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From Antitrust Law Daily, January 27, 2016

Walker Process fraud, sham litigation counterclaims rejected in mining equipment dispute

By Greg Hammond, J.D.

Allegations that a manufacturer of engineered metal wearparts violated Section 2 of the Sherman Act by obtaining patents through fraud and then knowingly enforcing the fraudulently obtained patents through bad faith litigation were insufficient, according to the federal district court in Reno. In dismissing the antitrust counterclaim, the court concluded that the allegations were not pleaded with particularity to allow a reasonable inference of knowing and willful fraud and failed to state that the litigation was objectively baseless (ESCO Corp. v. Cashman Equipment Co., January 26, 2016, Jones, R.).

ESCO Corp.—the holder of six patents related to wear members used on excavating and mining equipment—filed a patent infringement suit against Cashman Equipment Co., Caterpillar, Inc., and Caterpillar Global Mining, LLC. The defendants then filed counterclaims for inequitable conduct, patent misuse, and antitrust violations. Before the court was ESCO’s motion to dismiss the counterclaims.

Inequitable conduct. The defendants claimed that ESCO engaged in inequitable conduct during the prosecution of five patents by failing to disclose certain other patents. All of the claims, however, suffered from the same deficiencies—a failure to plead with the requisite particularity the where, what, why, and how, as outlined in Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312 (Fed. Cir. 2009). Specifically, the defendants failed to identify particular claims in the patents to which the material references were relevant, or where in the references the material information was found. In addition, the court determined that the defendants failed to identify which particular claim limitations were absent from the record or how the examiner would have used them.

Walker Process fraud. The court next noted that the defendants’ allegations concerning fraud on the U.S. Patent and Trademark Office (PTO) essentially mirrored what was alleged in their inequitable conduct claim. It therefore concluded that the allegations of knowing and willful deception under the Walker Process fraud claim were insufficient. In addition, the court found that conclusory assertions that ESCO acted “intentionally” or “knowingly” without accompanying facts that implied a deliberate intent to defraud the PTO did not meet the pleading standard. The allegation that “[b]ut for the misrepresentations made by ESCO’s attorneys and inventors, as described above, the patents would not have issued,” did not provide sufficient factual support for the “unambiguous” materiality of the alleged omissions.

Sham litigation. Allegations that ESCO reacted to Caterpillar’s competition by engaging in anticompetitive and predatory activity designed to exclude competition from the market fell short of adequately pleading sham litigation to overcome Noerr-Pennington immunity. The court noted that ESCO’s alleged refusal to fulfill Caterpillar’s orders and threats of patent infringement actions could demonstrate that ESCO took an aggressive position in the enforcement of its patents. However, the allegations did not support an inference that the patent infringement litigation was “objectively baseless” such that ESCO could not realistically expect success on the merits. The court noted that the defendants did not allege that the litigation was actually baseless. Instead, the defendants claimed that the litigation was brought in “bad faith.”

The case is No. 2:12-cv-01545-RCJ-CWH.

Attorneys: Eric J. Hamp (Banner & Witcoff), Michael D. Rounds (Brownstein Hyatt Farber Schreck, LLC) and Randolph C. Foster (Stoel Rives LLP) for ESCO Corp. and ESCO Canada, Ltd. Gregory J. Commins, Jr. (Baker & Hostetler LLP) and Robert W. Hernquist (Howard & Howard Attorneys PLLC) for Cashman Equipment Co., Caterpillar Global Mining, LLC and Caterpillar, Inc.

Companies: ESCO Corp.; ESCO Canada, Ltd.; Cashman Equipment Co.; Caterpillar Global Mining, LLC; Caterpillar, Inc.

MainStory: TopStory Antitrust NevadaNews

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