In CardSoft, Inc. v. VeriFone Systems, Inc. (May 28, 2012), Judge Payne (Eastern District of Texas) denied Defendant VeriFone's request to supplement its invalidity contentions to add two additional prior art references. In denying the requested supplement, the Court focuses on Patent Local Rule 3-6(b) of the Eastern District of Texas and notes that amendments to contentions require a "showing of good cause." (Order at 1). The four standard factors underlying a good cause analysis included: (1) explanation for party's failure to timely move for leave to amend; (2) importance of the amendment; (3) potential prejudice resulting from amendment; and (4) availability of continuance to cure prejudice. The Court then determined that the defendant was not diligent because it should have investigated prior art processing terminals based on plaintiff's identification of alleged infringing products.
The Court explained:
The Court is not satisfied that VeriFone acted diligently to discover the Omni 300 and OTA prior art. These references are related to VeriFone's own products, which it should have uncovered even if CardSoft never accused the Omni 3200 payment terminals of infringement. Furthermore, it took VeriFone nearly eight months to produce the references, and then another four months to disclose its invalidity contentions based upon the references. The Court is not persuaded that this shows diligence on VeriFone's part. Verifone's lack of an adequate explanation to explain its delay weighs strongly against granting leave.
(Order at 3).
In the end, the Court was not persuaded that diligence was shown. We were surprised at how the Court resolved the other good cause prongs involving prejudice. As to prejudice, the Court explained:
The importance of these references are quite clear, which weighs in favor of granting VeriFone leave to amend. However, their importance only adds to the prejudice suffered by CardSoft because it was deprived of a meaningful opportunity to consider these references during the claim construction process. Because claim construction was nearly over by the time VeriFone disclosed its invalidity contentions based on the Omni 300 and OTA prior art, and claim construction is now complete, a continuance is not available to cure CardSoft's prejudice.
If the impact on claim construction was not an appropriate factor for invalidity contention supplements, there would be little, if any, prejudice to CardSoft. Maybe the supplement request would have been granted. As we previously suggested here and here, the link between invalidity contentions and claim construction prejudice is tenuous. In this case, the prior art is not part of the intrinsic evidence, and the court noted the importance of the prior art references, yet the supplement request was denied. Although claim construction was concluded, should that fact really impact the inclusion of additional invalidity contentions? The claims mean what they mean. If the claims encompass the prior art then it is what it is.
Takeaways - Diligence is the paramount consideration for supplemental contentions. This ruling indicates that although Defendant VeriFone continued its prior art investigation at a measured pace, the defendant did not move quick enough. Tough case, tough decision. I would prefer not to see the balance of a decision rest on how an invalidity contention supplement impacts claim construction as a reason for denying the supplement. I don't believe the rules were intended to exclude prior art because a plaintiff lacked non-intrinsic prior art during the claim construction process. I continue to look at the evolution of the local rules for linkage between invalidity contentions and claim construction. It would be helpful if someone could point me to any local patent rule comments on this issue. I'm particularly interested in comments detailing why invalidity contentions must precede claim construction. Is it to allow the patent owner to craft proposed constructions in light of prior art (extrinsic evidence)? What principle of claim construction would that be based on? These are somewhat rhetorical questions. Care to comment?