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`NORTHERN DISTRICT OF CALIFORNIA
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`Case No. 11-cv-04494-WHO
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`ORDER DENYING DEFENDANTS’
`MOTION FOR JUDGMENT ON THE
`PLEADINGS
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`LIFESCAN SCOTLAND, LTD., et al.,
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`Plaintiffs,
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`v.
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`SHASTA TECHNOLOGIES, LLC, et al.,
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`Defendants.
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`Re: Dkt. No. 399
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`INTRODUCTION
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`The Federal Circuit has found error in the issuance of a preliminary injunction in favor of
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`Lifescan and ruled that the defendants have a patent exhaustion defense to their alleged
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`infringement of Lifescan’s ’105 patent. Defendants now seek in a motion for judgment on the
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`pleadings to apply collateral estoppel to Lifescan’s patent infringement claims. However, the
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`Federal Circuit’s ruling was based on the limited factual record present in the preliminary
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`injunction phase, and while plaintiffs’ claim of infringement of the ’105 patent will likely be
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`constrained by the Federal Circuit’s ruling, collateral estoppel does not apply. The plaintiffs will
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`be afforded the opportunity to further develop the issue for resolution on summary judgment or at
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`trial. Defendants’ motion for judgment on the pleadings is DENIED.
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`BACKGROUND
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`Northern District of California
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`United States District Court
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`Plaintiffs LifeScan Inc. and LifeScan Scotland, Ltd. (collectively, “LifeScan”) allege that
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`defendants Shasta Technologies, LLC, Conductive Technologies, Inc., Instacare Corp. and
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`Pharmatech Solutions, Inc. infringe U.S. Patents Number 5,708,247, 6,241,862, and 7,250,105
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`(the “’105 patent”), which relate to blood glucose monitoring systems for use by people with
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`diabetes. Dkt. No. 170 (Amended Complaint). The systems consist of an electrochemical meter
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`LIFESCAN SCOTLAND LTD. EXHIBIT 2010
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`and disposable test strips. The user inserts a test strip into the meter, then draws a small drop of
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`blood and places the drop on the test strip. The meter measures the amount of glucose in the
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`blood. LifeScan manufactures a meter and test strips. Defendants do not manufacture meters;
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`they manufacture test strips which can be used with LifeScan’s meters.
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`On March 19, 2013, LifeScan’s motion for a preliminary injunction for the ’105 patent was
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`granted. Dkt. No. 246. On November 4, 2013, the Federal Circuit reversed the preliminary
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`injunction and remanded the matter for further proceedings. LifeScan v. Shasta, 734 F.3d 1361
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`(Fed. Cir. 2013). The Federal Circuit explained that “[b]ecause we conclude that Shasta has
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`established a patent exhaustion defense as a matter of law, we reverse the grant of a preliminary
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`injunction without reaching other issues in this case.” Id. at 1366.
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`Under the patent exhaustion doctrine, method patents are “exhausted by the sale of an item
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`that embodie[s] the method.” Id. at 1368 (citing Quanta Computer, Inc. v. LG Electronics, Inc.,
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`553 U.S. 617, 629 (2008)). Conduct that occurs after patent rights have been exhausted cannot
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`constitute infringement. Applying the doctrine to this case, the Federal Circuit found that
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`LifeScan’s meters alone, not the strips, embody the method claims of the ’105 patent, and
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`therefore the transfer of the meters to users or healthcare providers exhausts LifeScan’s patent
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`rights. Id. at 1371 (“Because it is the meter alone that performs these key inventive steps of the
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`claimed method, the meter substantially embodies the method claims of the ’105 patent.”); id. at
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`1374 (“We hold that the sale of the meter exhausted LifeScan’s patent rights.”).
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`LEGAL STANDARD
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`The standard for a motion for judgment on the pleadings under “Rule 12(c) is ‘functionally
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`identical’ to [a motion under] Rule 12(b)(6).” Cafasso, United States ex rel. v. Gen. Dynamics C4
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`Sys., Inc., 637 F.3d 1047, 1055 n.4 (9th Cir. 2011). When deciding such a motion, “the allegations
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`of the non-moving party must be accepted as true, while the allegations of the moving party which
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`have been denied are assumed to be false.” Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc.,
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`896 F.2d 1542, 1550 (9th Cir. 1989). “Judgment on the pleadings should be granted when,
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`accepting all factual allegations in the complaint as true, there is no issue of material fact in
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`dispute and the moving party is entitled to judgment as a matter of law.” Chavez v. United States,
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`683 F.3d 1102, 1108 (9th Cir. 2012) (quotation marks and brackets omitted).
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`DISCUSSION
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`Defendants concede that “issues decided on preliminary injunction are generally tentative.”
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`Mot. at 8. But they point out that there was “nothing tentative” about the Federal Circuit’s ruling
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`and that this matter fits within the exception to the general rule which “permits decisions regarding
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`preliminary relief to accord preclusive effect if the decisions are necessarily based upon a
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`determination that constitutes an ‘insuperable obstacle’ to the plaintiff’s success on the merits.”
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`Id. (citing Abbott Laboratories v. Andrx Pharmaceuticals, Inc., 473 F.3d 1196, 1202 (Fed. Cir.
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`2007)). In support, the defendant point to the Federal Circuit’s statement that “we conclude that
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`Shasta has established a patent exhaustion defense as a matter of law.” The Federal Circuit also
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`concluded that “LifeScan’s OneTouch Ultra meters substantially embody the methods claimed in
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`the ’105 patent and that their distribution therefore exhausts LifeScan’s patent rights.” Id. (citing
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`Lifescan, 734 F.3d at 1366, 1377.
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`While I agree that the Federal Circuit was emphatic, I am not persuaded that it intended to
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`foreclose this issue from additional development. The opinion did not direct me to enter judgment
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`for defendants. Footnote 3 uses language that seems to leave open the possibility that the outcome
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`could change (“Lifescan is not likely to prevail on the patent exhaustion issue”) and footnote 7
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`identifies an issue that might impact exhaustion principles.
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`Moreover, the Federal Circuit’s decision was based on the limited factual record developed
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`during litigation of Lifescan’s preliminary injunction motion. As the Supreme Court has
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`explained,
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`The purpose of a preliminary injunction is merely to preserve the
`relative positions of the parties until a trial on the merits can be held.
`Given this limited purpose, and given the haste that is often
`necessary if those positions are to be preserved, a preliminary
`injunction is customarily granted on the basis of procedures that are
`less formal and evidence that is less complete than in a trial on the
`merits. A party thus is not required to prove his case in full at a
`preliminary-injunction hearing.
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`Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981). Similarly, the Ninth Circuit has
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`explained that “decisions on preliminary injunctions are just that—preliminary—and must often
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`Northern District of California
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`United States District Court
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`be made hastily and on less than a full record.” S. Oregon Barter Fair v. Jackson Cnty., Oregon,
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`372 F.3d 1128, 1136 (9th Cir. 2004); see also Altana Pharma AG v. Teva Pharm. USA, Inc., 566
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`F.3d 999, 1007 (Fed. Cir. 2009) (“Applications for preliminary injunctions are typically presented
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`on an abbreviated record without the benefit of a full trial.”). As a result, as a “general rule,”
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`decisions at the preliminary injunction phase are not binding, Ranchers Cattlemen Action Legal
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`Fund United Stockgrowers of Am. v. U.S. Dep’t of Agr., 499 F.3d 1108, 1114 (9th Cir. 2007), and
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`“disposition of appeals from most preliminary injunctions may provide little guidance as to the
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`appropriate disposition on the merits.” Ctr. for Biological Diversity v. Salazar, 706 F.3d 1085,
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`1090 (9th Cir. 2013).
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`The defendants are correct that there is an exception to the general rule and rulings on
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`appeals from preliminary injunctions can be determinative of the merits where they resolve
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`underlying matters as matters of law. See, e.g., Humanitarian Law Project v. U.S. Dep’t. of
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`Justice, 352 F.3d 382, 393 (9th Cir. 2003) (issues decided on appeal from preliminary injunction
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`were considered in full and resolved as matters of law and thus, the law of the case doctrine
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`prevented further review of that issue in a subsequent appeal), vacated on other grounds by 393
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`F.3d 902 (9th Cir. 2004). But the patent exhaustion doctrine at issue here involves a question of
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`fact. See, e.g., Cornell Univ. v. Hewlett-Packard Co., 2008 WL 5671886 (N.D.N.Y. Aug. 1,
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`2008) (patent exhaustion defense “presents a factual question, appropriately addressed by a jury”)
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`(Rader, J., sitting by designation). The Federal Circuit did not conclusively resolve that question
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`of fact on the limited record before it. The Federal Circuit stated that “[t]he facts relevant to the
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`patent exhaustion issue here are undisputed.” Lifescan, 734 F.3d at 1368. Contrary to the
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`defendants’ argument, that does not mean that all facts relevant to the exhaustion question were
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`necessarily presented to the Federal Circuit, or that LifeScan is barred from developing the record
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`further before this Court. The Federal Circuit merely noted that the relevant facts before it were
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`undisputed; it did not state that there were no set of facts which could produce a different outcome.
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`In its papers and at oral argument, LifeScan discussed specific factual issues that, it
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`contends, were not addressed by the Federal Circuit and that will defeat the patent exhaustion
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`defense. See, e.g., Opp. at 3 (“The Court specifically noted that it was not addressing a situation
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`… where none of the components of a combination patent is independently patentable.”);
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`LifeScan, 734 F.3d at 1373 n.7 (“The parties have not argued, and therefore we do not decide,
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`whether there would be any impact on exhaustion principles if a strip were ‘especially made or
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`especially adapted for use in an infringement of such patent, and not a staple article or commodity
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`of commerce suitable for substantial noninfringing use’ within the meaning of 35 U.S.C. §
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`271(c).”). LifeScan may develop those issues. I express no opinion whether or how those factual
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`issues might impact the patent exhaustion analysis in this case.
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`The defendants argue that LifeScan does not have any evidence different from what was in
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`the record before the Federal Circuit; that the declaration of LifeScan’s expert offered with
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`LifeScan’s opposition to the motion for judgment of the pleadings “rehashes” the same arguments
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`made before the Federal Circuit; and that LifeScan’s new arguments contradict its prior arguments
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`and representations made before the PTO. That may all be true, but that is a determination for the
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`Court on summary judgment or for the jury at trial. If the defendants are correct, then they should
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`be able to prevail on summary judgment.1
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`CONCLUSION
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`The defendants’ motion for judgment on the pleadings is DENIED.
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`IT IS SO ORDERED.
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`Dated: May 23, 2014
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`______________________________________
`WILLIAM H. ORRICK
`United States District Judge
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`1 LifeScan contends that the Federal Circuit’s decision “has no bearing on whether LifeScan could
`prevail on a more complete record. Opp. at 9. While LifeScan is correct that the Federal Circuit’s
`decision is not determinative of the applicability of the patent exhaustion defense, it is inexact to
`state that it has “no bearing” on that issue. To the extent that the Federal Circuit determined that
`the facts before it compelled certain findings of law relating to the patent exhaustion issue, I am
`bound by those findings. See, e.g., Ranchers, 499 F.3d at 1114 (conclusions of law made on
`appeal from a preliminary injunction order are binding on a district court on remand).
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`Northern District of California
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`United States District Court