Case 4:19-cv-04133-YGR Document 80 Filed 04/01/20 Page 1 of 7
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`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
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`EPIC GAMES, INC.,
`Plaintiff,
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`vs.
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`ACCELERATION BAY LLC,
`Defendant.
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`CASE NO. 4:19-cv-04133-YGR
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`ORDER DENYING DEFENDANT’S MOTION
`TO STRIKE
`Re: Dkt. No. 53
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`Defendant Acceleration Bay LLC (“Acceleration Bay”) requests that the Court strike
`counterclaims-in-reply asserted by Plaintiff Epic Games, Inc. (“Epic Games”) in its counterclaim
`answer, or, in the alternative, to reclassify those counterclaims-in-reply as amendments to the
`complaint. (Dkt. No. 53 (“Mot.”).) Having considered the papers, as well as arguments by
`counsel on February 11, 2020, the Court DENIES Acceleration Bay’s motion to strike.
`I.
`BACKGROUND
`Epic Games filed this action seeking a declaratory judgment of non-infringement of certain
`patents owned by Acceleration Bay. (Dkt. No. 1 (“Complaint”).) Acceleration Bay moved to
`dismiss the complaint on the ground that no “case or controversy” existed between the parties.
`(Dkt. No. 22.) The Court rejected Acceleration Bay’s motion on the record based on Epic Games’
`evidence that Acceleration Bay threatened Epic Games with a multi-million-dollar lawsuit over
`alleged infringement. (Dkt. No. 39; see also Dkt. No. 24.)
`Following the motion to dismiss, Acceleration Bay answered the complaint and asserted
`counterclaims of infringement against Epic Games. (Dkt. No. 41 (“Answer”).) Epic Games
`answered the counterclaim and simultaneously asserted six counterclaims-in-reply for invalidity of
`the asserted patents. (Dkt. No. 45 (“Counterclaim Answer”).) Acceleration Bay then brought this
`motion seeking to strike or reclassify Epic Games’ counterclaims-in-reply as amendments to the
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`complaint. Each of the pleadings concerns identical claims found in the six asserted patents.
`II.
`LEGAL STANDARD
`Federal Rule of Civil Procedure 12(f) permits a court to strike from a pleading an
`insufficient defense and “any redundant, immaterial, impertinent, or scandalous matter.” Fed. R.
`Civ. P. 12(f). Motions to strike are disfavored in part because of the limited importance of
`pleadings in federal practice. Gold Club-SF, LLC v. Platinum SJ Enter., No. 13-cv-03797-WHO,
`2013 WL 6248475, at *2 (N.D. Cal. Dec. 3, 2013). The essential purpose of Rule 12(f) is to
`“avoid the expenditure of time and money that must arise from litigating spurious issues by
`dispensing with those issues prior to trial.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th
`Cir. 1993). Accordingly, a court must construe the pleading in light most favorable to the
`pleading party and deny the motion to strike if the pled allegations might be relevant to the action.
`Daily v. Fed. Ins. Co., No. C 04-3791 PJH, 2005 WL 14734, at *5 (N.D. Cal. Jan. 3, 2005).
`III. ANALYSIS
`Acceleration Bay argues that Epic Games seeks an end-run around rules governing
`availability of inter partes review (“IPR”) by bringing its patent invalidity claims as
`counterclaims-in-reply. Congress enacted the IPR procedure to provide a “quick and cost
`effective alternative[] to litigation.” See H.R. Rep. No. 112-98, pt. 1 at 48 (2011). In order to
`fulfill its role of streamlining invalidity proceedings, Congress limited a party’s ability to seek an
`IPR after commencement of civil litigation in two ways. First, under 35 U.S.C. § 315(a)(1), no
`IPR may be instituted if the challenger filed a civil action challenging the validity of a patent claim
`before filing the IPR petition. Second, under 35 U.S.C. § 315(b), an IPR may not be instituted on
`any petition filed more than one year after the petitioner (or a real party in interest or privy) was
`served with a patent infringement complaint. The twin provisions prevent an accused infringer
`from using the IPR mechanism as a “second bite at the apple” after challenging the validity of a
`patent in a district court. Cf. Douglas Dynamics, LLC v. Meyer Prods. LLC, No. 14-cv-886-jdp,
`2017 WL 1382556, at *4 (W.D. Wis. Apr. 18, 2017) (“Congress intended IPR to serve as a
`complete substitute for litigating validity in the district court.” (quoting SAS Inst., Inc. v.
`ComplementSoft, LLC, 825 F.3d 1341, 1354 (Fed. Cir. 2016) (Newman, J, dissenting in part)).
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`The statutory provisions do not, however, address counterclaims-in-reply. On the contrary,
`35 U.S.C. § 315(a)(3) states that a counterclaim challenging the validity of a patent claim “does
`not constitute a civil action challenging the validity of a claim of a patent” for purpose of the first
`statutory provision. The Patent Trial and Appeal Board (“the Board” or “PTAB”) of the U.S.
`Patent and Trademark Office (“PTO”)—which decides whether to institute an IPR—has held that
`counterclaims-in-reply are not subject to the bar under § 315(a)(3) because they are not “civil
`actions” challenging validity. See Canfield Scientific, Inc. v. Melanoscan, LLC, IPR2017-02125
`Paper 7, 2018 WL 1628565, at **3-4 (PTAB Mar. 30, 2018). In so doing, the Board noted that
`the policy arguments for treating counterclaims-in-reply as civil actions “have some merit.” Id. at
`*3. As the patent owner argued, exempting counterclaims-in-reply from the statutory bar “would
`effectively allow a Petitioner to initiate a civil action concerning a patent, but also later file a
`petition seeking inter partes review, frustrating one of the goals of these proceedings.” Id.
`Nevertheless, the Board decided that these policy considerations do not override the clear meaning
`of the statute because “Congress has spoken, using unambiguous language.” Id.
`Acceleration Bay now argues that the Court has the sole power to prevent Epic Games
`from benefiting from an apparent loophole in the IPR statutory scheme. Acceleration Bay points
`out that district courts have frequently treated counterclaims-in-reply as equivalent to claims
`asserted in a complaint, making the difference between the two a “distinction without difference.”
`Acceleration Bay also argues that nothing prevented Epic Games from asserting its invalidity
`claims in its original complaint. Epic Games responds that the PTAB already spoke on the issue
`and decided that counterclaims-in-reply “cannot be ‘regarded as an amendment to [an] originally
`filed’ complaint.’” Epic Games asserts that the Board’s decision in Canfield renders the requested
`relief futile because the Board would continue to treat Epic Games’ invalidity claims as
`counterclaims-in-reply regardless of how they were classified in this proceeding. Epic Games also
`points out that compulsory counterclaims-in-reply are generally permitted in this Circuit.
`As an initial matter, nothing requires this Court to permit Epic Games’ counterclaims-in-
`reply. The Federal Rules do not expressly authorize counterclaims-in-reply. Frank Briscoe Co.,
`Inc. v. Clark County, 857 F.2d 606, 610 (9th Cir. 1988). Courts in this and other circuits have
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`generally permitted counterclaims-in-reply if they are compulsory under the rationale that the
`plaintiff may be barred from bringing them later.1 Id.; see Wright & Miller, Federal Practice &
`Procedure, § 1188 (3d ed. Aug. 2019). However, notwithstanding their permissible nature,
`multiple courts have struck or reclassified counterclaims-in-reply using their inherent authority to
`manage dockets in order to simplify the pleadings. See Johnson v. Johnson, 1:15-cv-01793 MJS,
`2016 U.S. Dist. LEXIS 129206, at *10 (E.D. Cal. Sept. 21, 2016) (directing party to amend its
`complaint instead); Fujitsu Ltd. v. Nanya Tech. Corp., No. C 06-6613 CW, 2007 U.S. Dist. LEXIS
`44386, at *2 (N.D. Cal. June 6, 2007) (same); see also Electroglas, Inc. v. Dynatex Corp., 473 F.
`Supp. 1167 (N.D. Cal. 1979) (finding that counterclaims-in-reply would be better brought as
`amendments to the complaint). Others have permitted only compulsory counterclaims-in-reply
`asserted in response to permissive counterclaims—which presumably could not have been
`anticipated during the filing of the complaint. E.g., Feed Management Sys., Inc. v. Brill, 518 F.
`Supp. 2d 1094, 1096 (D. Minn. 2007) (allowing only compulsory counterclaims-in-reply against
`permissive counterclaims).
`Nor does the Court have to consider counterclaims for declaratory judgment in any form.
`The Declaratory Judgment Act provides courts with discretion to consider a declaratory judgment
`counterclaim—but does not impose a duty to do so. Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220,
`1223 (9th Cir. 1988) (citing Pub. Affairs Assocs., Inc. v. Rickover, 369 U.S. 111, 112 (1962)).
`Courts in this circuit have dismissed counterclaims for declaratory relief that were “repetitious of
`issues already before the court via the complaint o[r] affirmative defenses.” Ketab Corp. v.
`Mesriani & Assocs., No. 2:14-cv-07241-RSWL (MRW), 2015 WL 8022874, at *9 (C.D. Cal. Dec.
`4, 2015) (citing cases). For example, courts have struck counterclaims that present identical
`factual and legal issues as affirmative defenses of patent or trademark invalidity. See id. (striking
`counterclaims for trademark invalidity); Southwest Windpower, Inc. v. Imperial Elec,. Inc., No.
`CV-10-8200-SMM, 2011 WL 486089, at *3 (D. Ariz. Feb. 4, 2011) (same). But see Stickrath v.
`Globalstar, Inc., No. C07-1941 TEH, 2008 WL 2050990, at *3 (N.D. Cal. May 13, 2008)
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`1 Claims for patent invalidity are compulsory against claims of patent infringement under
`Federal Circuit law. In re Rearden LLC, 841 F.3d 1327, 1332-33 (Fed. Cir. 2016).
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`(cautioning that courts should not dismiss counterclaims that “serve a useful purpose”).
`Epic Games’ counterclaims for patent invalidity are redundant of its second affirmative
`defense of patent invalidity under Federal Rule 12(f). (See Counterclaim Answer ¶¶ 3, 18-93.)
`Epic Games asserts no new matters that it does not implicitly assert through its affirmative defense
`and addresses the same claims in the same patents asserted in Acceleration Bay’s infringement
`counterclaim. Moreover, litigating Acceleration Bay’s counterclaim for infringement will
`necessarily involve deciding whether Acceleration Bay owns a valid patent, which renders Epic
`Games counterclaim redundant of the Acceleration Bay’s infringement counterclaim. See Ketab,
`2015 WL 8022874, at *9 (claims of trademark validity will be adjudicated as part of the
`infringement analysis).
`However, precisely because the issues raised by Epic Games’ counterclaims-in-reply are
`redundant of its affirmative defenses, striking the counterclaims would be futile. Acceleration Bay
`does not contend—nor does a Court see any basis for—striking Epic Games affirmative defenses
`of patent invalidity against Acceleration Bay’s infringement counterclaim. Affirmative defenses
`inarguably do not constitute “civil actions” subject to the IPR bar under 35 U.S.C. § 315. See
`Ariosa Diagnostics v. ISIS Innovation Ltd., No. IPR2012-00022 (MPT), Paper 20 (PTAB Feb. 12,
`2013). Thus, the question is not whether the Court should consider Epic Games’ invalidity
`challenge—the Court will have to do so regardless—but rather whether to allow a separate
`counterclaim in addition to the affirmative defense of patent invalidity.2
`Unlike an affirmative defense, a counterclaim for patent invalidity survives the dismissal
`of patent infringement claims and presents a standalone issue. See Cardinal Chem. Co. v. Mortin
`Int’l, Inc., 508 U.S. 83, 100-01 (1993). The Supreme Court has expressed a preference for
`deciding issues of patent validity independent of any infringement claim in order to prevent
`wasteful re-litigation and provide final resolution to accused infringers. Id. (noting that “the
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`2 Acceleration Bay cites no authority that merely “reclassifying” the counterclaims-in-reply
`as claims brought originally in the complaint would have any effect on the PTAB. On the
`contrary, unless the Court strikes Epic Games’ counterclaims-in-reply and then directs it to add the
`invalidity claims in the complaint, the PTAB is more likely to consider the procedural posture of
`the claims independent of any subsequent judicial interpretation.
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`opportunity to relitigate might, as a practical matter, grant monopoly privileges to the holders of
`invalid patents”); accord Stickrath, 2008 WL 2050990, at *4 (“[A] defendant in a patent case has
`‘something to gain from a counterclaim declaration of invalidity’—it can go on to develop its
`products without fear of infringing the invalid patent” (citation omitted)). Thus, since this Court
`has to decide issues of patent validity regardless—and cannot prevent Epic Games from seeking
`an IPR while doing so—the better policy is to decide those issues once and for all by allowing
`Epic Games’ to assert its counterclaims-in-reply independent of Acceleration Bay’s infringement
`counterclaims.3
`In so ruling, the Court recognizes the apparent loophole left by the statutory scheme
`governing IPR availability. Unlike a patent infringement defendant (which cannot bring an IPR
`more than one year after being sued) or a declaratory judgment plaintiff seeking a judgment of
`invalidity (which cannot seek an IPR at all), a declaratory judgment counterclaimant faces no
`apparent restrictions on seeking an IPR. In theory, a declaratory judgment counterclaimant may
`fully litigate the issue of patent validity in the district court, lose on the issue, and then seek a “re-
`do” before the PTAB while being subject to no estoppel or time limit whatsoever. Such boundless
`ability to seek an IPR cannot be reconciled with the clear congressional intent that the IPR serve as
`a “substitute” for district court litigation that relieves the burdens on the courts. Nevertheless, the
`statutory issue is one for Congress to resolve.4
`Accordingly, the Court DENIES Acceleration Bay’s motion to strike or to reclassify Epic
`Games’ counterclaims-in-reply.
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`3 Striking Epic Games’ counterclaims-in-reply might potentially lead it to amend its
`complaint to add claims for declaratory judgment of invalidity—which would then subject it to the
`IPR bar under 35 U.S.C. § 315(a)(1). However, it seems equally likely that Epic Games would
`simply drop the invalidity counterclaims and rely exclusively on its affirmative defenses of
`invalidity. In that case, no IPR bar would apply while the Court would still have to decide issues
`of patent invalidity.
` In its opposition, Epic Games claims that Acceleration Bay waived any objection to the
`counterclaims-in-reply by stipulating to a partial dismissal in which Epic Games agreed not to
`challenge “any claims . . . other than the Asserted Claims” in an IPR. (See Dkt. No. 47 at 1.) Epic
`Games claims that this constitutes consent for Epic Games to challenge the asserted claims in an
`IPR. The Court disagrees, but the point is moot.
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`Case 4:19-cv-04133-YGR Document 80 Filed 04/01/20 Page 7 of 7
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`IV. CONCLUSION
`For the foregoing reasons, the Court DENIES Acceleration Bay’s motion to strike or to
`reclassify Epic Games’ counterclaims-in-reply. This Order terminates Docket Number 53.
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`IT IS SO ORDERED.
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`Dated: April 1, 2020
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`YVONNE GONZALEZ ROGERS
`UNITED STATES DISTRICT COURT JUDGE
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