Rearden LLC et al v. Crystal Dynamics, Inc. et al

Filing 48

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS by Judge Jon S. Tigar granting in part and denying in part 20 Motion to Dismiss. (wsn, COURT STAFF) (Filed on 3/6/2018)

1
2
3
4

UNITED STATES DISTRICT COURT

5

NORTHERN DISTRICT OF CALIFORNIA

6
7

REARDEN LLC, ET AL.,
Plaintiffs,

8
v.

9
10

CRYSTAL DYNAMICS, INC., et al.,

ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANTS’
MOTION TO DISMISS
Re: ECF No. 20

Defendants.

11
United States District Court
Northern District of California

Case No. 17-cv-04187-JST

12
Now before the Court is the Defendants’ motion to dismiss. The Court will grant the

13
14

motion in part and deny it in part.

15

I.

BACKGROUND
This action centers on the MOVA Contour Reality Capture Program (“MOVA Contour” or

16
17

“MOVA”), which – as the name suggests – is a program for capturing the motion of the human

18

face to create images used in motion pictures. Unlike previous motion capture technologies, the

19

MOVA Contour Program “precisely captures and tracks the 3D shape and motion of a human face

20

to sub-millimeter precision.” ECF No. 1 (Compl.) ¶ 19. The MOVA Contour system captures

21

“an actor’s performance frame-by-frame, and then creates original Contour Program output files

22

based on the performance, frame-by-frame.” Id. ¶ 24. The output files can be used for many

23

different applications, such as “retargeting” the actor’s face onto another real or fictional face. Id.

24

¶ 33.

25

In many ways, this case is the successor to an earlier litigation. Beginning in February

26

2015, Rearden LLC engaged in a dispute with Shenzhenshi Haitiecheng Science and Technology

27

Company (“SHST”) over the ownership of the physical equipment and intellectual property

28

1

associated with the MOVA technology.1 See Shenzhenshi, et al. v. Rearden, et al., No. 15-CV-

2

00797 JST, ECF No. 1 (N.D. Cal. Feb. 20, 2015). SHST is a Chinese entity associated with

3

Digital Domain 3.0 Inc. (“DD3”). See Shenzhenshi, et al. v. Rearden, et al., No. 15-CV-00797

4

JST, ECF No. 427 (N.D. Cal. Aug. 11, 2017). On August 11, 2017, this Court found that “VGH

5

does not own the Mova Assets because Rearden owns them.” See id. at 18.
Now, Plaintiffs Rearden LLC and Rearden Mova LLC (collectively, “Rearden”) bring suit

6
7

against Defendants Crystal Dynamics and Square Enix. Rearden alleges that Crystal Dynamic’s

8

Rise of the Tomb Raider videogame was released and distributed in the United States by Square

9

Enix. Compl. ¶ 1. Rearden contends that Crystal used the “MOVA Contour systems and methods
and Contour Program output, made derivative works, and with Square Enix reproduced and

11
United States District Court
Northern District of California

10

distributed, and authorized performance and display of, Rise of the Tomb Raider in knowing or

12

willfully blind violation of Rearden Mova LLC’s intellectual property rights. Id. ¶ 5.

13

II.

RELATED CASE ORDER

14

Rearden also brought suit against movie studios who allegedly contracted with DD3 to use

15

The MOVA contour technology in three related cases. On February 21, 2018, this Court issued an

16

order granting in part and denying in part motions to dismiss these cases. See Rearden LLC et al.

17

v. The Walt Disney Company et al., No. 17-cv-4006 JST, ECF No. 60 (N.D. Cal. Feb. 26, 2018);

18

Rearden LLC et al. v. Twentieth Century Fox Film Corporation et al., No. 17-cv-4191 JST, ECF

19

No. 38 (N.D. Cal. Feb. 26, 2018); Rearden LLC et al. v. Paramount Pictures Corporation et al., 17-

20

cv-4192 JST, ECF No. 37 (N.D. Cal, Feb. 26, 2018) (hereinafter “Studios’ Order”).

21

Here, Defendants acknowledge the substantial overlap among Rearden’s complaints

22

against Crystal Dynamics, Square Enix, and the studios with regard to alleged copyright and

23

patent infringement. ECF No. 20 at 4. Defendants “incorporate herein by reference the sections

24

of the briefing concerning alleged copyright and patent infringement, with respect to the legal

25

grounds for dismissing Rearden’s copyright claims against Crystal and Square Enix, and the

26
27
28

1

The Statement of Decision in that case includes a summary of the facts underlying the ownership
dispute. See Shenzhenshi, et al. v. Rearden, et al., No. 15-CV-00797 JST, ECF No. 427 (N.D.
Cal. Aug. 11, 2017).
2

1

patent claims against Crystal. Id. Rearden also “incorporates by reference section B of Plaintiff’s

2

Opposition to Defendants’ Motions to Dismiss.” ECF No. 26 at 11. Accordingly, the Court

3

refers to the Studios’ Order when that order sets forth the Court’s reasoning as to a particular

4

claim or argument.

5

III.

LEGAL STANDARD
While a complaint need not contain detailed factual allegations, facts pleaded by a plaintiff

6
7

must be “enough to raise a right to relief above the speculative level.” Bell Atl. Corp. v.

8

Twombly, 550 U.S. 544, 555 (2007). To survive a Rule 12(b)(6) motion to dismiss, a complaint

9

must contain sufficient factual matter that, when accepted as true, states a claim that is plausible
on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “A claim has facial plausibility when the

11
United States District Court
Northern District of California

10

plaintiff pleads factual content that allows the court to draw the reasonable inference that the

12

defendant is liable for the misconduct alleged.” Id. While this standard is not a probability

13

requirement, “[w]here a complaint pleads facts that are merely consistent with a defendant’s

14

liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Id.

15

(internal quotation marks and citation omitted). In determining whether a plaintiff has met this

16

plausibility standard, the Court must “accept all factual allegations in the complaint as true and

17

construe the pleadings in the light most favorable” to the plaintiff. Knievel v. ESPN, 393 F.3d

18

1068, 1072 (9th Cir. 2005). If the motion to dismiss is granted, the court should grant leave to

19

amend “even if no request to amend the pleading was made, unless it determines that the pleading

20

could not possibly be cured by the allegation of other facts.” Doe v. United States, 58 F.3d 494,

21

497 (9th Cir. 1995) (internal quotation marks and citation omitted).

22

IV.

DISCUSSION

23

A.

Copyright Infringement

24

To establish copyright infringement Plaintiff must prove (1) ownership of a copyright, and

25

(2) copying of protectable expression by Defendants. See Design Data Corp. v. Unigate Enter.,

26

Inc., 847 F.3d 1169, 1173 (9th Cir. 2017). Defendants argue that Rearden has not alleged a

27

copyright claim because the copyright in the software does not include the output files. ECF No.

28

20 at 5. For reasons expressed in its earlier order, the Court agrees. See Studios’ Order at 4-8.
3

1

Rearden has not adequately alleged ownership of a copyright.

2

B.

Patent infringement

3

The MOVA assets are the subject of several patents. Compl. ¶ 60. Rearden alleges that

4

Crystal Dynamics directly infringed or actively induced direct infringement of these patents.

5

Compl. ¶¶ 129, 136, 153, 160, 175, 182, 199, 203, 221, 225. Crystal argues that Rearden fails to

6

plead patent infringement under any theory. ECF No. 20 at 6.

7
8
9

1.

Direct Infringement

Crystal argues that Rearden has no basis for a direct infringement claim because Rearden
does not allege that Crystal “makes, uses, offers to sell, or sells” the patented invention. ECF No.
20 at 9; see 35 U.S.C. § 271(a). Rearden argues that Crystal is liable for direct infringement

11
United States District Court
Northern District of California

10

“because DD3’s infringing acts are attributable to it” and Crystal “used” the MOVA Contour

12

system. ECF No. 2 at 12-16.

13
14
15
16

The Court finds that Rearden has not adequately alleged a direct infringement claim. See
Studios’ Order at 9-11.
2.

Active Inducement

“Whoever actively induces infringement of a patent shall be liable as an infringer.” 35

17

U.S.C § 271(b). “Induced infringement under § 271(b) requires knowledge that the induced acts

18

constitute patent infringement.” Glob.-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 766,

19

(2011). This requires knowledge of the existence of the patent that is infringed. Id. See also

20

Grecia v. VUDU, Inc., No. C-14-0775-EMC, 2015 WL 538486, at *6 (N.D. Cal. Feb. 9, 2015).

21

To satisfy the knowledge requirement, either actual knowledge or willful blindness is required.

22

Glob.-Tech Appliances, Inc., 563 U.S. at 768. The patent holder must also “prove that once the

23

defendants knew of the patent, they actively and knowingly aided and abetted another’s direct

24

infringement.” DSU Med. Corp. v. JMS Co., 471 F.3d 1293, 1305 (Fed. Cir. 2006) (internal

25

quotation marks and citations omitted). Knowledge of possible infringement is not enough;

26

“specific intent and action to induce infringement must be proven.” Id.

27
28

A defendant is not required to “prove its case at the pleading stage.” In re Bill of Lading
Transmission & Processing Sys. Patent Litig., 681 F.3d at 1339. The Iqbal/Twombly standard
4

1

“unquestionably applies” to allegations of induced infringement. See Lifetime Indus., Inc. v.

2

Trim-Lok, Inc., 869 F.3d 1370, 1380 (Fed. Cir. 2017). To survive a motion to dismiss, the

3

complaint must contain facts “plausibly showing that [the defendant] specifically intended [the

4

direct infringer] to infringe [the patent-in-suit] and knew that the [direct infringer's] acts

5

constituted infringement.” Grecia, 2015 WL 538486, at *7 (quoting In re Bill of Lading

6

Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1339 (Fed.Cir. 2012)).
Rearden alleges that from “2008 to 2012, not only were Crystal and Square Enix

7

attendees at the industry videogame conferences such as GDC08 where Rearden-controlled

9

companies promoted MOVA Contour’s use in creating photorealistic CG faces for videogames,

10

but Crystal and Square Enix were business partners of a Rearden-controlled company, utilizing

11
United States District Court
Northern District of California

8

Rearden-developed technology within their videogames (including Crystal-developed prior Tomb

12

Raider franchise games), under contracts that provided for sharing a percentage of the retail price

13

of all Crystal and Square Enix games using Rearden’s technology. Before entering into business

14

with the Rearden-controlled company and using Rearden technology in its videogames, Crystal

15

and Square Enix performed an intellectual property due diligence to confirm that Rearden and its

16

controlled companies owned the videogame technology.” Compl. ¶ 56. Rearden contends that

17

“between February 2013 and October 11, 2016, Crystal contracted with DD3 to provide facial

18

performance capture services using the copyrighted Contour Program and output, including, at

19

least the performance of Camilla Luddington for the CG face of the Lara Croft character in Rise of

20

the Tomb Raider.” Id. ¶ 93. Rearden alleges on information and belief that Crystal Dynamics

21

“performed an intellectual property due diligence with DD3 prior to contracting with DD3 to use

22

the MOVA Contour facial motion capture system…in Rise of the Tomb Raider.” Id. ¶¶ 131, 177,

23

201, 223.
Assuming the truth of these allegations,2 it is not an unreasonable inference that Crystal

24
25

Dynamics became aware of Rearden’s patents, and continued to be aware that the MOVA

26
27
28

2

The Court has its doubts that Crystal Dynamics actually engaged in the kind of intellectual property
due diligence with either Rearden or DD3 that plaintiff alleges, but nonetheless concludes that the
allegation survives an Iqbal/Twombly challenge.
5

1

technology was patented when Crystal Dynamics contracted with DD3. The allegations are

2

certainly thin, but they survive a motion to dismiss.

3

Further, it is not unreasonable that by contracting with DD3 to use the MOVA Contour

4

facial motion capture system, Crystal Dynamics intended and acted to induce infringement.

5

Rearden alleges that after it learned of the patents, Crystal Dynamics “assisted or directed” in the

6

infringement by contracting with DD3 to provide facial performance motion capture and outputs.

7

Id. This is sufficient to plead intent to infringe. See Lifetime Indus., Inc. v. Trim-Lok, Inc., 869

8

F.3d at 1380.

9
10

United States District Court
Northern District of California

11
12
13
14
15

3.

Willful Infringement

Lastly, Crystal Dynamics moves to dismiss Rearden’s willful infringement allegations.
The Supreme Court has recently clarified that
[a]wards of enhanced damages under the Patent Act . . . are not to be meted out in a
typical infringement case, but are instead designed as a “punitive or vindictive”
sanction for egregious infringement behavior. The sort of conduct warranting
enhanced damages has been variously described in our cases as willful, wanton,
malicious, bad-faith, deliberate, consciously wrongful, flagrant, or ‒ indeed ‒
characteristic of a pirate.

16

Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1932, 195 L. Ed. 2d 278 (2016). “[A]

17

patent infringement plaintiff does not have to prove willfulness at the pleading stage, although

18

they should allege more than a one-sentence prayer for willfulness relief.” Straight Path IP Grp.,

19

Inc. v. Apple Inc., No. C 16-03582 WHA, 2017 WL 3967864, at *4 (N.D. Cal. Sept. 9, 2017); see

20

also Simplivity Corp. v. Springpath, Inc., No. CV 4:15-13345-TSH, 2016 WL 5388951, at *18 (D.

21

Mass. July 15, 2016) (“Halo . . . offered little by way of a concrete standard” for the imposition of

22

willfulness sanctions). Adhering to the Halo standard, several district courts in this circuit have

23

upheld allegations of willful infringement on less than what Rearden pleads here. See, e.g.,

24

Finjan, Inc. v. ESET, LLC, No. 3:17-cv-0183-CAB(BGS), 2017 WL 1063475, at *4 (S.D. Cal.

25

Mar. 21, 2017) (“The complaint alleges that prior to the filing of the lawsuit Finjan put ESET on

26

notice of its contentions ESET's products infringe the patents at issue. Despite that notice and

27

related meetings between the parties to address those contentions, the complaint asserts that ESET

28

continues to sell products alleged to infringe.”); Nanosys, Inc., et al. v. QD Vision, Inc., No. 166

1

CV-01957-YGR, 2017 WL 35511, at *1 (N.D. Cal. Jan. 4, 2017) (plaintiff and defendant shared at

2

least one co-founder who was also a named inventor on the patents-in-suit; defendant “availed

3

itself of Dr. Bawendi’s knowledge of the claimed inventions and Nanosys's technology to develop

4

and market its infringing products, including Color IQ.”); Straight Path IP Grp., supra (“[Plaintiff]

5

points out that it ‘alleges that [defendant] was aware of four of the asserted patents and their

6

infringement since at least September 24, 2014, and that [defendant] nonetheless continued to sell

7

the accused products and induce infringement by its customers after that date.’”). The Court will

8

deny Crystal Dynamics’ motion as to this claim.
CONCLUSION

9

Plaintiffs’ copyright and direct infringement claims are dismissed without prejudice. In all

10

United States District Court
Northern District of California

11

other respects, the motion is denied.3

12

IT IS SO ORDERED.

13

Dated: March 6, 2018
______________________________________
JON S. TIGAR
United States District Judge

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

3

Crystal Dynamics argues that Rearden lacked standing to sue at the time this action was filed
because this Court had not yet issued a decision in Rearden’s favor on the ownership issue. ECF
No. 20 at 11. Rearden was the rightful owner of the patents-in-suit during the ownership suit. See
Shenzhenshi, et al. v. Rearden, et al., No. 15-CV-00797 JST, ECF No. 427 (N.D. Cal. Aug. 11,
2017). Crystal Dynamics has not provided the Court with case law supporting the argument that a
valid patent owner cannot enforce its patents, even if the valid owner is engaged in a separate
ownership dispute.
7