Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 1 of 18
`
`
`
`
`
`
`
`
`
`
`
`
`
`UNITED STATES DISTRICT COURT
`
`NORTHERN DISTRICT OF CALIFORNIA
`
`DODOCASE VR, INC., et al.,
`
`Plaintiffs,
`
`v.
`
`MERCHSOURCE, LLC, et al.,
`
`Defendants.
`
`Case No. 17-cv-07088-JCS
`
`
`ORDER GRANTING IN PART AND
`DENYING IN PART PLAINTIFFS’
`MOTION TO STRIKE AND DENYING
`PLAINTIFFS’ MOTION FOR
`SANCTIONS
`
`Re: Dkt. Nos. 129, 140
`
`
`
`Plaintiffs Dodocase VR, Inc (“Dodocase”) and DDC Technology, LLC (“DDC”) (together,
`
`“Plaintiffs”) filed a motion to strike Defendants MerchSource LLC (“MerchSource”) and
`
`Threesixty Brands Group LLC’s (“Threesixty”) (together, “Defendants”) amended answer to the
`
`second amended complaint (“SAC”).1 Plaintiffs also filed a motion for sanctions against
`
`Defendants. Having reviewed the parties’ submissions, the Court concludes that these matters are
`
`suitable for decision without a hearing. The Court GRANTS IN PART AND DENIES IN PART
`
`Plaintiffs’ motion to strike. The Court further DENIES Plaintiffs’ motion for sanctions.
`
`I.
`
`
`
`BACKGROUND
`
`On December 13, 2017, Plaintiff Dodocase filed its original complaint seeking declaratory
`
`judgment and injunctive relief. Dkt. No. 1. Plaintiffs filed a second amended complaint on
`
`January 07, 2019. Dkt. No. 98, SAC. Plaintiff Dodocase manufactured accessories for mobile
`
`devices, including virtual reality accessories for smartphones. Id., ¶¶ 10, 11. Plaintiff Dodocase
`
`
`1 As an initial matter, the briefs for both motions often refer to activities by “Defendants,” but
`Defendant ThreeSixty was not a party to the MLA or otherwise involved in the activities or
`alleged activities on which plaintiffs’ claims are based. Likewise, Plaintiff DDC was not a party
`to the MLA when it was executed. This Order often refers to “Defendants” or “Plaintiffs” for
`convenience but recognizes the limited roles of Defendant ThreeSixty and Plaintiff DDC in the
`underlying activities.
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 2 of 18
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`has been awarded multiple patents for its virtual reality accessories, including three patents that
`
`are at issue in this case. Id., ¶ 13. Those three patents are United States Patent No. 9,420,075,
`
`entitled “Virtual Reality Viewer and Input Mechanism,” issued August 16, 2016 (the “‘075
`
`Patent”); United States Patent No. 9,723,117, entitled “Virtual Reality Viewer and Input
`
`Mechanism,” issued on August 1, 2017 (the “‘117 Patent”); and United States Patent No.
`
`9,811,184, entitled “Virtual Reality Viewer and Input Mechanism,” issued on November 7, 2017
`
`(the “‘184 Patent”). Id. The complaint refers to these three patents collectively as the “Dodocase
`
`Patents.” Id.
`
`
`
`MerchSource designs, sources, and distributes a wide-range of consumer goods, including
`
`toys, electronics, and home decor, to large retailers. Id., ¶ 17. MerchSource is wholly owned by
`
`ThreeSixty. Id., ¶ 19. Plaintiff Dodocase alleges that MerchSource sells, manufactures, designs,
`
`and/or imports certain products under the brand name “Sharper Image” that threaten to infringe the
`
`Dodocase Patents. Id., ¶ 20.
`
`
`
`On or about June 16, 2016, MerchSource contacted Plaintiff Dodocase about obtaining a
`
`license to the ‘075 Patent. Id., ¶ 26. Subsequently, on or about October 3, 2016, MerchSource
`
`and Plaintiff Dodocase entered into a Master License Agreement regarding the Dodocase Patents
`
`(“MLA”). Id., ¶ 27. The MLA states that “MerchSource desires to manufacture and sell virtual
`
`reality viewer products having a capacitive touch input mechanism containing the Licensed IP.”
`
`Id., ¶ 23. The MLA also provides that “MerchSource shall not (a) attempt to challenge the
`
`validity or enforceability of the Licensed IP; or (b) directly or indirectly, knowingly assist any
`
`Third Party in an attempt to challenge the validity or enforceability of the Licensed IP except to
`
`comply with any court order or subpoena.” Id., ¶ 79.
`
`
`
`Starting on or about June 9, 2017, MerchSource began contacting Plaintiff Dodocase to
`
`express dissatisfaction with the MLA. Id., ¶ 29. On or about July 10, 2017, MerchSource told
`
`Plaintiff Dodocase that in light of its perception that Plaintiff Dodocase was not enforcing its
`
`intellectual property sufficiently, MerchSource would “have no choice but to impute a zero
`
`percent royalty rate under the [MLA] in order to be similarly advantaged.” Id., ¶ 30. On October
`
`5, 2017, MerchSource sent Plaintiff Dodocase a letter which stated, “We have reviewed the
`
`2
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 3 of 18
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`Licensed Patents, including the allowed claims of U.S. Patent Application Serial No. 15/448,785
`
`[the application for the later-issued ‘184 Patent], and have concluded that all relevant claims are
`
`invalid under 35 U.S.C. § 102 and/or § 103. Accordingly, MerchSource will not be paying
`
`royalties on any products sold hereafter.” Id., ¶ 32. Plaintiffs allege that MerchSource did not
`
`identify any prior art for Plaintiff Dodocase to consider. Id. Plaintiff Dodocase responded that
`
`refusal to pay royalties despite its continued manufacture, use, sale, and/or offer for sale of
`
`products using the Dodocase Patents constituted a breach of the MLA. Id., ¶ 33. One day after
`
`the deadline to cure the breach, on November 17, 2017, MerchSource provided a royalty check
`
`and royalty report. Id., ¶ 36. The royalty report included a statement that “MerchSource considers
`
`the dispute over royalty rate and owed royalties under the Agreement outstanding and not yet
`
`resolved.” Id. Plaintiffs allege that MerchSource made no further suggestion of patent invalidity.
`
`Id. MerchSource has not paid royalties on products sold after October 5, 2017. Id., ¶¶ 52, 66, 92-
`
`94.
`
`
`
`On December 13, 2017, Plaintiff Dodocase filed its original complaint seeking declaratory
`
`judgment and injunctive relief. Id., ¶ 38. On December 22, 2017, Defendants MerchSource LLC
`
`and Threesixty Brands Group LLC (together, “Defendants”) filed a motion for an extension of
`
`time to answer or otherwise respond to the complaint. Id., ¶ 40. In their motion, Defendants
`
`stated that they required more time to investigate the complaint’s allegations, in part due to the
`
`fact that the twenty-one day answer period under Rule 12 included the year-end holidays and
`
`relevant MerchSource personnel and its attorneys had previously scheduled travel, holiday, and
`
`vacation plans during that time. Id. The Court granted Defendants’ request for a twenty-nine day
`
`extension over the objection of Plaintiff. Dkt. Nos. 15 & 18.
`
`On January 12, 2018, counsel for Plaintiff Dodocase and Defendants held a telephone
`
`conference to discuss potential resolution of this case, including renegotiation of the MLA’s
`
`royalty option. Dkt. 98, ¶ 41-45. In anticipation of that meeting, Defendants’ counsel requested
`
`that Plaintiff Dodocase sign a non-disclosure agreement to allow “MerchSource to provide certain
`
`information and documents to DODOcase that are confidential and/or protected by privilege or
`
`attorney work product.” Id., ¶ 42. Plaintiffs allege that it became clear that the “work product”
`
`3
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 4 of 18
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`was alleged prior art. Id. Thus, Plaintiffs allege that Defendants’ sought to “(a) use alleged prior
`
`art to extort a favorable settlement of this action and a running-royalty license to the DODOCASE
`
`Patents while simultaneously (b) shielding said alleged prior art from the public (including their
`
`competitors)” and Plaintiff Dodocase refused to execute the nondisclosure agreement because it
`
`believed that such an agreement would be unethical in light of Plaintiff’s obligations of disclosure
`
`to the Patent Office for continuing applications and in future licensing discussions or litigation
`
`with third parties. Id., ¶ 43.
`
`
`
`Although Plaintiff Dodocase did not sign the non-disclosure agreement, the parties still
`
`held the scheduled meeting but could not, however, reach agreement on resolution. Id., ¶ 45-46.
`
`Defendants stated that they were prepared to file challenges to the Dodocase Patents with the
`
`PTAB. Id., ¶ 46. On January 15, 2018, Defendants identified the three alleged prior art references
`
`for Plaintiff for the first time. Id., ¶ 47. Plaintiff Dodocase reviewed the information and told
`
`Defendants that it did not think the alleged prior art supported their claim of invalidity. Id., ¶ 48.
`
`
`
`Defendants then filed three separate PTAB Petitions, challenging each of the three
`
`Dodocase Patents, on January 15, 2018. Id., ¶ 54. The PTAB Petitions rely on the same three
`
`“primary references”: (1) U.S. Patent Publication No. 2013/0141360, which issued as U.S. Patent
`
`9,423,827 (“Compton”); (2) a comment posted on a blog entitled, “Why Google Cardboard is
`
`Actually a Huge Boost for Virtual Reality” (“Gigaom”); and (3) a YouTube video entitled, “Use
`
`Google Cardboard without Magentometer (Enabling Magnetic Ring Support to Every Device)”
`
`(“Tech#”). Id., ¶ 55.
`
`
`
`On February 2, 2018, Defendants answered the complaint and filed a counterclaim against
`
`Plaintiff Dodocase. Dkt. No. 22, Counterclaim. The counterclaim sought declaratory judgment
`
`that each of the three Dodocase Patents is invalid for at least the reasons set forth in the PTAB
`
`Petitions. Id., Counterclaim, ¶¶ 6-26.
`
`
`
`As a result of the failed negotiations, the PTAB Petitions, and Defendant MerchSource’s
`
`failure to make their royalty payment for the fourth quarter of 2017, Plaintiff terminated the MLA
`
`on February 14, 2018. Dkt. No. 98, SAC, ¶¶ 52-53. Section 3.6 of the MLA further provides:
`
`“Upon termination of this Agreement, MerchSource shall have no further obligation to pay any
`
`4
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 5 of 18
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`fees to Licensor under this Article 3, except for royalties owed under this Section 3 and for the
`
`sale of Licensed Products during the Sell-Off Period, as applicable.” Id., ¶ 78. Section 8.1.6 of
`
`the MLA provides: “Upon termination of any Term Sheet or this Agreement for any reason,
`
`MerchSource shall be entitled, for eighteen (18) months (the “Sell-Off Period”) after termination,
`
`to continue to sell any Licensed Product, that is the subject of a purchase order, is in transit to a
`
`customer or MerchSource, or is in inventory with MerchSource at the time of termination. Such
`
`sales shall be made subject to all the provisions of the Agreement and any respective Term Sheet,
`
`including the payment of royalties which shall be due quarterly until the close of the Sell-Off
`
`Period.” Id., ¶ 83.
`
`On March 23, 2018, the Court granted Plaintiff Dodocase’s motion for preliminary
`
`injunction and ordered Defendants to request a withdrawal of the PTAB Petitions. Dkt. No. 47.
`
`Defendants appealed the Court’s order. On July 12, 2018, the Court ordered a stay in this case
`
`until the PTAB proceedings ended.
`
`On October 16, 2018, DODOCASE transferred to DDC all right, title and interest in and to
`
`the DODOCASE Patents, including all causes of action and enforcement rights for past, current
`
`and future infringement of the DODOCASE Patents. Dkt. No. 98, SAC, ¶ 6. On January 7, 2019,
`
`Plaintiffs filed their second amended complaint.
`
`
`
`On April 22, 2019, the Court of Appeal affirmed this Court’s order granting Plaintiff
`
`Dodocase’s motion for preliminary injunction. Dkt. No. 103, 104. The petition for panel
`
`rehearing was denied on July 10, 2019. Dkt. No. 113. On July 17, 2019, the Court ordered
`
`Defendants to withdraw their PTAB Petitions. Dkt. No. 115. The PTAB terminated the
`
`proceedings on August 16, 2019. Dkt. No. 119.
`
`On September 25, 2019, at the request of the parties, the Court ordered the parties to file
`
`motions regarding: (1) When MerchSource provided sufficient Lear notice; and (2) Whether a
`
`sufficient Lear notice applies during the Sell-Off period under the MLA. The Court also lifted the
`
`stay.
`
`On October 29, 2019, Defendants filed their amended answer to Plaintiffs’ second
`
`amended complaint. On November 12, 2019, Plaintiffs filed a motion to strike Defendants’
`
`5
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 6 of 18
`
`
`
`amended answer to the second amended complaint. On December 2, 2019, Plaintiffs filed a
`
`motion for rule 11 sanctions.
`
`II.
`
`LEGAL STANDARD
`
`A. Motion to Strike
`
`A party must “affirmatively state any avoidance or affirmative defense.” Fed. R. Civ. P.
`
`8(c). Under Rule 12(f) of the Federal Rules of Civil Procedure, the court may strike from any
`
`pleading “any insufficient defense or any redundant, immaterial, impertinent or scandalous
`
`matter.” “The key to determining the sufficiency of pleading an affirmative defense is whether it
`
`gives plaintiff fair notice of the defense.” Wyshak v. City Nat'l Bank, 607 F.2d 824, 827 (9th
`
`Cir.1979). While the Ninth Circuit has not directly addressed the issue, courts in this district have
`
`held that the heighten pleading standard of Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)
`
`and Ashcroft v. Iqbal, 556 U.S. 662 (2009), which followed Wyshak, applies to affirmative
`
`defenses. See, e.g., Pertz v. Heartland Realty Inv'rs, Inc., No. 19-CV-06330-CRB, 2020 WL
`
`95636, at *1 (N.D. Cal. Jan. 8, 2020); Synopsys, Inc. v. Ubiquiti Networks, Inc., No. 17-CV-
`
`00561-WHO, 2017 WL 3485881, at *18 (N.D. Cal. Aug. 15, 2017). Thus, affirmative defenses
`
`must contain sufficient factual matter to state a defense “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, 570 (2007)).
`
`An affirmative defense absolves a defendant of liability “even where the plaintiff has
`
`stated a prima facie case for recovery.” Quintana v. Baca, 233 F.R.D. 562, 564 (C.D. Cal. 2005).
`
`An attack on plaintiff's case-in-chief is not an affirmative defense; it is a negative defense.
`
`Zivkovic v. S. Cal. Edison Co., 302 F.3d 1080, 1088 (9th Cir. 2002). Negative defenses that are
`
`pled as affirmative defenses are generally found to be immaterial and are subject to a motion to
`
`strike under Rule 12(f). Barnes v. AT & T Pension Ben. Plan-Nonbargained Program, 718 F.
`
`Supp. 2d 1167, 1174 (N.D. Cal. 2010). However, motions to strike a defense as insufficient are
`
`disfavored and they “will not be granted if the insufficiency of the defense is not clearly apparent.”
`
`G & G Closed Circuit Events, LLC v. Nguyen, 2010 WL 3749284 at * 1 (N.D. Cal., Sept.23,
`
`2010) citing 5C Wright & Miller § 1381, at 428; accord William Z. Salcer, Panfeld, Edelman v.
`
`Envicon Equities Corp., 744 F.2d 935, 939 (2d Cir.1984), vacated on other grounds, 478 U.S.
`
`6
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 7 of 18
`
`
`
`1015, 106 (1986).
`
`B. Motion for Rule 11 Sanctions
`
`Rule 11 of the Federal Rules of Civil Procedure states, in relevant part, as follows:
`
`(b) Representations to the Court. By presenting to the court a pleading, written motion, or
`other paper--whether by signing, filing, submitting, or later advocating it--an attorney or
`unrepresented party certifies that to the best of the person's knowledge, information, and
`belief, formed after an inquiry reasonable under the circumstances:
`
`(1) it is not being presented for any improper purpose, such as to harass, cause
`unnecessary delay, or needlessly increase the cost of litigation;
`
`(2) the claims, defenses, and other legal contentions are warranted by existing law
`or by a nonfrivolous argument for extending, modifying, or reversing existing law
`or for establishing new law;
`
`(3) the factual contentions have evidentiary support or, if specifically so identified,
`will likely have evidentiary support after a reasonable opportunity for further
`investigation or discovery; and
`
`(4) the denials of factual contentions are warranted on the evidence or, if
`specifically so identified, are reasonably based on belief or a lack of information.
`
`Fed. R. Civ. P. 11(b). Rule 11 further provides that the court may impose sanctions upon
`
`attorneys or parties “[i]f, after notice and a reasonable opportunity to respond, the court determines
`
`that Rule 11(b) has been violated....” Sanctions are appropriate: “where a litigant makes a
`
`‘frivolous filing,’ that is, where he files a pleading or other paper which no competent attorney
`
`could believe was well grounded in fact and warranted by law; and where a litigant files a
`
`pleading or other paper for an ‘improper purpose,’ such as personal or economic harassment.”
`
`Greenberg v. Sala, 822 F.2d 882, 885 (9th Cir. 1987). “Rule 11 sanctions shall be assessed if the
`
`paper filed in the district court and signed by an attorney … is frivolous, legally unreasonable, or
`
`without factual foundation, even though the paper was not filed in subjective bad faith.” Zaldivar
`
`v. City of Los Angeles, 780 F.2d 823, 831 (9th Cir. 1986), abrogated on other grounds, Cooter &
`
`Gell v Hartmarx Corp., 496 U.S. 384 (1990).
`
`When evaluating whether sanctions should be imposed under Rule 11, courts conduct “a
`
`two-prong inquiry to determine (1) whether the complaint is legally or factually baseless from an
`
`objective perspective, and (2) if the attorney has conducted a reasonable and competent inquiry
`
`7
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 8 of 18
`
`
`
`before signing and filing it.” Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir. 2005) (internal
`
`citation omitted). The standard is not a high one—an allegation that has “some plausible basis,
`
`[even] a weak one,” is sufficient to avoid sanctions under Rule 11. United Nat. Ins. Co. v. R & D
`
`Latex Corp., 242 F.3d 1102, 1117 (9th Cir. 2001).
`
`“A Rule 11 motion for sanctions is not an appropriate substitute for summary judgment
`
`proceedings. The Advisory Committee Notes for Rule 11 explain that ‘Rule 11 motions ... should
`
`not be employed ... to test the sufficiency or efficacy of allegations in the pleadings; other motions
`
`are available for those purposes.’” GN Resound A/S v. Callpod, Inc., No. C 11-04673 SBA, 2013
`
`WL 5443046, at *4 (N.D. Cal. Sept. 30, 2013) (internal citation omitted). “[T]he imposition of a
`
`Rule 11 sanction is not a judgment on the merits of an action. Rather, it requires the determination
`
`of a collateral issue: whether the attorney has abused the judicial process.” Cooter & Gell v.
`
`Hartmarx Corp., 496 U.S. 384, 396 (1990).
`
`III. DISCUSSION
`
`A. Motion to Strike
`
`Plaintiffs move to strike Defendants’ “additional” defenses numbers 1 (no infringement), 3
`
`(prosecution history estoppel), 4 (limitation on damages), 5 (no costs), 8 (venue), 11 (unclean
`
`hands), and 12 (patent misuse) on the grounds that these defenses are deficient as a matter of law
`
`for failure to comply with the pleading standard. Defendants allege that five of the seven
`
`challenged defenses are not affirmative defenses but rather negative defenses and, as such, do not
`
`need to meet the heighten pleading requirement articulated in Twombly and Iqbal. As an initial
`
`matter, the Court finds that each of the defenses relates to issues that will necessarily be litigated
`
`for the merits of the case. These defenses, while boilerplate, are standard defenses.
`
`1.
`
`First “Additional” Defense (No Infringement)
`
`Defendants’ first “additional” defense alleges that Defendants “have not infringed nor
`
`caused to be infringed, either literally or under the doctrine of equivalents, any valid and asserted
`
`claim of the ‘075 Patent, the ‘117 Patent, or the ‘184 Patent.” Dkt. No. 126 at 14. This constitutes
`
`an attack on Plaintiffs’ case-in-chief and is not an affirmative defense.
`
`8
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 9 of 18
`
`
`
`2.
`
`Third “Additional” Defense (Prosecution History Estoppel)
`
`Defendants’ third “additional” defense, prosecution history estoppel, may act to estop an
`
`equivalence argument under the doctrine of equivalents. The Federal Circuit did not rule on
`
`whether prosecution history estoppel is an affirmative or a negative defense in a case where it
`
`determined that the argument was sufficiently pled and therefore not waived. Pacific Coast
`
`Marine Windshields, Ltd. v. Malibu Boats, LLC., 739 F.3d 694, 701 n.4 (Fed. Cir. 2014). For the
`
`purposes of this action, since the SAC did not specify whether or not it would assert infringement
`
`under the doctrine of equivalents, the Court determines that the Defendants’ prosecution history
`
`estoppel defense is sufficiently pled in abundance of caution.
`
`3.
`
`Fourth and Fifth “Additional” Defenses (Limitation on Damages and
`No Costs)
`
`Defendants’ fourth (limitation on damages based on 35 U.S.C. § 287) and fifth (no costs
`
`based on 35 U.S.C. § 288) “additional” defenses are generally limitations on damages rather than
`
`statutory defenses. See, e.g., Bradford Co. v. Jefferson Smurfit Corp., No. 2000-1511, 2001 WL
`
`35738792, at *9 (Fed. Cir. Oct. 31, 2001). However, district courts, including this Court,
`
`generally permit defendants to employ these sections as affirmative defenses in an answer. See,
`
`e.g., Vistan Corp. v. Fadei USA, Inc., No. C-10-4862 JCS, 2011 WL 1544796, at *1 (N.D. Cal.
`
`Apr. 25, 2011) (listing “failure to properly mark ... pursuant to 35 U.S.C. § 287” as an affirmative
`
`defense); In re Katz Interactive Call Processing Patent Litigation, 821 F. Supp. 2d 1135, 1158
`
`(C.D. Cal. 2011) (“In its answer, [the defendant] argued that [the plaintiff] failed to comply with
`
`35 U.S.C. § 287(a) and is therefore barred from recovering any pre-suit damages.”); Sun
`
`Microsystems, Inc. v. Versata Enterprises, Inc., 630 F. Supp. 2d 395, 412 (D. Del. 2009) (finding
`
`that allowing defenses based on these sections would not unfairly prejudice the plaintiff.)
`
`Although Defendants may have not been required to assert their sections 287 and 288 arguments
`
`in their amended answer as affirmative defenses, the Court finds that these arguments were
`
`properly asserted.
`
`4.
`
`Eighth “Additional” Defense (Venue)
`
`Plaintiffs claim that Defendants have waived their eighth “additional” defense regarding
`
`venue because Defendants did not raise it in their initial answer. However, the SAC added new
`
`9
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 10 of 18
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`claims, parties, allegations, and facts. These additions may have created new venue issues. Courts
`
`have found that when a party asserts a defense under Rule 12(h)(1), such as venue, that party is not
`
`required to point to “identifiable facts” because the “only allegation material to a Rule 12(h)(1)
`
`defense is that the defense exists.” Ear v. Empire Collection Authorities, Inc., No. 12-1695-SC,
`
`2012 WL 3249514, at *2 (N.D. Cal. Aug. 7, 2012). However, other Courts have considered
`
`whether an answer contains sufficient facts regarding the nature of a venue defense. See, e.g.,
`
`Desert European Motorcars, Ltd. v. Desert European Motorcars, Inc., No. EDCV 11-197 RSWL,
`
`2011 WL 3809933, at *10 (C.D. Cal. Aug. 25, 2011). Defendants assert that their denial of the
`
`factual allegations contained in paragraph 25 of the SAC directed to venue is sufficient. Without
`
`deciding whether the challenge to venue has been waived, the Court agrees.
`
`5.
`
`Eleventh “Additional” Defense (Unclean Hands)
`
`While the paragraph that discusses Defendants’ unclean hands defense lacks sufficient
`
`facts, Defendants have alleged that Plaintiffs acted inequitably, fraudulently, and deceptively
`
`elsewhere in the answer. See Dkt. No. 126 at 17 (Fifteenth and Sixteenth Additional Defenses).
`
`Defendants allege that Plaintiff Dodocase failed to disclosure certain information when the parties
`
`executed the MLA and, had Defendant MechSource known the true facts, it would not have
`
`executed the MLA. Further, Defendants allege that Plaintiff Dodocase and Mr. Buckley were
`
`aware of information that was material to the patentability of Plaintiffs’ claims but failed to
`
`disclose this information to the Examiner, which would have precluded issuance of the claims.
`
`This is sufficient.
`
`6.
`
`Twelfth “Additional” Defense (Patent Misuse)
`
`Patent misuse prevents a patent holder from exploiting its patent to “acquire a monopoly
`
`not embraced in the patent.” Princo Corp. v. Int'l Trade Comm'n, 616 F.3d 1318, 1327 (Fed. Cir.
`
`2010) (quoting Transparent–Wrap Mach. Corp. v. Stokes & Smith Co., 329 U.S. 637, 643 (1947)).
`
`An alleged infringer can successfully raise patent misuse as an affirmative defense by showing
`
`“that the patentee has impermissibly broadened the ‘physical or temporal scope’ of the patent
`
`grant with anticompetitive effect.” Windsurfing Int'l Inc. v. AMF, Inc., 782 F.2d 995, 1001 (Fed.
`
`Cir. 1986) (quoting Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 343 (1971)).
`
`10
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 11 of 18
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`For example, a “patentee's use of a royalty agreement that projects beyond the expiration date of
`
`the patent is unlawful per se.” Brulotte v. Thys Co., 379 U.S. 29, 32 (1964).
`
`Here, Defendants’ twelfth additional defense alleges that Plaintiffs’ claims are barred by
`
`the doctrine of patent misuse, in part, because of Plaintiffs’ demand for royalties under the MLA
`
`for 18 months after the Asserted Patents have expired, lapsed, are invalid, or unenforceable.
`
`Defendants’ patent misuse defense is sufficiently pled.
`
`B. Motion for Sanctions
`
`Turning to Plaintiffs’ motion for sanctions, Plaintiffs contend that Defendants’ denials are
`
`particularly concerning “given that (a) the Second Amended Complaint was filed in January 2019,
`
`(b) the substantially-similar original complaint was filed in December 2017, (c) Defendants have
`
`already once amended their answers after Plaintiffs’ notice of violations, and (d) many of the
`
`allegations involve the conduct/communications of counsel that signed the pleading.” Dkt. No.
`
`140 at 4. Plaintiffs argue that Defendants’ denials are an abuse of the judicial process because
`
`they have deprived Plaintiffs of the procedural tool of Rule 12(c). Dkt. No. 141 at 2. Plaintiffs
`
`state that their Rule 11 concerns were raised with Defendants to enable Plaintiffs to “comply with
`
`the agreement of the Parties (and Order of this Court) to file cross motions regarding contract
`
`liability and the Lear issue.” Id. at 3. Plaintiffs argue that if Defendants had amended their
`
`pleadings to conform their answers to the alleged evidence in their possession, Plaintiffs could
`
`have filed a cross-motion for judgment on the pleadings. Id. Plaintiffs complain that the Parties
`
`may need to engage in further motion practice. Furthermore, Plaintiffs state that the allegations in
`
`Plaintiffs’ motion for sanctions (and Defendants’ denials thereto) are relevant and set forth as
`
`material facts in Plaintiffs’ opposition to Defendants’ Lear motion. Defendants argue that
`
`Plaintiffs’ motion is an effort to short-circuit discovery and avoid proper procedures by asking the
`
`Court, under the guise of Rule 11, to adjudicate factual issues based on Plaintiffs’ “evidence” and
`
`arguments. Dkt. No. 139 at 1. Defendants argue that Plaintiffs have conducted no discovery on
`
`the challenged allegations and that Plaintiffs urge the Court to simply disregard the possibility of
`
`any contrary evidence or argument that Defendants might present in this action
`
`As an initial matter, this Court’s order regarding the cross-motions was limited to very
`
`11
`
`Northern District of California
`
`United States District Court
`
`

`

`Case 3:17-cv-07088-AGT Document 142 Filed 01/22/20 Page 12 of 18
`
`
`
`1
`
`2
`
`3
`
`4
`
`5
`
`6
`
`7
`
`8
`
`9
`
`10
`
`11
`
`12
`
`13
`
`14
`
`15
`
`16
`
`17
`
`18
`
`19
`
`20
`
`21
`
`22
`
`23
`
`24
`
`25
`
`26
`
`27
`
`28
`
`specific questions regarding: 1) when Defendants provided sufficient Lear notice, and 2) whether a
`
`sufficient Lear notice applies during the Sell-Off period of the MLA, as outlined in the parties’
`
`joint motion to lift the stay. Dkt. Nos. 122, 123. The cross-motions contemplated by the order
`
`were not regarding contract liability generally. Furthermore, in deciding Defendants’ Lear
`
`motion, all allegations of fact in the complaint will be taken as true and construed in the light most
`
`favorable to Plaintiffs. McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988).
`
`1.
`
`Allegations of paragraph 32
`
`In paragraph 32 of the SAC, Plaintiffs allege in part that:
`
`MerchSource did not identify any prior art for DODOCASE to consider and,
`despite multiple opportunities and requests to do so, Defendants did not identify
`any prior art until January 15, 2018. Instead, Defendants continued attempts to
`renegotiate the MLA to a lower royalty rate (including discussions about extending
`the term of the MLA to the life of the DODOCASE Patents), while still marking
`their products with the ‘075 Patent.
`
`Although not within the denial for that particular paragraph, Defendants admit in their
`
`amended answer that specific prior art references were not identified until January 15, 2018. Dkt.
`
`No. 126, ¶ 47. As to the remainder of the allegation, Defendants disagree with Plaintiffs’
`
`characterization of the events because Defendants claim it was Plaintiffs that did not want to
`
`receive the alleged prior art while settlement discussions were ongoing to avoid having to report
`
`that prior art to the PTO in Plaintiff Dodocase’s related pending patent application.
`
`Plaintiffs attached a letter where Defendants’ counsel is purported to be renegotiating the
`
`MLA. However, Defendants argue that Plaintiffs’ allegation “implies that (i) defendants preferred
`
`or desired the MLA to be effective, (ii) that a lower royalty rate was the only relevant term, (iii)
`
`that identification of the prior art was linked to renegotiating the MLA, and (iv) that the settlement
`
`discussions were a ‘continuation’ of earlier discussions.” Dkt. No. 139 at 5-6. Defendants state
`
`that they do not agree with any of these presumptions and inferences. Finally, the parties disagree
`
`on Plaintiffs’ use of the word “marking” and “products” in this allegation.
`
`
`
`Here, Plaintiffs’ allegations in the SAC could be construed as making legal conclusions or
`
`assertions or ascribi