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Versata Software, Inc. v. Cloud9 Analytics, Inc.

United States District Court, D. Delaware

February 18, 2014

VERSATA SOFTWARE, INC., F/K/A TRILOGY SOFTWARE, INC.; and VERSATA DEVELOPMENT GROUP, INC., F/K/A TRILOGY DEVELOPMENT GROUP, INC., Plaintiffs,
v.
CLOUD9 ANALYTICS, INC., Defendant.

REPORT AND RECOMMENDATION

CHRISTOPHER J. BURKE, Magistrate Judge.

Presently pending before the Court is Defendant Cloud9 Analytics, Inc.'s ("Defendant" or "Cloud9") motion (the "Motion") seeking to (1) dismiss, pursuant to Federal Rule of Civil Procedure 12(b)(6), Plaintiffs Versata Software, Inc. and Versata Development Group, Inc.'s (collectively, "Plaintiffs" or "Versata") induced infringement claims in Plaintiffs' Second Amended Complaint ("SAC"); and (2) strike the induced infringement-related relief sought in the SAC. (D.I. 25)[1]

For the reasons that follow, I recommend that Defendant's Motion be GRANTED without prejudice.

I. BACKGROUND

On July 19, 2012, Plaintiffs commenced this action, asserting that Defendant directly and indirectly infringes the two patents-in-suit, U.S. Patent Nos. 6, 834, 282 ("the '282 patent") and 7, 203, 701 ("the '701 patent"). (D.I. 1) The accused products are Defendant's software products relating to sales forecasting and pipeline management solutions. ( Id. ) Defendant later moved to dismiss that first Complaint for various reasons, including Plaintiffs' alleged failure to state a claim for indirect infringement. (D.I. 7)

Instead of responding to Defendant's motion, Plaintiffs filed a First Amended Complaint ("FAC") on October 23, 2012; the FAC included claims of direct infringement and induced infringement as to the two patents-in-suit. (D.I. 11) The allegations of induced infringement largely tracked the elements for that type of claim, and said little more. For example, as to their allegation that Defendant specifically intended to induce infringement by its "customers, licensees and end users" ("end users") through the end users' use of the allegedly infringing software products, Plaintiffs alleged only that Defendant "actively induced such infringement by continuing to sell and support the Infringing Products." ( Id. at ¶¶ 31, 36)

Defendant thereafter moved, inter alia, to dismiss the inducement claims. (D.I. 12, 13) After a hearing held on May 3, 2013, Judge Leonard P. Stark granted Defendant's motion to dismiss those claims, noting that "[a]ll that is alleged with respect to specific intent to induce the end user to infringe is really just legal conclusion and conclusory factual assertions, essentially tracking the statute, " which was not "adequate[.]" (D.I. 23 at 20) Judge Stark permitted Plaintiffs leave to amend so that they could "attempt to state specific facts from which a plausible inference can be drawn that the defendant has acted with specific intent to induce its end users to infringe the plaintiffs' patents[, ]" noting that cases have pointed to the induced infringer's provision of "user manuals, marketing materials [and] advertising" to the end user as examples of the types of conduct that might plausibly suggest such intent. ( Id. at 20-21)

On June 6, 2013, Plaintiffs filed the SAC, which again contained, inter alia, claims of induced infringement as to both of the patents-in-suit. (D.I. 24)[2] Defendant then filed the instant Motion. (D.I. 25) On February 4, 2014, Judge Stark referred the Motion to the Court for resolution. (D.I. 42)

II. LEGAL STANDARD

The sufficiency of pleadings for non-fraud cases is governed by Federal Rule of Civil Procedure 8, which requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). When presented with a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court conducts a two-part analysis. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). First, the court separates the factual and legal elements of a claim, accepting "all of the complaint's well-pleaded facts as true, but [disregarding] any legal conclusions." Id. at 210-11. Second, the court determines "whether the facts alleged in the complaint are sufficient to show that the plaintiff has a plausible claim for relief.'" Id. at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678 (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007)). In assessing the plausibility of a claim, the court must "construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Fowler, 578 F.3d at 210 (citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)).

III. DISCUSSION

Pursuant to 35 U.S.C. § 271(b), "[w]hoever actively induces infringement of a patent shall be liable as an infringer." In order to prove induced infringement, the patentee "must show direct infringement, and that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another's infringement." Toshiba Corp. v. Imation Corp., 681 F.3d 1358, 1363 (Fed. Cir. 2012) (internal quotation marks and citation omitted).

With regard to pleading an induced infringement claim, a plaintiff must, inter alia, allege facts plausibly showing that the defendant had knowledge that the alleged direct infringer's acts constituted infringement. See Pragmatus AV, LLC v. Yahoo! Inc., C.A. No. 11-902-LPS-CJB, 2013 WL 2295344, at *1 (D. Del. May 24, 2013) (citing In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1339 (Fed. Cir. 2012)). It is this pleading requirement that Defendant here asserts has not been met, as Defendant argues that Plaintiffs have "never offered... a detailed description of how the accused products [used by end users] allegedly infringe. " (D.I. 28 at 1) (emphasis in original).[3] While the plaintiff need not "prove its case at the pleading stage[, ]" a mere "formulaic recitation'" in the complaint of the language regarding this requirement in insufficient. In re Bill of Lading, 681 F.3d at 1339, 1346 (quoting Twombly, 550 U.S. at 545); see also Pragmatus AV, LLC v. TangoMe, Inc., Civil Action No. 11-1092-LPS, 2013 WL 571798, at *12-13 (D. Del. Feb. 13, 2013).

Our Court, when addressing this issue, has tended to require at least some specific factual allegations demonstrating that the indirect infringer knew of a relationship between the use of the accused product and infringement of the asserted patent. When complaints contain factual allegations setting out such a connection between product and patent-in-suit (more than simply identifying the product and patent), courts have permitted inducement claims to go forward.[4] For instance, in Fairchild Semiconductor Corp. v. Power Integrations, Inc., 935 F.Supp.2d 772 (D. Del. 2013), this Court concluded that the patentee had ...


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