Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_04-cv-04675/USCOURTS-cand-3_04-cv-04675-14/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:271 Patent Infringement

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COURT

For the Northern District of California

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UNITED 

STATES 

DISTRICT 

COURT

For the Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SEMICONDUCTOR ENERGY

LABORATORY COMPANY LTD

Plaintiff,

v.

CHI MEI OPTOELECTRONICS CORP., et

al.,

Defendant(s).

_____________________________________/

No. C 04-04675 MHP

MEMORANDUM & ORDER

Re: Defendants’ Motions to Amend

Answers and Counterclaims; Plaintiff’s

Motion to Strike Expert Report

Defendants Chi Mei Optoelectronics Corp. (“CMO”), International Display Technology Co.,

Ltd., International Display Technology USA, Inc., and Westinghouse Digital Electronics, LLC

(collectively “defendants”) have filed four substantively identical motions to amend their answers

and counterclaims. Defendants seek to add the affirmative defenses of license, equitable estoppel,

and patent invalidity due to inequitable conduct, to plead additional facts related to their previously

pled defenses of laches and patent misuse, and to delete previously pled affirmative defenses related

to claims that have since been dismissed. Plaintiff Semiconductor Energy Laboratory Co. Ltd.

(“plaintiff”) opposes the motions. Relatedly, plaintiff moves to strike the expert report of Gerald

Mossinghoff, which defendants have submitted in support of their inequitable conduct claims. 

Having considered the parties’ arguments and for the reasons stated below, the court enters the

following memorandum and order.

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UNITED 

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For the Northern District of California

BACKGROUND

Plaintiff filed this action on November 3, 2004, asserting claims for patent infringement. 

Defendants filed their original answers and counterclaims on February 28, 2005. On August 11,

2006, the parties filed a stipulation that all claims and defenses related to one of the asserted patents

be dismissed with prejudice. This is the first time defendants have sought to amend their answers

and counterclaims.

The fact discovery cutoff was September 15, 2006, and expert discovery cutoff was

December 18, 2005. However, the parties agreed to take—and did take—additional factual

depositions in September and October 2006. Defendants deposed Eric J. Robinson, plaintiff’s patent

attorney, on September 8, 2006. Defendants deposed Norihiko Seo, Nobuaki Kimura, and Akira

Takenouchi, plaintiff’s licensing representatives, during the last week of September 2006. 

Defendants also deposed Shumpei Yamazaki, plaintiffs’ president and the named inventor on two of

the patents in suit, on August 24–27, 2006, near the close of fact discovery. In addition, complete

documentary evidence related to plaintiff’s licensing agreements was not produced until midSeptember 2006, after the parties resolved a discovery dispute related to the scope of the production. 

As of the date of this motion no expert depositions have been taken.

Defendants claim that the depositions taken in August and September 2006, together with the

non-redacted license agreements produced in September 2006, revealed previously unknown facts

that lend further support to certain of defendants’ existing defenses and support additional

affirmative defenses that have not been pled. Specifically, defendants assert that the testimony of

Yamazaki and Roberts revealed, for the first time, that Yamazaki and Roberts knew of certain prior

art references and information related to the field of the invention that were improperly withheld

from the U.S. Patent Office. In addition, defendants assert that the newly discovered identities of

plaintiff’s licensees (which remain confidential), combined with recent testimony from plaintiff’s

licensing representatives, support a new allegation that defendants are not liable based on existing

licenses. Defendants further assert that the testimony of the licensing agents, together with

plaintiff’s damages expert report dated October 16, 2006, reveals that plaintiff is seeking improper

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licensing arrangements and demanding improper royalties, giving rise to a proposed new defense of

patent misuse. Finally, defendants claim that the licensing representatives’ testimony lends

additional factual support to the defenses of equitable estoppel and laches.

During a September 27, 2006 face-to-face conference regarding defendants’ affirmative

defenses, plaintiff’s counsel requested that defendants provide additional discovery responses

regarding patent misuse and laches, but stated that the forthcoming report of Gerald Mossinghoff,

one of defendants’ experts, would be sufficient to satisfy this request. Unikel Dec. ¶ 3. Plaintiff

asserts that this was the first time defendants identified Mossinghoff as an expert or raised the issue

of an expert report regarding inequitable conduct. On October 6, plaintiff’s counsel confirmed its

position by letter, coupled with an explicit reservation of rights regarding all of defendants’

affirmative defenses and counterclaims. Id. ¶ 4. Defendants served their supplemental discovery

responses on October 13, 2006 related to equitable estoppel, laches and patent misuse. Mikulka

Dec., Exh. 11. Defendants had also made it clear that they were pursuing an inequitable conduct

defense at least as early as June 20, 2006, when they served and filed a letter brief regarding

discovery disputes that specifically identified defendants’ inequitable conduct defense as a grounds

for the relevance of one of its outstanding interrogatories. Id., Exh. 15. Mossinghoff’s report was

issued on October 16, 2006.

As detailed in its Motion to Strike Mossinghoff’s expert report, plaintiff claims that

defendants intentionally concealed their inequitable conduct defense for more than eighteen months,

asserting it only after the close of discovery. In its initial response to plaintiff’s first set of

interrogatories, CMO stated that the patents were unenforceable because they were invalid, and that

CMO would supplement the response when discovery was complete. Schlitter Dec., Exh. 3. As

defendants acknowledge, defendants never provided specific information regarding inequitable

conduct via discovery responses, due in part to an alleged understanding between the parties that

such information would be provided via Mossinghoff’s report. Plaintiff also cites correspondence

by plaintiff’s counsel dated May 17, 2005 purporting to confirm defense counsel’s representation

that they were not pursuing an inequitable conduct claim. Schlitter Dec., Exh. 5. In addition to this

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allegedly dilatory conduct on the part of defendants, plaintiff asserts that the information supporting

defendants’ proposed inequitable conduct claim were known to them early in the litigation, and

therefore this late amendment is inappropriate. Plaintiff likewise faults defendants for failing to

disclose information related to their other defenses until after the close of fact discovery.

LEGAL STANDARD

The Federal Rules of Civil Procedure provide that leave to amend be “freely given when

justice so requires.” Fed. R. Civ. Pro. 15(a). The Ninth Circuit has construed this broadly, requiring

that leave to amend be granted with “extraordinary liberality.” Morongo Band of Mission Indians v.

Rose, 893 F.2d 1074, 1079 (9th Cir. 1990); see also DCD Programs, Ltd. v. Leighton, 833 F.2d 183,

186 (9th Cir. 1987) (Rule 15's policy of favoring amendments to pleadings should be applied with

“extreme liberality”); Advanced Cardiovascular Sys., Inc. v. SciMed Life Sys., Inc., 989 F. Supp.

1237, 1241 (N.D. Cal. 1997) (Jensen, J.) (“[T]he court must be very liberal in granting leave to

amend”); Poling v. Morgan, 829 F.2d 882, 886 (9th Cir. 1987) (describing a “strong policy

permitting amendment”).

Despite this liberal policy of amendment, courts must consider “four factors relevant to

whether a motion for leave to amend pleadings should be denied: undue delay, bad faith or dilatory

motive, futility of amendment, and prejudice to the opposing party.” United States v. Webb, 655

F.2d 977, 980 (9th Cir. 1981); see also Poling, 829 F.2d at 886. The enumerated factors are not of

equal weight and delay alone is insufficient to deny leave to amend. Id. (citing Howey v. United

States, 481 F.2d 1187 (9th Cir. 1973)). By the same token, “[p]rejudice to the opposing party is the

most important factor.” Jackson v. Bank of Hawaii, 902 F.2d 1385, 1387 (9th Cir. 1990). The party

opposing leave to amend bears the burden of showing prejudice. DCD Programs, 833 F.2d at 187.

DISCUSSION

I. Motion for Leave to Amend

The four factors relevant to whether defendants’ motions should be denied are “undue delay,

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bad faith or dilatory motive, futility of amendment, and prejudice to the opposing party.” Webb, 655

F.2d at 980. (9th Cir. 1981); see also Poling,829 F.2d at 886. Delay alone is insufficient to deny

leave to amend. Id. “Prejudice to the opposing party is the most important factor.” Jackson, 902

F.2d at 1387. The party opposing leave to amend bears the burden of showing prejudice. DCD

Programs, 833 F.2d at 187.

A. Undue Delay

“Relevant to evaluating the delay issue is whether the moving party knew or should have

known the facts and theories raised by the amendment in the original pleading.” Jackson, 829 F.2d

at 1388. Plaintiff asserts that defendants have unduly delayed in seeking to amend because (1) all of

the information supporting the inequitable conduct defense has been known to defendants for over a

year and a half, (2) the facts underlying the equitable estoppel, laches and license defenses should

have been known to CMO in 2001 when it was copied on correspondence it seeks to submit as

evidence, and (3) defendants should have been aware of the facts underlying their patent misuse

defense based on the licenses they received in discovery in 2005. Plaintiff further asserts that the

delay is exacerbated by defendants’ “repeated failure to cure deficiencies by previous amendments,”

claiming that defendants had ample opportunity to amend their answers and counterclaims

throughout the litigation. Finally, plaintiff faults defendants for waiting several additional weeks

after Mossinghoff’s report was issued on October 16, 2006 before filing this motion.

Plaintiff’s argument is unconvincing. While the documentary evidence may have been

previously known to defendants, the full significance of these documents was not apparent until after

defendants were able to obtain testimony regarding the documents in Fall 2006. Only then were

defendants able to sufficiently formulate their additional defenses for inclusion in amended answers

and counterclaims. For this reason, too, defendants did not waste previous opportunities to make

amendments. With respect to inequitable conduct in particular, defendants would not have been able

to plead inequitable conduct with sufficient specificity prior to obtaining witness testimony and

without falling afoul of Federal Rule of Civil Procedure 11. See Optical Coating Lab., Inc. V.

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Applied Vision, Ltd., No. C-92-4689 MHP, 1995 WL 150513, at *4 (N.D. Cal. Mar. 20, 1995)

(Patel, J.) (holding that pursuing an inequitable conduct claim without a specific factual basis raised

the specter of Rule 11 sanctions for having pled the claim). The court likewise does not find the

delay of less than a month between Mossinghoff’s report (October 16) and defendants’ motion to

amend (November 14) to be unduly long. Accordingly, there is no undue delay.

B. Bad Faith or Dilatory Motive

Plaintiffs claim that defendants have a dilatory motive based on defendants’ failure to amend

earlier, their failure to respond to discovery requests regarding inequitable conduct, and their

inclusion of twenty-three additional prior art references in their proposed amended answers and

counterclaims. The record indicates, however, that defendants did not provide specific responses to

discovery requests concerning inequitable conduct because they were in the process of developing a

factual basis for their purported claim. As discussed above, defendants could not have provided any

specificity prior to questioning the inventor and plaintiff’s patent counsel regarding their conduct

related to prosecution. The court therefore does not find that defendants have acted with bad faith or

a dilatory motive.

C. Futility of Amendment

Plaintiff does not explicitly raise an argument that allowing defendants to amend their

answers and counterclaims would be futile. The court considers this factor to be of significant

importance, and plaintiff’s counsel’s response to the court’s questions on this factor were no more

helpful than their pleadings. Plaintiff does suggest that defendants’ proffered evidence does not

support their proposed defenses. While the court may question some of defendants’ inferences,

these factual disputes need not be resolved at this stage. The court finds that any factual defects in

defendants’ evidence do not render their proposed defenses futile, and as plaintiff failed to

specifically argue this point this factor weighs heavily in favor of allowing amendment.

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D. Prejudice

Plaintiff asserts prejudice on two grounds. First, plaintiffs claim that allowing defendants to

proceed with their inequitable conduct claim would add a total of 31 new prior art references (eight

through Mossinghoff’s report and 23 through the amended answers and counterclaims), and that

analyzing these references in the seven months before trial would be a “gargantuan task.” In

addition, plaintiff asserts that it will not be able to engage in sufficient discovery regarding

defendants’ new defenses because fact discovery has closed. In particular, plaintiff claims that

additional discovery would be required to determine whether defendants’ products were covered by

the licenses at issue, and to explore defendants’ purported reliance in the context of the equitable

estoppel and laches claims. Putting plaintiff “through the time and expense of continued litigation

on a new theory, with the possibility of additional discovery,” may constitute undue prejudice. 

Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1161 (9th Cir. 1989) (citation omitted).

Defendants respond that plaintiffs have always been on notice of the equitable estoppel and

patent misuse defenses because these defenses were pled in the original answer, and that defendants

notified plaintiff of their intent to bring their new defenses as soon as the possibilities arose. 

Defendants further respond that all of the prior art references included in Mossinghoff’s report and

the proposed amended answers and counterclaims were previously included in defendants’ invalidity

contentions, and thus plaintiffs would have to engage in substantial analysis of the references

regardless of whether defendants were allowed to cite the references in support of their inequitable

conduct claims. Defendants also assert that, in any case, such a burden would not constitute

prejudice for the purposes of the Federal Rules. Regarding plaintiff’s discovery argument,

defendants assert that, on November 15, 20 and 21, after defendants filed their motions to amend,

plaintiff deposed defense witnesses who would have had knowledge regarding reliance, and

therefore any prejudice in that regard has been manufactured by plaintiff by choosing not to ask the

pertinent questions.

The court does not find that the requirement of analyzing prior art references constitutes

undue prejudice. Furthermore, any difficulties related to additional discovery can be alleviated

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simply by keeping fact discovery open, and by imposing upon defendants all costs related to any

duplicative discovery. Plaintiff has therefore not born its burden of showing that it would be unduly

prejudiced by defendants’ amended answers and counterclaims.

Accordingly, defendants’ motions for leave to amend will be granted, subject to certain

provisions as detailed below.

II. Motion to Strike

Plaintiff’s arguments in support of its motion to strike Mossinghoff’s expert report are

similar to its arguments against granting defendants leave to pursue their inequitable conduct

defenses. Plaintiff argues that Mossinghoff’s report should be stricken because defendants have

indicated that they did not intend to pursue inequitable conduct, because the information on which

Mossinghoff relies has been available to defendants throughout the litigation, and because plaintiff

would be prejudiced if required to respond to Mossinghoff’s report. In addition to the asserted

prejudice arising from the need to analyze Mossinghoff’s prior art references, plaintiff asserts that its

own experts had insufficient time to respond to Mossinghoff’s report within the time allotted for

rebuttal reports. The court finds no greater prejudice regarding Mossinghoff’s report than it does

regarding defendants’ proposed amended answers and counterclaims. Plaintiff’s motion to strike is

therefore denied.

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CONCLUSION

For the foregoing reasons, the court GRANTS defendants’ motions for leave to amend and

DENIES plaintiff’s motion to strike. Defendants’ amended answers and counterclaims are deemed

filed as of December 18, 2006. Defendants’ equitable estoppel defenses are stricken. Fact discovery

will remain open until February 12, 2006. The parties will bear their own costs regarding

depositions of fact witnesses who have not yet been deposed, and regarding re-depositions of

witnesses regarding laches and/or patent misuse. In the event that plaintiff must re-depose any

witnesses regarding inequitable conduct, defendants will bear the costs.

IT IS SO ORDERED.

Dated: _______________________________

MARILYN HALL PATEL

United States District Judge

Northern District of California

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