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Nalco Co. v. Chem-Mod, LLC

United States Court of Appeals, Federal Circuit

February 27, 2018

NALCO COMPANY, Plaintiff-Appellant
v.
CHEM-MOD, LLC, ARTHUR J. GALLAGHER & CO., GALLAGHER CLEAN ENERGY, LLC., AJG COAL, INC., AJG IOWA REFINED COAL, LLC, MANSFIELD REFINED COAL LLC, COPE REFINED COAL LLC, CROSS REFINED COAL LLC, JEFFERIES REFINED COAL, LLC, JOPPA REFINED COAL, LLC, THOMAS HILL REFINED COAL LLC, WAGNER COALTECH LLC, WALTER SCOTT REFINED COAL LLC, WINYAH REFINED COAL LLC, BEDFORD MIX LLC, BRANDON SHORES COALTECH LLC, CANADYS REFINED COAL, LLC, CORONADO REFINED COAL LLC, FRM TRONA FUELS LLC, FRM VIRGINIA FUELS LLC, GEORGE NEAL NORTH REFINED COAL LLC, GEORGE NEAL REFINED COAL LLC, LOUISA REFINED COAL, LLC, REFINED FUELS OF ILLINOIS, LLC, BELLE RIVER FUELS COMPANY, LLC, Defendants-Appellees

         Appeal from the United States District Court for the Northern District of Illinois in No. 1:14-cv-02510, Senior Judge John W. Darrah.

          William Bryan Farney, Farney Daniels, PC, Georgetown, TX, argued for plaintiff-appellant. Also represented by Cassandra Klingman.

          Richard Mark, Gibson, Dunn & Crutcher LLP, New York, NY, argued for defendants-appellees. Also represented by Joseph Evall, Paul J. Kremer; Steven Eric Feldman, Sherry Lee Rollo, Hahn Loeser & Parks, LLP, Chicago, IL.

          Before Moore, Schall, and O'Malley, Circuit Judges.

          O'MALLEY, CIRCUIT JUDGE.

         Nalco Company ("Nalco") appeals from the district court's decision dismissing its Fourth Amended Complaint ("4AC") with prejudice for failure to state a claim upon which relief can be granted. The 4AC alleged infringement of U.S. Patent No. 6, 808, 692 ("the '692 patent") by Appellees Chem-Mod, LLC, Arthur J. Gallagher & Co., Gallagher Clean Energy, LLC, AJG Coal, Inc., and various Refined Coal LLCs (collectively, "Defendants"). Nalco Co. v. Chem-Mod, LLC (Nalco 4AC Order), No. 14-cv-2510, 2016 WL 1594966 (N.D. Ill. Apr. 20, 2016), reconsideration denied, Nalco Co. v. Chem-Mod, LLC (Nalco 4AC Reconsideration Order), No. 14-cv-2510, 2016 WL 4798950 (N.D. Ill. Sept. 14, 2016). We conclude that the district court erred in dismissing Nalco's direct infringement claims and, thus, reverse the district court's order as to those claims. We also reverse the district court's dismissal of Nalco's doctrine of equivalents, indirect, and willful infringement claims. We remand for further proceedings in this matter.

         I. Background

         A. The Technology

         Nalco is the exclusive licensee of the '692 patent, titled "Enhanced Mercury Control in Coal-Fired Power Plants, " which describes a method for the removal of elemental mercury, a toxic pollutant, from the flue gas created by combustion in coal-fired power plants. '692 patent, Abstract. Previous attempts to filter mercury from coal combustion flue gas failed due to lack of commercial viability or excessive expense. Id., col. 1, l. 29-col. 3, l. 51.

         The methods claimed in the '692 patent solve this problem by reacting halogens, such as molecular chlorine (Cl2) or molecular bromine (Br2), with elemental mercury (Hg) in flue gas to form mercuric halides (HgCl2 or HgBr2), which precipitate into solid particles that can be filtered from the flue gas more easily. Molecular halides, however, cannot be injected into the flue gas on their own due to their corrosive properties. The '692 patent thus claims the injection of a halide precursor-a molecule that reacts to create an elemental halide-into the flue gas. The halide precursor is thermolabile, meaning that it reacts in the heat of the flue gas to create a molecular halide. The '692 patent explains that the preferred location to inject the halide precursor is in the combustion zone of the furnace. Id., col. 4, l. 66-col. 5, l. 27.

         Independent claim 1 recites:

         1. A method of treating coal combustion flue gas containing mercury, comprising:

injecting a bromide compound that is a thermolabile molecular bromine precursor into said flue gas to effect oxidation of elemental mercury to a mercuric bromide and providing alkaline solid particles in said flue gas ahead of a particulate collection device, in order to adsorb at least a portion of said mercuric bromide.

J.A 27, col. 2, ll. 42-51. In a preferred embodiment described in the '692 patent, a source of molecular halide (such as a bromine precursor) is injected directly into a region of the flow path of the flue gas downstream from the combustion zone. '692 patent, col. 3, l. 66-col. 4, l. 11.

         Alstom Power, a non-party to this action, requested inter partes reexamination of the '692 patent; the Patent and Trademark Office ("PTO") initiated a proceeding in 2009. The Patent Trial and Appeal Board ("the Board") affirmed the validity of the asserted claims of the '692 patent, as amended, and the PTO issued a reexamination certificate on April 7, 2014.

         B. District Court Proceedings

         Nalco filed five successive complaints against various Defendants[1] in this proceeding, claiming that Defendants' Chem-Mod process operates in the same manner as the process encompassed by claim 1 of the '692 patent. The district court dismissed Nalco's complaints on three separate occasions. Nalco Co. v. Chem-Mod, LLC (Nalco 1AC Order), No. 14-cv-2510, 2015 WL 507921 (N.D. Ill. Feb. 4, 2015) (dismissing First Amended Complaint ("1AC") without prejudice); Nalco Co. v. Chem-Mod, LLC (Nalco 3AC Order), No. 14-cv-2510, 2015 WL 6122811 (N.D. Ill. Oct. 15, 2015) (dismissing Third Amended Complaint ("3AC") without prejudice); Nalco 4AC Order, 2016 WL 1594966 (dismissing 4AC with prejudice), reconsideration denied, Nalco 4AC Reconsideration Order, 2016 WL 4798950. In these orders, the district court concluded that each of Nalco's complaints suffered from factual deficiencies that precluded relief, as detailed further below.

         1. Original Complaint and 1AC

         Nalco filed its first complaint against Chem-Mod on April 8, 2014, one day after the PTO issued the reexamination certificate for the '692 patent. Nalco's Compl. for Patent Infringement, Nalco Co. v. Chem-Mod, LLC, No. 14-cv-2510 (N.D. Ill. Apr. 8, 2014), ECF No. 1. Nalco amended its complaint to add A.J. Gallagher and Gallagher Clean Energy, LLC as Defendants. Nalco's First Am. Compl. for Patent Infringement at 1, Nalco Co. v. Chem-Mod, LLC, No. 14-cv-2510 (N.D. Ill. July 25, 2014), ECF No. 14.

         The 1AC alleged that these Defendants directly and indirectly infringed the '692 patent through the use and licensing of the Chem-Mod Solution in the United States. Id. at 3-6. According to the 1AC, the Chem-Mod Solution "comprise[d] dual injection of two additives [molecular bromine precursors MerSorb and S-Sorb] on the coal feed belts of coal burning power generation stations before the coal is fed into a coal combustion process." Id. at 3. The 1AC alleged that use of the Chem-Mod Solution practices all steps of at least claim 1 of the '692 patent because it "is a method of treating coal combustion flue gas containing mercury, which requires injecting a bromide compound that is a thermolabile molecular bromine precursor into a flue gas to effect oxidation of elemental mercury to a mercuric bromide." Id. Nalco asserted that the only difference between its patented method and Defendants' Chem-Mod Process is that the Chem-Mod Process injects MerSorb or S-Sorb in a different area of the plant than described in a preferred embodiment of the '692 patent.

         The district court granted Defendants' motion to dismiss the 1AC under Federal Rule of Civil Procedure 12(b)(6), concluding that the 1AC could not support a finding of direct infringement because the '692 patent "differs from the Chem-ModTM Solution in both when it is applied (after the coal is burned vs. before the coal is burned) and how it is applied (injected into the flue gas vs. mixed with cold coal)." Nalco 1AC Order, at *3. The district court also dismissed Nalco's indirect infringement claims based on failure to state a claim for direct infringement. Id.

         2. 2AC and 3AC

         In its Second Amended Complaint ("2AC"), Nalco attempted to address what it believed was the district court's misunderstanding of what the '692 patent claimed. Nalco pled that Defendants infringed the '692 patent based on use of the Chem-Mod Solution, by mixing Mer-Sorb or S-Sorb with coal and then injecting this mixture (the "Chem-Mod Solution Mixture") into flue gas to form the mercuric bromide compound. Nalco's Second Am. Compl. for Patent Infringement at 7-8, Nalco Co. v. Chem-Mod, LLC, No. 14-cv-2510 (N.D. Ill. Mar. 3, 2015), ECF No. 64. Nalco asserted that the claims of the '692 patent do not restrict when, where, or how the "injecting" step is performed. Id. at 5-6. Nalco explicitly incorporated infringement contentions into this pleading. Id. at 10.

         The 2AC includes as Defendants AJG Coal, Inc. and 34 John Doe limited liability company parties, unnamed coal refinery facilities that allegedly made coal using the Chem-Mod Solution and sold it to power plant operators. Id. at 11. Nalco also added allegations that Defendants acted in concert, under the direction and control of A.J. Gallagher, to earn Section 45 tax credits from the sale of refined coal. Id. at 10-16. Section 45 tax credits are offered for the sale of refined coal to an unrelated person for the production of steam in a coal-fired power plant. Id. at 11, 13. Nalco alleged that Defendant A.J. Gallagher formed wholly-owned subsidiary Defendants Gallagher Clean Energy and AJG Coal, controlled and directed the actions of Defendant Chem-Mod, and formed each of the Defendant Refined Coal LLCs solely to use the Chem-Mod Solution and to induce operators of coal-fired power plants to use the Chem-Mod Solution to obtain Section 45 tax credits. Id. at 11.

         Defendants moved to dismiss the 2AC. In response, Nalco amended its complaint to replace the John Doe coal refineries with the 21 Refined Coal LLCs that allegedly operate them. Nalco's Third Am. Compl. for Patent Infringement at 2, 4-11, Nalco Co. v. Chem-Mod, LLC, No. 14-cv-2510 (N.D. Ill. Apr. 24, 2015), ECF No. 75. Nalco did not alter its allegations as to the relationships between the Defendant entities or their allegedly infringing actions. The district court deemed Defendants' motion to dismiss the 2AC as filed against the 3AC because Nalco amended the 2AC before the district court resolved the motion to dismiss.

         The district court granted the motion to dismiss. On direct infringement, the district court concluded that Nalco failed to plead facts supporting its allegations that the Chem-Mod Solution is "injected" as required by the claims of the '692 patent. Nalco 3AC Order, at *3. In the district court's view, the 3AC incorporated documents showing that MerSorb is added to coal in three locations: (1) on the coal feed belt before coal reaches the coal bunker; (2) between the coal bunker and coal feeder; and (3) in the coal feeder, before coal is pulverized. Id. In all of these locations, the MerSorb and coal mixture is added to the Chem-Mod process before coal combustion, prior to interaction with flue gas, and the district court concluded this process did not satisfy the "injecting" requirement. Id.

         The district court also held that, even if the 3AC had successfully pled that the '692 claims covered use of the Chem-Mod Solution, Nalco's "direction and control" argument failed because the 3AC failed to allege that Defendants were responsible "for both preparing the Chem-Mod Solution Mixture and injecting the treated coal into coal combustion flue gas." Id. The district court found that "[a]ny argument that compliance with Section 45 of the tax code is evidence that Defendants direct and control the infringement of a patent in this case is unpersuasive and unconvincing." Id. at *2.

         The district court also dismissed Nalco's indirect and willful infringement claims for failure to plead underlying direct infringement. Id. at *4. The district court further found that Nalco had not pled intent to induce infringement because the district court was unpersuaded that receipt of Section 45 tax credits was indicative of the requisite intent. Id. On contributory infringement, the district court further found that the 3AC failed to allege facts to support the conclusion that "MerSorb and S-Sorb have no substantial non-infringing uses." Id.

         3. 4AC and Motion for Reconsideration

         Nalco makes similar allegations in the 4AC, supported by incorporated infringement contentions and various other evidence. Nalco alleges two theories of direct infringement in the 4AC. First, it alleges that "[t]he Chem-ModTM Solution involves the step of 'injecting a bromide compound . . . into said flue gas . . . ' as recited in claim 1 of the '692 Patent." Nalco 4AC, at 15-16. Nalco further explains that, "[i]n the Chem-ModTM Solution, the proprietary additive MerSorbTM is mixed with coal . . . . The Chem-ModTM Solution Mixture is then injected into coal combustion flue gas to effect oxidation of elemental mercury into a mercuric bromide." Id. at 16. Alternatively, Nalco alleges that, "when a coal combustion furnace is operating, gases and other materials injected via coal injectors flow under pressure into areas of the coal combustion furnace beyond the areas of the furnace in which the coal component of the Chem-Mod' Solution Mixture combusts and into additional areas of the furnace in which the coal combustion flue gas exists. Thus, this is an additional mechanism by which the MerSorb additive component of the Chem-Mod' Solution Mixture is 'injected into . . . coal combustion flue gas.'" Id. at 17-18.

         The 4AC also pleads various ways in which Defendants control or direct the performance of the steps claimed in the '692 patent, through commercial applications and through testing of the Chem-Mod Solution both on pilot scale and full scale. Id. at 26-40. The 4AC also alleges Defendants induced infringement of, contributorily infringed, and willfully infringed the '692 patent, and that Defendants infringed under the doctrine of equivalents.

         The district court granted Defendants' motion to dismiss the 4AC with prejudice. As in the order dismissing the 3AC, the district court found that "the Chem-Mod Solution differs from the '692 Patent in both the location and method of application." Nalco 4AC Order, at *2. And the district court rejected Nalco's argument that, even if "injecting" of the solution is restricted to a specific time or location, Defendants still infringe the '692 patent under the doctrine of equivalents, finding that Nalco failed to support its contention that Defendants perform all claimed steps or their equivalents. Id. at *3. The district court concluded that its dismissal of Nalco's complaint prior to claim construction was not premature, as the facts Nalco pled did not support an undivided claim of direct infringement. Id.

         The district court dismissed Nalco's divided infringement claim for the same reasons cited in its dismissal of the 3AC: compliance with Section 45 of the tax code is insufficient to allege that Defendants direct and control infringement of a patent. Id. Nor, according to the district court, was it sufficient for Nalco to allege that instructing power plants on the use of the Chem-Mod Solution Mixture demonstrated any control over the plants' performance of any infringing method steps. Id. The district court also refused to find that Nalco had alleged sufficiently that Defendants partnered in a joint enterprise with coal-fired power plant operators-finding that the existence of a contract between the Refined Coal LLCs and several power plants for purchase of the Chem-Mod Solution Mixture was insufficient to establish a joint enterprise, or an equal right of control. Id. at *4.

         Again, the district court rejected Nalco's claims for induced and contributory infringement due to a failure to plead direct infringement. Id. The district court also found that Nalco failed to plead an induced infringement claim because it failed to plead facts indicating an intent to induce infringement. Id.

         Nalco filed a motion for reconsideration and attached additional intrinsic and extrinsic evidence. The district court denied Nalco's motion for reconsideration, finding that Nalco failed to establish "manifest error of law or fact." Nalco 4AC Reconsideration Order, at *3. The district court also denied Nalco's request to allow it to, once again, amend the complaint because Nalco had multiple opportunities to present and incorporate its new evidence into a prior pleading yet had failed to do so. Id. at *2-3.

         Nalco timely appealed from the district court's final decision. We have jurisdiction over this appeal under 28 U.S.C. § 1295(a)(1).

         II. Discussion

         Federal Rule of Civil Procedure 8(a)(2) "generally requires only a plausible 'short and plain' statement of the plaintiff's claim, " showing that the plaintiff is entitled to relief. Skinner v. Switzer, 562 U.S. 530 (2011). "Because it raises a purely procedural issue, an appeal from an order granting a motion to dismiss for failure to state a claim upon which relief can be granted is reviewed under the applicable law of the regional circuit." In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1331 (Fed. Cir. 2012) (citing McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1355-56 (Fed. Cir. 2007)); C & F Packing Co. v. IBP, Inc., 224 F.3d 1296, 1306 (Fed. Cir. 2000)). The Seventh Circuit reviews a district court's dismissal for failure to state a claim under Rule 12(b)(6) de novo, and the district court's decision to dismiss with prejudice under Rule 12(b)(6) for abuse of discretion. Manistee Apartments, LLC v. City of Chi., 844 F.3d 630, 633 (7th Cir. 2016). In so doing, the Seventh Circuit "assume[s] all well-pleaded allegations are true and draw[s] all reasonable inferences in the light most favorable to the plaintiff." Id.

         Nalco contests the district court's dismissal of its direct and indirect infringement claims ...


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