Courts Remain Divided Over Pleading Requirements for Inducement

by Goodwin

Under the patent statute, “[w]hoever actively induces infringement of a patent shall be liable as an infringer.”  35 U.S.C. § 271(b).  A finding of liability for inducement “requires knowledge that the induced acts constitute patent infringement.”  Global–Tech Appliances, Inc. v. SEB S.A., ___ U.S. ___, 131 S.Ct. 2060, 2068 (2011).  In DSU, the Federal Circuit stated that induced infringement “necessarily includes the requirement that [the inducer] knew of the patent.”  DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1304 (Fed. Cir. 2006).  But when does an accused infringer need to possess this knowledge?  Of course the filing of a complaint identifying a patent-in-suit will provide notice to an accused infringer.  But is it necessary for a patentee to assert pre-suit knowledge of the patent by the accused infringer to adequately state a claim of inducement and survive a motion to dismiss pursuant to Fed. R. Civ. P. 12?

Two Supreme Court decisions set the general standard for pleading a case in federal court.  As set forth in those cases, “[t]o survive a motion to dismiss, 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)).  In considering a motion to dismiss, the allegations in the complaint are taken as true, and all reasonable inferences are drawn in favor of the plaintiff.  In re Bill of Lading Transmission and Processing System Patent Litigation, 681 F.3d 1323, 1331 (Fed. Cir. 2012).  “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 677.

Following Twombly & Iqbal, the Federal Circuit held that for a claim of direct patent infringement, the pleading requirements are satisfied by Form 18 of the Federal Rules.  In re Bill of Lading, 681 F.3d at 1334.  Form 18 does not set a high bar; its language consists of a statement of ownership of the patent and the following basic statement:  “The defendant has infringed and is still infringing the [patent-in-suit] by making, selling, and using [the accused products] that embody the patented invention, and the defendant will continue to do so unless enjoined by this court.”  So for a claim of direct infringement, a complaint that follows Form 18 will be considered sufficient.  But the In re Bill of Lading decision also held that – for claims of indirect infringement, including inducement – the Twombly/Iqbal standard applies.  681 F.3d at 1336.

Competing District Court Approaches to the Knowledge Element

It appears that a majority of districts, including many hotbeds of patent litigation such as the Northern District of California, the Eastern District of Texas and the Eastern District of Virginia, have consistently held that knowledge of the patent as a result of the filing of the complaint is sufficient to survive a motion to dismiss.  See Bascom Research LLC v. Facebook, Inc., 2013 WL 968210 *4 (N.D. Cal. Mar. 12, 2013); Achates Reference Pub., Inc. v. Symantec Corp., 2013 WL 693955 *2 (E.D. Tex. Jan. 10, 2013); Rembrandt Social Media, LP v. Facebook, Inc., ___ F. Supp. 2d ___, 2013 WL 2950342 *4-5 (E.D. Va. June 12, 2013).

Courts in several other districts have also taken this approach.  See Unisone Strategic IP, Inc. v. Life Technologies Corp., 2013 WL 5729487 (S.D. Cal. Oct. 22, 2013); Service Solutions U.S., LLC v. Autel U.S. Inc., 2013 WL 5701063 *10 (E.D. Mich. Oct. 18, 2013); Silver State Intellectual Techs., Inc. v. FourSquare Labs, Inc., 2013 WL 5437363 *3 (D. Nev. Sept. 26, 2013); Pacing Techs., LLC v. Garmin Int’l, Inc., 2013 WL 444642 *2 (S.D. Cal. Feb. 5, 2013); Intellect Wireless Inc. v. Sharp Corp., 2012 WL 787051 *11 (N.D. Ill. Mar. 9, 2012).

A minority of courts, however, have held to the contrary, including the Middle District of Florida and the District of Massachusetts.  In the Brandywine decisions, the district court held that inducement of infringement requires a plaintiff to allege that defendant had pre-suit knowledge of the patent-in-suit.  The court stated, “because notice of the patent is necessarily provided by a complaint, finding that a complaint provides sufficient knowledge for induced infringement would vitiate the Supreme Court’s holding in Global-Tech that an allegation of knowledge of the patent is required to state a claim for induced infringement.”  Brandywine Comms. Techs., LLC v. T-Mobile USA, Inc., 904 F. Supp. 2d 1260, 1267-69 (M.D. Fla. 2012); see also Brandywine Comms. Techs., LLC v. Casio Computer Co. Ltd., 912 F. Supp. 2d 1338, 1345-46 (M.D. Fla. 2012).  A handful of other courts have adopted this position as well.  See Proxyconn Inc. v. Microsoft Corp., 2012 WL 1835680, at *5 (C.D. Cal. May 16, 2012); see also Aguirre v. Powerchute Sports, LLC, 2011 WL 2471299, at *3 (W.D. Tex. June 17, 2011); Zamora Radio, LLC v. Last.FM, Ltd., 758 F. Supp. 2d 1242, 1257 (S.D. Fla. 2010).

There is even a division of authority within the District of Delaware, but more recent cases (since 2012) appear to favor the majority view.  See Fairchild Semiconductor Corp. v. Power Integrations, Inc., 935 F. Supp. 2d 772, 777 (D. Del. 2013); Walker Digital, LLC v. Facebook, Inc., 852 F. Supp. 2d 559, 565 (D. Del. 2012) (“there is no legal impediment to having an indirect infringement cause of action limited to postlitigation conduct”); Apeldyn Corp. v. Sony Corp., 852 F. Supp. 2d 568, 573 (D. Del. 2012) (same); SoftView, LLC v. Apple Inc., 2012 WL 3061027 *7 (D. Del. July 26, 2012); but see Mallinckrodt Inc. v. E–Z–Em Inc., 670 F. Supp. 2d 349, 354 (D. Del. 2009) (“The Court is not persuaded by Plaintiffs’ contention that the requisite knowledge can be established by the filing of the Plaintiffs’ Complaint.”) and Xpoint Techs, Inc. v. Microsoft Corp., 730 F.Supp.2d 349, 357 (D. Del. 2010) (same).

Differing Rationales

The district courts taking the majority view have set forth the following rationales.  First, if only “pre-filing” knowledge were sufficient, a patentee could inform the accused infringer of the patent mere hours before filing a complaint and still technically meet the requirement.  Thus, the requirement could be argued as pointless.

Moreover, in such situations the patentee would typically be allowed to file an amended complaint, so the patentee could re-file and assert knowledge based on the earlier original complaint.  Again, such a requirement may seem a pointless elevation of form over substance.  Thus it is arguably more efficient and conducive to judicial economy to allow claims based on knowledge provided by virtue of the filing of the complaint.

One argument for the minority view, however, is that requiring pre-suit knowledge can encourage parties to obtain resolution of their dispute before any litigation need occur.  However, this argument might be countered by noting that the patentee is not required to show that the accused infringer’s knowledge arose by way of a cease and desist letter or the like.  For example, a patentee can assert that an accused infringer obtained knowledge due to the patent-in-suit being cited as prior art in another litigation in which the accused infringer was involved, or in a patent prosecution context.  In such a situation, the patentee and accused infringer would not necessarily be motivated to seek out a resolution outside litigation.

Another argument for the minority view is that finding post-filing knowledge sufficient undermines the Supreme Court’s holding in Global-Tech, which requires knowledge of the patent to state a claim for induced infringement.  But identifying the patent in a complaint necessarily satisfies this requirement going forward, and any damages for inducement are limited to the time period in which all elements of inducement are satisfied.

What Other Factual Assertions Are Sufficient?

A patentee is required to plead sufficient facts to make its inducement claim facially plausible, but it need not “prove its case at the pleading stage.”  In re Bill of Lading, 681 F.3d at 1339.  Nonetheless, recent decisions make clear that something more than conclusory allegations are required to render an inducement claim sufficiently plausible.  See, e.g., Bascom, 2013 WL 968210 at *4 (“Although the complaints allege that defendants ‘knowingly induced’ infringement, there are no facts alleging whether, when or how defendants became aware of the patents-in-suit.”).  Moreover, the Supreme Court’s Global-Tech decision held that “willful blindness” may suffice to show the requisite knowledge of the patent.  131 S.Ct. at 2070-71.

Practice Points

Overall, the competing approaches may present a distinction without a real difference.  First, for those districts in the majority that allow knowledge as of the time of the filing of the complaint, any inducement damages will be limited to the time period in which both elements of inducement – knowledge and specific intent – were satisfied.  And in the minority of districts which will dismiss a complaint for failure to adequately assert pre-filing knowledge, the dismissal will be without prejudice.  A patentee can then file an amended complaint, and the defendant will necessarily have knowledge of the patent at the point in time the amended  complaint is filed.  This process would result in a delay of the case, but perhaps little else of substance.

In addition, regardless of how the patentee successfully pleads the knowledge element, a complaint may still fail if the patent does not present a plausible case under Twombly/Iqbal for the other element of inducement, namely specific intent to encourage another’s infringement.

Finally, although the majority of cases on the issue have held that knowledge as of the filing date is sufficient, there are obvious benefits to a patentee if it can plead pre-suit knowledge.  In addition to extending the time period for inducement-related damages, in many circumstances pre-filing knowledge is ordinarily required for a willfulness claim.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

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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