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Fuma International LLC v. R.J. Reynolds Vapor Co.

United States District Court, M.D. North Carolina

July 12, 2019

FUMA INTERNATIONAL LLC, an Ohio limited liability company, Plaintiff,
R.J. REYNOLDS VAPOR COMPANY, a North Carolina corporation, Defendant.



         Plaintiff Fuma International LLC contends that defendant R.J. Reynolds Vapor Company has infringed on its e-cigarette design patent. RJR denies these claims and has filed a counterclaim against Fuma contending, inter alia, that the patent is unenforceable because of inequitable conduct by Fuma and its co-founder, Greg Conley, during the patent application process. Fuma moves to dismiss the counterclaim for failure to state a claim upon which relief can be granted. Because RJR has sufficiently pled inequitable conduct by Mr. Conley for allegedly misrepresenting certain individuals as inventors of Fuma's e-cigarette patents and by Mr. Conley and Fuma's patent counsel for allegedly misrepresenting prior patent applications and prior art to patent examiners, the motion to dismiss the counterclaim is denied to the extent it is based upon these grounds. As to any other claimed inequitable conduct, the motion to dismiss is granted.

         I. Inequitable Conduct

         “Inequitable conduct is an equitable defense to patent infringement that, if proved, bars enforcement of a patent.” Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1285 (Fed. Cir. 2011) (en banc) (summarizing Supreme Court precedent establishing the inequitable conduct defense). “To prevail on a claim of inequitable conduct, the accused infringer must prove that the patentee acted with the specific intent to deceive” the U.S. Patent and Trademark Office. Id. at 1290. Ultimately, the alleged infringer must provide “clear and convincing evidence” that the intent to deceive is “the single most reasonable inference able to be drawn from the evidence” before a court may issue judgment against a patentee based on inequitable conduct. Id. at 1290-91 (internal quotation and citation omitted).

         This evidentiary standard does not apply here at the pleading stage, where the Court must consider whether RJR's allegations are sufficient to survive a motion to dismiss. See Koch Agronomic Servs., L.L.C. v. Eco Agro Res. L.L.C., No. 1:14CV679, 2015 WL 5712640, at *5 n.5 (M.D. N.C. Sept. 29, 2015); CertusView Techs., L.L.C. v. S&N Locating Servs., L.L.C., 107 F.Supp.3d 500, 506 n.2 (E.D. Va. 2015); Prowess, Inc. v. RaySearch Labs., AB, 953 F.Supp.2d 638, 649 n.26 (D. Md. 2013); Cutsforth, Inc. v. LEMM Liquidating Co., No. 12-cv-1200, 2013 WL 2455979, at *4 (D. Minn. June 6, 2013). But a party must plead inequitable conduct with particularity under Rule 9(b) of the Federal Rules of Civil Procedure. See Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1326 (Fed. Cir. 2009).[1]

         To state a claim for inequitable conduct, a party must “identify the specific who, what, when, where, and how of the material misrepresentation or omission.” Id. at 1328. The party claiming inequitable conduct must also state “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 1328-29; accord Delano Farms Co. v. Cal. Table Grape Comm'n, 655 F.3d 1337, 1350 (Fed. Cir. 2011).

         II. The Inventor Issues

         A. Factual Allegations

         According to RJR's counterclaim, [2] in 2009 and 2010 Mr. Conley and Daniel Hillenbrandt filed three patent applications for various components of electronic cigarettes. Doc. 18 at pp. 63-64 ¶¶ 28-30. In all three applications, they listed themselves as the inventors. Id. They allowed two of the applications to expire and abandoned the third in 2014. See Id. at p. 73 ¶ 53; Doc. 18-7.

         In 2011, Mr. Conley, his wife Rebecca Conley, Mr. Hillenbrandt, Michael Mandela, and William Steiger filed a fourth “provisional” patent application for an electronic vaporizer, listing all five individuals as inventors. Doc. 18 at p. 64 ¶ 31. In 2012, they filed a fifth patent application, the “'813 application, ” to supersede this provisional application for the same electronic vaporizer, and this application also listed all five as inventors. Id. Mr. Conley asked Dr. Tomsik, a Fuma contractor who worked on the subject matter claimed in the '813 application, if he wanted to be named as an inventor, but Dr. Tomsik declined. Id. at p. 76 ¶ 58. Eventually, in November 2014, the “'628 patent” issued from the '813 application listing Mr. Conley, Mrs. Conley, Mr. Hillenbrandt, Mr. Mandela, and Mr. Steiger as inventors. Id. at p. 65 ¶ 32; Doc. 18-10.

         In October 2014, shortly before the '628 patent issued, Mr. Conley, Mrs. Conley, Mr. Hillenbrandt, Mr. Mandela, and Mr. Steiger filed another patent application, the “'955 application, ” that was a continuation of the '813 application and that again listed all five as inventors. Doc. 18 at p. 65 ¶ 33. The '955 application resulted in the patent underlying Fuma's claims in this case, the “'604 patent, ” which issued on January 3, 2017. Id. at p. 65 ¶ 34. All five patent applications and the two patents, '604 and '628, concern overlapping subject matter and are therefore part of the same patent “family.” See Id. at p. 60 ¶ 17, p. 64 ¶ 31, p. 66 ¶ 35; Doc. 18-7 (diagram of the '604 patent family).

         In 2014, before any patents had issued and several months before filing the '955 application, a dispute arose over ownership of the '628 patent rights. Doc. 18 at p. 66 ¶ 37. Mr. Steiger sued Fuma and the other listed inventors in Ohio state court seeking, inter alia, a declaration that the '628 patent, and later the '955 application, were owned by the individual defendants in that action instead of Fuma. Id. Fuma and Mr. Conley then filed a declaratory judgment action in the U.S. District Court for the Northern District of Ohio against Mr. Hillenbrandt, Mr. Steiger, and Mr. Mandela seeking a declaration that those individuals were not inventors or owners of any Fuma intellectual property and that Mr. Conley was the sole inventor. Id. at p. 67 ¶ 39.

         During the Ohio proceedings, Mr. Conley testified that none of the other listed inventors had invented the subject matter claimed in the patent applications. Id. at p. 70 ¶ 46, p. 71 ¶ 49. Some of the other listed inventors testified in ways that tended to indicate they were not true inventors. See Id. at pp. 71-72 ¶ 50, p. 73 ¶ 52. The cases eventually settled, with Mr. Hillenbrandt and Mr. Steiger assigning any ownership rights to Fuma in exchange for monetary payments. Id. at pp. 77-78 ¶¶ 61-65. The state court also entered a judgment against Mr. Mandela declaring that he had no rights to Fuma's patents. Id. at p. 78 ¶ 64.

         Neither Fuma nor any of the purported inventors ever specifically informed the Patent Office that there was a dispute about who qualified as inventors of Fuma's patents and none provided the Patent Office with any pleadings or depositions from the Ohio proceedings. Id. at p. 79 ¶ 68. In October 2016, after the Patent Office issued a Notice of Allowance for the '955 application, Fuma did ask the state court to mail a copy of the stipulated entry of settlement to the Patent Office, id. at p. 79 ¶ 67, and a transcript of the August 2016 state court hearing where the bulk of the two Ohio cases were settled and the stipulated entry of settlement signed by the state court Judge and the parties were filed with the Patent Office. Id. at 69 n.4; Doc. 18-16. Neither document includes discussion about the inventorship dispute in detail; they instead show only that the parties resolved the intellectual property rights in and ownership of the patents. See Doc. 18 at p. 79 ΒΆ 68; Doc. 18-16. Fuma and Mr. Conley also filed unsigned ...

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