Does the Filing on an IPR Negate the Intent Element for an Indirect Patent Infringement Action? One District Court Says No.

by Jeffer Mangels Butler & Mitchell LLP
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Clouding IP ("Clouding") filed a patent infringement action against Rackspace, which alleged direct, indirect, and willful infringement of the patents-in-suit. The district court granted defendant Rackspace's motion to dismiss with respect to indirect infringement, but also granted Clouding leave to amend its complaint. In that ruling, the district court found that Clouding had adequately plead the knowledge requirement for induced infringement, but the district court dismissed Clouding's claims because the First Amended Complaint "failed to plead facts from which the Court [could] infer intent."

Clouding filed a second amended complaint, which again alleged claims for inducing infringement. Rackspace moved to dismiss the indirect infringement claims. Rackspace's motion presented a narrow issue as to whether Clouding failed to sufficiently plead the element of intent for its inducement claims.

As explained by the district court: Pursuant to 35 U.S.C. § 271(b), "[w]hoever actively induces infringement of a patent shall be liable as an infringer." "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 omitted). As such, a claim for inducement must allege the requisite knowledge and intent. See Mallinckrodt, Inc. v. E--Z--Em Inc., 670 F. Supp. 2d 349, 354 (D. Del. 2009). "The requirement that the alleged infringer knew or should have known his actions would induce actual infringement necessarily includes the requirement that he or she knew of the patent." DSU Med. Corp. v. JMS Co., Ltd., 471 F.3d 1293, 1304 (Fed. Cir. 2006) (en banc). However, knowledge of infringement is not enough. See Metro--Goldwyn--Mayer Studios v. Grokster, Ltd., 545 U.S. 913, 915 (2005). "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." DSU Med. Corp., 471 F.3d at 1306.

Rackspace argued that the new complaint only alleged that Rackspace continued to market and sell the invention, which cannot give rise to intent to induce infringement. The district court rejected this argument, noting that "courts in this District have held that to plead indirect infringement based on conduct after a complaint was filed a party need only allege 'a defendant's receipt of the complaint and [its] decision to continue its conduct despite the knowledge gleaned from the complaint.' Apeldyn Corp. v. Sony Corp., 852 F. Supp. 2d 568, 574 (D. Del. 2012) (citing Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060 (2011)); Walker Digital, LLC v. Facebook, Inc., 852 F. Supp. 2d 559, 565 (D. Del. 2012) ("[I]f a complaint sufficiently identifies, for purposes of Rule 8, the patent at issue and the allegedly infringing conduct, a defendant's receipt of the complaint and decision to continue its conduct despite the knowledge gleaned from the complaint satisfies the requirements of Global--Tech.")."

Rockspace also argued that it could not have the requisite intent because it had a good faith belief that the patents were invalid . "This purported good faith basis arose after Clouding filed its First Amended Complaint, when the Patent Trial and Appeals Board ("PTAB") granted former defendant Oracle's petition for inter partes review of six of the patents-in-suit, based on a reasonable likelihood that Oracle would prevail in showing some of the claims at issue are unpatentable. (D.I. 77 at 7) However, as Clouding argues, Commil arose in a far different procedural context. Commil concerned whether "the district court erred in preventing Cisco from presenting evidence during the second trial of its good-faith belief of invalidity to rebut Commil's allegations of induced infringement." Commil, 720 F.3d at 1367. The Federal Circuit held that, on the merits at trial, "a good-faith belief of non-infringement is relevant evidence that tends to show that an accused inducer lacked the intent required to be held liable for induced infringement." Id. at 1367-68. There is no basis to expand Commil into a pleading requirement. More importantly, the public IPR documents to which Rackspace refers do not, taken in the light most favorable to Clouding, require a finding that Clouding's pleading of intent is deficient and merits dismissal of the induced infringement claim."

Accordingly, the district court denied the motion to dismiss.

Clouding IP, LLC v. Rackspace Hosting, Inc., Case No. 12-675-LPS (D. Del. Feb. 6, 2014)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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