The Split Of Opinions For Motions To Dismiss When Pleading Indirect Infringement In Patent Cases: Will The Complaint Stay Or Might It Be Forced To Go?

By:  Blair Clinton

Over the last decade, patent law has experienced its share of significant changes. In the context of patent litigation, especially, new patent-specific pleading standards have presented some hot-button issues for patent holders wishing to navigate the already murky morass of Iqbal and Twombly. While pleading standards for direct infringement remain relatively safe, thanks to In re Bill of Lading,[1] the pleading requirements for claims of indirect infringement have become considerably more difficult and unclear for patent holders.

Direct infringement is a strict liability tort where the law requires that each claim limitation read on (literally or through the doctrine of equivalents) an allegedly infringing product. The doctrine of indirect infringement, namely contributory[2] and induced[3] infringement, creates liability in any entity who arguably facilitates direct infringement by another. Because the doctrine of indirect infringement considerably expands the range of potential defendants to an infringement suit, the law mandates that in addition to sufficiently pleading a claim for direct infringement, patent plaintiffs must also plead facts sufficient for a court to infer the defendant had knowledge or intent to induce or contribute to the alleged direct infringement.

For any patent plaintiff, formulating a claim for indirect infringement which satisfies the knowledge requirement is no cake walk.[4]  But it is the uncertainty in timing of this requirement that has recently provided defendants with more ammunition for filing a motion to dismiss. Under 35 U.S.C. §§ 271(b) and 271(c) and recent Federal Circuit law, a defendant’s conduct—inducing or contributing to another’s direct infringement— must occur after the defendant knew: (1) of the patent(s) in suit; and (2) that the direct-infringers’ acts constitute patent infringement.[5]  Objectively, this makes sense. However, if a defendant must have actual knowledge (or succumb to willful blindness) before its conduct creates liability for indirect infringement, how does this affect the sufficiency of a complaint if a defendant first knew of the patent and its infringement thereof from the filing of a complaint?  In other words, does a defendant need to have the requisite knowledge before a lawsuit is filed in order for a patent plaintiff to survive a motion to dismiss?  As expected, this hasn’t exactly been an easy question for the federal district courts around the country to answer.

An Explanation: Walker Digital versus Proxyconn

Two cases that are arguably cited the most, likely because they provide the best explanation for their respective positions are Walker Digital, LLC v. Facebook Inc. and Proxyconn Inc. v. Microsoft Corp. In Walker Digital, in which the District of Delaware gave the following explanation for denying the defendant’s 12(b)(6) motion to dismiss the plaintiff’s indirect infringement claims:

Moreover, there is no legal impediment to having an indirect infringement cause of action limited to post-litigation conduct. Indeed, it is instructive to bear in mind the fundamental purpose of asserting indirect infringement, that is, to ensure that the patentee can recover full compensation for any damages suffered as a result of infringement. The fact that Walker Digital would be prohibited from collecting damages related to indirect infringement for any preknowledge (e.g., pre-filing) conduct is the only substantive consequence of allowing allegations such as those at bar to go forward.

In sum, if a complaint sufficiently identifies, for purposes of Rule 8, the patent at issue and the allegedly infringing conduct, a defendant’s receipt of the complaint and decision to continue its conduct despite the knowledge gleaned from the complaint satisfies the requirements of Global–Tech.[6]

In finding that “[k]nowledge after filing of the present action is not sufficient for pleading the requisite knowledge for indirect infringement,” the rationale of the Central District of California Court in Proxyconn stands in stark contrast:

Plaintiff’s argument requires this Court to bootstrap the knowledge Defendants now have based on Plaintiff’s filing of the Complaint onto defendant’s acts before Plaintiff filed its complaint. Yet, a defendant cannot be held liable because it induced or contributed to another’s acts before the defendant had knowledge, because to do so effectively holds a defendant liable for acts it did without knowledge.

Furthermore, requiring a Plaintiff to plead knowledge based on facts other than the filing of the present lawsuit furthers judicial economy and preserves parties’ resources by encouraging resolution prior to filing a lawsuit. Pre-litigation attempts at resolution are especially desirable in patent cases, which are often expensive and thus resolved by settlement. Indeed, Plaintiff could have notified Defendants of their alleged infringement and sought an amicable resolution at any time prior to filing this suit. Defendants should not be punished for Plaintiff’s failure to do so.

For these reasons, the Court follows the authorities that hold that ‘knowledge after filing of the present action is not sufficient for pleading the requisite knowledge for indirect infringement.’ [7]

Below is a list of excerpts from opinions of other courts which had the opportunity to address the issue as to on when a defendant’s 12(b)(6) motion to dismiss should be granted or denied. The apparent split illustrates the ripeness of this issue for Federal Circuit review.

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Cases Finding Pre-Suit Knowledge is Not Required

Intellect Wireless Inc. v. Sharp Corp., 2012 WL 787051, at *11 (N.D. Ill. March 9, 2012) (“Defendants’ knowledge of the patent as of the time of the suit’s commencement can satisfy the knowledge requirement for conduct that post-dates the date of the complaint”)

Trading Techs. Intern., Inc. v. BCG Partners, Inc., 2011 WL 3946581, at *4 (N.D. Ill. Sept. 2, 2011) (“The Court believes the Groupon approach [finding defendant’s knowledge as of the filing of the complaint sufficient to claim indirect infringement] is the more practical one, assuming the plaintiff can plead that the defendant continues to sell its infringing product”)

SoftView, LLC v. Apple Inc., 2012 WL 3061027, at *7 (D. Del. July 26, 2012) (“On balance, the Court agrees with SoftView’s position that the filing of a complaint is sufficient to provide knowledge of the patents-in-suit for purposes of stating a claim for indirect infringement occurring after the filing date”)

E.I. Du Pont De Nemours and Co. v. Heraeus Holding GMBH, 2012 WL 4511258, at *6 (D. Del. Sep. 28, 2012) (“[W]hile Twombly and Iqbal require facts to be pled that allow for the plausible inference that the elements of an inducement claim can be met, when it comes to knowledge of the patent-at-issue, a plaintiff’s filing (and a defendant’s receipt) of the complaint are facts that establish such knowledge-at least as of the date of the filing”).

InMotion Imagery Techs. v. Brain Damage Films, 2012 WL 3283371 (E.D. Tex. Aug. 10, 2012) (“Failing to allege pre-suit knowledge of the patent is not a basis to dismiss [Plaintiff’s] indirect infringement claims; as it cannot be disputed that [Plaintiff] does sufficiently plead that the Moving Defendants had knowledge of the asserted patent for at least some time during the infringing period”) (internal citations omitted)

Symantec Corp. v. Veeam Software Corp., 2012 WL 1965832, at *4 (N.D. Cal. May 31, 2012) (“The Court finds that plaintiff has adequately pled knowledge of alleged infringement as of the date of the complaint…”)

Cases Finding Pre-Suit Knowledge is Required

Secured Mail Solutions, LLC v. Advanced Image Direct, LLC, Case No. 8:12-cv-01090-DOC-MLG, p. 11 (C.D. Cal. Jan. 30, 2013) (“Insofar as Plaintiff alleges knowledge of the Patents in Suit based on the filing of the original Complaint in this lawsuit, the holding in Proxyconn controls and Plaintiff has not pled sufficient facts to state a plausible claim for indirect patent infringement”).

Brandywine Commc’ns Techs., LLC v. T-Mobile USA, Inc., 2012 WL 5266049, at *7 (M.D. Fla. Oct. 24, 2012) (“Also, because notice of the patent is necessarily provided by a complaint, finding that a complaint provides sufficient knowledge for induced infringement would vitiate the Supreme Court’s holding in Global–Tech that an allegation of knowledge of the patent is required to state a claim for induced infringement.”)

Xpoint Technologies, Inc. v. Microsoft Corp., 730 F.Supp.2d 349, 357 (D. Del. 2010) (dismissing claims of indirect infringement because “knowledge after filing of the present action is not sufficient for pleading the requisite knowledge for indirect infringement”);

Mallinckrodt, Inc. v. E–Z–Em Inc., 670 F.Supp.2d 349, 354 n. 1 (D. Del. 2009) (“The Court is not persuaded by Plaintiffs’ contention that the requisite knowledge can be established by the filing of Plaintiff’s Complaint.”)

Aguirre v. Powerchute Sports, LLC, 2011 WL 2471299, at *3 (W.D. Tex. June 17, 2011) (“To the extent Aguirre relies on knowledge of Aguirre’s patent after the lawsuit was filed, such knowledge is insufficient to plead the requisite knowledge for indirect infringement”).

Zamora Radio, LLC v. Last.FM, Ltd., 758 F.Supp.2d 1242, 1257 (S.D. Fla. 2010) (Finding no indirect infringement because “[plaintiff] has offered no evidence that Defendants had any pre-suit knowledge of the ‘399 Patent”).

What is the Import for Patent Plaintiffs?

All of this talk begs the question: if patent plaintiffs need these indirect infringement claims so badly (for patent plaintiffs asserting method or system claims, indirect infringement is often times the only avenue of recourse), why not notify potential infringers and then file suit? Well that sounds simple in theory. But for a patent plaintiff wishing to avoid the possibility  of defending a declaratory judgment action in an unfavorable jurisdiction, the import of that decision is far reaching.

When the Federal Circuit has the opportunity to opine on this issue, if it decides that actual pre-suit knowledge is a requirement, then most patent holders will need to brush up on their creative writing skills when drafting those lovable enforcement letters. This is because every patent holder and its counsel knows to tread lightly in any pre-litigation interaction with a potential defendant, albeit in a once-written notice letter.  Opening the door to declaratory judgment actions and perhaps putting the ball in a defendant’s court can have profound effects on the future course of litigation for a patent plaintiff.

On the other hand, if the Federal Circuit sides with a majority of the district courts in finding a defendant liable for indirect infringement with respect to post-litigation conduct from its knowledge as of the filing of a complaint, patent plaintiffs may ultimately have more control over their choice of venue by avoiding a claim for declaratory judgment based on the need for a pre-filing notice letter before asserting indirect infringement claims. In addition, by eliminating another weapon with which a defendant can attack a complaint, a patent plaintiff has effectively strengthened its case going forward.