Int'l Bus. Machs. Corp. v. Priceline Grp. Inc.

INTERNATIONAL BUSINESS MACHINES CORPORATION, Plaintiff/Counterclaim-Defendant, v. THE PRICELINE GROUP INC., KAYAK SOFTWARE CORPORATION, OPENTABLE, INC.AND PRICELINE.COM LLC, Defendants/Counterclaim-Plaintiffs.

Civil Action No. 15-137-LPS-CJB

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

April 10, 2017

REPORT AND RECOMMENDATION

Pending before the Court in this patent case is a motion filed pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(f) by Plaintiff/Counterclaim-Defendant International Business Machines Corporation ("IBM"), seeking dismissal of Defendants'/Counterclaim-Plaintiffs' The Priceline Group, Inc., priceline.com LLC (collectively, "Priceline"), Kayak Software Corporation ("Kayak") and OpenTable, Inc.'s ("OpenTable") (collectively, "Defendants") Amended Counterclaims and to strike Defendants' Affirmative Defenses directed to inequitable conduct (the "Motion"). (D.I. 120) For the reasons that follow, the Court recommends that the Motion be GRANTED-IN-PART and DENIED-IN-PART.

I. BACKGROUND

A. Procedural History

This is a patent case arising from IBM's allegations that Defendants infringe IBM's United States Patent Nos. 7,631,346 (the "'346 patent"), 5,961,601 (the "'601 patent"), 5,796,967 (the "'967 patent") and 7,072,849 (the "'849 patent") (collectively, the "Asserted Patents" or the "patents-in-suit"). IBM filed the action on February 9, 2015. (D.I. 1) Chief Judge Leonard P. Stark has referred to the Court for resolution certain types of motions in the case, including the instant Motion. (D.I. 9; D.I. 125; D.I. 126; July 13, 2016 Order)

Defendants each answered IBM's original Complaint on April 13, 2016, and therein each asserted an affirmative defense and counterclaim relating to inequitable conduct. (D.I. 77-80) In response, on May 23, 2016, IBM moved to dismiss those counterclaims and to strike the corresponding affirmative defenses. (D.I. 88) In response to that, Defendants each amended their Answers and Counterclaims on June 16, 2016. (D.I. 103-06)

The Defendants' First Amended Answers and First Amended Counterclaims are nearly identical. Each include a nearly identical Fourteenth Affirmative Defense of Inequitable Conduct as to the '967 patent and the '849 patent ("Fourteenth Affirmative Defense"), as well as a nearly identical Ninth Counterclaim seeking a "Declaratory Judgment of Unenforceability of the '967 and '849 Patents Due to Inequitable Conduct" (the "Ninth Counterclaim"). (Id.; see, e.g., D.I. 103 at ¶¶ 65-66, 95-228)¹

IBM filed the instant Motion on July 5, 2016. (D.I. 120) Briefing on the Motion was complete as of August 1, 2016. (D.I. 149)

B. Defendants' Inequitable Conduct-Related Defenses and Counterclaims

As noted above, the inequitable conduct allegations at issue relate to the '967 patent andthe '849 patent. The '967 patent application was filed on November 26, 1993 and the patent issued on August 18, 1998; the '849 patent application was filed on November 26, 1993 and the patent issued on July 4, 2006. (D.I. 1 at ¶¶ 29, 34; id., ex. A at 1; id., ex. B at 1; D.I. 121 at 5)

In its Complaint, IBM alleges that the inventors of those two patents developed the patented technology as part of IBM's efforts to launch the PRODIGY online service ("Prodigy"), a forerunner to today's Internet, in the late 1980s. (D.I. 1 at ¶ 17) The inventors, as part of their work on Prodigy, developed allegedly novel methods for presenting applications and advertisements in an interactive service that would take advantage of the computing power of each user's personal computer ("PC"), and thereby reduce demand on host servers, such as those used by Prodigy. (Id. at ¶ 18) This technology, patented in the '967 patent and the '849 patents, is alleged to have been utilized in and embodied by Prodigy when it launched in the late 1980s. (Id. at ¶ 19; D.I. 103 at ¶ 105)

In the Ninth Counterclaim,² Defendants explain that the '967 patent and the '849 patent are related patents that are divisions of an application that resulted in a common parent patent: non-asserted United States Patent No. 5,347,632 (the "'632 patent"). (D.I. 103 at ¶¶ 96-97) They allege that the earliest possible priority date that the '967 patent and the '849 patent can claim is July 15, 1988. (Id. at ¶ 98) Thus, they assert, any (1) public use of or (2) commercial offers to sell or (3) printed publications describing the claimed subject matter of those two patents, prior to July 15, 1987 (the "critical date"), would render the claimed subject matter invalid. (Id. at ¶¶98-104)

Defendants allege that the technology that IBM describes as being patented in the '967 patent and the '849 patent (set out above) was initially developed by IBM's Trintex venture, which was an IBM venture with Sears and CBS. (Id. at ¶ 105) They then assert that IBM and Trintex, prior to July 15, 1987,³ aimed to and did: (1) commercialize the Trintex technology through advertising (that is, through commercial offers to perform the processes claimed in the two patents at issue); (2) publicly used and disclosed the Trintex technology in sufficient detail to allow one of ordinary skill in the art make and use the patented invention; and (3) disseminated printed publications that allowed for the same. (Id. at ¶¶ 106-08, 114)

With regard to the commercial offers referenced above, it is alleged that some of them resulted in the actual sale of advertising services. (Id. at ¶ 116) In total, these are said to have amounted to approximately $1.25 million in financial commitments from Trintex's initial advertising clients, made prior to June 15, 1987. (Id. at ¶ 150) Defendants allege that the named inventors of these patents "had knowledge of IBM's pre July 15, 1987 commercialization of Prodigy[,]" but that "Trintex, IBM, the prosecuting attorneys, and the named inventors withheld these commercial offers for sale from the [United States Patent and Trademark Office, or 'PTO'] during the prosecution of the '967 Patent and the '849 Patent and related patents and applications." (Id. at ¶¶ 121-22) More specifically, Defendants' allege that prosecuting attorney Paul Scifo withheld, with the intent to deceive the PTO, information about these financial commitments. (Id. at ¶ 131) As one example of such conduct, it is alleged that Mr. Scifointentionally drafted an October 21, 1994 Information Disclosure Statement ("Disclosure Statement") in such a way as to misleadingly "omit the details of any pre-July [15], 1987 commercialization of Prodigy to advertisers and, instead, focus[] solely on end-user purchases through the Prodigy system that occurred after July [15], 1987." (Id. at ¶ 154)

Defendants also allege that Trintex and IBM published a number of articles (and also made public presentations) describing the technology at issue here, prior to July 15, 1987. The articles will be referred to as the "Trintex NEXIS Articles." (Id. at ¶ 126) It is alleged that these articles were unknown to the PTO until the Board of Patent Appeals and Interferences ("BPAI") independently located certain of them them during the prosecution of the '849 patent. (Id.) Defendants assert that (1) the BPAI recognized that the Trintex NEXIS Articles were material to patentability; (2) after locating the articles, the BPAI rejected numerous pending claims of what became the '849 patent in light of the articles; and (3) had the articles previously been disclosed to the PTO, the '967 patent would not have issued (since the articles anticipated the claimed subject matter of that patent or rendered it obvious). (Id. at ¶ 127) The BPAI thereafter expressed concern not only that the Trintex NEXIS Articles were not previously disclosed, but that their discovery "'raise[s] questions of what else may have been publicly disclosed or on sale that has not been disclosed to the [PTO,]" (id. at ¶ 128), such as "what else was disclosed at the [public] presentations" that are described in those Trintex NEXIS articles, (id. at ¶ 129 (emphasis in original)). In response, it is alleged that IBM replaced its prosecuting attorney, Mr. Scifo, and filed a petition to expunge the BPAI's expressed concerns relating to these articles and public use from the file history. (Id. at ¶ 130)

Defendants also assert that Mr. Scifo withheld other material information during "theprosecution of the '967 Patent, '849 Patent and related patents and applications[.]" (Id. at ¶ 161) For example, they allege that during prosecution of the '967 patent, Mr. Scifo had knowledge of United States Patent No. 4,688,167 ("Agarwal" or the "Agarwal reference"), a prior art reference that was allegedly material to the patentability of the '967 patent. (Id. at ¶¶ 161-63) Mr. Scifo became aware of the Agarwal reference in October 1997, when the examiner of the '849 patent application rejected certain claims in light of Agarwal. (Id. at ¶ 164) But despite having received that rejection several months before the '967 patent issued in 1998, Mr. Scifo did not disclose the Agarwal reference to the PTO during prosecution of the '967 patent. (Id. at ¶ 165)

Additionally, it is alleged that Mr. Scifo "hid office actions rejecting similar claims in co-pending applications from the examiner of the '967 Patent with the intent of deceiving the [PTO]." (Id. at ¶ 167) More specifically, it is explained that the '967 patent and the '849 patent have similar claims, and thus, "information that is material to the patentability of one is material to the patentability of the other." (Id. at ¶ 172) However, the '967 patent and '849 patent applications were "examined by different examiners" at the PTO, and Mr. Scifo did not disclose to the examiner of one application the existence of the other application, and vice versa. (Id. at ¶¶ 171, 176-77, 188) Therefore, for example, Mr. Scifo did not disclose to the examiner of the '967 patent a number of office actions that rejected the '849 patent application's claims, though these office actions (including the one...