Sanho Corp. v. Kaijet Tech. Int'l Ltd.

SANHO CORPORATION, Plaintiff, v. KAIJET TECHNOLOGY INTERNATIONAL LIMITED, INC.,and KAIJET TECHNOLOGY INTERNATIONAL CORPORATION, INC.,dba "j5create;" and DOES 1-10, Defendants.

SANHO CORPORATION, Plaintiff, v. KAIJET TECHNOLOGY INTERNATIONAL LIMITED, INC.;

KAIJET TECHNOLOGY INTERNATIONAL CORPORATION;

MAGIC CONTROL TECHNOLOGY; STARVIEW GLOBAL LIMITED,

each doing business as "J5Create;" and DOES 1-10, Defendants.

Civil Action No. 1:18-cv-05385-SDG

Civil Action No. 1:20-cv-02150-SDG [consolidated case]

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION

June 9, 2021

OPINION AND ORDER

This matter is before the Court on Plaintiff Sanho Corporation's (Sanho) motion to dismiss two counterclaims filed by Defendant KaiJet Technology International Limited, Inc. (KaiJet US) [ECF 197] and Defendant Magic Control Technology's (MCT) motion to dismiss [ECF 236]. For the following reasons, Sanho's motion is GRANTED IN PART and DENIED IN PART and MCT's motion is GRANTED.¹

I. Background

This case concerns allegations of patent infringement. On May 25, 2018, Sanho filed its initial Complaint solely against KaiJet US.² On November 14, 2019, Sanho filed its Third Amended Complaint, adding KaiJet Technology International Corporation, Inc. (KaiJet Taiwan) as a named Defendant.³ On May 19, 2020, Sanho filed a separate patent infringement action against KaiJet US, KaiJet Taiwan, MCT, and Starview Global Limited (hereafter, the Consolidated Complaint).⁴ That action was initially assigned to U.S. District Court Judge Timothy C. Batten, Sr.

On August 25, 2020, KaiJet US filed its Answer to the Consolidated Complaint and asserted five counterclaims.⁵ On September 29, Sanho filed theinstant motion to dismiss counterclaim Counts IV and V.⁶ On October 19, Judge Batten granted Sanho's motion to consolidate the two actions before the Undersigned.⁷ KaiJet US filed a response in opposition to Sanho's motion to dismiss counterclaims on November 9 and Sanho filed its reply on November 23.⁸ On February 26, 2021, MCT filed its motion to dismiss the Consolidated Complaint on personal jurisdiction grounds.⁹ Sanho filed a response in opposition to MCT's motion on March 12.¹⁰ MCT filed its reply on March 26.¹¹

II. Sanho's Motion to Dismiss

Sanho requests the dismissal under Federal Rule of Civil Procedure 12(b)(6) of counterclaim Count IV (false marketing under 35 U.S.C. § 292) and Count V (declaratory judgment of unenforceability of U.S. Patent No. 10,572,429 (the '429 Patent)) asserted in KaiJet US's Answer to the Consolidated Complaint.¹²

a. Legal Standard

The Court evaluates a motion to dismiss a counterclaim pursuant to Rule 12(b)(6) in the same manner as a motion to dismiss a complaint. United States v. Zak, 481 F. Supp. 3d 1305, 1307 (N.D. Ga. 2020). Rule 8(a)(2) requires a pleading to contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 12(b)(6) provides for the dismissal of a pleading that fails to state a claim upon which relief can be granted. Fed. R. Civ. P 12(b)(6). "To survive a motion to dismiss, a [pleading] 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 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A claim is facially plausible if "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556).

This pleading standard "does not require detailed factual allegations," but "requires more than unadorned, the-defendant-unlawfully-harmed-me accusations." McCullough v. Finley, 907 F.3d 1324, 1333 (11th Cir. 2018) (quoting Iqbal, 556 U.S. at 678) (brackets omitted). A complaint providing mere "labels and conclusions," "formulaic recitation[s] of the elements of a cause of action," or "naked assertions devoid of further factual enhancement" will notsuffice. Simpson v. Sanderson Farms, Inc., 744 F.3d 702, 708 (11th Cir. 2014) (quoting Iqbal, 556 U.S. at 678). Although the "plausibility standard is not akin to a probability requirement at the pleading stage," it demands "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of the claim." Am. Dental Ass'n v. Cigna Corp., 605 F.3d 1283, 1289 (11th Cir. 2010) (citing Twombly, 550 U.S. at 556).

b. Discussion

i. False Marketing (Counterclaim Count IV)

The federal Patent Act permits a party to file a civil action against an individual or entity that "marks upon, or affixes to, or uses in advertising in connection with any unpatented article, the word 'patent' or any word or number importing that the same is patented, for the purpose of deceiving the public." 35 U.S.C. § 292(a). See also Clontech Lab'ys, Inc. v. Invitrogen Corp., 406 F.3d 1347, 1352 (Fed. Cir. 2005) ("When the statute refers to an 'unpatented article' the statute means that the article in question is not covered by at least one claim of each patent with which the article is marked."). "[T]he two elements of a § 292 false marking claim are (1) marking an unpatented article and (2) intent to deceive the public." Juniper Networks, Inc. v. Shipley, 643 F.3d 1346, 1350 (Fed. Cir. 2011) (quoting Forest Grp. Inc. v. Bon Tool Co., 590 F.3d 1295, 1300 (Fed. Cir. 2009)).

Because a claim for false marketing "requires an intent to deceive the public . . . [such] claims must satisfy the heightened pleading standard of Fed. R. Civ. P. 9(b)." Juniper, 643 F.3d at 1350. To satisfy this standard, a plaintiff must "state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). This requires a plaintiff to "plead in detail the specific who, what, when, where, and how of the alleged fraud . . . [and] set forth more than the neutral facts necessary to identify the transaction." Juniper, 643 F.3d at 1350. "[A]lthough knowledge and intent may be averred generally . . . the pleadings [must] allege sufficient underlying facts from which a court may reasonably infer that a party acted with the requisite state of mind." In re BP Lubricants USA Inc., 637 F.3d 1307, 1311 (Fed. Cir. 2011).

In counterclaim Count IV, KaiJet US alleges Sanho falsely marked the New HyperDrive DUO product with U.S. Patent Nos. D855,616 (the '616 Patent), D813,875 (the '875 Patent), and D844,618 (the '618 Patent). Sanho argues KaiJet US has not sufficiently plead scienter; i.e., Sanho's intent to deceive the public. "Intent to deceive is a state of mind arising when a party acts with sufficient knowledge that what it is saying is not so and consequently that the recipient of its saying will be misled into thinking that the statement is true." Forest Grp., 590 F.3d at 1300. Here, the Court finds KaiJet US has plead sufficient facts that,treated as true, demonstrate Sanho acted with the requisite state of mind. Specifically—and unlike the facts of In re BP Lubricants, 637 F.3d at 1312—KaiJet US makes specific factual allegations that Sanho knew its marketing was false, beyond a "bare assertion" of Sanho's business sophistication and experience in litigating patents. Treating KaiJet US's allegations as true, the Court may infer that Sanho knew the New HyperDrive DUO was not covered by the '616 Patent, '875 Patent, or '618 Patent, yet continued to manufacture and market it as so. That is enough to survive this motion to dismiss. See Homtex, Inc. v. Leggett & Platt, Inc., No. CV-11-S-1349-NE, 2012 WL 10785665, at *7 (N.D. Ala. June 6, 2012); ERBE USA, Inc. v. Byrne Med., Inc., No. 1:11-cv-1480-AT, 2011 WL 13220386, at *4 (N.D. Ga. July 22, 2011).

ii. Declaratory Judgment (Counterclaim Count V)

In counterclaim Count V, KaiJet US asserts the '429 Patent should be invalidated and declared unenforceable due to inequitable conduct committed by the "Applicant." According to KaiJet US, the "Applicant" breached its duty of good faith and candor by intentionally failing to disclose material information to the United States Patent and Trademark Office (USPTO). This material information included prior art in the form of previous sales of the Hyperdrive product and references cited in a related European patent application.

Inequitable conduct is an equitable defense to patent infringement by which an accused infringer asserts that the at-issue patent is unenforceable because of the patentee's representations to the USPTO during prosecution. Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1285 (Fed. Cir. 2011). To succeed, the accused infringer must first "prove that the applicant misrepresented or omitted material information with the specific intent to deceive the [USPTO]," then the "district court must weigh the equities to determine whether the applicant's conduct before the [USPTO] warrants rendering the entire patent unenforceable." Id. at 1287. Given the potential scope of its remedy, the inequitable conduct defense has been characterized as "the atomic bomb of patent law." Id. At the pleading stage, the alleged infringer must plead the defense with particularity under Rule 9(b). Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1327 (Fed. Cir. 2009). According to the Federal Circuit:

[T]o plead the "circumstances" of inequitable conduct with the requisite "particularity" under Rule 9(b), the pleading must identify the specific who, what, when, where, and how of the material misrepresentation or omission committed before the PTO. Moreover, although "knowledge" and "intent" may be averred generally, 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 (1) knew of the withheld material information or of the falsity of the material misrepresentation, and(2) withheld or misrepresented this information with a specific intent to deceive the PTO.

Id. at...