UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION
August 25, 2011
PLAINTIFF AND COUNTER-DEFENDANT,
DEFENDANT AND COUNTER-CLAIMANT.
The opinion of the court was delivered by: Lucy H. Koh United States District Judge
ORDER GRANTING MOTION TO DISMISS INEQUITABLE CONDUCT COUNTERCLAIM
Currently before this Court is Plaintiff Abaxis, Inc.‟s motion to dismiss Defendant Cepheid‟s eighth and ninth defenses and ninth counterclaim. Dkt. No. 74 ("Mot."); see also Dkt. No. 82 ("Reply"). Cepheid opposes this motion. Dkt. No. 78 ("Opp‟n"). After reviewing the 21 parties‟ submissions, considering the relevant legal authorities, and hearing oral argument, the Court hereby GRANTS Abaxis‟s motion to dismiss.
In its first amended complaint ("FAC"), Abaxis alleges that Cepheid is infringing four of its patents and is in breach of a license agreement. Dkt. No. 24. Cepheid has denied liability.
Cepheid‟s initial answer alleged inequitable conduct during the prosecution of United States Patent Nos. 5,413,732 ("the ‟732 patent"), 5,624,597 ("the ‟597 patent"), 5,776,563 ("the ‟563 patent"), and 6,251,684 B1 ("the ‟684 patent") (collectively "the patents-in-suit")*fn1 . Dkt. No. 32. On March 22, 2011, this Court dismissed Cepheid‟s eighth defense and ninth counterclaim with leave to 3 amend. Dkt. No. 45. Cepheid filed an amended answer and counterclaims on April 12, 2011. Dkt. No. 50. Abaxis filed a motion to dismiss on April 26, 2011. Dkt. No. 51. On June 15, 2011, this Court granted Cepheid leave to further amend its answer and counterclaims in light of the recent Federal Circuit decision, Therasense, Inc. v. Becton, Dickinson & Co., Nos. 2008-1511, 2008- 1512, 2008-1513, 2008-1514 & 2008-1595, 2011 WL 2028255 (Fed. Cir. May 25, 2011). See Dkt. No. 67. Abaxis withdrew its motion to dismiss in anticipation of Cepheid‟s forthcoming 9 amendments on June 16, 2011. Dkt. No. 68. In its subsequent amended answer and third amended 10 counterclaims ("amended answer"), filed June 17, 2011, Cepheid raises ten defenses and asserts eleven counterclaims. Dkt. No. 72 ("Ans."). Abaxis filed the instant motion to dismiss on June 29, 2011. Dkt. No. 74.
Cepheid‟s eighth and ninth defenses and ninth counterclaim are at
issue here. They allege
that Abaxis engaged in inequitable conduct during the prosecution
of the ‟732, ‟597 and ‟563 15 patents. Ans. 6-25. They also allege
that the ‟684 patent is infected by the inequitable conduct 16 during
the prosecution of the ‟732, ‟597 and ‟563 patents. Ans. 25-28. As a
result, Cepheid seeks 17 judgment that the patents-in-suit are
unenforceable. Ans. 33. Alternatively, Cepheid alleges that 18
Abaxis‟s claims are barred by the doctrine of unclean hands because of Abaxis‟s inequitable 19 conduct and are therefore unenforceable. Ans. 28, 33. 20
A.Abaxis's Alleged Failure to Disclose Material Prior Art
Cepheid‟s eighth defense contains allegations that Kevin L. Bastian, the attorney who prosecuted the ‟732, ‟597 and ‟563 patents for Abaxis, knowingly and intentionally failed to 23 disclose to the United States Patent & Trademark Office ("PTO") material prior art while 24 prosecuting these three patents.*fn2 Ans. ¶¶ 17, 39.*fn3 According to the amended answer, this material prior art was United States Patent No. 4,470,202 ("the Buxton Patent").*fn4 Id. ¶ 17. As described in 2 Cepheid‟s amended answer, the patents-in-suit "relate to the production of freeze-dried reagent 3 beads for pharmaceutical and diagnostic applications. The beads are formed by dispensing drops 4 of reagent solutions into a cryogenic liquid. The frozen drops are then lyophilized (i.e., freeze-5 dried), which is a process that drives off water molecules, leaving a dried, allegedly rapidly-6 dissolving bead." Id. ¶ 26. Cepheid claims that "Abaxis‟ purported advance over the prior art is 7 uniformity in bead production." Id. 8
Cepheid alleges that the Buxton Patent discloses "reagent spheres and a process of making reagent spheres that have both short dissolution times and uniformity." Id. ¶ 28. Specifically, 10 Cepheid alleges that the Buxton Patent‟s disclosures include: (1) "drop-wise dispensing of reagents for freezing;" (2) "use of [a] pump to dispense drops;" (3) "uniform size of spheres;" (4) "unit dosages;" (5) "fast dissolution;" and (6) a "chemical lattice." Id. ¶ 30. Cepheid‟s amended answer 13 provides four tables setting forth what Cepheid considers to be the "close overlap between the 14 Buxton teachings and the Patents-in-Suit" that would make the patents-in-suit "unpatentable due to 15 anticipation and/or obviousness in view of the Buxton patent." Id. ¶ 31, 33. In particular, Cepheid 16 considers the Buxton Patent‟s disclosure of "drop-wise dispensing of reagents into liquid for 17 freezing" to be but-for material*fn5 to the patents-in-suit and non-cumulative of other prior art 18 submitted to the PTO. Id. ¶ 32-33. 19
Cepheid claims that at least Kevin L. Bastian was aware of the but-for materiality of the Buxton Patent and failed to disclose the patent to the PTO during the prosecution of the patents-in-21 suit with the intent to deceive the PTO. Id. ¶ 39. Kevin L. Bastian, the same attorney who 22 prosecuted the ‟732, ‟597, and ‟563 patents, also prosecuted United States Patent No. 5,275,016 ("the ‟016 patent"). Id. ¶ 35. The ‟016 patent and the patents-in-suit share the same three 2 inventors: Steven N. Buhl, Bhaskar Bhayani, and Thuy N. Tang. Id. ¶ 34. Cepheid alleges that the 3 ‟016 patent "performs the methods claimed in the Patents-in-Suit and produces the reagent spheres 4 claimed in the Patents-in-Suit." Id. ¶ 37. According to the amended answer, on July 16, 1993, Mr. 5 Bastian received the International Search Report for the Patent Cooperation Treaty ("PCT") 6 counterpart of the ‟016 patent, which cited the Buxton Patent as a "document of particular 7 relevance" to some of the claims of the PCT application. Id. ¶ 43. Cepheid alleges that these 8 claims in the PCT counterpart of the ‟016 patent "closely parallel claims of the Patents-in-Suit." 9
Id. ¶ 44. On August 6, 1993, while prosecuting the ‟016 patent, Mr. Bastian submitted a 10 supplemental disclosure statement to the PTO. Id. ¶ 51. Cepheid alleges that this statement was accompanied by a copy of the Buxton Patent. Id. According to Cepheid‟s amended answer, "[t]he identical features of the Buxton patent which made it material to the ‟016 patent . . . also made the 13 Buxton patent but-for material to the ‟732, ‟597, and ‟563 patents." Id. ¶ 53.*fn6 Cepheid further alleges that Mr. Bastian made several statements to the PTO while prosecuting the patents-in-suit. According to Cepheid, these statements were made in order to 16 distinguish the patents-in-suit from prior art cited by the PTO. Id. ¶ 54, 58-64. Cepheid‟s amended 17 answer alleges that in making these statements, Mr. Bastian claimed that the patents-in-suit taught 18 features that were actually disclosed in the Buxton Patent. Id. Cepheid specifically claims that Mr. 19 Bastian knew these statements "were false in light of information contained in the Buxton patent, 20 which was not before the Examiners, and Mr. Bastian knowingly withheld this information." Id. ¶ 21 64. Cepheid argues that had the Buxton Patent been disclosed, "neither the ‟732, ‟597, nor ‟563 22 patents would have issued . . . because the claimed features allegedly missing from the prior art of 23 record were disclosed in the Buxton Patent." Id. ¶ 65. 24
B.Infectious Unenforceability of the ‟684 Patent
Cepheid also alleges that the Buxton Patent is material to the claims of the ‟684 patent and 26 non-cumulative of the prior art submitted to the PTO during the prosecution of the ‟684 patent. Id. 27
¶¶ 74-75. According to the amended answer, "[t]he Examiner found that the claims of the ‟684 2 patent were not patentably distinct from the claims of the [other patents-in-suit] and would be 3 invalid for obviousness-type double patenting, absent a terminal disclaimer over these patents." Id. 4
¶ 78. Cepheid argues that absent the alleged inequitable conduct by Mr. Bastian, the ‟563, ‟732, 5 and ‟597 patents would have been rejected. Id. ¶ 79. Thus, the ‟684 patent would not have issued 6 either. Id. Cepheid also claims that if the Buxton Patent had been disclosed to the PTO during the 7 prosecution of the other patents-in-suit, the Buxton Patent would have been included in the 8 prosecution record of the ‟684 patent, and thus, the ‟684 patent would not have issued. Id. ¶ 85. 9
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face.‟" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "A claim 13 has facial plausibility when the plaintiff pleads factual content that allows the court to draw the 14 reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 15 550 U.S. at 556). These requirements apply with equal rigor to pleadings made under Rules 8 and 16 of the Federal Rules of Civil Procedure. Id. at 1954. 17
Under Rule 9(b), "[i]n alleging fraud or mistake, a party must state with particularity the 18 circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). "Malice, intent, knowledge, 19 and other conditions of a person‟s mind may be alleged generally." Id. "Inequitable conduct, 20 while a broader concept than fraud, must be pled with particularity under Rule 9(b)." Exergen 21 Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1326 (Fed. Cir. 2009) (quoting Ferguson 22 Beauregard/Logic Controls, Div. of Dover Res., Inc. v. Mega Sys., LLC, 350 F.3d 1327, 1344 (Fed. 23 Cir. 2003)) (quotations and alterations omitted). The law of the Federal Circuit, not the law of the 24 regional circuit, applies to the question of whether inequitable conduct has been pled in accordance 25 with Rule 9(b). See Exergen, 575 F.3d at 1326 (citation omitted). 26
Although Exergen was decided in the context of a motion for leave to amend to add an inequitable conduct claim, its pleading standard is also used to evaluate the sufficiency of 28 pleadings under Rule 9(b) on motions to dismiss. See In re BP Lubricants USA, Inc., 637 F.3d 1307, at 1311 (Fed. Cir. 2011) (holding, in the context of a motion to dismiss, that "Exergen's 2 pleading requirements apply to all claims under Rule 9(b)"). As outlined in Exergen, the 3 substantive elements of inequitable conduct are as follows: "(1) an individual associated with the 4 filing and prosecution of a patent application made an affirmative misrepresentation of a material 5 fact, failed to disclose material information, or submitted false material information; and (2) the 6 individual did so with a specific intent to deceive the PTO." Id. at 1327 n.3 (citing Star Scientific, 7 Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d 1357, 1365 (Fed. Cir. 2008); Molins PLC v. Textron, 8 Inc., 48 F.3d 1172, 1178, 1181 (Fed. Cir. 1995); 37 C.F.R. § 1.56 (2008)). As the parties agreed at 9 the hearing on the motion, Therasense further heightened the standard for the materiality element 10 of inequitable conduct, holding that "the materiality required to establish inequitable conduct is but-for materiality. When an applicant fails to disclose prior art to the PTO, that prior art is but-for material if the PTO would not have allowed a claim had it been aware of the undisclosed prior art."
2011 WL 2028255, at *11. 14
"[I]n pleading inequitable conduct in patent cases, Rule 9(b) requires identification of the specific who, what, when, where, and how of the material misrepresentation or omission 16 committed before the PTO." Exergen, 575 F.3d at 1327.*fn7 Furthermore, in pleading "knowledge" 17 and "intent," which may be averred generally under Rule 9(b), a pleading of inequitable conduct 18 "must include sufficient allegations of underlying facts from which a court may reasonably infer 19 that a specific individual (1) knew of the withheld material information or of the falsity of the 20 material misrepresentation, and (2) withheld or misrepresented this information with a specific 21 intent to deceive the PTO." Id. at 1328-29. 22
"[I]n dismissing for failure to state a claim under Rule 12(b)(6), "a district court should grant leave to amend . . . unless it determines that the pleading could not possibly be cured by the 24 allegation of other facts.‟" Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (quoting Doe v. 25 United States, 58 F.3d 494, 497 (9th Cir. 1995)). Whether to grant leave to amend a pleading 26 under Rule 15(a) is a procedural matter governed by the law of the regional circuit. See Exergen, 575 F.3d at 1318.
A.The '732, '597, and '563 Patents
Abaxis argues that Cepheid‟s amended allegations of inequitable conduct fail to meet the pleading standard outlined in Iqbal and Exergen. Abaxis claims that Cepheid has not provided 7 factual allegations from which knowledge and intent to deceive can be reasonably inferred. Mot. at 8 6-7. According to Abaxis, Cepheid‟s counterclaim also fails to identify with sufficient particularity 9 why the Buxton Patent is but-for material to the patents-in-suit and why it is non-cumulative of the 10 prior art presented to the examiner. Mot. 7-8. This Court agrees with Abaxis that Cepheid has not 11 reasonable inference of knowledge and intent. Because failure to pled sufficient facts to support a plead knowledge and intent is sufficient grounds to dismiss an inequitable conduct claim, the Court 13 need not address whether Cepheid has met the pleading standard for materiality. 14
Specifically, Abaxis argues that Cepheid‟s amended answer does not properly allege that Mr. Bastian knew of the allegedly but-for material information contained in the Buxton Patent. Mot. 11-14. Abaxis also argues that the amended answer does not properly allege specific intent to 17 deceive the PTO. Reply 5. Cepheid argues that its counterclaim provides ample facts from which 18 it is reasonable to infer that Mr. Bastian knew of the material information contained in the Buxton Patent, that Mr. Bastian knew that information would be but-for material to the patents-in-suit, and 20 that Mr. Bastian withheld the reference with the deliberate intent to deceive the PTO. Opp‟n 10-21
The Court finds the circumstances in this case sufficiently analogous to those in Exergen 24 for Exergen to be controlling. In Exergen, as here, a material reference was disclosed during 25 prosecution of one patent but not disclosed during prosecution of the patents-in-suit. 535 F.3d at 26 1330. As in Exergen, this Court finds that Cepheid fails to allege sufficient facts to support a 27 reasonable inference that Mr. Bastian "knew of the specific information in the [Buxton patent] that 28 is alleged to be material to the claims of the [patents-in-suit]." See id. at 1330. Thus, although the inequitable conduct claim here does not suffer from the additional defect of failing to identify a 2 specific person alleged to have knowledge of the material reference as in Exergen, see 575 F.3d at 3 1329, the claim here still fails for failure to sufficiently allege knowledge. 4
In the order granting Abaxis‟s prior motion to dismiss, this Court noted that Cepheid may be able to support a reasonable inference that Mr. Bastian knew that specific information in the 6 Buxton patent was material to the patents-in-suit by alleging facts to show that the Buxton Patent is 7 material to the ‟016 patent for the same reasons that the ‟732 patent was referenced in the ‟016 8 patent. Order at 10. Cepheid‟s amended answer does allege additional facts showing that the 9 Buxton Patent is material to the ‟016 patent for the same reasons that the ‟016 patent is related to 10 the patents-in-suit. Ans. 15-18. Just because the Buxton Patent was of "particular relevance" to some of the claims in the "016 patent, Ans.¶ 43, and just because one of the patents-in-suit was referenced in the "016 patent, it does not necessarily follow that the Buxton Patent was but-for-13 material to the patents-in-suit. Even more central to the analysis here, the chain of inference is too 14 tenuous to infer that Mr. Bastian knew that the information in the Buxton Patent was but-for 15 material to the patents-in-suit. 16
Indeed, the ‟016 patent appears to reference the then-pending ‟732 patent for the purpose of disclosing "[s]uitable reagent solutions." ‟016 patent, Dkt. No. 75 Ex. 2, col. 4:7-9. This is distinct 18 from the disclosure of the Buxton Patent‟s "drop-wise dispensing of reagents into liquid for 19 freezing," which Cepheid considers but-for material to certain claims of the patents-in-suit. Ans. 20 ¶¶ 32-33. Cepheid alleges only that Mr. Bastian "must have known that the same information 21 made [the Buxton Patent] but-for material to the [patents-in-suit]." Id. ¶ 55. If there was any 22 ambiguity after Exergen, Therasense made clear that such "should have known" inferences are 23 insufficient to meet the knowledge requirement for inequitable conduct. 2011 WL 2028255, at 24
*10; see also Exergen, 575 F.3d at 1330 ("[O]ne cannot assume that an individual, who generally 25 knew that a reference existed, also knew of the specific material information contained in that 26 reference.") (emphasis in original). Even if Cepheid‟s allegation that "Mr. Bastian must have read 27 the Buxton patent," Ans. ¶ 52, supports an inference that Mr. Bastian should have been generally 28 aware of the information contained in the Buxton patent, Cepheid‟s allegations as a whole fail to support the reasonable inference that he knew that specific information in the Buxton Patent was 2 but-for material to the patents-in-suit. Accordingly, Cepheid‟s inequitable conduct counterclaim 3 and defenses fail to adequately plead knowledge. 4
"[A] pleading of inequitable conduct under Rule 9(b) must include sufficient allegations of underlying facts from which a court may reasonably infer that a specific individual . . . withheld" 7 material information "with a specific intent to deceive the PTO." Exergen, 575 F.3d at 1328-29 8 (footnote omitted). "[T]he mere fact that an applicant disclosed a reference during prosecution of 9 one application, but did not disclose it during prosecution of a related application, is insufficient to 10 meet the threshold level of deceptive intent required to support an allegation of inequitable conduct." Id. at 1331.
Cepheid‟s amended answer also fails to allege that Mr. Bastian withheld the Buxton Patent 13 reference with the specific intent to deceive the PTO. Cepheid‟s allegations of intent rely on the 14 assumption that Mr. Bastian knew of the information in the Buxton Patent and of its but-for 15 materiality to the patents-in-suit. Ans. ¶ 64. As the Court finds Cepheid‟s allegations of 16 knowledge insufficient, its allegations of specific intent must also fail. Furthermore, Cepheid‟s 17 argument that specific intent may be inferred from the combination of Mr. Bastian‟s knowledge of 18 the Buxton Patent and his "motive to deceive the PTO" based on the alleged but-for materiality of 19 the Buxton Patent, Opp‟n 14, would not meet the requirements of Therasense to the extent that 20
Therasense restricts the Court‟s ability to infer intent based on the materiality of a withheld 21 reference. "[A] district court may not infer intent solely from materiality. Proving that the 22 applicant knew of a reference, should have known of its materiality, and decided not to submit it to 23 the PTO does not prove specific intent to deceive." Therasense, 2011 WL 2028255, at *10. Thus, 24 Cepheid‟s inequitable conduct counterclaim and defenses also fail to adequately plead specific 25 intent and are therefore dismissed. 26
B.The '684 Patent
Cepheid‟s amended answer seeks to invalidate the ‟684 patent based on a theory of infectious unenforceability from inequitable conduct during the prosecution of the ‟732, ‟597, and ‟563 patents. Because the Court finds that Cepheid has not met the pleading standard for 2 inequitable conduct as to the ‟732, ‟597, and ‟563 patents, the inequitable conduct counterclaim 3 and defenses against the ‟684 patent are also dismissed. 4
For the foregoing reasons, the Court GRANTS Abaxis‟s motion to dismiss Cepheid‟s amended inequitable conduct defense. The Court also GRANTS Abaxis‟s motion to dismiss 7 Cepheid‟s inequitable conduct counterclaim and its unclean hands defense, both of which rely on 8 the allegations of the inequitable conduct defense. As Cepheid has already had the opportunity to 9 amend its inequitable conduct counterclaims and defenses twice, the Court does not give Cepheid 10 leave to amend because the deficiency in the pleading cannot be cured by alleging additional facts.
IT IS SO ORDERED.