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McRO, Inc. v. Rockstar Games Inc.

United States District Court, District of Delaware

March 17, 2014

McRO, INC., d/b/a PLANET BLUE, Plaintiff,
v.
ROCKSTAR GAMES, INC., Defendant. McRO, INC, d/b/a PLANET BLUE, Plaintiff,
v.
TAKE-TWO INTERACTIVE SOFTWARE, INC, Defendant. McRO, INC, d/b/a PLANET BLUE, Plaintiff,
v.
2K GAMES, INC, Defendant.

REPORT AND RECOMMENDATION

Christopher J. Burke UNITED STATES MAGISTRATE JUDGE

Presently pending in these three related cases are Defendants Rockstar Games, Inc. ("Rockstar"), Take-Two Interactive Software, Inc. ("Take-Two") and 2K Games, Inc.'s ("2K") (collectively, "Defendants") motions to dismiss Plaintiff McRo, Inc., d/b/a Planet Blue's ("Plaintiff or "McRo") direct, induced and willful infringement claims against them, pursuant to Federal Rule of Civil Procedure 12(b)(6). (D.I. 18; Civil Action No. 12-1513-LPS-CJB, D.I. 17; Civil Action No. 12-1519-LPS-CJB, D.I. 17)[1] For the reasons that follow, the Court recommends that Defendants' motions be GRANTED-IN-PART AND DENIED-IN-PART.

I. BACKGROUND

Plaintiff commenced these actions on November 21, 2012, alleging that Defendants infringed certain claims of two of its patents, U.S. Patent No. 6, 307, 576 ("the '576 patent") and 6, 611, 278 ("the '278 patent"). (D.I. 1) Before Defendants answered, Plaintiffs filed a First Amended Complaint in all three actions, and in the Take-Two action, thereafter filed a Second Amended Complaint. (D.I. 4, 16; Civil Action No. 12-1513-LPS-CJB, D.I. 15; Civil Action No. 12-1519-LPS-CJB, D.I. 15)[2] In the complaints at issue here, Plaintiff alleges direct infringement (pursuant to 35 U.S.C. §§ 271(a) and 271(g)), induced infringement, and willful infringement of both the '576 and '278 patents by some or all Defendants. (D.I. 16 at ΒΆΒΆ 14, 15, 19, 20).[3]

Defendants thereafter each filed the motions to dismiss, pursuant to Rule 12(b)(6). On July 31, 2013, these cases were referred to the Court by Judge Leonard P. Stark to hear and resolve all pretrial matters, up to and including the resolution of case-dispositive motions. (D.I. 25; Civil Action No. 12-1513-LPS-CJB, D.I. 26; Civil Action No. 12-1519-LPS-CJB, D.I. 24)

II. DISCUSSION

Defendants' motions allege that Plaintiff has insufficiently pleaded claims of direct and induced infringement (as to all three Defendants) and willful infringement (as to Rockstar and Take-Two).[4] The Court will consider these arguments in turn.

A. Direct Infringement

To properly plead a claim of direct infringement, a complaint must at least comply with Form 18 of the Federal Rules of Civil Procedure. See K-Tech Telecomms., Inc. v. Time Warner Cable, Inc., 714 F.3d 1277, 1283-84 (Fed. Cir. 2013) ("[T]o the extent any conflict exists between Twombly (and its progeny) and the Forms regarding pleadings requirements, the Forms control."); Clouding IP, LLC v. Amazon.com, Inc., C.A. Nos. 12-641-LPS, 12-642-LPS, 12-675- LPS, 2013 WL 2293452, at *2 (D. Del. May 24, 2013).[5] Form 18 provides the following exemplary language relating to the required allegation of infringement:

3. The defendant has infringed and is still infringing the Letters Patent by making, selling, and using electric motors that embody the patented invention, and the defendant will continue to do so unless enjoined by this court.

Fed. R. Civ. P., App. of Forms, Form 18 (emphasis in original).[6] Thus, as a general matter, "Form 18 does not require [plaintiff] to specify 'what functionality infringed, or any facts that show how [defendant] performs even one step of a claimed method.'" Clouding IP, 2013 WL 2293452, at *2 (citation omitted). And with regard to identification of accused products, "Form 18 requires only identification of a general category of products, for example 'electric[] motors[, ]"' id., or a general identification of an allegedly infringing method, Gammino v. American Tel. & Tel Co., Civ. No. 12-666-LPS, 2013 WL 6154569, at *3 (D. Del. Nov. 22, 2013). In the end, "[t]he touchstones of an appropriate analysis under Form 18 are notice and facial plausibility" and while "these requirements serve as a bar against frivolous pleading, it is not an extraordinarily high one." K-Tech Telecomms., 714 F.3d at 1286 (internal citations omitted).

With regard to its allegations of direct infringement, Plaintiffs complaints allege:

Upon information and belief, [Defendant] has, as part of the development process for its computer and/or video games that include 3-dimensional animated characters, used and continues to use software processes in the United States for automatically adding lip-synchronization and facial expression to the animated characters using the phonetic structure of the words spoken by the characters and has made, used, offered to sell, sold, and/or imported, and continues to make, use, offer to sell, sell, and/or import, computer and/or video games created using those processes in the United States, including this judicial district. By using the aforementioned software processes, [Defendant] has directly infringed the [patent-in-suit] under 35 U.S.C. § 271(a), either literally or under the doctrine of equivalents. By using, offering to sell, selling, and/or importing computer and/or video games created using the aforementioned software processes, [Defendant] has been and is now infringing the [patent-in-suit] under 35 U.S.C. § 271(g), either literally or under the doctrine of equivalents.

(D.I. 16 at ¶¶14, 19).

In arguing for dismissal of the direct infringement claims, Defendants analogize the allegations here to those found wanting in two other cases in this Court. First, citing the decision in Fifth Market, Inc. v. CME Group, Inc., C.A. No. 08-520 GMS, 2009 WL 5966836, at *1 (D. Del. May 14, 2009), Defendants aver that the complaint "merely defines accused products by reference to the claims [in the patent-in-suit], without providing any guidance as to which categories of products allegedly infringe." (D.I. 19 at 5). Second, quoting the decision in Eidos Communications, LLC v. Skype Technologies SA, 686 F.Supp.2d 465, 468 (D. Del. 2010), Defendants assert that the complaint "merely identifies 'examples of large technology areas, not genres of products[, ]'" and argues that the description of such products "would incorporate most or all of Defendants' products. (Id.)[7]

The Court disagrees that these cases are analogous. In Fifth Market, the direct infringement allegation was found insufficient because the complaint's sole reference to any product of the defendant appeared in the facts section of the pleading; no such reference appeared in the count of infringement in question, which instead cited only to undefined "products and methods covered by the claims of the asserted patents" and contained no reference to "a single infringing product or method." Fifth Market, 2009 WL 5966836, at *1; St. Clair Intellectual Prop. Consultants, Inc. v. Apple Inc., C.A. No. 10-00982-LPS, 2011 WL 4571812, at *3 (D. Del. Sept. 30, 2011) (distinguishing Fifth Market in this way). And in Eidos, the complaint did not "specify a[n accused] product or method at all" and made only a "vague" reference to defendants' "'communication system products and/or methodologies'" in that regard. Eidos, 686 F.Supp.2d at 467-68. In contrast, here, although the allegations are not particularly detailed, in the counts of direct infringement at issue Plaintiff does at least identify the specific processes (i.e., a method) alleged to infringe (the use of "software processes in the United States for automatically adding lip-synchronization and facial expression to ... animated characters using the phonetic structure of the words spoken by the characters") and the identifiable categories of products ("computer and/or video games that include 3-dimensional characters") that are said to utilize those processes. (D.I. 16 at ¶¶14, 19) Thus, Plaintiffs factual allegations are not problematic in the same way as were the allegations in Fifth Market and Eidos. See also Xpoint Techs., Inc. v. Microsoft Corp., 730 F.Supp.2d 349, 353-54 (D. Del. 2010) (finding that a complaint satisfied Form 18 when it "identified general categories of accused products[, ]" specifically "processors, chipsets, and motherboards" with the Court also noting that the allegations also briefly described the means by which those products infringe).[8]

Beyond these arguments, Defendants assert that the allegations are insufficient because they do not address "which [particular computer or video] games are at issue"; "what qualities those games share that would infringe the specific mechanisms for lip-synchronization claimed in the patens-in-suit"; or "how any video game products allegedly infringe." (D.I. 19 at 6, 7) The Court cannot square those arguments with the reality that Form 18 does not require a plaintiff to list specific accused products, nor to "specify 'what functionality infringed, or any facts that show how [the defendant] performs even one step of a claimed method.'" Clouding IP, 2013 WL 2293452, at *2 (citation omitted). Indeed, our Court has noted that "[identification of one allegedly infringing product or method for each count of [direct] infringement alleged in a complaint is generally sufficient to meet the requirements of Form 18." Gammino, 2013 WL 6154569, at *3.

Form 18's requirements are minimal. In the end, under this Court's precedent, Plaintiffs allegations regarding direct infringement are sufficient to satisfy those requirements. See, e.g., Fair child Semiconductor Corp. v. Power Integrations, Inc., 935 F.Supp.2d 772, 775-76 (D. Del. Mar. 29, 2013) (finding direct infringement allegations sufficient where plaintiff "expressly identified a general category of products, power supply controllers, and further restricted that category to controllers that include certain features and circuits").[9]

B. Induced Infringement

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). While the sufficiency of allegations of direct infringement are measured by whether they comply with Form 18, the general principles of Twombly and Iqbal apply to indirect infringement claims. In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1336-37 (Fed. Cir. 2012).

The relevant allegations of induced infringement are as follows:

Upon information and belief, [Defendant] actively, knowingly, and intentionally induced, and continues to actively, knowingly, and intentionally induce, infringement of the [patent-in-suit] under 35 U.S.C. § 271(b) by contracting with game developers to directly infringe the [patent-in-suit] by using the aforementioned software processes to create computer and/or video games that [Defendant] makes, uses, offers to sell, sells, and/or imports, all with knowledge of the [patent-in-suit] and its claims; with knowledge that its game developers will use the methods claimed in the [patent-in-suit]; and with the knowledge and the specific intent to encourage and facilitate those infringing uses of the aforementioned software processes through the creation and dissemination of instructional materials, product manuals, and technical materials related to, referenced by or incorporated within the statement of work between Defendant and its developers. [Defendant] has had knowledge of the [patent-in-suit] since at least as early as January 2008 as a result of email and telephonic communications between Mr. Maury Rosenfeld and at least Peter Welch and its actions constitute knowing and willful infringement of the [patent-in-suit]. [Defendant] also has knowledge of its induced infringement of the [patent-in-suit] through the filing and service of the Complaint and despite this knowledge continues to commit tortuous conduct by way of patent infringement.

(D.I. 16 at ¶¶15, 20)[10] Defendants contend that these allegations are wanting in several respects, (D.I. 19 at 8-10), which the Court will address in turn.

1. Identity of Direct Infringers

First, Defendants appear to argue that the complaints fail to sufficiently identify who the direct infringers are. (D.I. 19 at 8-9) Identification of a specific third-party direct infringer is not required to survive a motion to dismiss an induced infringement claim, so long as the factual allegations are sufficient to allow the inference that at least one direct infringer exists. In re Bill of Lading, 681 F.3d at 1336; Fair child Semiconductor Corp., 935 F.Supp.2d at 777 n.6. Taking into account the nature of the allegations above (relating to direct infringement via the use of certain software processes in the creation of certain computer or video games, alleged to be induced by Defendants that are a part of the video game industry), the identification of "game developers" as the alleged direct infringers is sufficient to meet this requirement. (D.I. 16 at ¶¶15, 20)

2.Knowledge that Direct Infringer's Acts Constituted Infringement

A plaintiff must also 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, 681 F.3d at 1339). While a plaintiff need not "prove its case at the pleading stage[, ]" what is required is that the facts pleaded, "when considered in their entirety and in context, lead to the common sense conclusion that a patented method is being practiced." In re Bill of Lading, 681 F.3d at 1339, 1343.

Defendants aver that although the complaints "allege[] that [the Defendant] had knowledge of the patents-in-suit as of January 2008, " they are "entirely silent on knowledge of infringement before this suit[.]" (D.I. 19 at 9) The Court agrees.

As to post-suit knowledge of infringement, see Clouding IP, LLC v. Google Inc., C.A. No. 12-639-LPS, 2013 WL 5176702, at *1 (D. Del. Sept. 16, 2013), the complaints' allegations are simply that the game developers "us[e] the aforementioned software processes to create" infringing computer and/or video games and that Defendants have knowledge that "its game developers will use the methods claimed" in the patents-in-suit, (D.I. 16 at ¶¶15, 20). Those "aforementioned" processes were the ones mentioned in the direct infringement claims: "software processes in the United States for automatically adding lip-synchronization and facial expression to the animated characters using the phonetic structure of the words spoken by the characters!.]" (Id. at ¶¶ 14, 19)

This assertion of infringing use, as Defendants note, is in reality little more than a rephrasing of a portion of the language of Claim 1 of the '576 patent and '278 patent, respectively. (D.I. 23 at 2) It is really not much different from a bland statement that an entity has taken some unspecified action to practice a "method claimed" in the patents-in-suit. Just as important, the complaints do not really contain any further more specific, concrete factual allegations as to what particular type of actions the developers have actually taken, or what kind of development they have actually engaged in, that are plausibly asserted to amount to the use of the claimed methods.[11] As a result, Plaintiffs pleadings have failed to sufficiently allege Defendants' post-suit knowledge of infringing conduct by the game developers. See, e.g., Versata Software, Inc. v. Cloud9 Analytics, Inc., Civil Action No. 12-925-LPS-CJB, 2014 WL 631517, at *4 (D. Del. Feb. 18, 2014) (finding defendant's knowledge of infringing conduct of direct infringer insufficiently pleaded where "Plaintiffs have simply identified the accused products and generically alleged that their use [by Defendants' customers] somehow infringes the asserted patents."); cf. Clouding IP, LLC v. Rackspace Hosting, Inc., C.A. No. 12-675-LPS, 2014 WL 495752, at *3 (D. Del. Feb. 6, 2014) (denying motion to dismiss induced infringement claims where plaintiff alleged sufficient facts to, inter alia, explain what it was that the direct infringers—who were customers and end-users of defendant's products—did that amounted to the practicing of the patented systems and methods); Walker Digital, LLC v. Facebook, Inc., 852 F.Supp.2d 559, 564-66 (D. Del. 2012) (denying motion to dismiss induced infringement claims where complaint, which set out how the direct infringers would use accused apparatuses in an infringing manner, sufficiently identified the "allegedly infringing conduct, " among other requirements).

3.Specific Intent

A plaintiff must also allege facts to allow for the plausible inference that the indirect infringer had the specific intent to induce infringement by the direct infringer (that is, that the indirect infringer encouraged the direct infringement). See Pragmatus A V, LLC, 2013 WL 2295344, at *1; see also Symantec Corp. v. Computer Assocs. Int'l, Inc., 522 F.3d 1279, 1292-93 (Fed. Cir. 2008) ("Thus, 'inducement requires evidence of culpable conduct, directed to encouraging another's infringement, not merely that the inducer had knowledge of the direct infringer's activities.'") (emphasis added) (citation omitted).

The complaints do reference the contractual relationship between Defendants and the game developers, and allege that Defendants encourage infringement through "creation and dissemination of instructional materials, product manuals, and technical materials" to those developers. (D.I. 16 at ¶¶ 15, 20) These types of allegations could be sufficient to demonstrate the encouragement of patent infringement—had, for example, Plaintiff pleaded sufficient facts relating to how the game developers' actions are said to amount to infringement. But such facts are absent here. Therefore, it means little to assert that Defendants encouraged something to happen through engaging in certain actions (like the dissemination of instructional materials), where little of substance is said about what that "something" is in the first place. See, e.g., MONEC Holding AG v. Motorola Mobility, Inc., 897 F.Supp.2d 225, 234 (D. Del. 2012) (finding that, in the absence of sufficient factual allegations regarding defendant's knowledge that direct infringer's activities were infringing, assertions that defendant's "selling, advertising, supplying and instructing its ... customers on the use of the infringing product" were not, "on their own, " sufficient to set out a plausible allegation of specific intent to induce infringement); see also Synopsys, Inc. v. ATopTech, Inc., Case No. C 13-cv-02965 SC, 2013 WL 5770542, at * 15-16 (N.D. Cal. Oct. 24, 2013) (finding that plaintiff had failed to "provide bare facts supporting [the] claim" that defendant induced infringement "by dictating by its .. . instructions to users thereto the manner in which the software is used causing such infringement, " and noting that plaintiff "could ... have pled facts as to how Defendant's design or instruction were meant to induce or encourage" users to directly infringe, but did not) (internal quotation marks and citations omitted). Thus, the allegations as to this element are insufficient as well.

C. Willful Infringement

To prove a case of willful infringement, a patent owner must demonstrate by clear and convincing evidence that the infringer acted despite an "objectively high likelihood that its actions constituted infringement" and that this "objectively-defined risk . . . was either known or so obvious that it should have been known to the accused infringer." In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007). At the pleading stage, a plaintiff alleging a cause of action for willful infringement must plead facts giving rise to at least a showing of objective recklessness of the infringement risk. See, e.g., IP Venture Inc. v. Lenovo Grp. Ltd., Civil Action No. 11-588-RGA, 2013 WL 126276, at *2 (D. Del. Jan. 8, 2013); MONEC, 897 F.Supp.2d at 236; St. Clair Intellectual Prop. Consultants, Inc. v. Hewlett-Packard Co., C.A. No. 10-425-LPS, 2012 WL 1134318, at *2 (D. Del. Mar. 28, 2012).[12] Actual knowledge of infringement or the infringement risk is not necessary to plead a claim for willful infringement, but the complaint must adequately allege factual circumstances in which the patents-in-suit are called to the attention of the defendant. MONEC, 897 F.Supp.2d at 236; Hewlett-Packard Co., 2012 WL 1134318, at *2. "The complaint must'demonstrate[] a link between the various allegations of knowledge of the patents-in-suit and the allegations that the risks of infringement' were either known or were so obvious that they should have been known." MONEC, 897 F.Supp.2d at 236 (quoting Hewlett-Packard Co., 2012 WL 1134318, at *3). In Hewlett-Packard Co., this Court found that a complaint alleging willful infringement sufficiently demonstrated that link by "listing explicit instances where [the defendant] was aware of both the patents-in-suit and that it was either practicing or contemplating practicing technologies related to the patents-in-suit." 2012 WL 1134318, at *3.

Plaintiffs complaints assert that Defendants engaged in willful infringement of the patents-in-suit. (See, e.g., D.I. 16 at 7)[13] Plaintiff appears to support these allegations by pointing to its communications with Defendants about the patents-in-suit beginning in January 2008. (Id. at¶¶ 15, 20)

The Court agrees with Defendants that these allegations make "no link whatsoever between [Defendants' knowledge of the patents-in-suit based on the 2008 communications] and any allegations that [Defendants] knew or should have known of any objectively-defined risk that its actions infringed the patents-in-suit." (D.I. 19 at 10) Here, unlike the case in Hewlett-Packard Co., the complaints do not plead sufficient specific factual matter about what Defendants or others were actually doing in order to plausibly indicate that, at any point, Defendants were or should have been aware that they were committing patent infringement. See Chalumeau Power Sys. LLC v. Alcatel-Lucent, Civil Action No. 11-1175-RGA, 2012 WL 6968938, at *2 (D. Del. July 18, 2012) (dismissing willful infringement claims where facts pleaded did not plausibly support the conclusion that defendants "acted despite an objectively high likelihood that its actions constituted infringement of a valid patent" or that they "knew or should have known that their actions constituted infringement of a valid patent") (internal quotation marks and citation omitted); cf. Hand Held Prods., Inc. v. Amazon.com, Inc., C.A. No. 12-CV-00768-RGA-MPT, 2013 WL 507149, at *7 (D. Del. Feb. 6, 2013) (finding willful infringement allegations sufficient where plaintiff pleaded facts that not only demonstrated that defendants had prior knowledge of the patent-in-suit, but also facts indicating why "once aware [of the patent], it was obvious their mobile applications risked infringement because those applications use a smartphone to capture, read, and decode barcodes."). And Plaintiff, for its part, does not specifically address Defendants' assertions regarding the insufficiency of its willful infringement claims. (D.I. 22; D.I. 23 at 4)

Accordingly, the Court finds Plaintiffs allegations insufficient to plead a claim for willful infringement.

III. CONCLUSION

For the foregoing reasons, the Court recommends that Defendants' motions be GRANTED-IN-PART (as to the claims of induced and willful infringement) AND DENIED-IN-PART (as to the claims of direct infringement). As to the induced infringement and willful infringement allegations, as it is within this Court's discretion to grant leave to amend, see Foman v. Davis, 371 U.S. 178, 182 (1962), because amendment should be allowed "when justice so requires[, ]" Fed.R.Civ.P. 15(a)(2), and because it is not clear that amendment would cause undue prejudice or would be futile, the Court recommends that Plaintiff be given leave to file a further amended complaint addressing the deficiencies outlined above. See, e.g., Pragmatus AV, LLC, 2013 WL 2295344, at *2.

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.App'x 924, 925 n.l (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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