Dodocase VR, Inc. v. Merchsource, LLC

Background

Dodocase VR, Inc. and DDC Technology, LLC sued MerchSource, LLC and Threesixty Brands Group LLC in a dispute involving three Dodocase patents and a Master License Agreement. Plaintiffs alleged that MerchSource stopped paying royalties and challenged the patents after entering the agreement. The defendants filed an amended answer asserting several additional defenses.

Plaintiffs moved under Federal Rule of Civil Procedure 12(f) to strike seven defenses: no infringement, prosecution-history estoppel, limits on damages, no costs, venue, unclean hands, and patent misuse. Plaintiffs also moved for sanctions under Rule 11, arguing that several denials in the amended answer were improper and inconsistent with evidence available to the defendants.

Motion to Strike

Rule 12(f) allows a court to remove an insufficient defense or other improper material from a pleading. The court explained that an affirmative defense is a defense that can defeat liability even if the plaintiff has otherwise stated a viable claim. A negative defense, by contrast, disputes the plaintiff’s allegations or proof rather than adding a separate legal defense.

The court held that the no-infringement defense was a challenge to the plaintiffs’ case and was not an affirmative defense. It therefore struck that defense without leave to amend. The court found the prosecution-history-estoppel defense sufficiently pleaded because it could limit an infringement argument based on the doctrine of equivalents.

The court also held that the defenses concerning limits on damages under 35 U.S.C. § 287 and no costs under 35 U.S.C. § 288 were properly asserted, even though those provisions generally limit damages or costs rather than operate as traditional statutory defenses. The court accepted the venue defense without deciding whether it had been waived, finding that the defendants’ denial of the complaint’s venue allegations was sufficient. It found the unclean-hands defense adequately supported by allegations elsewhere in the answer that Dodocase had acted inequitably, fraudulently, or deceptively. Finally, it found the patent-misuse defense sufficiently pleaded based on allegations concerning royalty demands extending beyond the patents’ expiration, lapse, invalidity, or unenforceability.

Rule 11 Sanctions

Rule 11 permits sanctions when a filing is objectively frivolous, legally unreasonable, unsupported by facts, or made for an improper purpose. The court emphasized that a sanctions motion is not a substitute for a motion for summary judgment and should not be used to resolve factual disputes or test the legal sufficiency of allegations.

The court required the defendants to revise their denial of paragraph 39 because the record included an email from defense counsel requesting an extension of time and citing the holidays and the possibility of resolving the dispute without court intervention. The court declined to decide the parties’ competing accounts of their intentions concerning prior art, settlement discussions, or a proposed confidentiality agreement. It also found that other challenged denials were not objectively baseless, including denials concerning alleged threats to file patent challenges, the timing and reasons for providing prior-art references, and alleged breaches of the licensing agreement.

Disposition

The court granted in part and denied in part Plaintiffs’ motion to strike. It struck the defendants’ first additional defense, no infringement, without leave to amend. The court denied Plaintiffs’ motion for Rule 11 sanctions, while directing the defendants to amend their response to paragraph 39. The order addressed pleading and sanctions issues rather than deciding the underlying patent or licensing dispute.