IT Casino Solutions, LLC v. TRANSIENT PATH, LLC

Background

IT Casino Solutions, LLC (ITCS) sued Transient Path, LLC and Thomas Calvin, alleging infringement of two patents—the ’126 Patent and the ’148 Patent—and violations of California’s Unfair Competition Law based on the creation, advertising, and sale of casino management software. The defendants filed an amended answer asserting 17 affirmative defenses, 12 counterclaims against ITCS, and a claim against Justin Risnoveanu.

ITCS moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal of a claim that does not adequately state a legally supportable claim, and Rule 12(f), which permits striking an insufficient, redundant, immaterial, impertinent, or scandalous defense or pleading. The court also noted that it had previously granted summary judgment for the defendants on ITCS’s Unfair Competition Law claim because that claim was preempted by California’s Uniform Trade Secrets Act. The court therefore treated defenses and counterclaims focused only on that already-decided claim as no longer relevant to this motion.

Rulings on Affirmative Defenses

The court struck the first, second, third, tenth, fifteenth, and seventeenth affirmative defenses because they focused only on the already-decided Unfair Competition Law claim.

The court granted ITCS’s motion to strike the fourth defense, which asserted judicial estoppel. Judicial estoppel is a doctrine that can prevent a party from taking a position inconsistent with one it previously took in court. The defendants identified alleged inconsistencies in ITCS’s statements about business discussions, patent-priority dates, and user manuals, but did not allege that a court had accepted the earlier positions or that ITCS would gain an unfair advantage if it were allowed to take the later positions.

The fifth and sixth defenses, asserting that the ’126 and ’148 Patents were invalid under several provisions of the Patent Act, may proceed. The court found that these defenses identified specific patent claims and gave enough detail about alleged abstract ideas, prior art, and indefiniteness. The court rejected ITCS’s argument that there was no controversy concerning an unasserted patent claim.

The court granted the motion to strike the seventh and eighth defenses, which asserted that the patents were unenforceable because of inequitable conduct before the Patent and Trademark Office. The defendants did not adequately allege “but-for materiality”—that the Patent and Trademark Office would not have allowed the patent claims without the alleged misrepresentations or omissions.

The court granted the motion to strike the ninth defense, equitable estoppel. The defendants alleged that ITCS’s delay after a February 2020 infringement notice caused Transient Path to believe ITCS would not enforce its patents. But the defendants did not account for a November 2021 notice concerning the ’126 Patent, and their allegations of reliance and prejudice were conclusory.

The court granted the motion to strike the eleventh defense, waiver. The defendants relied on the same alleged delay but did not plausibly allege that ITCS intentionally gave up or abandoned a known right to pursue infringement claims, particularly in light of the November 2021 notice.

The court struck the thirteenth defense, prosecution laches. That doctrine may make a patent unenforceable when the patent prosecution involved an unreasonable, unexplained, and egregious delay that prejudiced the accused infringer. The defendants alleged a three-year abandonment but did not adequately allege that the delay was unreasonable, unexplained, or an egregious misuse of the patent system.

The court struck the fourteenth defense, unclean hands, because the defendants did not explain how ITCS’s alleged conduct involving agreements with a third party, photographs taken inside a casino, or document disclosures harmed the defendants or related to ITCS’s infringement claims.

The court struck the sixteenth defense, patent misuse. The defendants alleged that ITCS improperly sought royalties for a period before November 2021, but did not provide facts explaining the patent’s relevant temporal scope or how ITCS exceeded it.

Rulings on Counterclaims

The court struck the first and second counterclaims, which sought declarations about the priority dates of the patent applications. The court found that those dates would be considered along with patent validity, enforceability, and infringement, making separate declarations redundant. It also found that the defendants had not shown what independent relief a declaration of priority dates alone would provide.

The third and fourth counterclaims, seeking declarations that Transient Path did not directly or indirectly infringe the patents, may proceed as to direct infringement. The court found that the allegations adequately addressed direct infringement. However, the defendants did not adequately explain why indirect infringement did not occur. If they intend to pursue those counterclaims on an indirect-infringement theory, they must amend them with more detailed allegations.

The court dismissed the ninth counterclaim, which asserted monopolization under Section 2 of the Sherman Act. The defendants based the claim on alleged fraud in obtaining the patents, but the court found that the related inequitable-conduct allegations did not adequately plead why the alleged misrepresentations were material to the patents’ procurement.

The court dismissed the tenth counterclaim, which sought a declaration that the defendants did not violate the Unfair Competition Law, as moot because the court had already granted summary judgment for the defendants on ITCS’s Unfair Competition Law claim.

The court dismissed the eleventh counterclaim for abuse of process. The defendants relied partly on alleged communications and litigation conduct that the court found protected by California’s litigation privilege. The court also rejected the contention that ITCS’s lawsuit was a sham or baseless, stating that ITCS had the right to sue if it believed its patents were infringed or the defendants otherwise violated the law.

The court dismissed the twelfth counterclaim under California’s Unfair Competition Law. The defendants alleged that ITCS acted unlawfully or unfairly by filing the lawsuit in the chosen venue and requesting information in exchange for a deadline extension. The court found that the claim lacked a sufficiently specific legal and factual basis and noted that venue disputes should be raised through a motion addressing venue.

Disposition

The court granted in part and denied in part ITCS’s motion to dismiss or strike. The fifth and sixth affirmative defenses and the third and fourth counterclaims may proceed as stated, subject to the possible amendment required for any indirect-infringement theory. The other defenses and counterclaims addressed in the order were struck or dismissed as specified above. Judge William Orrick granted the defendants leave to amend in good faith, with any amended pleading due within 21 days of the order’s issuance.