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CPI Card Group, Inc. v. Multi Packaging Solutions, Inc.

United States District Court, D. Colorado

November 27, 2017

CPI CARD GROUP, INC., Plaintiff/Counter Defendant,


          Michael E. Hegarty United States Magistrate Judge

         In this patent infringement action, Plaintiff CPI Card Group, Inc. (“CPI”) contends that its counsel has learned during discovery that the patent at issue was not assigned to CPI Card Group, Inc., as originally believed, but rather to its subsidiary, CPI Card Group-Minnesota, Inc. CPI's counsel, David Bloch, admits that he erred in originally filing this action on behalf of CPI Card Group, Inc. and, now, seeks an order “correcting” the name of the Plaintiff. Defendant Multi Packaging Solutions, Inc. (“MPS”) objects stating CPI has no standing in this case to make such request and, even if it did, its request is untimely and unduly prejudicial. The Court finds CPI fails to demonstrate its constitutional standing in this case and, thus, its motion is denied as moot, and the Court dismisses CPI's claims without prejudice for the Court's lack of subject matter jurisdiction. However, the Court will stay the effect of the dismissal order and grant CPI Card Group-Minnesota an opportunity to move for joinder in this action.

         I. Background

         CPI initiated this action on October 11, 2016 alleging generally that MPS had infringed, and may continue to infringe, claims of a U.S. Patent No. 8, 419, 889 patent (“the ‘889 Patent”), titled “Ultrasecure Card Package, ” by making, using, importing, offering to sell, and selling its card packaging products. Specifically, CPI contends that MPS used “ZED” machinery to create the same heat-sealing process used by CPI to seal its packaged prepaid debit cards. On December 13, 2016, MPS filed the operative amended answer and counterclaims for declaratory judgment of non-infringement and invalidity of the ‘889 Patent. The Court issued the governing Scheduling Order in a Patent Case on December 8, 2016, and this case has proceeded accordingly.

         In fact, following a tutorial and hearing on August 29, 2017, the Court issued its claim construction order on October 23, 2017, then modified the Scheduling Order in accordance with the parties' proposals on October 31, 2017. As such, the fact discovery deadline is currently January 15, 2018, and the expert discovery cutoff is April 9, 2018.

         In the present motion, CPI asserts that its counsel erroneously understood CPI had acquired all patents previously owned by CPI's subsidiaries as part of an initial public offering in October 2015 and explains the “correct” patent assignment history as follows:

The original patent application leading to the `889 Patent is U.S. Patent Application Serial No. 12/017, 227. The ‘227 Application and any “continuations … based thereon” were assigned by inventor Dennis Smith to UV Color, Inc. on June 5, 2008. UV Color then assigned the rights to the `227 Application and any continuations to CPI Card Group-Minnesota on March 9, 2010. On April, 8, 2011, U.S. Patent Application Serial No. 13/083, 178, a continuation of the `227 Application, was filed. The `178 Application matured into the `889 Patent. Thus, CPI Card Group- Minnesota owns the `889 Patent and any other patents or patent applications in the `227 Application's family tree by virtue of the 2010 assignment.
The assignment to CPI Card Group-Minnesota, however, does not appear in the assignment records for the `889 Patent. Instead, the `889 Patent's assignment records reflect a April 28, 2011, assignment of the `178 Application from inventor Dennis Smith to CPI. But this assignment (and the ones that come after it) is later in time than the March 2010 assignment to CPI Card Group-Minnesota. Thus, Mr. Smith had no rights to convey in the `178 Application at the time of his purported assignment to CPI/ CPI Card Group-Colorado. Nor is there a subsequent assignment from CPI Card Group-Minnesota to CPI, presumably because no one realized that CPI Card Group-Minnesota still owned the `889 Patent despite Mr. Smith's 2011 assignment. As it turns out, CPI Card Group-Minnesota has been the patentee (and not merely the entity that makes and sells the products embodying the `889 Patent) all along.

Mot. 2-3. CPI argues that its request to substitute CPI Card Group-Minnesota as the “correct” Plaintiff is proper, timely, and will not prejudice MPS as it simply seeks to correct a “chain-of-title error.” Id.

         MPS counters that CPI's request is futile because CPI, as an improperly named party, has no standing to seek any relief in this case. Further, MPS contends that CPI should not be allowed to “name a new patent owner without (1) producing all relevant ownership and transaction information, (2) proving which entity actually owns the '889 patent, (3) providing factual explanations for contrary statements, and (4) giving MPS an opportunity to investigate CPI's proof through discovery and challenge it, if necessary.” Resp. 9. Finally, MPS argues that even if CPI had standing, it could not meet the requirements necessary to show its requested amendment is proper under the applicable rules.

         CPI replies that courts have substituted plaintiffs pursuant to Fed.R.Civ.P. 17(a) when the plaintiff demonstrates a mistake in identifying the proper plaintiff and no prejudice to the defendant(s). CPI asserts that MPS's cited cases are not contrary to such proposition and “allow[] for amendment to name the proper patent owner where the plaintiff sued in the wrong name as a result of an ‘honest and understandable mistake.'” Reply 5. CPI argues that MPS articulates no actual prejudice resulting from a simple substitution of the correct party.

         Based on CPI's “new” argument concerning Rule 17(a), the Court permitted MPS to file a surreply on or before November 9, 2017. MPS contends that Rule 17 does not serve to “cure” standing and jurisdiction; CPI's cited cases are neither precedential nor persuasive; CPI seeks more than a “clerical change” of a party, which is not permitted; and CPI knew or should have known that CPI Card Group-Minnesota was the real party in interest.

         II. Legal Standards

         CPI brings its motion pursuant to Rules 15 and 17 of the Federal Rules of Civil Procedure. Rule 15 provides that, following a 21-day period for service of the complaint or service of a responsive pleading or Rule 12 motion, a party may amend its complaint only by leave of the court or by written consent of the adverse party. Fed.R.Civ.P. 15(a). Rule 15 instructs courts to “freely give leave when justice so requires.” Id. Nevertheless, denying leave to amend is proper if the proposed amendments are unduly delayed, unduly prejudicial, ...

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