Inequitable Conduct Claim Can Proceed Even After the Case Is Over

Holding

In Parallax Grp. Int’l, LLC v. Incstores LLC, No. 8-16-cv-00929, 2022 U.S. Dist. LEXIS 157921 (C.D. Cal., August 16, 2022), the district court judge granted-in-part Parallax’s Motion to Dismiss All Claims and Counterclaims and for Entry of Final Judgment but denied the motion with respect to the inequitable conduct counterclaims, allowing that issue to go forward in the context of an anticipated fees motion.

Background

Parallax sued Incstores for infringement of U.S. Patent Nos. 9,289,085 ("the '085 Patent"), D532,238 ("the D238 Patent"), and D543,764 ("the D764 Patent"), which relate to interlocking foam floor mats. Defendant Incstores filed counterclaims for noninfringement, invalidity, unenforceability based on inequitable conduct (the “inequitable conduct counterclaims”), and an exceptional case finding under 35 U.S.C. § 285 for an award of reasonable attorney’s fees. Parallax, at *1-2.

During the course of this case, Parallax withdrew its infringement claims concerning the D238 Patent (which had recently been cancelled in a reexamination). Id. at *1. The D764 patent was found invalid by the Court. Id. And the ‘085 patent was held unpatentable by the PTAB in a reexamination, which was affirmed in the Federal Circuit. Id. at *2. Since there was nothing left for Parallax’s case, the parties stipulated to dismiss Parallax’s infringement claims with prejudice, and Incstores’ noninfringement and invalidity counterclaims without prejudice as moot. Incstores could seek attorney’s fees via motion. Id. at *3.

The only issue left was whether Incstores is entitled to pursue its inequitable conduct counterclaims. Id. at *3-4. Not only would a finding of inequitable conduct be helpful for Incstores to show an exceptional case, but Incstores pointed out that there are related patents not at issue in this case which Parallax could still try to enforce, and which may be implicated by the inequitable conduct. Id. at *4.

District Court

The Court agreed that Incstores was entitled to have this inequitable conduct issue resolved in support of its anticipated fees motion. Id. at *7. But the Court refused to proceed with new summary judgment motions and a bench trial (if necessary) concerning the inequitable conduct counterclaims, because that would “unnecessarily protract this all-but-concluded litigation.” Id.

The Court dismissed Incstores’ inequitable conduct counterclaims without prejudice as moot, because the PTAB and the Court invalidated the patents at issue. Id. at *6. The Court then invited Incstores to brief its inequitable conduct claim in support of its fees motion and offered an evidentiary hearing for the inequitable conduct claim in connection with the oral argument for the fees motion, which would be no different than a limited bench trial because inequitable conduct presents an equitable issue that would have been tried to the Court anyway. Id. at *7.

Take-aways

Inequitable conduct issues can proceed in the context of a motion for attorney’s fees, even after all the patents are invalidated and the case itself is concluded. As the court pointed out in this decision, case law supports continuing jurisdiction of the court over inequitable conduct allegations:

The Federal Circuit has recognized "that the district court's jurisdiction to rule on [an] attorney fees [motion] encompasse[s] the jurisdiction to make findings of inequitable conduct." Monsanto Co. v. Bayer Bioscience N.V., 514 F.3d 1229, 1242 (Fed. Cir. 2008). The district court's jurisdiction under 35 U.S.C. § 285 "to determine whether there was inequitable conduct in the prosecution of patents that are otherwise no longer in suit confers on that court the jurisdiction to hold such patents unenforceable for inequitable conduct." Id. at 1243.

Parallax, at *5-6.

Thus, for patent practitioners, it is another reminder to try to avoid any inequitable conduct from the very beginning. It can become a haunting problem even after the patent dies. And for those interested in acquiring a patent from a target in a due diligence, it would be good to ferret out any underlying inequitable conduct before a deal is struck.