IP Law Daily, PATENT—S.D. N.Y.: Leave to amend to allege T-Mobile actively induced infringement granted, (Feb 4, 2014)

By Peter Reap, J.D., LL.M.

On-Track Innovations Ltd. (“OTI”) was entitled to amend its complaint against T-Mobile USA, Inc. to include claims of active inducement of patent infringement under 35 U.S.C. § 271(b) because there was no showing that the amendment was untimely, prejudicial, made in bad faith, or futile, the federal district court in New York City has ruled (On Track Innovations Ltd. v. T-Mobile USA, Inc., January 31, 2014, Francis, J.).

Background. Certain cell phones are equipped with a feature called Near Field Communications (“NFC”) that enables them to establish peer-to-peer radio communications with nearby devices. NFC-capable phones can communicate with other electronic devices in their proximity without needing physical contact; for instance, the user of an NFC-capable cell phone can turn on his nearby stereo through his cell phone. OTI is the owner of U.S. Patent No. 6,045,043 (“the '043 Patent”), which “deals with connecting a microprocessor with both the contact and contactless modes of communication through separate, dedicated lines of connection,” obviating the need for a switching device between the two.

OTI filed its original complaint on March 26, 2012, claiming that T-Mobile’s NFC-capable devices directly infringe its patent. The national launch of T-Mobile’s NFC program occurred in November 2013. T-Mobile subscribers were informed, through T-Mobile’s website, that they could visit T-Mobile stores to receive Advanced SIM cards for use in their NFC-capable cellular phones. OTI now seeks to amend its complaint to allege that, by inviting its customers to obtain an Advanced SIM card for insertion into an NFC-capable cell phone, T-Mobile was “actively inducing infringement of the patent.”

Leave to Amend Pleadings

Motions to amend pleadings should be denied only for reasons of undue delay, bad faith or dilatory motive, undue prejudice to the non-moving party, or futility, the court observed.

Delay. In the Second Circuit, a court could deny a motion to amend where the motion was made after an inordinate delay, no satisfactory explanation was offered for the delay, and the amendment would prejudice other parties. However, mere delay, absent a showing of bad faith or undue prejudice, did not provide a basis for a district court to deny the right to amend, the court noted.

OTI sought to add a new claim 20 months after the filing of its original complaint. However, this new allegation centered on T-Mobile’s November 2013 national launch of its NFC program, rather than on activities taking place at the time the action was commenced, the court explained.

T-Mobile argued that OTI was aware of similar activities, namely, its October 2012 pilot launch of the NFC program, at least one year earlier, and that this constituted undue delay. However, as far as OTI knew at the time of the pilot launch, the only suggestions that customers insert Advanced SIM cards into NFC-capable phones came from an independent blogger and an ISIS press release, not from T-Mobile, and thus OTI did not then possess facts that could have supported an induced infringement claim against T-Mobile, the court reasoned.

Prejudice. In deciding whether undue prejudice exists, courts should consider whether the new claim would: (i) require the opponent to expend significant additional resources to conduct discovery and prepare for trial; (ii) significantly delay the resolution of the dispute; or (iii) prevent the plaintiff from bringing a timely action in another jurisdiction.

T-Mobile claimed that introducing a theory of induced infringement after fact discovery had closed prevented it from obtaining relevant evidence for its defense. It contended that without previous notice of induced infringement claims, it had no reason to seek an opinion of counsel letter, which the Federal Circuit recognized as probative of lack of intent. However, because expert discovery had not yet closed, there was no reason that this evidence could not now be obtained, according to the court.

T-Mobile’s prejudice argument went one step further, and argued that any opinion it obtained now would, at trial, be argued to be untimely. However, while OTI was free to argue that an opinion of counsel letter obtained after the allegedly infringing acts was immaterial to T-Mobile’s intent at the time, it was statutorily barred from arguing that any failure to obtain the advice of counsel with respect to the '043 Patent was probative of T-Mobile’s intent to induce infringement, the court explained. 35 U.S.C. § 298.

T-Mobile did not identify any way in which the amendment would require significant additional discovery. Similarly, there was no undue prejudice in the revised list of accused products in OTI’s proposed amended complaint.

Futility. A court could deny a motion to amend for futility only where no colorable grounds exist to support a claim or defense. Induced infringement required both knowledge that the induced acts constitute patent infringement, as well as active steps directed to encouraging another’s infringement.

Here, OTI asserted that T-Mobile had knowledge of the '043 Patent, knew that combining an Advanced SIM card with an NFC-capable cell phone constituted direct infringement of that patent, and subsequently instructed its subscribers to visit T-Mobile stores to receive an Advanced SIM card to insert into their NFC-capable cell phones, with the specific intent to induce infringement. OTI supported these factual allegations by attaching information from T-Mobile’s website instructing subscribers to visit a T-Mobile store for an Advanced SIM card to use in NFC-capable cell phones. Drawing all inferences in OTI’s favor, this supported a plausible claim of active inducement, the court held.

Bad faith. To the extent that T-Mobile raised a bad faith objection to OTI’s motion, that assertion also failed. T-Mobile claimed that, in what it deemed an improper “quid pro quo,” OTI refused to consent to T-Mobile’s request to amend its answer unless T-Mobile allowed OTI to amend its complaint. This was now moot, as OTI agreed to allow T-Mobile to amend its answer.

The case is No. 12 Civ. 2224 (AJN) (JCF).

Attorneys: Clyde A. Schuman (Pearl Cohen Zedek & Latzer, LLP) for On Track Innovations Ltd. Eric J. Lobenfeld (Hogan Lovells US LLP) and John C. Hueston (Irell & Manella LLP) for T-Mobile USA, Inc.

Companies: On Track Innovations Ltd.; T-Mobile USA, Inc.

Cases: Patent NewYorkNews