Advanced Steel Recovery, LLC v. X-Body Equipment, Inc. et al

Filing 42

ORDER signed by District Judge Kimberly J. Mueller on 8/8/2016 GRANTING 12 Motion to Dismiss with leave to amend; DENYING 12 Motion for Sanctions; ORDERING the plaintiff to file a first amended complaint within fourteen (14) days; ORDERING the pa rties to file a stipulation as to the scope of the limited discovery allowed above within twenty-one (21) days; ALLOWING the defendants to renew their motion to dismiss within thirty (30) days after the close of the limited discovery period. (Michel, G.)

1
2
3
4
5
6
7
8

UNITED STATES DISTRICT COURT

9

FOR THE EASTERN DISTRICT OF CALIFORNIA

10
11

ADVANCED STEEL RECOVERY, LLC,

12

Plaintiff,

13
14
15
16

No. 2:16-cv-00148-KJM-EFB

v.

ORDER

X-BODY EQUIPMENT, INC., JEWELL
ATTACHMENTS, LLC, J.D.M.L., INC.,
dba STANDARD INDUSTRIES, and
ALLSTATE PAPER & METAL
RECYCLING CO., INC.,

17

Defendants.

18
19
The matter is before the court on a motion to dismiss and for sanctions brought by

20
21

defendants X-Body Equipment (X-Body) and Jewell Attachments, LLC (Jewell). Mot., ECF

22

No. 13. Plaintiff Advanced Steel Recovery, LLC (Advanced Steel) opposes, Opp’n, ECF No. 28,

23

and defendants have replied. Reply, ECF No. 36-1. As explained below, the court GRANTS

24

defendants’ motion to dismiss with leave to amend and DENIES the motion for sanctions.

25

/////

26

/////

27

/////

28
1

1
2

I.

BACKGROUND
A.

3

Factual Allegations
Plaintiff owns United States Patent 9,056,731 (the ‘731 Patent) by virtue of an

4

assignment, which is the patent at issue here. Compl. ¶ 14, ECF No. 1. The ‘731 Patent, titled

5

“Container Packer System and Method,” was issued on June 16, 2015. Id. ¶ 15. It is a

6

continuation-in-part (CIP) application of United States Patent 8,061,950 (the ‘950 Patent), which

7

itself was a CIP application of United States Patent 7,744,330 (the ‘330 Patent). The ‘330 Patent

8

and the ‘950 Patent previously were litigated in another case in this district that was later

9

appealed to the Federal Circuit (Prior Litigation). See Case No. 12-1004-GEB-DAD; Advanced

10

Steel Recovery, LLC v. X-Body Equip., Inc., 808 F.3d 1313 (Fed. Cir. 2015). On appeal, the

11

Federal Circuit affirmed the district court’s decision that the Acculoader device, the same device

12

at issue here, did not infringe the asserted claims of the ‘950 Patent literally or under the doctrine

13

of equivalents.1 See generally id.

14

The ‘731 Patent describes a system and method for packing overseas containers

15

with materials. Compl. ¶ 16. The system described includes a transfer base and a container

16

packer. Id. The transfer base contains control systems, among other things, to operate the system

17

and receive the container. Id. Defendants make, use, offer to sell, and/or sell a product known as

18

the Acculoader that infringes at least one claim of the ‘731 Patent. Id. Specifically, defendant

19

Jewell manufactures the Acculoader and sells it to defendant X-Body. Id. ¶ 18. X-Body then

20

resells the Acculoader to users, including defendants Standard Industries and Allstate Paper &

21

Metal Recycling Co., Inc., who have purchased or otherwise make arrangements to use the

22

Acculoader for loading various materials into transport containers. Id. Plaintiff provided a

23

written notice to defendants of the ‘731 Patent on July 16, 2015. Id. ¶ 17.

24
25
26
27
28

1

“To establish literal infringement, every limitation set forth in a claim must be found in
an accused product, exactly.” Southwall Techs., Inc. v. Cardinal IG Co., 54 F.3d 1570, 1575
(Fed. Cir. 1995). To establish infringement under the doctrine of equivalents, a “patentee must
. . . provide particularized testimony and linking argument as to the insubstantiality of the
differences between the claimed invention and the accused device or process, or with respect to
the function, way, result test when such evidence is presented . . . .” AquaTex Indus., Inc. v.
Techniche Sols., 479 F.3d 1320, 1328 (Fed. Cir. 2007) (citation omitted).
2

1

Plaintiff has not licensed or authorized defendants, or its dealers, customers, or

2

affiliates, to sell or use a system within the scope of the claims in the ‘731 Patent. Id. ¶ 20.

3

Defendants have known about the ‘731 Patent since July 16, 2015 and the Prior Litigation, in

4

which the complaint was filed by plaintiff on April 16, 2012, but have not altered their conduct

5

with respect to the Acculoader. Id. ¶ 22; Compl., Advanced Steel Recovery, LLC v. X-Body

6

Equipment, Inc., No. 12-1004 (E.D. Cal. Apr. 16, 2012), ECF No. 1.

7

B.

8
9

Procedural History
On January 25, 2016, plaintiff filed the complaint in this action for monetary

damages, alleging defendants infringed the ‘731 Patent within the meaning of 35 U.S.C § 284,

10

from at least July 16, 2015, when defendants were notified of the existence of the ‘731 Patent, if

11

not as early as June 16, 2015, the issue date of the ‘731 Patent. Compl. ¶ 23. Plaintiff also seeks

12

a permanent injunction to prevent defendants’ further violation of the ‘731 Patent, and attorneys’

13

fees and costs. Id. On March 22, 2016, defendants filed the pending motion, supported by

14

declarations and exhibits.

15

II.

16
17
18

RULE 12(b)(6) MOTION TO DISMISS OR RULE 56 SUMMARY JUDGMENT
MOTION
A.

Parties’ Arguments
The threshold issue here is whether defendants can move to dismiss on the basis

19

that defendants’ alleged violation of the patent predated the patent’s priority date. Plaintiff argues

20

defendant’s motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be denied,

21

because defendants’ argument is a factual issue that cannot be resolved at the motion to dismiss

22

stage. Opp’n at 6. Plaintiff further argues the Rule 12(b)(6) motion to dismiss should not be

23

converted to a Rule 56 motion for summary judgment, despite defendant’s submission of

24

materials outside the complaint, because claim construction and expert discovery are required to

25

resolve the issue of priority date, and even if not, a substantial continuance should be provided for

26

plaintiff to respond to the motion if so converted. Opp’n at 9–10. Defendant agrees the motion

27

need not be converted. Reply at 8. Defendant argues plaintiff’s claims are not plausible based on

28

the complaint, its attachments, and matters properly subject of judicial notice. Id. Finally, both
3

1

plaintiff and defendants also address the determination of a priority claim, which the court will

2

not address at this point for reasons explained below.

3
4

B.

Legal Standards in Patent Cases
A complaint need contain only a “short and plain statement of the claim showing

5

that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), not “detailed factual allegations,”

6

Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). But this rule demands more than

7

unadorned accusations; “sufficient factual matter” must make the claim at least plausible.

8

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A party may thus move to dismiss for “failure to

9

state a claim upon which relief can be granted.” Fed. R. Civ. P. 12(b)(6). The motion may be

10

granted only if the complaint lacks a “cognizable legal theory” or if its factual allegations do not

11

support a cognizable legal theory. Hartmann v. Cal. Dep’t of Corr. & Rehab., 707 F.3d 1114,

12

1122 (9th Cir. 2013). In making this context-specific evaluation, this court “must presume all

13

factual allegations of the complaint to be true and draw all reasonable inferences in favor of the

14

nonmoving party.” Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). This rule

15

does not apply to “‘a legal conclusion couched as a factual allegation,’” Papasan v. Allain,

16

478 U.S. 265, 286 (1986) quoted in Twombly, 550 U.S. at 555, nor to “allegations that contradict

17

matters properly subject to judicial notice” or to material attached to or incorporated by reference

18

into the complaint. Sprewell v. Golden State Warriors, 266 F.3d 979, 988–89 (9th Cir. 2001).

19

In deciding a motion to dismiss, “courts generally consider only the allegations

20

contained in the complaint, exhibits attached to the complaint and matters of public record” when

21

reviewing a motion to dismiss. Outdoor Media Group, Inc. v. City of Beaumont, 506 F.3d 895,

22

899–900 (9th Cir. 2007) (citing Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007)). Rule

23

12(d) addresses the use of materials which are outside the pleadings in motions to dismiss under

24

Rule 12(b)(6). Fed. R. Civ. P. 12(d); see also Olsen v. Idaho State Bd. of Medicine, 363 F.3d

25

916, 922 (9th Cir. 2004). When such materials are presented, the motion is treated as one for

26

summary judgment. Olsen, 363 F.3d at 922. However, certain additional materials may be

27

considered without converting the motion to dismiss into a motion for summary judgment. While

28

a court is generally limited to the four corners of the complaint, the court may consider exhibits
4

1

attached to the complaint, see Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d

2

1542, 1555 n.19 (9th Cir. 1989), and documents incorporated by reference into the complaint.

3

See Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir. 2002). Documents

4

upon whose contents the complaint necessarily relies—even if the complaint does not explicitly

5

allege their contents—and whose authenticity and relevance are uncontested, are considered

6

incorporated by reference. See Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir.

7

2010); Knievel v. ESPN, 393 F.3d 1068, 1076–77 (9th Cir. 2005). The court may, in addition,

8

take into account material that is properly the subject of judicial notice. Lee v. City of Los

9

Angeles, 250 F.3d 668, 688–89 (9th Cir. 2001). Judicial notice may be taken of a fact not subject

10

to reasonable dispute because it either is generally known within the trial court's territorial

11

jurisdiction, or can be readily determined from sources whose accuracy cannot reasonably be

12

questioned. Fed. R. Evid. 201(b).

13

With respect to a Rule 12(b)(6) motion to dismiss patent claims, determination of a

14

priority claim raises a question of law based on undisputed facts. Amkor Tech v. Int’l Trade

15

Comm’n, 692 F.3d 1250, 1254 (Fed. Cir. 2012); Bradford Co. v. Conteyor North America, Inc.,

16

603 F.3d 1262 (Fed. Cir. 2010). Accordingly, the issue raised by defendants’ motion––whether

17

plaintiff’s claim is barred because sales occurred and publications describing the defendants’

18

Acculoader product were distributed more than a year before the ‘731 patent application filed on

19

November 22, 2011––could in some cases be decided on a motion to dismiss depending on the

20

allegations in plaintiff’s complaint and matters properly susceptible of judicial notice.

21

Here, however, defendants have presented matters outside the pleadings.

22

Although as noted, a court may consider matters by way of judicial notice without converting a

23

motion to dismiss into a motion for summary judgment, United States v. Ritchie, 342 F.3d 903,

24

907 (9th Cir. 2003), defendants have instead presented the declaration of Robert Harkins, counsel

25

for defendants X-Body and Jewell, in an attempt to clarify and supplement the judicially

26

noticeable factual record on the motion to dismiss. A court, in its discretion, may consider

27

matters outside the pleadings, but if it does so, the motion must be converted to one for summary

28

judgment under Federal Rule of Civil Procedure 56, and all parties must be given a reasonable
5

1

opportunity to respond to the extra-record material. Fed. R. Civ. P. 12(d); see also Ritchie, 342

2

F.3d at 907. If the court does not convert the motion to dismiss into a motion for summary

3

judgment, the court declines to consider matters outside the pleadings that are not judicially

4

noticeable. See Wiles v. Scott, No. 12-5722, 2012 WL 7619807, at *3 (W.D. Wash. Dec. 19,

5

2012), report and recommendation adopted, No. 12-5722, 2013 WL 750777 (W.D. Wash. Feb.

6

27, 2013).

7

C.

8

Discussion
Given the early stage of this case, the lack of discovery, and the sparse record

9

before the court, the court declines to convert defendants’ Rule 12(b)(6) motion to dismiss into a

10

Rule 56 motion for summary judgment. The court does not consider the content of the Harkins

11

declaration, or the declaration of William Jon Maul submitted in support of the motion for

12

sanctions. The five exhibits attached to the Maul declaration, consisting of photographs of the

13

Acculoader and an email, also are not considered as they are not subject to judicial notice under

14

Federal Rule of Evidence 201. Regarding the Harkins declaration’s attachments, Exhibit 1, is a

15

copy of the Federal Circuit opinion on a related case; Exhibit 2 is a copy of the Federal Circuit

16

mandate from the related case; Exhibit 3 is a copy of the ‘950 patent; and Exhibit 4 is a copy of

17

the file history for the ‘731 patent. These exhibits are matters of public record and are susceptible

18

of judicial notice under Rule 201. Lee, 250 F.3d at 690 (a court may take judicial notice of the

19

existence of another court’s opinion); Coinstar, Inc. v. Coinbank Automated Sys., Inc., 998 F.

20

Supp. 1109, 1114 (N.D. Cal.1998) (granting defendant’s request for judicial notice of two patents

21

and documents from the file history of one of the patents). Plaintiff’s request for judicial notice

22

of the ‘330 and ‘950 patents also is granted. See ECF No. 28-1.

23

III.

24

ANALYSIS: DISMISSAL
Defendants argue that plaintiff’s claim is barred because sales of and publications

25

describing the defendants’ Acculoader occurred more than a year before plaintiff’s ‘731 Patent

26

application was filed. This argument raises two questions: (1) when did defendants allegedly start

27

to infringe the ‘731 patent, and (2) whether plaintiffs are alleging a priority date earlier than the

28

filing date of the ‘731 patent.
6

1

Plaintiff alleges defendants make, use, offer to sell, and/or sell the Acculoader

2

product and that it infringes at least one claim of the ‘731 Patent. Compl. ¶ 16. The complaint

3

generally alleges “subsequently to the issuance of the ‘731 Patent, [d]efendants have infringed the

4

‘731 Patent by making, using, importing, offering to sell . . . the Acculoader . . . .” Id. ¶ 26. The

5

complaint alleges no facts as to when the infringement began. Quantum Loyalty Sys., Inc. v. TPG

6

Rewards, Inc., No. 09-022, 2009 WL 5184350, at *8 (D. Del. Dec. 23, 2009), report and

7

recommendation adopted as modified, No. 09-22, 2010 WL 1337621 (D. Del. Mar. 31, 2010)

8

(denying defendant’s motion to dismiss plaintiff’s claim of patent infringement for not alleging

9

any facts as to when infringement began or whether infringement has continued during litigation

10

without prejudice to renewal following the completion of discrete discovery on issue of product

11

identification). Plaintiff attaches to the complaint a user manual for the Acculoader. See Compl.,

12

Ex. 2. Though stamped with the date July 28, 2010, there is no explanation in the user manual or

13

otherwise in the complaint to clarify what the date signifies. Plaintiff alleges that “subsequent to

14

the issuance of the ‘731 Patent” defendants infringed the patent, id. ¶ 26, but the issuance date of

15

the ‘731 Patent was June 16, 2015, id. ¶ 15. It is not clear from the face of the complaint whether

16

plaintiff’s position is that the ‘731 patent is entitled to a date earlier than that patent’s date of

17

filing. See PowerOasis, Inc. v. T-Mobile USA, Inc., 522 F.3d 1299, 1305–06 (Fed. Cir. 2008)

18

(plaintiff carries burden to show it is entitled to claim priority based on an earlier filing date). In

19

their briefs, the parties dispute whether the claims asserted are entitled to the filing date of the

20

application for the ‘330 Patent, which was June 13, 2008. See Opp’n at 3; Mot. at 5.

21

The court does not reach the issue of priority date of the patent claim at issue,

22

because plaintiff has not alleged when exactly defendants began to infringe the ‘731 patent. The

23

court also finds the motion for sanctions to be premature.

24

Federal Rule of Civil Procedure 15(a)(2) provides, “[t]he court should freely give

25

[leave to amend its pleading] when justice so requires,” and the Ninth Circuit has “stressed Rule

26

15’s policy of favoring amendments.” Ascon Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149,

27

1160 (9th Cir. 1989). Defendants’ motion to dismiss is GRANTED but with leave to amend in

28
7

1

light of plaintiff’s arguments in its briefing, which suggest amendment may be possible,

2

consonant with Federal Rule of Civil Procedure 11.

3

IV.

4

PRETRIAL SCHEDULING
Discovery is opened for the limited purpose of discovering information related to

5

priority of claim, for a ninety (90) day period from the filed date of this order. The parties are

6

ORDERED to file a stipulation defining the scope of this discovery within twenty-one (21) days

7

of the date of this order. Defendants may renew their motion to dismiss within thirty (30) days

8

after the close of the limited discovery period. The court will schedule the balance of the case

9

after the resolution of any renewed converted motion.

10

V.

CONCLUSION

11

Defendants’ motion to dismiss is GRANTED with leave to amend and defendants’

12

motion for sanctions is DENIED. Plaintiff is ORDERED to file a first amended complaint within

13

fourteen (14) days of the date of this order. The parties are ORDERED to file a stipulation as to

14

the scope of the limited discovery allowed above within twenty-one (21) days of the date of this

15

order. Defendants may renew their motion to dismiss within thirty (30) days after the close of the

16

limited discovery period.

17
18

IT IS SO ORDERED.
DATED: August 8, 2016.

19
20
21

UNITED STATES DISTRICT JUDGE

22
23
24
25
26
27
28
8