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Kroy IP Holdings, LLC v. Groupon, Inc.

United States District Court, D. Delaware

October 9, 2018

KROY IP HOLDINGS, LLC, Plaintiff,
v.
GROUPON, INC., Defendant.

          REPORT AND RECOMMENDATION

          SHERRY R. FALLEN, UNITED STATES MAGISTRATE JUDGE

         I. INTRODUCTION

         Presently before the court in this patent infringement action are the following motions: (1) a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), filed by defendant Groupon, Inc. ("Groupon") (D.I. 10); (2) Groupon's motion to transfer venue to the Northern District of California pursuant to 28 U.S.C. § 1404 (D.I. 17); and (3) plaintiff Kroy IP Holdings, LLC's ("Kroy") alternative motion for stay of a decision pending jurisdictional and venue-related discovery (D.I. 26). For the following reasons, I recommend that the court deny each of the pending motions.

         II. BACKGROUND

         Kroy is a limited liability company organized and existing under the laws of Delaware with its principal place of business in Baltimore, Maryland. (D.I. 1 at ¶ 2) Kroy is the owner by assignment of all right, title, and interest in and to U.S. Patent No. 6, 061, 660 ("the '660 patent"). (Id. at ¶ 8) The '660 patent, which was filed on March 18, 1998 and issued on May 9, 2000, is entitled "System and Method for Incentive Programs And Award Fulfillment," and lists York Eggleston and Andrey Ukhov as inventors. (Id.) The '660 patent claims an incentive program builder with an award fulfillment system that permits multiple sponsors to customize and market incentive programs through a central market place using an interface. (Id. at ¶ 9)

         Groupon is incorporated in Delaware and maintains its headquarters in Chicago, Illinois. (Id. at ¶ 3) Groupon operates online local commerce marketplaces to connect merchants to customers by offering goods and services at a discount through its website and mobile applications. (Id. at ¶ 4)

         Kroy filed this lawsuit on October 6, 2017, accusing Groupon of infringing the '660 patent by making, using, offering to sell, selling, providing, maintaining, and/or supporting its website portals and applications. (Id. at ¶ 43) Specifically, Kroy identifies the following allegedly infringing platforms and applications launched by Groupon: Merchant Center for Groupon Stores, Merchant Center for Now! Deals, Deal Builder, and the rebranding of Groupon Merchant. (Id. at ¶¶ 31-40) Kroy asserts that Groupon infringes claims 1, 10, 16-21, 25, and 27-30 of the '660 patent. (Id. at ¶ 43) In the complaint, Kroy identifies independent claim 1 of the '660 patent as exemplary:

A system for incentive program generation, comprising:
a network; a sponsor computer connected to the network;
a host computer connected to the network, the host computer having a server;
an incentive program builder application, running on the server;
a database of objects associated with parameters of the incentive program builder application; and
an interface of the incentive program builder application for sponsor entry of parameters for an incentive program,
wherein the sponsor builds an incentive program by interacting with the incentive program builder application,
wherein the host computer is configured to receive input from a plurality of sponsors corresponding to the parameters for creating a plurality of incentive programs associated with the plurality of sponsors via the interface of the incentive program builder application from a plurality of sponsors, receive second input from a consumer selecting an incentive program from among the plurality of incentive programs, issue an award to the consumer corresponding to the selected incentive program, receive a request to validate the award from a sponsor among the plurality of sponsors associated with the selected incentive program, and validate the award,
wherein the host, the sponsor, and the consumer are different entities, and
wherein the host and sponsor are different individuals or corporate entities.

(D.I. 1 at ¶ 45 (quoting '660 patent, claim 1)) Independent claim 10 adds that the award is delivered via "electronic card," and recites the generation of "code," claiming that the selectable code components for the incentive programs purchased by sponsors are catalogued and a list of those selected by the sponsor is recorded in a "table." ('660 patent, col. 48:22-26, 48:41-48)

         The '660 specification acknowledges that "[i]ncentive award programs, in which companies contract with sponsoring companies for programs to promote sales of the sponsoring companies' products or services, are well-known." ('660 patent, col. 1:27-30) These programs "offer awards and incentives to modify behavior of individual customers and to direct the consumers to some pre-determined action, such as purchase of products or services upon visiting a retail site, viewing advertising, testing a product, or the like." (Id., col. 1:36-40) However, the specification describes numerous advantages offered by the invention over traditional incentive programs, including the reduced costs of generating and administering the programs, the ease of tracking consumer participation in the programs, and improvements in fulfilling the awards or prizes won in the programs. ('660 patent, col. 1:47-2:55)

         The specification also describes prior art incentive programs implemented on digital computers on the Internet, but stresses that "none of the existing systems address all of the problems inherent in known incentive programs, particularly the problem of the need for an incentive program system that conveniently tracks participation while offering automated generation of incentive programs and automated fulfillment of awards won in incentive programs." (Id., col. 4:11-16) Specifically, computerized incentive programs offered on the Internet "are generally offered by a single sponsor and are generally limited to offering consumers the ability to participate in incentive programs," but "do not offer sponsors the ability to conveniently generate incentive programs, to track participation of consumers in multiple incentive programs, or to provide for automated fulfillment of awards." (Id., col. 4:17-24) These prior art systems also lack efficient means for fulfilling awards promised in promotional campaigns. (Id., col. 4:25-32) The '660 patent specification identifies the advantages of the patented invention as "provid[ing] consumer access to expanded incentive programs, using a conventional computer," "permit[ting] sponsors to build, buy, store, modify, offer, track and administer incentive programs," and permit[ting] sponsors and retailers to offer improved award fulfillment for participants in incentive programs." ('660 patent, col. 5:47-54)

         III. DISCUSSION

         A. Venue

         1. Legal standard

         Section 1404(a) of Title 28 of the United States Code grants district courts the authority to transfer venue "[f]or the convenience of parties and witnesses, in the interests of justice ... to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). In accordance with the analytical framework described in Helicos Biosciences Corp. v. Illumina, Inc., 858 F.Supp.2d 367 (D. Del. 2012), the court starts with the premise that a defendant's state of incorporation has always been "a predictable, legitimate venue for bringing suit" and that "a plaintiff, as the injured party, generally ha[s] been 'accorded [the] privilege of bringing an action where he chooses.'" 858 F.Supp.2d at 371 (quoting Norwood v. Kirkpatrick, 349 U.S. 29, 31 (1955)). The Third Circuit in Jumara v. State Farm Insurance Co. reminds the reader that "[t]he burden of establishing the need for transfer ... rests with the movant" and that, "in ruling on defendants' motion, the plaintiffs choice of venue should not be lightly disturbed." 55 F.3d 873, 879 (3d Cir. 1995) (citation omitted).

         The Third Circuit goes on to recognize that,

[i]n ruling on § 1404(a) motions, courts have not limited their consideration to the three enumerated factors in § 1404(a) (convenience of parties, convenience of witnesses, or interests of justice), and, indeed, commentators have called on the courts to "consider all relevant factors to determine whether on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum."

Id. (citation omitted). The Court then describes some of the "many variants of the private and public interests protected by the language of § 1404(a)." Id.

The private interests have included: plaintiffs forum of preference as manifested in the original choice; the defendant's preference; whether the claim arose elsewhere; the convenience of the parties as indicated by their relative physical and financial condition; the convenience of the witnesses - but only to the extent that the witnesses may actually be unavailable for trial in one of the fora; and the location of books and records (similarly limited to the extent that the files could not be produced in the alternative forum).
The public interests have included: the enforceability of the judgment; practical considerations that could make the trial easy, expeditious, or inexpensive; the relative administrative difficulty in the two fora resulting from court congestion; the local interest in deciding local controversies at home; the public policies of the fora; and the familiarity of the trial judge with the applicable state law in diversity cases.

Id. (citations omitted).

         2. Whether the case could have been brought in the Northern District of California

         Considering these "jurisdictional guideposts," the court turns to the "difficult issue of federal comity" presented by transfer motions. E.E.O.C. v. Univ. of Pa, 850 F.2d 969, 976 (3d Cir. 1988). The parties disagree as to whether the action could have been brought in the proposed transferee venue. Specifically, Kroy IP alleges that Groupon failed to meet its burden under § 1400(b) to establish that the Northern District of California would have personal jurisdiction over Groupon. (D.I. 27 at 6-7)

         Venue in patent infringement suits is governed by 28 U.S.C. § 1400(b). TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S.Ct. 1514, 1519 (2017). Section 1400(b) provides that "[a]ny civil action for patent infringement may be brought in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." 28 U.S.C. § 1400(b). A domestic corporation "resides" only in its state of incorporation. TC Heartland, 137 S.Ct. at 1521. Pursuant to this authority, venue in the Northern District of California would not be proper under the first prong of § 1400(b) because both Kroy and Groupon are incorporated in Delaware.

         Under the second prong of § 1400(b), Groupon must show that it committed alleged acts of infringement in the proposed transferee district, [1] and Groupon must have a regular and established place of business in the proposed district. Patent infringement occurs whenever one "without authority makes, uses or sells any patented invention within the United States during the term of the patent therefor." 35 U.S.C. § 271(a). Groupon's development team for the accused website portals and applications works in Groupon's San Francisco and Palo Alto offices. (D.I. 20 at ¶¶ 8-9, 13) In addition, the accused website portals and applications are hosted on servers located in Groupon's data centers, including in San Jose, California. (Id. at ¶ 6) By making and using the accused website portals in the Northern District of California, Groupon has committed purported acts of infringement in the proposed transferee district.

         Although Groupon is not headquartered in the proposed transferee district, the record shows that Groupon maintains regular and established places of business in its San Francisco and Palo Alto offices, where "a significant portion of Groupon's development team, including developers with knowledge of the accused 'website portals and applications, '" work. (Id. at ¶ 13) Where, as here, infringement is alleged to have occurred in the proposed transferee district and the defendant has a regular and established place of business there, transfer to the proposed venue is appropriate. See Blackbird Tech LLC v. Cloudflare, Inc., C.A. No. 17-283-MSG, 17-284-MSG, 2017 WL 4543783, at *3-4 (D. Del. Oct. 11, 2017). Accordingly, this action could have properly been brought in the Northern District of California.

         3. Private Interests

         (a) Plaintiffs forum preference

          Plaintiffs have historically been accorded the privilege of choosing their preferred venue for pursuing their claims. See C. R. Bard, Inc. v. AngioDynamics, Inc., 156 F.Supp.3d 540, 545 (D. Del. 2016). "It is black letter law that a plaintiffs choice of a proper forum is a paramount consideration in any determination of a transfer request, and that choice should not be lightly disturbed." Shuttle v. Armco Steel Corp., 431 F.2d 22, 25 (3d Cir. 1970) (internal citation and quotation marks omitted). However, the Federal Circuit has accorded less deference to a plaintiffs choice of forum when the plaintiff is not physically located in the chosen forum and the forum is therefore not inherently more convenient for the plaintiff. In re Link_A_Media Devices Corp., 662 F.3d 1221, 1223 (Fed. Cir. 2011), see Mitel Networks Corp. v. Facebook, Inc., 943 F.Supp.2d 463, 469-70 (D. Del. 2013).

         In the present action, Kroy does not allege that it has facilities, employees, or operations in Delaware. Kroy's choice of Delaware as a forum weighs in Kroy's favor, but not as strongly as it would if Kroy had a place of business in Delaware. See IpVenture, Inc. v. Acer, Inc., 879 F.Supp.2d 426, 431 (D. Del. 2012); see also Symantec Corp. v. Zscaler, Inc., C.A. No. 17-806-MAK, D.I. 25 at 3-4 (D. Del. July 31, 2017) (citing Memory Integrity, LLC v. Intel Corp., C.A. No. 13-1804-GMS, 2015 WL 632026, at *3 (D. Del. Feb. 13, 2015) (concluding that a non-practicing entity's choice of forum should receive limited deference because it had no physical presence in Delaware)). Consequently, Kroy's forum preference weighs slightly against transfer.

         (b) Defendant's forum preference

         Groupon's preference to litigate in the Northern District of California, where Groupon maintains offices, employees, and a data center connected to the accused technology, weighs in favor of transfer. However, Groupon's preference is accorded less weight than Kroy's preference. See Stephenson v. Game Show Network, LLC,933 F.Supp.2d 674, 678 (D. Del. 2013) (citing Cradle IP, LLC v. Texas ...


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