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Liquidnet Holdings, Inc. v. Pulse Trading

June 22, 2011


The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.



On December 21, 2010, this Court granted ITG's and Pulse's motions for partial summary judgment of non-infringement of the '834 patent-in-suit ("December 21st Opinion").*fn1 Liquidnet seeks to appeal the December 21st Opinion, as well as the Claim Construction, to the Federal Circuit. However, the Court's December 21st Opinion is not a "final" and appealable judgment under 28 U.S.C. § 1295 because Pulse's claims for patent invalidity and unenforceability remain pending.*fn2 Liquidnet now moves the Court to (1) dismiss without prejudice Pulse's pending claims and enter final judgment of non-infringement; or, alternatively, to (2) stay Pulse's pending claims and enter final judgment under Federal Rule of Civil Procedure 54(b). Pulse has assented to dismissing its invalidity claim without prejudice.*fn3 (Pulse's inequitable conduct allegations are based on Liquidnet's alleged failure to disclose the @Harborside system during the prosecution of the patent-in-suit, and also on certain alleged misrepresentations made by a third party declarant during that prosecution.)


"A district court judge faced with an invalidity [or inequitable conduct] counterclaim challenging a patent that it concludes was not infringed may either hear the claim or dismiss it without prejudice, subject to review only for abuse of discretion."*fn4 Similarly, a district court may make "an express determination that there is no just reason for delay and then . . . expressly direct the entry of final judgment on fewer than all of the claims under Federal Rule of Civil Procedure 54(b)."*fn5 District courts routinely decline to adjudicate inequitable conduct claims following a finding of non-infringement, and either dismiss them without prejudice, or stay the claims and enter judgment under Rule 54(b).*fn6 Telecom Inc., 133 F.3d 1459, 1468 (Fed. Cir. 1998) ("[A] district court has discretion to dismiss a counterclaim alleging that a patent is invalid as moot where it finds no infringement.").


For at least five reasons, I conclude that "the most prudent way to resolve this matter, and the most cost-effective way for the parties, is to dismiss [Pulse's inequitable conduct claim], without prejudice."*fn7 First, at least three of this Court's claim interpretations could be modified on appeal of the December 21st Opinion in a manner that could affect the issue of inequitable conduct and possibly require a retrial.*fn8 Ideally, this Court would try the inequitable conduct claim now, the parties would present a unified appeal of that claim and the infringement claim to the Federal Circuit, and the Federal Circuit would affirm all of this Court's rulings, obviating the need for further district court proceedings. But if the Federal Circuit disagrees with this Court's Claim Construction, upon remand this Court would likely have to re-decide the non-infringement issue and re-try the inequitable conduct claim. The more prudent course, therefore, is to allow the Federal Circuit to review the Claim Construction so that there is, at most, the possibility of only one trial on the inequitable conduct claim. Second, even if this Court were to hold a trial on inequitable conduct now, it would not resolve all possible outstanding issues because the dismissal of Pulse's invalidity claim will be without prejudice. Third, this Court has already rendered a decision that may resolve the entire dispute; if the Federal Circuit affirms this Court's finding of non- infringement, Pulse may decide not to renew its inequitable conduct or invalidity claims. Fourth, inequitable conduct in this case is not "plainly evident," as Pulse contends,*fn9 especially given that Therasense Inc. v. Becton Dickinson and Co. -- a decision issued by the Federal Circuit subsequent to the parties' briefing on the current motion -- raised the standard of proof required for inequitable conduct claims.*fn10 Fifth, the new standard announced in Therasense increases the possibility that the Court will be required to address the same issues multiple times if it holds an inequitable conduct trial now; this is because Pulse has agreed to dismiss the invalidity claim without prejudice, but the but-for materiality standard requires a validity analysis (that the Court would have to repeat in the future if Pulse renews its invalidity claim).*fn11

Pulse asserts that the Court must try the issue of inequitable conduct at some point because of Pulse's desire to recover attorneys' fees, and should do so now because of Pulse's wish for clarity on whether Liquidnet's continuation patents are enforceable, "public notice," and a desire to have a defense to all claims of the patent.*fn12 First, a trial on inequitable conduct is not necessary to adjudicate a motion for attorneys' fees.*fn13 Second, this Court has no jurisdiction to opine on Liquidnet's continuation patents, and there may not be a "later court" hearing any such case. In any event, if there is, that court will be required to hear the same evidence on inequitable conduct in order to judge its applicability to the continuation patents.


For the foregoing reasons, Pulse's remaining claims are dismissed without prejudice, and final judgment of non-infringement is hereby entered.

SO ...

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