Kranos Ip Corp. v. Riddell, Inc.

334 F.Supp.3d 907

KRANOS IP CORPORATION, Kranos IP III Corporation, and Kranos Corporation d/b/a Schutt Sports, Plaintiffs,

v.RIDDELL, INC., Defendant.

Case No. 17 C 6802

United States District Court, N.D. Illinois, Eastern Division.

Signed September 12, 2018

Richard Daniel Harris, Benjamin Patrick Gilford, Callie J. Sand, James J. Lukas, Jr., Matthew Joshua Levinstein, Greenberg Traurig LLP, Chicago, IL, Michael Charles Smith, Siebman Burg Phillips & Smith, LLP, Marshall, TX, for Plaintiffs.

Christopher G. Hanewicz, Andrew Thomas Dufresne, Brandon M. Lewis, Gabrielle E. Bina, Rodger K. Carreyn, Perkins Coie LLP, Madison, WI, Daniel Arlen Zazove, Douglas Lawrence Sawyer, Perkin Coie LLP, Chicago, IL, Claire Abernathy Henry, Jack Wesley Hill, Ward, Smith & Hill, PLLC, Longview, TX, for Defendant.

MEMORANDUM OPINION AND ORDER

MATTHEW F. KENNELLY, District Judge:

Kranos IP Corporation, Kranos IP III Corporation, and Kranos Corporation d/b/a Schutt Sports (collectively "Schutt") have sued Riddell, Inc. for patent infringement. Riddell has counterclaimed alleging, in count two, that one of the patents it is accused of infringing is unenforceable due to inequitable conduct during its prosecution. Schutt has moved to dismiss count two of the counterclaim for failure to state a claim. For the reasons stated here, the Court grants Schutt's motion.

Background

In assessing Schutt's motion to dismiss, the Court assumes the truth of the counterclaim's factual allegations but not its legal conclusions. See Smoke Shop, LLC v. United States , 761 F.3d 779, 785 (7th Cir. 2014). The background presented here reflects the Riddell's factual allegations as presented in its counterclaim and brief. See Meade v. Moraine Valley Cmty. Coll. , 770 F.3d 680, 682 (7th Cir. 2014).

Schutt and Riddell are corporations that manufacture and sell protective sports equipment, including football helmets. In June 2017, Schutt filed suit against Riddell in the United States District Court for the Eastern District of Texas alleging infringement of three of its helmet-related patents. Among other allegations, Schutt accused Riddell of manufacturing several helmets that infringed U.S. Patent No. 8,499,366, for a "Helmet with Shell Having Raised Central Channel" (the '366 patent ). The Texas court granted Riddell's motion to transfer the case to this district.

Riddell's second amended answer includes a two-count counterclaim. In count 2, Riddell alleges that the '366 patent is unenforceable due to inequitable conduct by Schutt during its prosecution of claim 14 of the patent. Schutt has moved to dismiss that counterclaim for failure to state a claim. See Fed. R. Civ. P. 12(b)(6).

To understand the counterclaim, it is necessary to briefly recount the prosecution history of claim 14. Before it issued as claim 14 of the '366 patent, the disputed material was claim 16 of U.S. Patent Application No. 13/469,981 (the '981 application).¹ Although the language in the patent is far lengthier and more precise, it is enough to understand at the outset that claim 14 (née 16) describes a football helmet with a "raised central channel" on top, among other features. Schutt's first patent application, including this claim, was denied by the United States Patent and Trademark Office (PTO) as anticipated by U.S. Patent Application Publication No. 2005/0278835 ("Ide"). The examiner determined that the Ide specification "disclosed a football helmet that satisfied every limitation recited in original claim 16, including a top portion having a raised central channel with elongated vented openings on either side." Def.'s Br. in Opp'n to Mot. to Dismiss, dkt. no. 71, at 3.

So Schutt tried again. It filed an amendment that modified the claim "to add a limitation requiring that ‘a front portion of the central channel is at the front edge’ " of the football helmet's shell. Id. (quoting Counterclaim ¶ 20). That is, the raised central channel would now remain raised all the way to the front of the helmet. Schutt believed that this addition sufficiently distinguished its claim from Ide because Ide's raised central channel tapered so that it was flush with the helmet's shell before reaching the helmet's front edge.

The PTO again rejected the application. The examiner concluded that the amended claim was rendered obvious by Ide combined with another patent, U.S. Patent No. 5,732,424 ("Monica"). Monica is another helmet patent, which includes "a raised central portion [ ] that extends to the front edge of the shell." Id. In the patent examiner's view, a person of ordinary skill in the art "would have been motivated to combine Ide and Monica to obtain the helmet recited" in the amended claim. Id. at 4.

Schutt amended its claim once more to include a further limitation. This time, it added that the helmet's "raised central channel defines a depression in the inner side of the shell with respect to the other portions of the inner side of the shell, the depression in the inner side of the shell within the raised central channel containing shock absorbing material." Counterclaim ¶¶ 26-27. In simpler terms, the raised central channel Schutt claimed now corresponded to a concave area on the inside of the helmet filled with padding. Schutt argued that neither Ide nor Monica taught this limitation. The examiner agreed and issued a notice of allowance for the claim.

Riddell alleges that Schutt overcame this final hurdle by unlawful means. Specifically, it alleges that one of its products, the Riddell Revolution helmet, would have (in combination with Monica) rendered claim 14 obvious if it had been disclosed to the PTO examiner. Like Ide, the Revolution helmet includes a raised central channel. In fact, the two are so alike that, the parties agree, Ide "generally depict[s]" the Riddell Revolution helmet. Counterclaim ¶ 51. But critically, Riddell alleges, the Revolution's raised central channel also "defines a depression in the inner side of the shell," a feature not taught by Ide. Def.'s Br. in Opp'n to Mot. to Dismiss, dkt. no. 71, at 5. Moreover, it alleges that the Revolution "includes shock absorbing material (padding) that extends across the depression" and that the padding occupies "the same"—or at least very similar—configuration as products that Schutt contends infringe claim 14. Id.

In sum, the Revolution and claim 14 share (1) a raised central channel; (2) a depression defined by the underside of that channel; and (3) padding arranged in relation to the depression. Riddell concedes that the Revolution's padding "extends across the depression" and "is not contained within the depression," whereas claim 14's padding is contained within the depression. Id. at 5 (emphasis in original). But several of Riddell's products that it alleges have padding arrangements that are "the same" or similar to the Revolution's now stand accused by Schutt of infringing claim 14. Id. Thus, in Riddell's view, Schutt's allegations indicate that the Revolution would have rendered claim 14 obvious in view of Monica.

Riddell accuses four individuals of violating their duties of candor the PTO by failing to bring the Revolution to the patent examiner's attention. Kenneth Nimmons, Larry Maddux, and Ray Drake are named inventors on the '366 patent, and Robert Erb is Schutt's CEO and played an "active, substantive role in the prosecution" of claim 14. Id. at 6. Riddell alleges that each of the four was familiar with the Riddell Revolution— either through competitive testing or examination of the helmet—at the time of the relevant patent prosecution. Id. at 6-7. And each of the four named individuals "stood to benefit from the issuance of the '366 patent." Id. at 7. Finally, Riddell alleges, none of the four brought the Revolution helmet to the attention of the PTO during prosecution of claim 14.

Discussion

The Seventh Circuit's standard for Rule 12(b)(6) motions controls. See Exergen Corp. v. Wal-Mart Stores, Inc. , 575 F.3d 1312, 1318 (Fed. Cir. 2009) (noting that, in inequitable conduct claims, "procedural matter[s are] governed by the law of the regional circuit"). As indicated earlier, at this stage, the Court assumes the truth of a counterclaim's factual allegations but not its legal conclusions. See Smoke Shop, LLC , 761 F.3d at 785. To withstand motion a motion to dismiss, the counterclaim "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation omitted). That is, the claimant "must provide more than mere labels and conclusions or a formulaic recitation of the elements of a cause of action for her complaint to be considered adequate." Bell v. City of Chicago , 835 F.3d 736, 738 (7th Cir. 2016) (internal quotation marks omitted).

Although Seventh Circuit law controls the standard of review, Federal Circuit precedent governs whether the facts alleged amount to inequitable conduct under the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). See Exergen , 575 F.3d at 1326 ("[W]e apply our own law, not the law of the regional circuit, to the question of whether inequitable conduct has been pled with particularity under Rule 9(b)."); Fed. R. Civ. P. 9(b). The Federal Circuit has established a demanding standard for pleading inequitable conduct. It described the doctrine as the "atomic bomb of patent law" due to its draconian effects on patent holders' property rights. Therasense, Inc. v. Becton, Dickinson & Co. , 649 F.3d 1276, 1288-89 (Fed. Cir. 2011) (citation omitted). "[I]nequitable conduct regarding any single claim," the court explained, "renders the entire patent unenforceable" and "may even spread from a single patent to render unenforceable other related patents and applications in the same technology family." Id. at 1288. Courts must therefore scrutinize inequitable conduct claims carefully, "lest inequitable conduct devolve into a magic...