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Solutran, Inc. v. U.S. Bancorp and Elavon, Inc.

United States District Court, D. Minnesota

December 20, 2016

Solutran, Inc. Plaintiff,
v.
U.S. Bancorp and Elavon, Inc., Defendants. U.S. Bancorp and Elavon, Inc. Counter-claimants,
v.
Solutran, Inc. Counter-defendant.

          David J. Wallace-Jackson, Robert J. Gilbertson, and Sybil L. Dunlop, Greene Espel PLLP, for Plaintiff and Counter-defendant.

          Ben D. Kappelman, J. Thomas Vitt, Kenneth E. Levitt, and Peter M. Lancaster, Dorsey & Whitney LLP, for Defendants and Counter-claimants.

          MEMORANDUM OPINION AND ORDER

          SUSAN RICHARD NELSON, United States District Judge.

         I. INTRODUCTION

         This matter comes before the Court on Defendants' Objections [Doc. No. 125] to an order of the magistrate judge[1] denying their motion for leave to amend their invalidity contentions. (See Oct. 3, 2016 Text Only Order [Doc. No. 115].) For the reasons stated below, Defendants' objections are overruled, and the order is affirmed.

         II. BACKGROUND

         The facts underlying this patent infringement action are detailed, lengthy, and complicated. For purposes of the present matter, however, the relevant facts are essentially procedural. Plaintiff Solutran, Inc. (“Solutran”) filed its Complaint on September 25, 2013. (See generally Compl. [Doc. No. 1].) After a stipulation to extend the deadline for filing a responsive pleading, Defendants duly filed their Answer on November 12, 2013, denying infringement and asserting counterclaims for declaratory judgments of noninfringement and invalidity. (See generally Answer [Doc. No. 9].) With the parties' input, Magistrate Judge Steven E. Rau subsequently entered a pretrial scheduling order providing that Solutran's initial infringement contention chart would be due by July 15, 2014. (Pretrial Scheduling Order [Doc. No. 28] at 1.) Defendants were required to provide a list of all prior art upon which they intended to rely within thirty days of receipt of the infringement chart. (Id. at 3.) According to the schedule, this case was intended to be ready for trial by the middle of October, 2015. (Id. at 9.)

         As required by the Pretrial Schedule, Solutran served its infringement contentions on July 15. (Ernstene Aff. [Doc. No. 105] ¶ 2.) Defendants responded with their invalidity contentions on August 15, 2014, which included exhibits for twenty-one pieces of alleged prior art. (Id. at ¶ 3.) They then chose to challenge the validity of the patent at issue in this suit[2] through a Covered Business Method (“CBM”) proceeding before the United States Patent and Trademark Office's Patent Trial and Appeal Board (“PTAB”). At Defendants' request, the Court stayed this action pending resolution of the CBM review. (See generally Sept. 18, 2014 Order.)

         On August 5, 2015, the PTAB issued a final, written decision, rejecting Defendants' claim that the at-issue patent was invalid. (See Dunlop Aff. [Doc. No. 55], Ex. A.) As a result of this decision, Solutran asked Defendants to stipulate to lifting the stay, but Defendants did not agree to do so. (Tr. [Doc. No. 123] at 47:18-19.) Solutran subsequently asked this Court to lift the stay-a motion Defendants opposed on the basis that an appeal should first be heard of the PTAB's decision.[3] Magistrate Judge Thorson granted Solutran's motion on January 12, 2016. (See Text Only Order [Doc. No. 62].) Importantly, however-and as the magistrate judge subsequently observed-Defendants were previously put on notice by the PTAB's decision that this action would likely proceed even before the stay was formally lifted. (Tr. at 47:15-16.) After lifting of the stay, “the parties were on notice to pick up their discovery efforts immediately.” (Id. at 48:5-6 (emphasis added).) In recognition of this fact, Judge Thorson issued an amended pretrial scheduling order that allowed Defendants to amend their invalidity chart by April 15, 2016 provided that they could demonstrate good cause to do so. (Am. Pretrial Scheduling Order [Doc. No. 69] at 4.) As an illustration of what would constitute sufficient good cause, the magistrate judge stated that “absent undue prejudice to the other party, good cause could include Defendants' discovery of material prior art. This example of good cause assumes diligent search.” (Id.)

         On February 24, 2016, more than a month after Judge Thorson lifted the stay (and more than six months after the PTAB decision), Defendants served the National Automated Clearing House Association (“NACHA”), an electronic check regulatory group, with a document subpoena. (Levitt Decl. [Doc. No. 102] ¶ 5.) On April 15, 2016, in line with Judge Thorson's Amended Pretrial Schedule, Defendants served Solutran with updated invalidity contentions. (Ernstene Aff. ¶ 5.) Although NACHA did not respond to Defendants' subpoena until May 25, 2016-at which point it produced over 92, 000 pages of documents-Defendants did not advise the Court of any need to amend the Pretrial Schedule to accommodate review of these documents. (Tr. at 55:4-5.)

         More than two months later, [4] Defendants' review of the NACHA documents revealed a 1995 document written by one Michael Harris, which, according to Defendants, “describes a system for processing paper checks that anticipates and renders obvious the system Plaintiff claims as its invention.”[5] (Defs.' Obj. [Doc. No. 125] at 5.) Defendants promptly notified Solutran that it intended to move to amend its invalidity contentions to add the Harris system. (Id.) At approximately the same time-although unrelated to the NACHA documents-Defendants learned from a re-interview of a U.S. Bank employee about another system, known as BankServ, that “also appeared to show that Plaintiff's claimed invention was anticipated and obvious.” (Id.) Defendants produced these documents on August 26, 2016.[6] (Id.) In light of these developments, Defendants formally moved to amend their invalidity and noninfringement contentions to encompass the Harris and BankServ systems on September 19, 2016.[7] (See generally Mot. for Leave to Amend Invalidity and Noninfringement Contentions [Doc. No. 98].)

         Judge Thorson heard oral argument on Defendants' motion on October 3, 2016, and ruled on the matter the same day. (See Text Only Order [Doc. No. 115].) Noting that leave to amend should only be granted where the movant has shown (1) good cause, and (2) no unfair prejudice to the other party, the magistrate judge denied Defendants' request. (See generally Tr. at 52-59.) In particular, Judge Thorson noted that Defendants had failed to show diligence, had not demonstrated the relevance of the alleged prior art, and that amendment would unfairly prejudice Solutran. (Id.) Defendants timely filed objections to the magistrate judge's ruling, triggering this review. (See generally Defs.' Obj.)

         III. DISCUSSION

         A. ...


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