Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 1 of 20 Page ID #:1865

1 O 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE CENTRAL DISTRICT OF CALIFORNIA 10 11 PENSMORE REINFORCEMENT Case No. 5:21-cv-01556-JWH-SHK TECHNOLOGIES, LLC d/b/a 12 HELIX STEEL,

MEMORANDUM OPINION AND

13 Plaintiff, ORDER ON MOTION OF

PLAINTIFF AND

14 v. COUNTERDEFENDANT TO

DISMISS AMENDED

15 CORNERSTONE COUNTERCLAIMS III and VI and

MANUFACTURING AND AFFIRMATIVE DEFENSES 1, 4,

16 DISTRIBUTION, INC., and 5 [ECF No. 44]

17 Defendant.

18 CORNERSTONE

MANUFACTURING AND

19 DISTRIBUTION, INC.,

20 Counterclaimant,

21 v.

22 PENSMORE REINFORCEMENT TECHNOLOGIES, LLC d/b/a 23 HELIX STEEL,

24 Counterdefendant.

25 26 27 28 Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 2 of 20 Page ID #:1866

1 Before the Court is the motion of Plaintiff and Counterdefendant 2 Pensmore Reinforcement Technologies, LLC, pursuant to Rules 9(b) and 3 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the counterclaims 4 for inequitable conduct and the defenses of failure to state a claim, inequitable 5 conduct, and patent misuse asserted by Defendant and Counterclaimant 6 Cornerstone Manufacturing and Distribution, Inc.1 The Court finds this matter 7 appropriate for resolution without a hearing. See Fed. R. Civ. P. 78; L.R. 7-15. 8 After considering the papers filed in support and in opposition,2 the Court 9 GRANTS-IN-PART and DENIES-IN-PART the Motion. 10 I. BACKGROUND 11 A. Procedural Background 12 Pensmore does business under the name “Helix Steel,” and it refers to 13 itself as “Helix” throughout its pleadings.3 The Court will likewise do so here. 14 In December 2021, Helix filed its operative Amended Complaint. In that 15 pleading, Helix asserts claims for direct and indirect infringement of two 16 patents: U.S. Patent No. 10,266,970 (the “’970 Patent”), entitled “Concrete 17 Reinforcing Fibers”; and U.S. Patent No. 9,440,881 (the “’881 Patent”), 18 entitled “Micro-Rebar Concrete Reinforcement System” (jointly, the 19 “Asserted Patents”).4 In response, Cornerstone asserts counterclaims for non- 20 infringement, invalidity, and unenforceability of the Asserted Patents.5 As 21

22 1 Pl.’s Mot. to Dismiss Amended Counterclaims III and VI and Affirmative Defenses 1, 4, and 5 (the “Motion”) [ECF No. 44]. 23 2 The Court considered the following papers and all attachments thereto: 24 (1) First Am. Compl. (the “Amended Complaint”) [ECF No. 29]; (2) Am. Answer and Am. Counterclaim (the “Amended Answer” and the “Amended 25 Counterclaims,” respectively) [ECF No. 37]; (3) the Motion; (4) Def.’s Opp’n to the Motion (the “Opposition”) [ECF No. 47]; and (5) Pl.’s Reply in Supp. of 26 the Motion (the “Reply”) [ECF No. 49]. 3 Amended Complaint ¶ 5. 27 4 See generally id. 28 5 See Amended Answer 36-49. -2- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 3 of 20 Page ID #:1867

1 relevant to the Motion, Cornerstone also asserts separate defenses for failure to 2 state a claim, inequitable conduct, and patent misuse.6 3 In January 2022, Helix filed the instant Motion, seeking the dismissal of 4 Cornerstone’s inequitable conduct counterclaims on the ground that they fail to 5 state a claim for relief. Helix also seeks an order dismissing Cornerstone’s 6 separate affirmative defenses for failure to state a claim, inequitable conduct, 7 and patent misuse. Helix’s Motion is fully briefed. 8 B. Factual Background 9 1. Technological Background 10 The ’970 Patent “relates to concrete reinforcing fibers.”7 Because 11 concrete has low tensile strength and low fracture toughness, it generally needs 12 to be reinforced. The ’970 Patent sought to improve on the standard process of 13 reinforcing concrete with rebar “by incorporating short, randomly distributed 14 fibers in concrete such that the reinforcing fibers are distributed throughout the 15 matrix and thus a new composite material . . . is obtained.”8 This method is 16 desirable because “[f]iber reinforced concrete has significantly improved energy 17 absorption capability (often called toughness), impact resistance, and fatigue 18 endurance, with greater resistance to cracking.”9 Although different types of 19 fibers had been used to reinforce concrete, the claimed invention sought to 20 improve upon such fibers by inventing “an efficient and low cost method to 21 manufacture the fibers used in these composites.”10 Thus, the disclosed fibers 22 satisfied the need for “improved geometries,” which “improve[d] the pull-out 23 load of the fiber, the stress-strain response,” and the “energy absorbing capacity 24

25 6 See id. at 30-32. 26 7 See ’970 Patent [ECF No. 29-2] 1:14. 8 Id. at 1:18-30. 27 9 Id. at 1:30-34. 28 10 Id. at 1:35-48. -3- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 4 of 20 Page ID #:1868

1 of the composite,” and they did so “at a significantly lower cost than [was] 2 currently available.”11 3 To that end, Claim 1 discloses: 4 1. A reinforcing fiber comprising: 5 a body defining a longitudinal axis and having a cross section in the 6 shape of a bilateral truncated circle, wherein the bilateral 7 truncated circle has an aspect ratio between 1.53 and 1.93, 8 wherein the aspect ratio is a ratio of width (w) to thickness (t) 9 of the body, 10 wherein the body is twisted along its longitudinal axis; 11 wherein the body has a width (w) of between 0.01375 inches and 12 0.0159 inches.12 13 Relatedly, the ’881 Patent discloses a micro-rebar concrete reinforcement 14 system, including “[a] method for designing and manufacturing micro 15 reinforced concrete that produces a composite material that shares physical 16 properties with both the reinforcing material and the concrete.”13 The micro 17 reinforced concrete comprises “a two-part system that [is] made of micro 18 reinforcements, which are twisted steel fibers, and a concrete matrix.”14 To 19 overcome problems with prior fiber-reinforced concrete (e.g., high cost and 20 performance inefficiencies), which had prevented fiber-reinforced concrete from 21 gaining ground vis-à-vis traditional rebar-reinforced concrete, the disclosed 22 system offered “a way to characterize its tensile performance and develop 23 24 25

26 11 Id. at 1:46-61. 12 See id. at Claim 1, 13:26-35. 27 13 See ’881 Patent [ECF No. 29-3] at Abstract. 28 14 Id. -4- Case 5:41-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page5of20 Page ID #:1869

1|| designs that are reliable and more economical than typical steel fiber 2|| concrete.” 3 2. Infringement and Inequitable Conduct Allegations 4 In its Amended Complaint, Helix alleges that the ’970 and °881 Patents 5|| “protect Helix’s concrete reinforcing Micro Rebar™ products,” which offer “an 6 || improved alternative to traditional rebar that consists of thousands of smalll, | 7 || twisted metal fibers mixed into concrete prior to its application.” © The & || Amended Complaint further alleges that Cornerstone’s principals previously 9|| worked at Helix and used the knowledge that they gained there to develop a 10 || competing infringing product.’ The Amended Complaint provides the 11|| following comparison: 12

14 i ee 17 18 As relevant to the Motion, Cornerstone asserts counterclaims seeking a declaration of unenforceability of the Asserted Patents based upon inequitable 20 || conduct.'* Cornerstone alleges that, before obtaining the Asserted Patents, 21|| Helix previously sold concrete-reinforcing fibers under an exclusive license for □□ □□ technology disclosed in several University of Michigan patents.’? Cornerstone 23 24) 8 Id. at 2:7-14. 25\| © Amended Complaint 1. 6 Id. J 2; see also id. at JY 27-33. . . 8 See Amended Answer 41 (Amended, Third Counterclaim —Reclaratory 27 en Declanernyodgient of Un tcoabitity of the ’970 Patent). Amended Counterclaim (Statement of Facts) JJ 12 & 15. _5-

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1 first became aware of that product when Cornerstone distributed Helix products 2 in the late 2000s.20 Cornerstone describes Helix as Pensmore’s “predecessor 3 company.”21 4 In the early 2010s when Helix was looking for investors, Cornerstone’s 5 CEO, Hans Hausfeld, provided funding.22 Before deciding to invest, Hausfeld 6 asked Luke Pinkerton, then-CEO of Helix, about the long-term viability of 7 competitively selling the concrete-reinforcing fibers, given the shelf-life of the 8 University of Michigan patents.23 Pinkerton said not to worry “because he had a 9 plan to extend patent protection for the Helix products beyond the life of the 10 University of Michigan Patents.” 24 The Amended Counterclaims allege that 11 the Asserted Patents “are the fruits of that plan.”25 12 Although Helix ultimately applied for and acquired new patents—i.e., the 13 Asserted Patents—Cornerstone contends that, for at least two years before 14 Hausfeld became an investor through 2015, no one at Helix “invented any new 15 concrete reinforcing fibers, came into possession of any newly invented concrete 16 reinforcing fibers, or was conducting any research and development relating to 17 new concrete reinforcing fibers.”26 Cornerstone asserts that Helix, through 18 Pinkerton, applied for new patents anyway, “for the purpose of extending patent 19 protection for [the] concrete-reinforcement products despite not having 20 invented anything or otherwise being in possession of any invention.”27 The 21 Amended Counterclaims aver that that activity constitutes inequitable conduct 22

23 20 Id. at ¶ 17. 21 Id. at ¶ 11. 24 22 Id. at ¶¶ 18 & 19. 25 23 Id. at ¶¶ 20 & 21. 26 24 Id. at ¶ 22. 25 Id. 27 26 Id. at ¶ 23. 28 27 Id. at ¶ 24. -6- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 7 of 20 Page ID #:1871

1 because, in the new patent applications, “Pinkerton and his coinventors 2 intentionally failed to disclose” Helix’s “own invalidating prior art and other 3 prior art, which Mr. Pinkerton knew would prevent the Patents-in-Suit from 4 issuing and result in Plaintiff’s Helix concrete-reinforcing products being 5 unprotected by any U.S. patent once the University of Michigan Patents expired 6 in 2016.”28 Helix now moves to dismiss the inequitable conduct counterclaims 7 and separate defenses. 8 II. LEGAL STANDARDS 9 A. Rule 12(b)(6)—Motion to Dismiss 10 A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the 11 claims asserted in a complaint. See Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 12 2001). In ruling on a Rule 12(b)(6) motion, “[a]ll allegations of material fact are 13 taken as true and construed in the light most favorable to the nonmoving party.” 14 Am. Family Ass’n v. City & County of San Francisco, 277 F.3d 1114, 1120 (9th Cir. 15 2002). Although a complaint attacked through a Rule 12(b)(6) motion “does 16 not need detailed factual allegations,” a plaintiff must provide “more than labels 17 and conclusions.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). 18 To state a plausible claim for relief, the complaint “must contain 19 sufficient allegations of underlying facts” to support its legal conclusions. Starr 20 v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). “Factual allegations must be 21 enough to raise a right to relief above the speculative level on the assumption 22 that all the allegations in the complaint are true (even if doubtful in fact) . . . .” 23 Twombly, 550 U.S. at 555 (citations and footnote omitted). Accordingly, to 24 survive a motion to dismiss, a complaint “must contain sufficient factual matter, 25 accepted as true, to state a claim to relief that is plausible on its face,” which 26 means that a plaintiff must plead sufficient factual content to “allow[] the Court 27

28 28 Id. at ¶ 25. -7- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 8 of 20 Page ID #:1872

1 to draw the reasonable inference that the defendant is liable for the misconduct 2 alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks 3 omitted). A complaint must contain “well-pleaded facts” from which the Court 4 can “infer more than the mere possibility of misconduct.” Id. at 679. 5 B. Rule 9(b)—Pleading Inequitable Conduct 6 “Inequitable conduct is an equitable defense to patent infringement that, 7 if proved, bars enforcement of a patent.” Therasense, Inc. v. Becton, Dickinson & 8 Co., 649 F.3d 1276, 1285 (Fed. Cir. 2011). Rule 9(b) governs inequitable 9 conduct claims. See Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1326 10 (Fed. Cir. 2009). That rule “requires that in all averments of fraud or mistake, 11 the circumstances constituting fraud or mistake shall be stated with 12 particularity.” Id. (internal quotation marks and bracket omitted). To meet that 13 standard, the Federal Circuit (like other circuits) requires the pleading party to 14 identify “the specific who, what, when, where, and how of the material 15 misrepresentation or omission committed before the PTO.” Id. at 1327. 16 Thus, a well-pleaded claim for inequitable conduct must allege facts 17 supporting that “(1) an individual associated with the filing and prosecution of a 18 patent application made an affirmative misrepresentation of a material fact, 19 failed to disclose material information, or submitted false information; and 20 (2) the individual did so with a specific intent to deceive the PTO.” Id. at 1327 21 n.3. “A pleading that simply avers the substantive elements of inequitable 22 conduct, without setting forth the particularized factual bases for the allegation, 23 does not satisfy Rule 9(b).” Id. at 1326-27. 24 With respect to materiality, “[w]here a patent applicant fails to disclose 25 prior art to the PTO, the prior art is but-for material if the PTO would not have 26 allowed a claim had it been aware of the undisclosed prior art.” Therasense, 649 27 F.3d at 1292. 28 -8- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 9 of 20 Page ID #:1873

1 III. DISCUSSION 2 A. Summary of Arguments 3 Helix moves to dismiss Cornerstone’s inequitable conduct counterclaims 4 for failure to plead materiality and specific intent to deceive. First, Helix argues 5 that Cornerstone did not plead the “why” and the “how” establishing that 6 Helix’s pre-2009 product would have been material to the examiner, or the 7 “what” and the “where” by including to which claim limitation(s) it would 8 have been relevant.29 Helix maintains that the allegations do not “identify a 9 specific sale, or provide any measurements, qualities, characteristics or 10 specifications of the pre-2009 Helix 5-25 product.”30 Helix also states that 11 Cornerstone’s allegations that the pre-2009 Helix product “is identical to the 12 subsequent product Helix patented starting in 2012 is pure speculation that lacks 13 any support.”31 Further, Helix rejects the allegations that Cornerstone makes 14 upon information and belief, and it contends that those allegations are untrue 15 because the Asserted Patents are based upon “research and development 16 [conducted] in the 2009 to 2012 timeframe.”32 Helix makes the same 17 arguments with respect to the ’881 Patent and adds that the additional prior art 18 that Cornerstone cites does not cure the deficiencies, but, instead, it shows 19 immateriality.33 20 Second, Helix asserts that Cornerstone did not provide facts that would 21 support a reasonable inference of intent to deceive.34 Helix argues that “intent 22 to deceive the Patent Office must be the single most reasonable inference,” and, 23 24 29 Motion 7:1-3; see also id. at 7:20-22 & 8:12-18. 25 30 Id. at 7:23-25. 26 31 Id. at 7:25-8:1. 32 Id. at 8:1-9. 27 33 See generally id. at 11:20-28. 28 34 Id. at 10:9-15. -9- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 10 of 20 Page ID #:1874

1 here, “it is not.”35 Instead, Helix avers that “[t]he much more reasonable and 2 logical inference is [Helix’s] asserted patents were based upon research and 3 development [conducted] in the 2009 to 2012 timeframe, and filed in 2012 to 4 protect new product and process developments.”36 Helix makes the same 5 arguments with respect to the ’881 Patent.37 6 Cornerstone responds that, as a threshold matter, the Court should 7 disregard Helix’s assertions that Cornerstone’s allegations in the Amended 8 Counterclaims are “false,” “unsubstantiated,” etc., because factual allegations 9 must be taken as true at the pleading stage.38 Additionally, the “single most 10 reasonable inference” standard from Therasense “‘governs what needs to be 11 shown to prevail on an inequitable conduct claim, not what is needed to survive 12 a Rule 12 motion.’”39 Cornerstone observes that, “when essential information 13 is in the other party’s control, Rule 9(b) permits pleading on information and 14 belief as long as ‘the pleading sets forth the specific facts upon which the belief is 15 reasonably based.’”40 16 Cornerstone contends that “four years investing in and working for 17 [Helix] and [Hausfeld’s] prior experience distributing [Helix’s] products for 18 Cornerstone [] gave [Hausfeld] knowledge of [Helix’s] business,” and “[h]is 19 beliefs about [Helix’s] pre-2011 activities are reasonably based on that 20 knowledge.”41 Thus, Cornerstone concludes that it has sufficiently pleaded: 21

22 35 Id. at 11:3-4. 23 36 Id. at 11:10-13. 37 See generally id. at 13:1-15. 24 38 Opposition 7:7-20. 25 39 Id. at 11:4-6 (quoting Seville Classics, Inc. v. Neatfreak Group, Inc., 2016 WL 6661176, at *4 (C.D. Cal. Apr. 1, 2016)). 26 40 Id. at 7:27-8:4 (quoting Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 27 1312, 133-31 (Fed. Cir. 2009) (pleading must provide “the ‘information’ on which it relies” as well as “the plausible reasons for its ‘belief’”). 28 41 Id. at 8:24-27. -10- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 11 of 20 Page ID #:1875

1  the “who” and “when” (during prosecution of the Asserted Patents, 2 Pinkerton withheld prior art identical products sold);42 3  the “what” and the “where” (the Helix 5-25 product—“a microfiber, 4 about one inch in length with a wire-thin diameter”— anticipates claim 3 5 of the ’881 Patent and claim 1 of the ’970 Patent);43 and 6  the “how” and the “why” (disclosure of “a covered product that was on 7 sale or in public use at least a year before the critical date” would cause 8 “the examiner [to] reject the claims as anticipated under the on-sale or 9 public-use bar”).44 10 Turning to knowledge and intent, Cornerstone argues that Pinkerton’s 11 knowledge of the invalidating prior art may reasonably be inferred from the 12 allegations that: 13  Pinkerton founded Helix ; 14  Helix had an exclusive license to sell its product covered by the University 15 of Michigan patents; 16  Hausfeld raised those patents to Pinkerton when discussing potential 17 investment in Helix ; and 18  Pinkerton said that he had a plan, and then Pinkerton obtained new 19 patents.45 20 Cornerstone argues that specific deceptive intent may be inferred from the 21 allegations that Pinkerton told Hausfeld that Pinkerton had a plan to extend 22 Helix ’s patent protection, even though—according to Hausfeld—nothing new 23 had been invented over the prior patents.46 24

25 42 Id. at 12:4-18. 26 43 Id. at 12:26-13:1 & 13:13-14. 44 Id. at 17:6-9 27 45 Id. at 19:3-17. 28 46 Id. at 19:18-27. -11- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 12 of 20 Page ID #:1876

1 Helix replies that the Court should not accept allegations based upon 2 information and belief because the claims do not set forth sufficient facts on 3 which that belief is founded.47 Even if Hausfeld was unaware of research and 4 development into new products from 2009-2015, Helix argues that Hausfeld’s 5 lack of knowledge does not establish that no such activities took place.48 Helix 6 also contends that Cornerstone’s response does not cure the Rule 9(b) 7 deficiencies concerning materiality and intent.49 8 B. Inequitable Conduct Counterclaim 9 To state a claim for inequitable conduct, a plaintiff must allege with 10 specificity the following: (1) knowledge of the uncited reference; (2) knowledge 11 of the reference’s materiality; and (3) the specific intent to deceive the PTO by 12 withholding that reference. See Therasense, 649 F.3d at 1289-90. “[A]lthough 13 ‘knowledge’ and ‘intent’ may be averred generally, a pleading of inequitable 14 conduct under Rule 9(b) must include sufficient allegations of underlying facts 15 from which a court may reasonably infer that a specific individual (1) knew of the 16 withheld material information or of the falsity of the material misrepresentation, 17 and (2) withheld or misrepresented this information with a specific intent to 18 deceive the PTO.” Exergen Corp., 575 F.3d at 1328–29. “A reasonable 19 inference is one that is plausible and that flows logically from the facts alleged, 20 including any objective indications of candor and good faith.” Id. at 1329 n.5. 21 Further, although “[p]leading on ‘information and belief’ is permitted under 22 Rule 9(b) when essential information lies uniquely within another party’s 23 control,” it is permissible “only if the pleading sets forth the specific facts upon 24 which the belief is reasonably based.” Id. at 1330. 25 26 47 Reply 6:28-7:2. 27 48 Id. at 8:4-7. 28 49 Id. at 9:1-17, 10:3-15, 11:21-25, & 12:11-15. -12- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 13 of 20 Page ID #:1877

1 The Court concludes that Cornerstone has sufficiently pleaded its 2 inequitable conduct allegations under Rule 9(b). Helix challenges the sufficiency 3 of the “materiality” and “intent to deceive” allegations, but those allegations 4 meet the Rule 9(b) standard. 5 1. Materiality 6 Cornerstone’s Amended Counterclaims set forth sufficient factual 7 allegations regarding materiality. Cornerstone alleges that “the Helix concrete- 8 reinforcing fibers that [Helix] began selling when the company was founded 9 were developed at the University of Michigan.”50 “From Mr. Pinkerton’s 10 founding of the company, [Helix] operated under an exclusive license from the 11 University of Michigan . . . until the relevant patents expired on September 5, 12 2016.”51 “[Helix] relied on its exclusive license to develop its market 13 dominance by informing others that it was the only legitimate source for twisted 14 steel fibers because of the University of Michigan Patents.”52 15 The Amended Counterclaims further allege that, before Hausfeld became 16 an investor in Helix, he asked Pinkerton “about the long-term profitability of 17 Plaintiff’s Helix concrete reinforcing fibers, given that the University of 18 Michigan Patents would expire in 2016.”53 Pinkerton responded that “there 19 was nothing to worry about, because he had a plan to extend patent protection 20 for the Helix products beyond the life of the University of Michigan Patents.”54 21 Then, in 2012 and 2013, Pinkerton filed the patent applications that would issue 22 as the ’970 and ’881 Patents,” allegedly without “invent[ing] any new concrete 23 reinforcing fibers, [coming] into possession of any newly invented concrete 24

25 50 Amended Counterclaims (Statement of Facts) ¶ 12. 26 51 Id. at ¶ 15. 52 Id. at ¶ 16. 27 53 Id. at ¶¶ 21 & 22. 28 54 Id. -13- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 14 of 20 Page ID #:1878

1 reinforcing fibers, or [] conducting any research and development relating to 2 new concrete reinforcing fibers.”55 The Amended Counterclaims allege that, in 3 those applications, Pinkerton failed to disclose “[Helix’s] own invalidating prior 4 art and other prior art, which Mr. Pinkerton knew would prevent the Patents-in- 5 Suit from issuing and result in Plaintiff’s Helix concrete-reinforcing products 6 being unprotected by any U.S. patent once the University of Michigan Patents 7 expired in 2016.”56 8 Relatedly, the Amended Counterclaims aver that the Asserted Patents are 9 invalid under 35 U.S.C. § 102 because they are rendered obvious by, inter alia, 10 “[p]rior sales and public uses by [Helix] in the United States, at least as early as 11 2009, of the Helix 5-25 product, which had all the features of at least claim 3 of 12 the ’881 Patent as apparently construed by [Helix] in this lawsuit.”57 The cited 13 prior art “disclose[s] all elements of claim 3.”58 Because “[Helix] was selling 14 products in the United States having [] identical characteristics under the trade 15 name Helix 5-25 at least as early as 2009, more than two years prior to the filing 16 date of the ’881 Patent,” then “claim 3 is anticipated or rendered obvious by 17 [Helix’s] own prior sales.”59 Thus, “the existence of the Helix 5-25 product and 18 [Helix’s] prior U.S. sales of the Helix 5-25 product well over one year before 19 Mr. Pinkerton and his coinventors applied for patent protection would have 20 been material to the USPTO’s evaluation of the application that would 21 eventually issue as the ’881 Patent.”60 22 23 24 55 Id. at ¶¶ 23 & 24. 25 56 Id. at ¶ 25. 26 57 Id. at ¶ 37; see also id. at ¶¶ 46 & 47. 58 Id. at ¶ 38. 27 59 Id. ¶ 39. 28 60 Id. at ¶ 48; see also id. at ¶ 50. -14- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 15 of 20 Page ID #:1879

1 The Amended Counterclaims make similar allegations regarding the 2 ’970 Patent. Specifically, Cornerstone alleges that “Plaintiff’s Helix 5-25 3 product was on sale more than a year before the earliest priority date of the 4 ’970 Patent. The Helix 5-25 products embodied each and every limitation of 5 claim 1 of the ’970 Patent, and therefore constitute barring sales that anticipate 6 or by themselves render obvious at least claim 1 of the ’970 Patent.”61 Thus, 7 “the existence of the Helix 5-25 product and [Helix’s] prior U.S. sales of the 8 Helix 5-25 product well over one year before Mr. Pinkerton and his coinventor 9 applied for patent protection would have been material to the USPTO’s 10 evaluation of the application that would eventually issue as the ’970 Patent.”62 11 The Court finds those allegations sufficient to support materiality. In 12 sum, Cornerstone contends that Pinkerton, on behalf of Helix, sold the 13 Helix 5-25 product for years before applying for the Asserted Patents. Further, 14 Cornerstone states that the Helix 5-25 product embodies what is claimed in 15 asserted claim 3 of the ’881 Patent and claim 1 of the ’970 Patent. Thus, 16 Cornerstone urges the conclusion that the prior sales are invalidating. A patent 17 applicant’s prior sales that implicate the on-sale bar indisputably would have 18 been material to the PTO examiner. See, e.g., B.F. Goodrich Co. v. Aircraft 19 Braking Sys. Corp., 72 F.3d 1577, 1584 (Fed. Cir. 1996) (“[the plaintiff’s] sales 20 activities were also material, because they were potential statutory bars under 35 21 U.S.C. § 102(b)”). 22 Helix may argue that the prior sales are not invalidating because, for 23 example, the Helix 5-25 product does not embody the Asserted Patents, but that 24 is a factual dispute relating to Cornerstone’s burden of proof that cannot be 25 resolved at the pleading stage. 26 27 61 Id. at ¶¶ 62-64 & 71. 28 62 Id. at ¶ 73. -15- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 16 of 20 Page ID #:1880

1 2. Intent to Deceive 2 Turning to intent to deceive, the Court first declines Helix’s invitation to 3 apply the single-most-reasonable-inference test. At the pleading stage, 4 Cornerstone is not required to allege facts supporting the conclusion that 5 specific intent to deceive is the single most reasonable inference to be drawn 6 from the factual allegations. See, e.g., Hangzhou Chic Intelligent Tech. Co. v. 7 Razor USA LLC, 2016 WL 10518582, at *2 (C.D. Cal. Dec. 19, 2016) 8 (inequitable conduct need not be “the single most reasonable inference” drawn 9 from the alleged facts at the pleading stage); Human Genome Sciences, Inc. v. 10 Genentech, Inc., 2011 WL 7461786, at *3 (C.D. Cal. Dec. 9, 2011) (“[i]n deciding 11 a motion to dismiss an inequitable conduct claim, the level of scrutiny applied to 12 the pleadings does not appear to be so exacting” as to require clear and 13 convincing evidence or meeting the single-most-reasonable-inference burden; 14 “a mere reasonable inference is quite enough to survive”) (citing Exergen, 575 15 F.3d at 1326-27). 16 Instead, Cornerstone must merely plead facts sufficient to raise a 17 reasonable inference of specific intent to deceive. Taking the allegations in the 18 light most favorable to Cornerstone and acknowledging the Federal Circuit’s 19 guidance that direct evidence of intent is rare, the Court concludes that 20 Cornerstone has pleaded sufficient facts from which a reasonable inference of 21 intent to deceive may be drawn. The Amended Counterclaims allege that, when 22 Hausfeld asked Pinkerton about the long-term viability of the Helix 5-25 product 23 given the impending expiration of the underlying University of Michigan 24 Patents, Pinkerton responded that he had a plan on how to extend protection for 25 that products—not get protection for new products.63 Based upon Hausfeld’s 26 knowledge of Helix’s business operations and the Helix 5-25 product, including 27

28 63 See Amended Counterclaims (Statement of Facts) ¶ 22. -16- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 17 of 20 Page ID #:1881

1 Hausfeld’s belief that no new products had been developed during the relevant 2 timeframe, the Amended Counterclaims raise a reasonable inference that 3 Pinkerton withheld disclosing the Helix 5-25 product as material prior art 4 because it would have interfered with the alleged plan to extend patent 5 protection covering that product. 6 Helix challenges the allegations that Cornerstone makes “on information 7 and belief,” but those allegations are sufficient under Rule 9(b) where the claims 8 contain sufficient facts from which such a belief can reasonably be formed. That 9 is, the information that allowed Cornerstone to form those beliefs can be found 10 in the factual allegations concerning Hausfeld’s involvement with Helix—both 11 as a distributor and an investor—and the allegations concerning the market 12 dominance of the Helix 5-25 product. Helix may contend that those allegations 13 are false and that other inferences are more reasonable (e.g., Helix was 14 conducting research and development of which Hausfeld was unaware), but that 15 is not the test at the pleading stage. Taken in totality, the Amended 16 Counterclaims’ allegations circumstantially support an inference concerning 17 intent to deceive. 18 Although Cornerstone must ultimately bear the burden to prove 19 inequitable conduct by clear and convincing evidence, at the pleading stage its 20 factual allegations are sufficient to raise a reasonable inference. See, e.g., Human 21 Genome Sciences, 2011 WL 7461786, at *3. Accordingly, Helix’s request to 22 dismiss Cornerstone’s inequitable conduct counterclaims is DENIED. 23 C. Other Defenses 24 Helix moves to dismiss three affirmative defenses that Cornerstone raises 25 in its Amended Counterclaims: failure to state a claim; inequitable conduct; and 26 27 28 -17- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 18 of 20 Page ID #:1882

1 patent misuse.64 For the reasons explained below, the Court GRANTS that 2 aspect of the Motion in part. 3 1. Failure to State a Claim 4 First, the Court GRANTS Helix’s request to dismiss Cornerstone’s 5 “failure to state a claim defense.” The entirety of that “defense” is that the 6 Amended Complaint “fails to state a claim upon which any relief may be granted 7 because Plaintiff’s allegations in paragraphs 27–43 and 77–83 of the First 8 Amended Complaint, even if accepted as true, do not establish that any claim of 9 the ’881 Patent is infringed.”65 That defense raises a pleading deficiency 10 argument that, if Cornerstone wishes to press it, must have been raised before 11 the responsive pleading was filed. See Fed. R. Civ. P. 12(b) (“A motion 12 asserting any of these defenses [including failure to state a claim under 13 Rule 12(b)(6)] must be made before pleading if a responsive pleading is 14 allowed.”).66 Because Cornerstone has already filed its responsive pleading— 15 indeed it has already filed an Answer and an Amended Answer—the time to 16 raise that defense has passed. Accordingly, the Court concludes that, as 17 pleaded, it fails to state a valid defense. Because Cornerstone has not suggested 18 any amendments that could cure this deficiency, the defense is DISMISSED. 19 2. Inequitable Conduct 20 Second, the Court DENIES Helix’s request to dismiss Cornerstone’s 21 “inequitable conduct” defense. That defense relies upon and incorporates the 22 same factual allegations that were sufficient to sustain Cornerstone’s 23 counterclaims.67 For the same reasons that the Court concluded that 24 25 64 See generally Motion 13-16. 26 65 Amended Answer 30 (Amended Separate Defenses ¶ 1). 27 66 Of course, Cornerstone may still be able to file a Rule 12(c) motion for judgment on the pleadings. 28 67 See Amended Answer 31 (Amended Separate Defenses ¶ 4). -18- Case 5:21-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 19 of 20 Page ID #:1883

1 Cornerstone’s inequitable conduct counterclaims are sufficiently pleaded, the 2 Court concludes that the same factual allegations support this defense. 3 3. Patent Misuse 4 Third, the Court GRANTS Helix’s request to dismiss Cornerstone’s 5 “patent misuse” defense. Cornerstone’s patent misuse allegations demonstrate 6 that this defense is premised on the same factual allegations as Cornerstone’s 7 inequitable conduct counterclaims and defense: 8 Even to the extent the Court finds that the conduct of [Helix] and its 9 founder, president, and chief technology officer, Luke Pinkerton, 10 does not rise to the level of inequitable conduct, [Helix] and 11 Mr. Pinkerton improperly sought to artificially extend patent 12 protection for products they had already invented and had already 13 been selling for well over a year before the applications that would 14 eventually issue as the Patents-in-Suit were filed, despite not having 15 invented anything new or engaging in any research and development 16 directed toward new products.68 17 The Court is unaware of any authority supporting the proposition that 18 inequitable conduct, without some sort of antitrust-type behavior such as tying 19 or licensing conditions, can constitute patent misuse. “When a patentee seeks 20 to expand its monopoly by misuse or fraud, the patentee exceeds the patent 21 exception to antitrust laws.” Beal Corp. Liquidating Tr. v. Valleylab, Inc., 927 22 F. Supp. 1350, 1361 (D. Colo. 1996) (citing United States v. Westinghouse Elec. 23 Corp., 648 F.2d 642, 647 (9th Cir. 1981)). For example, such “improper 24 practices in connection with patents” could “include use of invalid patents in 25 price fixing, cross-licensing of patents, attempts to extend the scope of patent 26 monopoly, illegal price fixing activities in connection with patents, tieing patents 27

28 68 See id. 32 (Amended Separate Defenses ¶ 5). -19- Case 5:2il-cv-01556-JWH-SHK Document 72 Filed 07/05/22 Page 20o0f 20 Page ID #:1884

1 || to unpatented devices or processes, and seeking to extend the effect of an 2\| expired patent.” Jd. (citing Brownell ». Ketcham Wire & Mfg. Co., 211 F.2d 121, 129 (9th Cir. 1954)). Cornerstone does not plead any such practices. Rather, 4|| this defense appears to be nothing more than a repackaging of Cornerstone’s 5}| inequitable conduct defense. Because Cornerstone has not suggested any 6|| amendments that could cure this deficiency, the defense is DISMISSED. 7 IV. CONCLUSION 8 For the foregoing reasons, the Court hereby ORDERS as follows: 9 1. Helix’s Motion is DENIED with respect to Cornerstone’s 10) inequitable conduct counterclaims and defense. 11 2. Helix’s Motion is GRANTED with respect to Cornerstone’s 12]|| failure to state a claim and patent misuse defenses. 13 3. Helixis DIRECTED to file its Answer to Cornerstone’s Amended Counterclaims no later than July 22, 2022. 15 IT IS SO ORDERED.

MUHA

i Dated: July 5, 2022

18 UNITED SEATES DISTRICT JUDGE 19 20 21 22 23 24 25 26 27 28 -20-