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Unique Industries, Inc v. Alberta Ltd

February 17, 2011

UNIQUE INDUSTRIES, INC., PLAINTIFF,
v.
ALBERTA LTD., DEFENDANT.



The opinion of the court was delivered by: Ricardo M. Urbina United States District Judge

: Re Document Nos.: 38, 39, 40, 41, 42, 50 965207

MEMORANDUM OPINION

RE-OPENING DISCOVERY FOR A PERIOD OF NINETY DAYS;SANCTIONING PLAINTIFF'S COUNSEL FOR FAILING TO COMPLY WITH THE COURT'S SCHEDULING ORDERS;DENYING WITHOUT PREJUDICE THE PARTIES'CROSS-MOTIONS FOR SUMMARY JUDGMENT; DENYING THE PLAINTIFF'S MOTION FOR LEAVE TO AMEND

I. INTRODUCTION

The defendant is the holder of two design patents for numerical and star-shaped sparklers, a type of firework that throws off sparks when lit. The plaintiff, a company that also produces numerical and star-shaped sparklers, commenced this action seeking a declaratory judgment that its products do not infringe on the defendant's design patents. The plaintiff also challenges the validity of the defendant's patents. The defendant maintains that its patents are valid and has asserted counterclaims against the plaintiff for patent infringement.

This matter is now before the court on the parties' cross-motions for summary judgment. The defendant has filed motions for summary judgment that its design patents are not invalid, that the plaintiff's products infringe on those patents and that the plaintiff's infringement has been willful. The plaintiff, in turn, has moved for summary judgment that its products are non-infringing. In addition, the plaintiff has moved to amend its pleadings to supplement the factual allegations underlying its affirmative defenses, to raise new affirmative defenses and a new claim and to add new defendants to the suit.

In its submissions, the plaintiff relies on evidence of prior art that was not disclosed to the defendant until after the close of discovery. As discussed below, the plaintiff's failure to disclose this evidence before the discovery deadline -- indeed, on the eve of the deadline for filing motions for summary judgment -- indicates at best an utter lack of diligence and at worst bad faith. This conduct constitutes a clear violation of this court's scheduling orders. It also prejudices the defendant, which was deprived an opportunity to investigate or properly address this new evidence before preparing its final contentions and motions for summary judgment. Most troubling, however, is the fact that this new evidence may prove to be very relevant to the validity of the patents at issue.

Because of the public interest in assessing the validity of the patents, as well as the availability of less drastic measures to mitigate the prejudice to the defendant, the court shall not disregard this evidence, as the defendant suggests. Instead, the court shall re-open discovery for a period of ninety days to permit the defendant an opportunity to investigate the evidence of prior art disclosed after the discovery deadline. As a result, the court denies without prejudice the parties' cross-motions for summary judgment with leave to renew those motions following the close of this period of additional discovery. To mitigate the resulting prejudice to the defendant, the court orders plaintiff's counsel to pay the reasonable attorney's fees and costs incurred by the defendant as a result of the plaintiff's failure to comply with the court's orders. Lastly, the court denies the plaintiff's motion for leave to amend on the grounds of undue delay and unfair prejudice.

Def.'s Mot. for Claim Construction, Ex. B ('164 Patent).

In June 2008, the plaintiff commenced this action seeking a declaratory judgment that its line of sparklers does not infringe on the defendant's design patents. See generally Compl. In September 2008, the defendant responded to the complaint by asserting counterclaims of patent infringement. See generally Countercl. The plaintiff answered the counterclaims in October 2008, denying the defendant's allegations of patent infringement and asserting a variety of affirmative defenses, including patent invalidity and inequitable conduct. See generally Answer to Countercl.; Am. Answer to Countercl.

At the initial status hearing held in early November 2008, the court established deadlines for the exchange of expert reports, final contentions and the close of discovery. Minute Entry (Nov. 3, 2008). These deadlines were based largely on dates proposed by the parties in the joint report they submitted prior to the hearing. See generally Joint 16.3 Scheduling Report (Oct. 27, 2008). The court ordered that discovery on liability would close on January 26, 2010, with the case on damages to follow the resolution of motions for summary judgment on the issue liability. Id.

In July 2009, the court granted the defendant's motion to dismiss the plaintiff's defense of inequitable conduct because that claim was not pleaded with sufficient particularity.*fn1 Mem. Op. (July 22, 2009) at 3-8. In the same ruling, the court resolved the parties' cross-motions for claim construction. Id. at 8-17. The court construed the '207 Patent and the '164 Patent in the following manner:

The '207 Patent is construed as the ornamental design of a set of sparklers, as shown in Figures 1-5 of the patent. The patented design includes all of the sparklers illustrated in the drawings, including the number-shaped sparklers and the "?"-shaped sparkler. The term "set" encompasses sparklers that belong or are used together, regardless of whether they are packaged or sold together or separately.

The '164 Patent is construed as the ornamental design of a star-shaped sparkler, as shown in Figures 1-4 of the patent.

Id. at 16-17.

On January 20, 2010, the court granted the parties' joint motion to extend the January 26 discovery deadline set during the initial status hearing. Minute Order (Jan. 20, 2010). The court ordered the parties to complete discovery on liability by March 26, 2010, exchange final contentions by April 12, 2010 and file any motions for summary judgment by April 27, 2010. Id.

The parties exchanged final contentions as directed on April 12, 2010. In its final contentions, the plaintiff asserted that the inventor listed for the '207 Patent and the '164 Patent -- Alok Sharma, a principal of the defendant -- had appropriated the designs for these patents from numerical and star-shaped sparklers manufactured by a Czech company, Drutep Teplice ("Drutep"), years before Sharma applied for his patents. See Def.'s Mot. for Summ. J. on Validity of the Design Patents ("Def.'s Validity Mot."), Ex. 7 at 1-3. The plaintiff also identified a number of companies and individuals who would verify that the sparklers in the designs patented by the defendant had been commercially available in Europe, China and Australia before Sharma applied for his patents. Id. Furthermore, the plaintiff attached to its final contentions a series of photographs purporting to illustrate these earlier-available sparklers. Id. at 8-15.

None of this evidence regarding prior art had been disclosed to the defendant before discovery closed. Def.'s Validity Mot., Ex. 9. The defendant objected to the inclusion of this new material in the plaintiff's final contentions and initiated a conference call with the undersigned judge's law clerk on April 15, 2010 to relay its concerns to the court. Id. During the call, the parties reached an agreement that would permit them to keep the previously-imposed litigation schedule, which called for the submission of motions for summary judgment by April 27, 2010. See Minute Order (Jan. 20, 2010). Specifically, the parties agreed that the plaintiff would not use any evidence disclosed after the discovery deadline at the summary judgment stage and the defendant would not move for sanctions at that time. Def.'s Validity Mot., Ex. 10.

Accordingly, on April 27, 2010, the defendant moved for summary judgment that its design patents are not invalid. See generally Def.'s Validity Mot. In addition, the defendant moved for summary judgment on the issue of infringement. See generally Def.'s Mot. for Summ. J. that the Pl.'s Star Sparklers Infringe Patent D451,164; Def.'s Mot. for Summ. J. that the Pl.'s Numerical Sparklers Infringe Patent D447,207. Finally, the defendant filed a motion for summary judgment that the plaintiff's infringement has been willful. See generally Def.'s Mot. for Summ. J. that the Pl.'s Infringement of Patent D451,164 and D447,207 Has Been Willful. The plaintiff, in turn, filed a motion for summary judgment that its products do not infringe on the defendant's design patents. See generally Pl.'s Mot. for Summ. J. for Non-Infringement.

In late May 2010, the plaintiff filed its oppositions to the defendant's motions for summary judgment. In its opposition to the defendant's motion regarding the validity of its design patents, the plaintiff asserts, inter alia, that Alok Sharma is not the inventor of the designs illustrated in the patents. Pl.'s Opp'n to Def.'s Validity Mot. at 6-7. In support of that contention, the plaintiff has attached to its opposition the evidence of prior art first disclosed as part of the plaintiff's final contentions. Id., Verified Statement of Kerry Healy; id.; Verified Statement of Nick Dale.

Also in late May, the plaintiff filed a motion for leave to amend its pleadings to incorporate the evidence of prior art attached to its final contentions. See generally Pl.'s Mot. for Leave to Amend. Specifically, the plaintiff seeks leave to amend its affirmative defenses to incorporate the allegation that other companies had been marketing sparklers in the same ornamental design for years before Sharma applied for his patent. Id., Ex. A at 14-15, 18-20. The plaintiff also seeks leave to assert a claim of inequitable conduct against the defendant and Sharma based on the allegation that Sharma intentionally withheld information about this prior art in his submissions to the PTO. Id. at 22-25. Finally, the plaintiff seeks leave to add Sharma and Samrok Canada, Inc., a company controlled by Sharma, as defendants in this case. Pl.'s Mot. for Leave to Amend at 3. The plaintiff has proposed that the court re-open discovery for a period of ninety days to permit the parties to investigate the allegations raised in its proposed amended pleading. Id.

The motions referenced above are ripe for adjudication. The court therefore turns to the applicable legal ...


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