of the inventor of the #319 patent and failed to identify the correct inventor; (2) failed to disclose pieces of relevant prior art; and (3) failed to disclose that the correct inventor demonstrated he product claimed in the #319 patent publicly more than one year prior to the filing of the patent application. The court found that the above amendment satisfied the pleading standard and thus was not futile.
In finding that the inequitable conduct counterclaim did not reflect undue delay, cause prejudice to the Plaintiffs, or reflect a futile claim, the court granted Defendant Sun’s motion to amend and denied all other pending motions to amend.
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