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Ioengine, LLC v. Paypal Holdings, Inc.

United States District Court, D. Delaware

January 25, 2019

IOENGINE, LLC, Plaintiff,
v.
PAYPAL HOLDINGS, INC., Defendant. INGENICO INC., Plaintiff,
v.
IOENGINE, LLC, Defendant. IOENGINE, LLC, Counterclaim Plaintiff,
v.
INGENICO INC., INGENICO CORP., and INGENICO GROUP, S.A., Counterclaim Defendants.

          MEMORANDUM OPINION AND ORDER

          WILLIAM C. BRYSON, UNITED STATES CIRCUIT JUDGE

         Before the Court are two motions to dismiss. The first, in case number 18-452, is the motion by defendant PayPal Holdings, Inc. (“PayPal”), to dismiss IOENGINE's claims of joint infringement, indirect infringement, and willful infringement on the ground that the complaint fails to allege facts sufficient to plead plausible claims on each of those theories of liability. No. 1:18-cv-452, Dkt. No. 9. The second, in case number 18-826, is the motion by the Ingenico counterclaim defendants (Ingenico Inc., Ingenico Corp., and Ingenico Group S.A.) to dismiss the counterclaims by IOENGINE, LLC, against Ingenico Group S.A. for lack of jurisdiction and to dismiss the counterclaims against all of the counterclaim defendants on the ground that the counterclaims lump the defendants together and fail to give fair notice to any of them. No. 1:18-cv-826, Dkt. No. 26.

         In the PayPal case, the Court grants PayPal's motion to dismiss in part and denies it in part. With respect to IOENGINE's theory of joint infringement, the Court holds that the complaint sufficiently alleges facts that plausibly state a claim for relief on that theory. With respect to IOENGINE's theories of indirect infringement and willful infringement, the Court rules that the complaint pleads the requisite knowledge of the patents-in-suit from the date of the complaint. The Court rules that the complaint is otherwise sufficient to support IOENGINE's theories of induced infringement and willful infringement, but that the complaint does not sufficiently allege contributory infringement.

         In the Ingenico case, the Court denies the motion to dismiss without prejudice, pending jurisdictional discovery. After jurisdictional discovery, the Ingenico counterclaim defendants will be permitted to renew their motion to dismiss Ingenico Group S.A. as a counterclaim-defendant in this action if they wish to do so, and the parties will be given an opportunity to file supplemental briefs on the jurisdictional issues. A hearing on the jurisdictional issue will be held if the Court determines that it is necessary. As to the motion of the Ingenico counterclaim defendants to dismiss the counterclaims on the ground that it is unclear from the counterclaims what role each defendant is accused of playing in the alleged acts of infringement, the Court denies the motion.

         I. PAYPAL'S MOTION TO DISMISS

         A. Joint Infringement

         PayPal moves to dismiss IOENGINE's claims of joint infringement, contending that IOENGINE's complaint includes no allegations of facts plausibly demonstrating that the acts of a third party are attributable to PayPal such that a single entity is responsible for the alleged infringement.

         Proof of joint infringement requires the plaintiff to show that one entity “directs or controls” the other's performance, or that the actors “form a joint enterprise.” Eli Lilly & Co. v. Teva Parenteral Medicines, Inc., 845 F.3d 1357, 1364 (Fed. Cir. 2017) (quoting Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020, 1022 (Fed. Cir. 2015) (en banc)). Proof that a defendant engaged in joint infringement by directing and controlling another party's infringing conduct can be shown where the defendant “(1) ‘conditions participation in an activity or receipt of a benefit' upon others' performance of one or more steps of a patented method, and (2) ‘establishes the manner or timing of that performance.'” Eli Lilly, 845 F.3d at 1365 (quoting Akamai, 797 F.3d at 1023). Proof that a defendant was part of a joint enterprise with another party or group of parties requires a showing of “(1) an agreement, express or implied, among the members of the group; (2) a common purpose to be carried out by the group; (3) a community of pecuniary interest in that purpose, among the members; and (4) an equal right to a voice in the direction of the enterprise, which gives an equal right of control.” Akamai, 797 F.3d at 1023.

         In order to survive a motion to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6), Fed. R. Civ. P., a complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim has facial plausibility when the plaintiff pleads factual content that, if taken as true, “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. That standard is not met when a plaintiff provides a “bare averment that he wants relief and is entitled to it.” Twombly, 550 U.S. at 555 n.3. On the other hand, “the plausibility requirement is not akin to a ‘probability requirement at the pleading stage; it simply calls for enough fact[s] to raise a reasonable expectation that discovery will reveal' that the defendant is liable for the misconduct alleged.” Lifetime Indus., Inc. v. Trim-Lok, Inc., 869 F.3d 1372, 1380 (Fed. Cir. 2017) (quoting In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1341 (Fed. Cir. 2012)).

         PayPal contends that the complaint against it fails to allege sufficient facts under either theory of joint infringement, and that the complaint merely asserts in conclusory fashion that “PayPal has infringed and continues to infringe[] directly (alone or jointly).” Dkt. No. 9, at 9 (citing complaint ¶¶ 26, 109, 189). IOENGINE responds that the complaint contains allegations that PayPal provides software development kits for PayPal infringing products and instructs and encourages customers, Point of Sale Partners (“POS Partners”), and third parties to create applications that enable credit or debit card payments using PayPal card readers. Dkt. No. 16, at 3 (quoting complaint ¶¶ 22, 100, 180, 275). IOENGINE points out that the complaint also contains citations to PayPal's website and to its YouTube video channel, which instruct and encourage end users to use PayPal products in an infringing manner. In particular, IOENGINE notes that the complaint alleges that PayPal jointly infringes by “orchestrating the infringing use of the PayPal Infringing Products” by PayPal's POS Partners and their mobile payment applications. Id. at 17 (citing complaint ¶ 32). PayPal's relationship with its POS Partners, according to IOENGINE, allows a reasonable inference both that PayPal exercises direction or control over its POS Partners and that PayPal and its POS Partners are engaged in a joint enterprise with respect to the acts of alleged infringement.

         IOENGINE contends that PayPal documentation referred to in the complaint “direct[s] third party developers on how to create applications that work with the PayPal Infringing Products and . . . control[s] how those partner applications interact with PayPal's systems.” Id. at 18. According to IOENGINE, the ability of PayPal's POS Partners to interact with the accused PayPal products depends on their use of PayPal's software development kits, which control the performance of the steps of the method claims when the PayPal software is run by the POS Partners. The PayPal software thus establishes the manner and timing of the performance of the claimed method steps by controlling the manner in which the POS Partner interacts with the accused PayPal products to carry out the infringing functionality.

         Whether the facts alleged in the complaint will ultimately be determined to be sufficient to constitute “direction or control” by PayPal of the activities of the POS Partners, customers, and third parties is not at issue at this juncture. The pleaded facts are at least sufficient to plausibly assert the required direction or control in light of case law from the Federal Circuit.

         The Federal Circuit's decisions in Akamai and Travel Sentry, Inc. v. Tropp, 877 F.3d 1370 (Fed. Cir. 2017), in particular, are instructive here. In Akamai, Limelight was accused of infringing a patent on methods of hosting content and delivering it over the Internet. The evidence showed that Limelight performed several steps of the claimed methods, and that Limelight's customers performed at least one of the steps, in which the customers “tagged” and “served” the content to be hosted and delivered by Limelight's content delivery network. The en banc Federal Circuit held that substantial evidence supported the jury's determination that Limelight directed or controlled its customers' performance of the remaining method steps. The court observed that “if Limelight's customers wish to use Limelight's product, they must tag and serve content.” Akamai, 797 F.3d at 1024. That statement was based on evidence that “Limelight requires all of its customers to sign a standard contract” that “delineates the steps customers must perform if they use the Limelight service.” Id. The Federal Circuit did not recite any evidence that Limelight categorically enforced the contract, but found that Limelight conditioned receipt of the benefit of use of the product based on the contractual promise of the user.

         The Travel Sentry case involved a claim of joint infringement of a patent directed to an improvement in airline luggage inspection systems. The evidence showed that the accused infringer, Travel Sentry, performed certain steps of the patented method, and that agents of the Transportation Security Administration (“TSA”) performed the final two steps. The Federal Circuit held that the evidence was sufficient for a reasonable jury to conclude that the TSA agents' performance of the final two claim steps was attributable to Travel Sentry. The Court explained that “whatever benefits flow to TSA . . . can only be realized if TSA performs the final two claim steps.” 877 F.3d at 1382-83. The court, moreover, reaffirmed the conditioning standard articulated in Eli Lilly, stating that conditioning does not require the imposition of a “legal obligation” or a “technological prerequisite, ” nor does it require verification of compliance or a threat of denial of treatment. Id. at 1380 (quoting Eli Lilly, 845 F.3d at 1366-67).

         The decisions in Akamai and Travel Sentry indicate that the evidence may be sufficient to support an inference of direction or control when (1) the benefits of a particular service or product can be obtained only if third parties comply with instructions given by the defendant, and (2) the instructions direct the third parties to perform acts that constitute recited steps in the asserted method claims. The allegations in the complaint are sufficient to support an inference that the benefits of the PayPal products can be obtained only if the parties using the products follow the directions given by PayPal. As such, those allegations are sufficient to survive PayPal's motion to dismiss IOENGINE's joint infringement claims.

         As for the allegation of joint enterprise, IOENGINE relies on the references in the complaint to the POS Partners as “partners, ” and in its response to PayPal's motion where IOENGINE refers to the POS Partners as “collaborators.” The allegations in the complaint, according to IOENGINE, allow for a reasonable inference that PayPal and its POS Partners have entered into agreements, “have a common purpose and a community of pecuniary interest in that purpose” and that both parties participate in the enterprise. Dkt. No. 16, at 20. The Court does not agree with IOENGINE that the facts pleaded are sufficient to plausibly assert the existence of a joint enterprise in light of the demanding standard set forth by the Federal Circuit in Akamai. See Lyda v. CBS Corp., 838 F.3d 1331, 1340 (Fed. Cir. 2016); Progme Corp. v. Comcast Cable Commc'ns LLC, Civil Action No. 17-1488, 2017 WL 5070723, at *11 (E.D. Pa. Nov. 3, 2017). At minimum, the complaint fails to satisfy the fourth requirement for a joint enterprise set forth by the Akamai court-the presence of “an equal right to a voice in the direction of the enterprise, which gives an equal right of control.” Akamai, 797 F.3d at 1023. While the “joint enterprise” theory is not supported by the complaint, however, the “direction and control” theory is sufficiently supported, and the motion to dismiss is therefore denied with regard to the claims of joint infringement.

         B. Indirect Infringement

         PayPal argues that IOENGINE's complaint does not adequately plead either form of indirect infringement-induced infringement or contributory infringement. PayPal's first argument, with regard to both induced infringement and contributory infringement, is that IOENGINE's allegations cannot support liability on either theory for the period of time before the complaint was filed. PayPal argues that the complaint contains no factual allegations from which it could plausibly be inferred that PayPal was aware of the asserted patents prior to the filing of the complaint in this case. Because indirect infringement requires proof of knowledge of the patents assertedly infringed and the acts alleged to constitute infringement, see Toshiba Corp. v. Imation Corp., 681 F.3d 1358, 1363 (Fed. Cir. 2012) (induced infringement); Commil USA, LLC v. Cisco Sys., Inc., 135 S.Ct. 1920, 1926 (2015) (contributory infringement), PayPal contends that the complaint cannot support a claim of pre-suit indirect infringement.

         IOENGINE does not take issue with PayPal's assertion that the complaint fails to allege sufficient facts from which pre-suit knowledge of the patents could plausibly be inferred. The Court therefore agrees with PayPal that IOENGINE has failed to adequately plead indirect infringement as to PayPal's activities prior to the service of the complaint in this case. See Evolved Wireless, LLC v. Samsung Elecs. Co., No. 15-545, 2016 WL 1019667, at *6 (D. Del. Mar. 15, 2016), report and recommendation adopted, 2016 WL 1381765 (D. Del. Apr. 6, 2016).

         As to PayPal's post-suit activities, however, knowledge of the patents was clearly conveyed to PayPal by the service of the complaint.[1] Moreover, the complaint alleges that since receiving notice of the complaint, PayPal has “knowingly” infringed each of the patents, has “knowingly contributed to the infringement of and induced infringement of” those patents, and has done so “with specific intent that the PayPal Infringing Products be used by its customers, Point of Sale Partners, and third parties to directly infringe” the patents. See Dkt. No. 1, at ¶¶ 98, 178, 273. Those allegations, in conjunction with the detailed allegations of direct infringement by the defendants, are sufficient to satisfy the knowledge requirement for contributory infringement, as well as the specific intent requirement for induced infringement. See Nalco Co. v. Chem-Mod, LLC, 883 F.3d 1337, 1355-57 (Fed. Cir. 2018); Telecomm Innovations, LLC v. Ricoh Co., 966 F.Supp.2d 390, 393 (D. Del. 2013) (“For a post-complaint claim of induced infringement to pass muster under Federal Rule of Civil Procedure 8, plaintiff need only identify the patent-at-issue, the allegedly infringing conduct, the notice afforded by service of the original complaint, and the apparent decision to continue the inducement post-service.”); E.I Du Pont de Nemours & Co. v. Heraeus Holding GmbH, No. 11-773, 2012 WL 4511258, at *6 (D. Del. Sept. 28, 2012). As to the post-suit period, PayPal does not contest the issue of knowledge and barely mentions the issue of specific intent. Instead, it contends that induced infringement and contributory infringement were not adequately pleaded for other reasons, discussed below.

         1. Post-Suit Induced Infringement

         With regard to the allegations of induced infringement as applied to the post-suit period, PayPal asserts that the complaint fails to recite “culpable conduct, directed to encouraging another's infringement.” Dkt. No. 9, at 11 (quoting Princeton Digital Image Corp. v. Ubisoft Entm't SA, No. 13-335, 2016 WL 6594076, at *4 (D. Del. Nov. 4, 2016). In fact, the opposite is true. The complaint contains detailed allegations regarding PayPal's acts of inducement. See Dkt. No. 1, at ¶¶ 22, 99-105, 179-85, 274-80. PayPal itself quotes some of those allegations: “Defendant instructs and encourages its customers, Point of Sale Partners, and third parties to use the PayPal Infringing Products in a manner that infringes” the asserted patents, and that “the information and materials provided by PayPal contain detailed descriptions and instructions ...


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