AllRounds, Inc. v. eShares, Inc.

Background

AllRounds asked for permission under Federal Rule of Civil Procedure 15(a)(2) to file a third amended complaint. The proposed amendment would add Draper Associates VI as a defendant and add allegations against Carta that its patent infringement was willful.

The venture capital defendants did not argue that adding Draper Associates VI would prejudice them. They argued instead that the amendment was untimely and futile, meaning it would not support a viable claim. They had told AllRounds that an unnamed Draper entity had invested in Carta in 2020, but they did not identify Draper Associates VI until September 1, 2021, in responses to interrogatories. AllRounds filed its motion within three weeks after receiving that information.

AllRounds also sought to add willfulness allegations against Carta. It argued that it could not have known that Carta had not redesigned its product around the patents until Carta’s interrogatory responses were returned.

Rulings

Judge Chhabria granted AllRounds’s motion for leave to file a third amended complaint. The court found that the request was timely because AllRounds did not have the entity’s name until September 1, 2021. The court also found the proposed allegations against Draper Associates VI were not futile. The complaint alleged that the alleged misappropriation continued over time and caused changes to Carta’s product as recently as May 2019, and alleged that the alleged architect of the misappropriation scheme was Draper Associates VI’s managing director.

The court also found that adding the willfulness allegations against Carta was timely, made in good faith, and not futile. It stated that a litigant may plead post-filing willfulness by alleging knowledge of the patent and deliberate or intentional infringement, and concluded that AllRounds had done so. The court said that issues such as the closeness of the legal question and the parties’ good-faith litigation strategies concerned whether willfulness damages would ultimately be awarded, not whether the allegations could be made at the pleading stage. The court also noted that the new allegations shared the same factual bases as the existing claims and would not significantly expand discovery.

Sealing and Exhibit M

The court denied the motion to seal. The defendants had not attempted to establish that the material designated as confidential under the protective order was legally eligible to be sealed. The court ordered unredacted copies filed on the docket within seven days.

The court denied as moot the venture capital defendants’ objection to Exhibit M of the Barath Declaration. It stated that it was not revisiting its earlier determination that AllRounds had stated a claim against the current venture capital defendants, making Exhibit M irrelevant to the issues before it.

Next Steps Ordered

The court ordered that the new complaint be filed within seven days of the order. The defendants were ordered to respond within 21 days after the amended complaint was filed.