This is part of a series of articles discussing recent orders of interest issued in IP cases by the United States District Courts in the Southeast.
In Hi-Tech Pharmaceuticals, Inc. v. Ironmag Labs LLC, No. 1:22-cv-02446-JPB (N.D. Ga. Sept 10, 2024), Judge Boulee denied the Defendants' motion to dismiss the complaint as a shotgun pleading, denied the Defendants' motion to dismiss the patent infringement claims due to improper venue, but granted Defendants' motion to dismiss the breach-of-contract claims. The court also found that, while Plaintiffs did not sufficiently plead facts to pierce the corporate veil to hold the individual defendant derivatively liable for his company's alleged infringement, the individual defendant could still be held personally liable for patent infringement.
Plaintiff Hi-Tech Pharmaceuticals, Inc., and Defendant IronMag Labs LLC entered into a license agreement that granted IronMag the right to use the patented compounds to make certain covered dietary supplements products related to the body building, diet, and health and fitness industries. The license agreement contained a supply provision, by which IronMag agreed to purchase all ingredients from Hi-Tech and to have the covered products manufactured by Hi-Tech. It also had a royalties provision, through which IronMag agreed to pay continuing royalties for the sale of such covered products. The license agreement also included a forum selection clause that designates the sole venue and jurisdiction in Michigan or Georgia.
Hi-Tech filed suit against IronMag and its owner, CEO, and president, Robert DiMaggio, for breach of contract and patent infringement. Defendants moved to dismiss all claims as an improper shotgun pleading or, in the alternative, to dismiss the patent infringement claims for improper venue under Rule 12(b)(3) and the breach-of-contract claims under Rule 12(b)(6). Defendants also moved to dismiss the claim against DiMaggio.
Shotgun Pleading
The court had previously dismissed Hi-Tech's first two complaints as impermissible shotgun pleadings. Defendants moved to dismiss the Second Amended Complaint with prejudice as failing to cure the shotgun nature of the previous complaints. The court disagreed, finding that the Second Amended Complaint sufficiently attributed the allegedly infringing conduct to both defendants and noting that the details of how alleged infringement happened would be revealed through discovery.
Improper Venue
Defendants argued that the forum selection clause applied only to the license agreement and did not apply to the patent infringement claims and, therefore, the proper venue for the patent claims was Nevada under § 1400(b). The court rejected this argument, finding the scope of the license agreement and the patent infringement questions are "intertwined," such that the patent infringement claims can be said to "arise under" the license agreement. The court found that the license agreement plainly sets out the permitted uses of the patents-in-suit and that the patent infringement claims necessarily raised the question of whether the accused topical creams were covered by the license agreement. Accordingly, the court found the patent infringement claims were in the ambit of the license agreement's forum selection clause. The court also noted that DiMaggio could be bound by the forum selection clause, even if he was a non-signatory, because his rights are directly related to IronMag's dispute.
Breach of Contract Claims
As an initial matter, the court dismissed any claim for breach of contract against DiMaggio because he did not sign the contract, noting that "it is hornbook law that a party who does not sign a contract cannot be held liable for breach of that contract."
The court next dismissed the breach of contract claims against IronMag for allegedly breaching the royalties and supply provisions. Plaintiffs alleged that IronMag breached these provisions by making, using, or selling topical creams without making royalty payments and by failing to use Hi-Tech to manufacture the topical creams. The court found that the license agreement only covered dietary supplements and that the topical creams were clearly not dietary supplements. Accordingly, the court dismissed the breach-of-contract claim because the topical creams were not covered by the license agreement.
Patent Infringement Claims
Lastly, the court found that Hi-Tech did not sufficiently plead facts to pierce the corporate veil to hold DiMaggio derivatively liable under an "alter ego" theory of liability under either Nevada or Georgia law. Reviewing Nevada law, the court found no facts such as unity of interest and ownership, commingling of funds, undercapitalization, unauthorized diversion of funds, failure to observe corporate formalities or treatment of corporate assets as the individuals. Nor did the court found any insufficient corporate assets to satisfy Plaintiffs' claims, as is required under Georgia law. Accordingly, the court found that Plaintiffs may not proceed against DiMaggio on an alter ego theory of liability.
However, the court found that Plaintiffs' patent infringement claims against DiMaggio could proceed based on the allegations regarding DiMaggio's own alleged infringement of the patents-in-suit in his personal capacity. The court explained that "a person is personally liable for his own tortious actions, even if committed as a corporate officer," and the fact that DiMaggio may have acted on behalf of his corporation does not shield him from individual liability. Because Plaintiffs alleged that DiMaggio personally developed, formulated, manufactured, offered to sell or sold, imported and/or distributed the allegedly infringing products, the court found the allegations sufficient to establish that DiMaggio could be held directly liable for his own conduct.
In Aqua EZ, Inc. v. Resh, Inc., No. 1:23-cv-00790 (N.D. Ga. Sept. 10, 2024), Judge Brown granted Plaintiff Aqua EZ's motion for judgment on the pleadings on the issue of pre-issuance patent damages but denied its motion for sanctions.
The case revolves around Defendant Resh's U.S. Patent No. 11,141,852 for swimming pool cleaning poles. Aqua EZ sought a declaratory judgment of non-infringement and invalidity of the patent, while Resh counterclaimed for pre-issuance damages under 35 U.S.C. § 154(d). Aqua EZ moved for judgment on the pleadings as to pre-issuance damages and for sanctions that Resh's claim was objectively frivolous.
The court noted that, generally, patent damages are only recoverable post-issuance, but 35 U.S.C. § 154(d) provides a narrow exception that permits a patentee to recover reasonable royalties from any person, who practices a patent application, with knowledge of the application's publication. But a patent owner may not recover these pre-issuance royalties unless the invention as claimed in the patent is "substantially identical" to the invention as claimed in the published patent application. "Substantially identical" in that context means at least one claim in both the published application and the issued patent have identical scope, regardless of whether the issued patent uses different words than the published application. Comparing the claims of the patent and its published application, the court found that no claims in the published application are substantially identical to any claims in the patent.
Resh did not expressly respond to this argument in its pleadings; however, Resh argued that another application, which did not issue as the patent-at-issue, gave Aqua EZ sufficient notice under § 154(d). In particular, Resh argued that the court should look to the publication of an earlier, priority application to determine if the identicality and notice requirements were met. Dismissing this argument, the court found that the statute's plain language unambiguously refers to one patent application and one patent issuing from that application. Thus, the court found that knowledge under § 154(d) cannot be met using an application that did not directly issue into the patent-at-issue, regardless of the relationship of that other patent or identicalness of their claims. So, the court granted Aqua EZ's motion for judgment on the pleadings on the issue of pre-issuance damages.
Lastly, the court denied Aqua EZ's motion for sanctions because it found that, while a really close call, Resh's argument was not objectively frivolous. First, few courts have examined the bounds of § 154(d), so Resh's arguments about its language cannot be deemed so unreasonable. Second, although Resh had made this claim in a prior case, the Court found that prior case did not address the precise question before the court here and thus that case did not sufficiently inform Resh of the argument's frivolity. Finally, the Court did not find that Resh's claims were made in bad faith. While it declined to impose sanctions, the court put Resh on notice that its argument about the language of § 154(d) is borderline frivolous.
In Electrolysis Prevention Solutions LLC v. Daimler Truck North America LLC, 3:21-cv-00171 (W.D.N.C. Sept. 11, 2024), Judge Conrad denied, among other things, Defendant Daimler Truck North America's (DTNA) motion for summary judgment on Plaintiff Electrolysis Prevention Solutions's (EPS) claimed priority date but granted DTNA's motion for summary judgment on EPS's claim for pre-suit damages.
Priority Date
DTNA contested that EPS did not offer corroborating evidence to support a finding that EPS should be entitled to an earlier priority date. To establish an earlier priority date, EPS had to show evidence of conception and diligent reduction to practice. EPS offered testimony of the inventor's father, ex-wife, and sister to corroborate the inventor's statements regarding the date of conception. While the court noted that other forms of contemporaneous evidence are preferred (e.g., documentary evidence or witnessed lab notebooks), the court found that contemporaneous corroboration is not a requirement and that the key requirement of corroborating evidence is that it does not depend solely on the inventor himself. When taken as a whole, the court found that the testimonial evidence created a genuine issue of material fact that would allow a reasonable juror to find corroboration of an earlier conception date. As for evidence of reduction to practice, EPS provided inventor testimony regarding his development of a prototype and its testing, as well as the inventor's notes and other witness testimony in support of corroboration. While DTNA argued that there was a brief one-month gap between the completion of testing and the creation of the inventor's notes, the court did not deem it fatal for diligence and found that EPS had provided sufficient evidence from which a reasonable jury could find diligent reduction to practice. Thus, because there was sufficient corroborating evidence of conception and diligent reduction to practice to create a genuine issue of material fact, the court denied DTNA's motion for summary judgment regarding EPS's priority date.
Pre-Suit Damages
DTNA argued that EPS was not entitled to pre-suit damages because there was no constructive notice of infringement (i.e., the inventor failed to mark practicing articles under 35 U.S.C. § 287) nor any actual notice of infringement until EPS filed this lawsuit. It was undisputed that the inventor did not mark any of the sold articles prior to the reissuance of the patent at issue. EPS, however, argued that the reissuing of the original patent reset the marking statute as if products were never sold, thus effectively allowing the patent holder to collect pre-suit damages from that point forward. In effect, the failure to mark the sold articles could be alleviated by the reissue proceedings. The court disagreed, finding that the original patent remained in effect during reissue proceedings, so the reissue proceedings would not absolve the patentee from the marking requirements in this case. As the court noted, "Simply put, reissue patents are neither a sword for future litigation nor a shield from ongoing litigation."
The court further found the inventor testimony alone was insufficient to prove that the articles sold prior to reissuance did not practice the patent claims. Instead, EPS had the burden to prove that it complied with the marking statute. Because EPS presented no expert testimony or other evidence from which a jury could conclude that the sold articles did not practice the patented invention, the court granted DTNA's motion for summary judgment barring pre-suit damages.
In Epic Tech, LLC v. Pen-Tech Associates, Inc., No. 1:20-cv-02428-VMC (N.D. Ga. Sept. 23, 2024), Judge Calvert granted Defendant Pen-Tech Associates, Inc.'s motion for summary judgement of invalidity due to ineligible subject matter.
Both parties are in the electronic gaming industry. Plaintiff Epic Tech, LLC accused Pen-Tech's "Derby Dash" product of infringing various claims of Epic Tech's U.S. Patent No. 8,545,317. The '317 patent is generally directed to an electronic sweepstakes system and method that enables a player to play an initial game and a secondary game, where the player becomes eligible to win a prize from the secondary game if the second game is triggered while the player is eligible to win. Pen-Tech argued that the asserted claims were invalid for claiming ineligible subject matter under 35 U.S.C. § 101. The court agreed, finding the '317 Patent invalid under the two-part test articulated in Alice Corp. Pty. Ltd v. CLS Bank International.
Under step one of Alice, the court determined that the claims of the '317 patent were directed to the abstract idea of "playing a game and awarding a bonus game while a player is playing an existing game." Specifically, the court found that the patent is directed to a process—receiving information from a user, receiving information from the system, setting a timer, displaying information, and finally determining next steps based on the information received and the status of the timer—rather than improvements to computer capabilities.
Under step two of Alice, the court determined that Epic Tech's "bonus game" feature could not constitute an inventive concept because other games have employed the same idea of a bonus game within a game long before the priority date of the '317 patent. The court also rejected Epic Tech's argument that their multiplayer interaction was inventive, finding such interactions to be optional under the patent. The court also found persuasive, though not controlling, a similar finding by the U.S. Patent Office during prosecution of a subsequent, related application. As a result, the court granted Pen-Tech's motion for summary judgment for invalidity under 35 U.S.C. § 101.
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