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Emc Corporation v. Zerto, Inc.

United States District Court, D. Delaware

July 31, 2014

EMC CORPORATION AND EMC ISRAEL DEVELOPMENT CENTER, LTD., Plaintiffs,
v.
ZERTO, INC., Defendant.

MEMORANDUM

GREGORY M. SLEET, District Judge.

I. Introduction

On August 21, 2013, EMC Corporation and EMC Israel Development Center, Ltd. ("EMC") filed an Amended Complaint against Zerto, Inc. ("Zerto") alleging infringement of five patents (the "patents-in-suit"). (D.I. 64.) Zerto answered the Amended Complaint a month later and asserted, inter alia, invalidity counterclaims for each of the patents-in-suit. (D.I. 67.) Presently before the court is EMC's Rule 12(b)(6) Motion to Dismiss Zerto's Counterclaims of Invalidity for failure to satisfy the Twombly/Iqbal pleading standard, (D.I. 70); and Zerto's Motion for Leave to Amend its Answer to the First Amended Complaint, Affirmative Defenses and Counterclaims to add two counterclaims alleging that three of the patents-in-suit are unenforceable due to inequitable conduct before the United States Patent and Trademark Office ("PTO"), (D.I. 97). For the reasons discussed below, the court grants both motions.

II. EMC's motion to dismiss Zerto's counterclaims of invalidity

In reviewing a motion to dismiss filed under Federal Rule of Civil Procedure 12(b)(6), the court must "construe the [challenged pleading] in the light most favorable to the [pleader], accept its allegations as true, and draw all reasonable inferences in favor of the [pleader]...." In Re Bill of Lading Transm'n and Processing Sys. Patent Litig., 681 F.3d 1323, 1331 (Fed. Cir. 2012). To overcome a motion to dismiss, the defendant's counterclaim must plead "enough factual matter' that, when taken as true, states a claim to relief that is plausible on its face." Id. at 1331 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). "Determining whether a [pleading] states a plausible claim for relief will... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

EMC argues that courts in this district have applied the Twombly/Iqbal pleading standard to invalidity counterclaims in patent cases, [1]and that Zerto's "counterclaims of invalidity are merely bare-bones legal conclusions devoid of any supporting factual allegations that fall far short of stating a claim under Twombly and Iqbal." (D.I. 70 at 1.) In response, Zerto avers that its invalidity counterclaims were pled with the degree of particularity required in Federal Rule of Civil Procedure Form 18, contain enough specificity to identify a plausible claim for relief, and put EMC on notice of the invalidity allegations.[2] (D.I. 73 at 1.) Additionally, it argues that "[t]here is no principled basis for requiring more specificity in the Counterclaims than in the affirmative claims to which they respond, and courts refuse to dismiss counterclaims to avoid such incongruity." ( Id. at 3.)

The court is not persuaded by Zerto's arguments. In Senju, Judge Robinson addressed and rejected arguments similar to those advanced by Zerto. See 921 F.Supp.2d at 302-03.

Generally, the courts that have declined to apply the rigors of Twombly and Iqbal to invalidity counterclaims have reasoned that doing so would: (1) render the courts' local patent rules on the pleading standard for invalidity counterclaims superfluous; and (2) be inequitable to defendants in that it would impose on them a higher pleading burden than the Form 18 pleading burden on patent plaintiffs.

Id. at 302 (citations omitted). The Senju Court provided two persuasive arguments against the above reasoning. First, the District of Delaware has not adopted local patent rules governing pleading standards or service of factual contentions for invalidity counterclaims. Id. at 302-03. Second, the Federal Circuit has explained that "Form 18 should be strictly construed as measuring only the sufficiency of allegations of direct infringement...." In re Bill of Lading, 681 F.3d at 1336. As such, "the fact that Form 18 (rather than Twombly and Iqbal) remains the standard for pleading [direct] infringement claims is an insufficient justification for deviating from Twombly and Iqbal for pleading other causes of action." Senju, 921 F.Supp.2d at 303. Therefore, the court concurs with Judge Robinson's holding in Senju - "the pleading standards set forth in Twombly and Iqbal apply to counterclaims of invalidity." Id. (citations omitted).

Accordingly, counterclaims of invalidity do not need detailed factual allegations; however, a pleader's "obligation to provide the grounds of his entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Twombly, 550 U.S. at 555 (citation omitted). Rather, the "[t]actual allegations must be enough to raise a right to relief above the speculative level... on the assumption that all the allegations in the complaint are true...." Id. (citations omitted) In the present case, Zerto's counterclaims of invalidity recite:

One or more claims... is invalid for failure to comply with the conditions for patentability specified by Title 35 of the United States Code, including without limitation 35 U.S.C. ยงยง 101, 102, 103 and 112.

(D.I. 67 at 12-15.) The court finds that those counterclaims do not contain sufficient factual matter to satisfy the pleading standards set forth in Twombly and Iqbal. Indeed, they are merely bare-bones legal conclusions devoid of any supporting factual allegations. Accordingly, the court grants EMC's motion to dismiss Zerto's counterclaims of invalidity.

III. Zerto's Motion for Leave to Amend

Leave to amend a complaint should be "freely given when justice so requires." Fed.R.Civ.P. 15(a). The court has discretion to deny leave to amend when there exists undue delay, bad faith, dilatory motive or undue prejudice to the opposing party, or when the amendment would be futile. See Farnan v. Davis, 371 U.S. 178, 182 ...


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