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Strikeforce Technologies, Inc. v. Phonefactor, Inc.

United States District Court, Third Circuit

November 13, 2013

STRIKEFORCE TECHNOLOGIES, INC., Plaintiff,
v.
PHONEFACTOR, INC., and FIRST MIDWEST BANCORP, INC. Defendants,

REPORT AND RECOMMENDATION

MARY PAT THYNGE, Magistrate Judge.

I. INTRODUCTION

On March 28, 2013, StrikeForce Technologies, Inc. ("StrikeForce") brought this action against First Midwest Bancorp, Inc. ("FMBI"), and PhoneFactor, Inc. ("PhoneFactor"), alleging infringement of U.S. Patent No. 7, 870, 599, (the "'599 patent").[1] Following an initial motion to dismiss, StrikeForce filed an amended complaint on June 25, 2013.[2] Presently before the court is FMBI's motion to dismiss the amended complaint pursuant to FED. R. CIV. P. 12(b)(6) for failure to state a claim upon which relief can be granted.[3] Because StrikeForce has sufficiently pled only one of its claims, FMBI's motion to dismiss should be denied in part and granted in part.

II. BACKGROUND

A. Factual Allegations

StrikeForce is a corporation incorporated in the state of Wyoming, with its principal place of business located in Edison, New Jersey.[4] FMBI is a corporation incorporated in the state of Delaware, with its principal place of business in Itasca, Illinois.[5] FMBI has a subsidiary, First Midwest Bank, which operates in the state of Illinois.[6] First Midwest Bank is not a party to this action.

StrikeForce owns the '599 patent.[7] This patent is directed to a multichannel security system and method for authenticating a user seeking access to websites and virtual private networks (VPNs), such as those used for conducting banking, social networking, business activities, and other online services.[8] This technology is sometimes referred to as "out-of-band" authentication.[9]

In 2011, PhoneFactor submitted to the U.S. Patent and Trademark Office a patent application for out-of-band authentication.[10] StrikeForce subsequently contacted PhoneFactor, giving notice of its '599 patent.[11] Prior to PhoneFactor's application, in August 2010, PhoneFactor and First Midwest Bank entered into a three year agreement, in which PhoneFactor would provide First Midwest Bank with its service.[12] StrikeForce claims both PhoneFactor and FMBI infringe the '599 patent by making, using, offering for sale, or selling a system and method for out-of-band authentication.[13]

StrikeForce alleges a number of facts addressing the intermingling between First Midwest Bank and FMBI. For example, First Midwest Bank and FMBI are headquartered at the same location in Illinois.[14] Nearly all of the value of FMBI's $8.1 billion in assets is attributable to First Midwest Bank.[15] The official web page for First Midwest Bank contains "Investor Relations" pages referencing information related to corporate governance, stock information, and how one can invest in the company, all of which relate to FMBI.[16] First Midwest Bank has the same governance policies and procedures adopted by FMBI.[17] Finally, FMBI and First Midwest Bank have the same Chief Executive Officer, Chief Operating Officer, Chief Financial Officer, Treasurer, Corporate Secretary and Chief Risk Officer.[18]

B. Position of the Parties

StrikeForce argues FMBI's subsidiary, First Midwest Bank, infringes its patent.[19] It contends FMBI is liable for that infringement under two similar theories: (1) FMBI and First Midwest Bank are alter egos of each another, and (2) First Midwest Bank infringed in its capacity as an agent of FMBI.[20]

FMBI argues StrikeForce's amended complaint does not satisfy the pleading standards of FED. R. CIV. P. 8(a) because it fails to allege facts sufficient to support an infringement claim.[21] Specifically, FMBI claims StrikeForce fails to touch the "fraud or injustice in use of the corporate form" element under both the alter ego theory and agency theory.[22] FMBI also argues StrikeForce has not alleged that FMBI directed the specific infringing actions of First Midwest Bank, a necessary element for agency.[23] Finally, FMBI asserts any alleged facts supporting the missing elements are merely legal conclusions, and do not constitute a well-pled complaint.[24]

In response to FMBI's motion to dismiss, StrikeForce insists it has successfully pleaded a claim, specifically by arguing "fraud" is not a mandatory component of the alter ego theory, [25] and the amended complaint is replete with allegations supporting agency.[26] Furthermore, StrikeForce points out that FMBI, in its motion to dismiss, includes and relies upon documents not integral to or explicitly relied upon in the complaint, and therefore, the motion to dismiss must be converted ...


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