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Valinge Innovation AB v. Halstead New England Corp.

United States District Court, D. Delaware

May 29, 2018




         In this patent infringement action filed by Plaintiff Valinge Innovation AB ("Plaintiff or "Valinge") against Defendants Halstead New England Corporation ("Halstead") and Home Depot U.S.A., Inc. ("Home Depot") (collectively, "Defendants"), pending is Defendants' motion to dismiss allegations of willful infringement of United States Patent Nos. 7, 398, 625; 7, 763, 345; 8, 021, 741; 8, 365, 499; 8, 584, 423; 8, 658, 274; 8, 756, 899; 8, 834, 992; and 9, 249, 581 (collectively, the "asserted patents" or the "patents-in-suit") in Counts I-XVIII in the currently-operative Second Amended Complaint ("SAC"), filed pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motion"). (D.I. 34) The Motion has been referred to this Court for resolution. (D.I. 5) For the reasons that follow, the Court recommends that Defendants' Motion be GRANTED without prejudice.

         I. BACKGROUND

         Valinge alleges that Halstead directly and indirectly infringes the asserted patents, inter alia, through the sale, and/or importation of certain of Halstead's flooring products (i.e., certain floor panel, tile, and floor panel locking systems, referred to herein as the "accused products"); it alleges that Halstead has sold and continues to sell those products throughout the United States on a Halstead website and though Home Depot. (D.I. 26 at ¶¶ 35-36) Valinge claims that Halstead had knowledge of the asserted patents prior to the date of the filing of the original Complaint in this case. It claims that Halstead obtained such knowledge due to the fact that Halstead has long been a competitor of Valinge in the flooring products industry, and because of the "well-known nature of Valinge's patents[.]" (Id. at ¶¶ 33-34, 38) Valinge also alleges that "in addition to [Halstead's] pre-suit knowledge .. . [both Defendants] had actual knowledge of the Infringed Patents, the Accused Products, and Valinge's allegations of infringement no later than November 23, 2016, " when Defendants received a copy of the original Complaint filed in this case, along with a letter from Valinge asking Defendants to cease their infringing activity. (Id. at ¶¶ 38, 44) Valinge alleges that after acquiring knowledge of the asserted patents, Defendants have engaged and continue to engage in "deliberate, willful, and knowing" infringement of those patents, "entitling Plaintiff to treble damages." (Id. at ¶¶ 58, 72, 83, 94, 104, 116, 128, 140, 152, 162, 171, 180, 189, 198, 207, 216, 225, 234; see also Id. at 52 (alleging, in the Prayer for Relief, that "Defendants' infringement has been willful"))

         In their Motion and the accompanying briefing, Defendants did not contest that as to certain of the allegations in the SAC, Valinge had made out a plausible claim of infringement. That is, Defendants did not contest that in the SAC, Valinge pleaded plausible allegations of direct infringement of all asserted claims other than claims 1, 25, and 30 of U.S. Patent No. 8, 365, 499 ("the '499 patent") and claim 1 of U.S. Patent No. 8, 756, 899 ("the '899 patent") (collectively, the "asserted method claims"). Defendants did argue that Valinge's allegations in the SAC were deficient in that they failed to state plausible claims of: (1) direct infringement of the four asserted method claims; (2) indirect and contributory infringement as to all of the asserted patents; and (3) willful infringement as to all of the asserted patents.

         In its November 9, 2017 Report and Recommendation ("November 9 R&R"), the Court recommended that Defendants' Motion be granted without prejudice to the extent that it sought dismissal of: (1) Valinge's claims against Home Depot for direct infringement of the asserted method claims; (2) induced infringement claims against both Defendants as to all asserted patents prior to the filing of the SAC; and (3) contributory infringement claims against both Defendants as to all asserted patents prior to the filing of the SAC, and as to the '499 and '899 patents in their entirety. (D.I. 81 at 10) The Court recommended, on the other hand, that the Motion be denied to the extent that it sought dismissal of: (1) Valinge's claims against Halstead for direct infringement of the four asserted method claims; (2) induced infringement of the asserted patents against both Defendants as to infringement occurring after the filing of the SAC; and (3) contributory infringement of all asserted patents, except the '499 and '899 patents, as to infringement occurring after the filing of the SAC. (Id.) In the November 9 R&R, the Court did not address Defendants' Motion as it related to the claims of willful infringement. (Id. at 2) In the instant Report and Recommendation, the Court will address these willful infringement claims.

         In coming to its conclusions in the November 9 R&R, the Court determined that the SAC had not contained plausible allegations that Halstead knew of the patents-in-suit prior to the date of the filing of the original Complaint. (D.I. 81 at 6-7) It explained that even if Halstead was Valinge's competitor during that period, and even if it was well known during that time that Valinge had a substantial patent portfolio, that did not render it plausible that Halstead was aware of every patent in that large portfolio and of what it would take to infringe all of those patents. (Id.) Of course, the Court agreed that when Defendants received the original Complaint, they now had knowledge of the patents-in-suit. But because the infringement allegations in that original Complaint-and in the subsequent First Amended Complaint-were of a bare-bones nature, the Court explained that those two pleadings did not contain sufficient information to put Defendants on notice of how it is that they were said to infringe the asserted patents thereafter. (Id. at 7-8)

         Chief Judge Leonard P. Stark adopted the November 9 R&R on January 10, 2018. (D.I. 95)


         The standard of review here is the familiar two-part analysis applicable to motions made pursuant to Rule 12(b)(6). 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." Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). 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 plausible claim does more than merely allege entitlement to relief; it must also demonstrate the basis for that "entitlement with its facts." Id. Thus, a claimant's "obligation to provide the 'grounds' of his 'entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do[.]" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (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 (quoting Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)).


         Defendants argue that Valinge's willfulness allegations[1] are insufficient because they are "general and conclusory allegations that Defendants willfully infringe the [a]sserted [p]atents without any context or factual detail as to how the infringement has been willful or why Defendants' actions amount to an egregious case of patent infringement." (D.I. 35 at 5-6) For its part, Valinge argues that its allegations are sufficiently detailed, and that at the pleading stage "it is not necessary to show that a case is egregious." (D.I. 49 at 11 (internal quotation marks and citation omitted))- Resolving the Motion, then, requires an assessment of what exactly a patentee like Valinge must do to successfully plead a claim of willful infringement.

         In 2016, the Supreme Court of the United States issued its decision in Halo Electronics, Inc. v. Pulse Electronics, Inc., 136 S.Ct. 1923 (2016); that decision has, in turn, had a profound impact on how district courts have assessed willful infringement claims. And district courts have often disagreed about what lessons are properly drawn from Halo. See Continental Circuits LLC v. Intel Corp., No. CV16-2026 PHX DGC, 2017 WL 2651709, at *7 (D. Ariz. June 19, 2017) (noting that the "the law concerning willfulness has been in a state of flux, and Halo's effect on the pleading standard for willful infringement remains unclear") (internal quotation marks and citation omitted); see also Bobcar Media, LLC v. Aardvark Event Logistics, Inc., No. 16-CV-885 (JPO), 2017 WL 74729, at *6 (S.D.N.Y. Jan. 4, 2017) (same); Simplivity Corp. v. Springpath, Inc., CIVIL ACTION NO. 4:15-13345-TSH, 2016 WL 5388951, at *16 (D. Mass. July 15, 2016) (noting that "the willfulness landscape has dramatically changed" after Halo). These disagreements are of interest to the Court, since it is often called on (as it has been here) to resolve motions seeking dismissal of willfulness claims at the pleading stage.

         Below, then, the Court will first summarize (1) the state of the law on willful infringement prior to Halo, and (2) the Halo decision itself. Next, the Court will assess Halo's impact on two hotly disputed issues that are relevant to pleading willful infringement. Thereafter, the Court will set out its view as to what, in fact, a patentee must plead in order to make out a claim of willful infringement. And lastly, with that standard in mind, the Court will address Valinge's allegations in the SAC.

         A. Willful Infringement Prior to Halo and the Halo Decision

         At the outset, it is worth noting that because patent infringement is a strict liability offense, a finding that a party's infringement is "willful" is relevant only in the sense that it will inform a later district court decision as to whether the patentee is entitled to enhanced damages. See XY, LLC v. Trans Ova Genetics, L.C., - F.3d -, 2018 WL 2324460, at * 10 (Fed. Cir. May 23, 2018) (citing Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259, 1274-75 (Fed. Cir. 1999)) (dismissing as moot defendant's appeal of a finding of willful infringement because the district court exercised its discretion to not enhance damages and that decision was not appealed). Pursuant to Section 284 of the Patent Act, once infringement has been established, the court "shall award the claimant damages adequate to compensate for the infringement." 35 U.S.C. § 284. After damages are found by a jury or assessed by a court, the statute explains, a district court may "increase the damages up to three times the amount found or assessed." Id.

         Prior to Halo, the United States Court of Appeals for the Federal Circuit had long held that, in order for a court to enhance damages pursuant to Section 284, there must first be a showing of willful infringement. In re Seagate Tech., LLC, 497 F.3d 1360, 1368 (Fed. Cir. 2007) (citing cases); LG Display Co. v. AU Optronics Corp., 722 F.Supp.2d 466, 470, 474 (D. Del. 2010); see also SRI Int'l, Inc. v. Advanced Tech. Labs., Inc., 127 F.3d 1462, 1464 (Fed. Cir. 1997) (explaining that "willful infringement... is the term designating behavior for which enhanced damages may be assessed"). A finding of willfulness did not require a later award of enhanced damages; it merely permitted it. In re Seagate Tech., LLC, 497 F.3d at 1368.[2]

         For many years, the term "willful infringement" did not have a clear, consistent definition. See Robert Bosch, LLC v. Pylon Mfg. Corp., 719 F.3d 1305, 1326 (Fed. Cir. 2013) (Reyna, J., dissenting) ("The definition of willful patent infringement has changed significantly over time."). The Federal Circuit had described the relevant standard using either subjective language or objective language (or both). Compare Mahurkar v. C.R. Bard, Inc., 79 F.3d 1572, 1579 (Fed. Cir. 1996) (citation omitted) (noting that whether an infringer was acting "willfully" rested on a determination of the "infringer's state of mind, " i.e., a subjective standard), with State Indus., Inc. v. Mor-Flo Indus., Inc., 883 F.2d 1573, 1581 (Fed. Cir. 1989) (finding that the test for willfulness was whether '"a reasonable person would prudently conduct himself with any confidence that a court might hold the patent invalid or not infringed[, ]'" i.e., an objective standard) (citation omitted), and Georgia-Pacific Corp. v. U.S. Gypsum Co., 195 F.3d 1322, 1334 (Fed. Cir. 1999) (noting that willfulness "raises issues of reasonableness and prudence, and is often accompanied by questions of intent, belief, and credibility[, ]" i.e., both an objective and subjective standard).

         Then, in 2007, the Federal Circuit issued its decision in In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007). Seagate set out a two-part standard for demonstrating willful infringement. First, the plaintiff was required to show, by clear and convincing evidence, that the infringer had acted despite an objectively high likelihood that its actions constituted patent infringement (without regard to the state of mind of the accused infringer). In re Seagate Tech., LLC, 497 F.3d at 1371. Second, if this "objective recklessness" was established, the patentee was required to show that the risk of infringement was either known to the infringer or was so obvious that it should have been known. Id. Only when both steps had been satisfied, and willful infringement established, could the district court then proceed to consider whether to exercise its discretion to award enhanced damages. Id. at 1368-72.

         In Halo, however, the Supreme Court ruled that the two-part Seagate test, as a prerequisite to enhancing damages, was "unduly rigid, and [] impermissibly encumber[ed] the statutory grant of discretion to district courts" found in Section 284. 136 S.Ct. at 1932 (internal quotation marks and citation omitted). The "principal problem" with that test, according to the Halo Court, was that it "require[d] a finding of objective recklessness in every case before district courts may award enhanced damages." Id. The Supreme Court noted that requiring a finding of objective recklessness as a prerequisite to enhancing damages "excludes from discretionary punishment many of the most culpable offenders, such as the 'wanton and malicious pirate' who intentionally infringes another's patent-with no doubts about its validity or any notion of a defense-for no other purpose than to steal the patentee's business." Id. (citation omitted). The Halo Court explained that "culpability is generally measured against the knowledge of the actor at the time of the challenged conduct." Id. at 1933. As such, the Court did not see why in "the context of such deliberate wrongdoing ... an independent showing of objective recklessness-by clear and convincing evidence, no less, should be a prerequisite to enhanced damages." Id. at 1932.[3] Instead, it found that "the subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless." Id. at 1933. A patentee, the Court explained, also need only prove that enhanced damages are appropriate by a preponderance of the evidence. Id. at 1934.

         The Halo Court cautioned that "none of this is to say that enhanced damages must follow a finding of egregious misconduct." Id. at 1933. Instead, "[a]s with any exercise of discretion, courts should continue to take into account the particular circumstances of each case in deciding whether to award damages, and in what amount." Id.

         Yet the Supreme Court also emphasized that "[c]onsistent with nearly two centuries of enhanced damages under patent law, such punishment should generally be reserved for egregious cases typified by -willful misconduct.'''' Id. at 1933-34 (emphasis added). This was because, over time, federal caselaw had established that such damages are "designed as a 'punitive' or 'vindictive' sanction for egregious infringement behavior" and that the "sort of conduct warranting enhanced damages has been variously described in our cases as willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or-indeed-characteristic of a pirate." Id. at 1932; see also Id. at 1929 (citing cases).

         B. Two Key Unresolved Questions After Halo Regarding Pleading Willful Infringement

         Since Halo, district courts have wrestled with a number of issues relevant to assessing a cause of action of willful infringement[4] at the pleading stage. The Court addresses two of those issues here.

         1. Should a Patentee Be Required to Plead Facts Plausibly Evidencing "Egregious" Infringement in Order to State a Claim for Willful Infringement?

         In order to plead that willful infringement has occurred, must the patentee make a showing that the accused infringer has engaged in "egregious" patent infringement? After Halo, district courts have disagreed on that question. Some courts (including the Court here) have dismissed claims of willful infringement because the patentee failed to articulate how defendant's conduct "amounted to an egregious case of infringement of the patent." Varian Med. Sys., Inc. v. Elekta AB, Civil Action No. 15-871-LPS, 2016 WL 3748772, at *8 (D. Del. July 12, 2016); see also Finjan, Inc. v. Cisco Sys. Inc., No. 17-cv-00072-BLF, 2017 WL 2462423, at *5 (N.D. Cal. June 7, 2017) (dismissing plaintiffs willful infringement claim because, inter alia, the complaint failed to make sufficient factual allegations that defendant's behavior was "egregious ... beyond typical infringement") (internal quotation marks omitted); Jenkins v. LogicMark, LLC, Civil Action No. 3:16-CV-751-HEH, 2017 WL 376154, at *5 (E.D. Va. Jan. 25, 2017) ("Therefore, the Court finds that, at a minimum, plaintiffs alleging willful infringement must plead facts sufficient to support an inference 'plausible on its face' that the alleged conduct is of the egregious nature described in [Halo].").[5] Other courts, including one judge in this District, have held that in order to successfully plead willful infringement, the patentee does not need to plead facts plausibly indicating that "egregious" infringement has occurred. See Bio-Rad Labs. Inc. v. Thermo Fisher Set, Inc., 267 F.Supp.3d 499, 501 (D. Del. 2017) ("At the pleading stage, it is not necessary to show that the case is egregious."); see also Progme Corp. v. ComcastCable Commc'ns LLC, CIVIL ACTION NO. 17-1488, 2017 WL 5070723, at *12 (E.D. Pa. Nov. 3, 2017) (declining to dismiss a post-suit willful infringement claim, based on the facts that the defendant has had knowledge of the patent and ...

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