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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 met its burden to sufficiently allege that the indirect infringer had knowledge that the induced acts constituted patent infringement, where the patentee pled:

For example, [the alleged indirect infringer] is aware that the infringing soft start circuit is a default feature of the controller products incorporating this circuit, that the softstart circuit is always present and cannot be disabled by a purchaser of the controller and, therefore, that [the indirect infringer's] customers will infringe the [patent-in-suit] by using the default softstart feature or by incorporating the infringing controller in other products, and that subsequent sales of such products would also be a direct infringement.

Fairchild Semiconductor Corp., 935 F.Supp.2d at 778 (emphasis in original). Thus, with regard to an allegation of post-suit induced infringement, while a plaintiff need not provide a detailed, step-by-step description of the alleged infringement in the complaint, this Court has required some identification of how it is that use of the accused product infringes the patent, in order to plausibly assert that the indirect infringer knew that the downstream use of its products constitutes patent infringement. Id. [5] Conversely, where a plaintiff's complaint failed to include "factual allegations... about how the sale of [d]efendants' products relates to the patented method referenced in the [asserted] patent, " courts have concluded that this knowledge requirement of induced infringement is not adequately supported. E.I. DuPont De Nemours & Co. v. Heraeus Holding GmbH, Civ. Action No. 11-773-SLR-CJB, 2012 WL 4511258, at *7-8 (D. Del. Sept. 28, 2012) (granting motion to dismiss induced infringement claims where plaintiff's complaint failed to include such facts).[6]

Here, the relevant allegations in Plaintiffs' SAC with respect this requirement of induced infringement are:

18. Cloud9 makes, uses, licenses, sells and offers for sale... software products that infringe the '282 and '701 patents, including the Cloud9 Pipeline Accelerator and the Cloud9 Intelligent Sales Forecasting software suites (the "Infringing Products"). The Infringing Products are derived from, incorporate, or otherwise utilize the systems and methods protected by the '282 and/or '701 patents.
20. Cloud9 also actively induces... the infringement of the '282 and '701 patents by customers that use Cloud9's Infringing Products.
24. Cloud9 sells the infringing products with the intent that its customers use those products in an infringing manner.

(D.I. 24 at ¶¶ 18, 20, 24; see also id. at ¶¶ 43, 48 (indirect infringement counts wherein Plaintiffs allege that, inter alia, Defendant "intended that its [end users] infringe the [patents-in-suit] by their use of the Infringing Products")) These allegations do not do the job of plausibly asserting Defendant's knowledge that the end users' acts constituted infringement of the patents-in-suit, as Plaintiffs have simply identified the accused products and generically alleged that their use somehow infringes the asserted patents. Moreover, Plaintiffs' answering brief does not directly address how what is pled in the SAC could be said to overcome the nature of Defendant's objection here. (D.I. 27)

Plaintiffs seek leave to amend their SAC to the extent the Court finds any deficiencies therein. (D.I. 27 at 6) Defendant objects, arguing that "[b]ecause this is the third time [Plaintiffs] ha[ve] failed to adequately plead inducement, the claims should be dismissed with prejudice." (D.I. 26 at 1)

It is within the Court's discretion to grant leave to amend, see Foman v. Davis, 371 U.S. 178, 182 (1962), and amendment should be allowed "when justice so requires[, ]" Fed.R.Civ.P. 15(a)(2). It is true that Plaintiffs have now filed two amended complaints. But the Court notes that the parties' primary focus at oral argument regarding the insufficiency of the FAC's induced infringement claims was on the allegations with respect to Defendant's specific intent (or encouragement) regarding the direct infringement-and not on the particular (albeit related) knowledge requirement examined herein. (D.I. 23 at 16-18) The Court is also cognizant of the fact that initial discovery in the case is only just underway, with Plaintiffs' preliminary infringement contentions due in a few months. (D.I. 32 at 2) It therefore recommends that Plaintiffs be granted leave to file a third amended complaint addressing the deficiency described above.[7]

IV. CONCLUSION

For the foregoing reasons, the Court recommends that the Court GRANT Defendant's Motion, but do so without prejudice to allow Plaintiffs the opportunity to file an amended complaint that addresses the deficiency referenced above.

This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(1)(B), Fed.R.Civ.P. 72(b)(1), and D. Del. LR 72.1. The parties may serve and file specific written objections within fourteen (14) days after being served with a copy of this Report and Recommendation. Fed.R.Civ.P. 72(b)(2). The failure of a party to object to legal conclusions may result in the loss of the right to de novo review in the district court. See Henderson v. Carlson, 812 F.2d 874, 878-79 (3d Cir. 1987); Sincavage v. Barnhart, 171 F.Appx. 924, 925 n.1 (3d Cir. 2006).

The parties are directed to the Court's Standing Order for Objections Filed Under Fed.R.Civ.P. 72, dated October 9, 2013, a copy of which is available on the District Court's website, located at http://www.ded.uscourts.gov.


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