U.S. Ethernet Innovations, LLC v. Netgear, Inc.

Filing 64

ORDER GRANTING NETGEARS 58 MOTION TO DISMISS AND GRANTING USEI LEAVE TO AMEND. Amended Pleadings due by 8/26/2013; Motions due by 9/9/2013; Replies due by 9/30/2013; Responses due by 9/23/2013. Signed by Judge Claudia Wilken on 8/12/2013. (ndr, COURT STAFF) (Filed on 8/12/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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U.S. ETHERNET INNOVATIONS, LLC,

No. C 13-2262 CW

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Plaintiff,

ORDER GRANTING
NETGEAR’S MOTION
TO DISMISS AND
GRANTING USEI
LEAVE TO AMEND
(Docket No. 58)

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v.

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NETGEAR, INC.

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Defendant.
________________________________/

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United States District Court
For the Northern District of California

Defendant Netgear, Inc. has filed a renewed motion to dismiss
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the complaint for patent infringement filed against it by
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Plaintiff U.S. Ethernet Innovations, Inc. (USEI).

USEI opposes

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the motion.

Having considered the papers filed by the parties,

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the Court GRANTS Netgear’s renewed motion.

The Court also GRANTS

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USEI leave to amend its complaint.
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BACKGROUND
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USEI initiated this action on June 22, 2012 in the United
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States District Court for the Eastern District of Texas.

Compl.,

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Docket No. 1.
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In its complaint, USEI alleges that it is the owner of United
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States Patent Nos. 5,732,094 (the ‘094 Patent), 5,434,872 (the
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‘872 Patent), 5,530,874 (the ‘874 Patent), and 5,299,313 (the ‘313
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Patent), which are collectively referred to as the patents-in24
suit.

Id. at ¶ 1.

It contends that “Netgear has made, used,

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imported, and/or sold and/or continues to make, use, import,
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and/or sell the technology claimed by” the patents-in-suit “in
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systems and methods without USEI’s permission.”
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Id. at ¶ 2.

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USEI asserts four counts against Netgear in the complaint.

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In its first count, it alleges, “Without a license or permission

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from USEI, Defendant has infringed and continues to infringe one

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or more claims of the ‘094 Patent, directly, contributorily,

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and/or by inducement, by importing, making, using, offering for

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sale, and/or selling products and devices which embody the

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patented invention, including, without limitation, one or more of

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the Accused Products.”

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Netgear “directly contributes to and induces infringement by

Id. at ¶ 17.

It further alleges that

United States District Court
For the Northern District of California

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supplying infringing systems and components to Defendant’s

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customers” and that these “customers who purchase systems and

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components thereof and operate such systems and components thereof

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in accordance with Defendant’s instructions directly infringe one

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or more claims of the ‘094 Patent.”

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that these actions caused USEI damage and that Netgear “has had

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actual or constructive knowledge of the ‘094 Patent, yet continues

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to infringe.”

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count, USEI makes identical allegations regarding the ‘872 Patent,

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the ‘874 Patent and the ‘313 Patent respectively.

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¶¶ 22-25, 27-30, 32-35.

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Id. at 19-20.

Id. at ¶ 18.

It contends

In the second, third and fourth

Id. at

On September 4, 2012, Netgear initially filed its motion to
dismiss.

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Docket No. 18.

After the motion to dismiss was fully briefed, Netgear filed

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a motion to change venue to this district.

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March 27, 2013, the district court in the Eastern District of

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Texas granted the motion to change venue and later denied USEI’s

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motion for reconsideration of the transfer order.

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37.
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Docket No. 25.

On

Docket Nos. 32,

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Thereafter, on May 17, 2012, this case was transferred in to

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this district.

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motion to dismiss had not been resolved.

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Docket No. 38.

At the time of transfer, Netgear’s

On June 27, 2013, the Court held a case management conference

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in this case.

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Netgear’s oral request to re-file its motion to dismiss and set a

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briefing schedule for the new motion.

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now fully briefed.

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United States District Court
For the Northern District of California

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Docket No. 57.

At that time, the Court granted

Id.

The renewed motion is

LEGAL STANDARD
A complaint must contain a “short and plain statement of the

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claim showing that the pleader is entitled to relief.”

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Civ. P. 8(a).

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state a claim, dismissal is appropriate only when the complaint

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does not give the defendant fair notice of a legally cognizable

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claim and the grounds on which it rests.

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Twombly, 550 U.S. 544, 555 (2007).

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complaint is sufficient to state a claim, the court will take all

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material allegations as true and construe them in the light most

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favorable to the plaintiff.

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896, 898 (9th Cir. 1986); see also In re Bill of Lading

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Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1337

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(Fed. Cir. 2012) (when evaluating a motion to dismiss under Rule

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12(b)(6), the district court is required “to draw all reasonable

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inferences in favor of the non-moving party”).

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principle is inapplicable to legal conclusions; “threadbare

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recitals of the elements of a cause of action, supported by mere

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conclusory statements,” are not taken as true.

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556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 555).

Fed. R.

On a motion under Rule 12(b)(6) for failure to

Bell Atl. Corp. v.

In considering whether the

NL Indus., Inc. v. Kaplan, 792 F.2d

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However, this

Ashcroft v. Iqbal,

When granting a motion to dismiss, the court is generally

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required to grant the plaintiff leave to amend, even if no request

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to amend the pleading was made, unless amendment would be futile.

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

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F.2d 242, 246-47 (9th Cir. 1990).

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amendment would be futile, the court examines whether the

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complaint could be amended to cure the defect requiring dismissal

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“without contradicting any of the allegations of [the] original

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complaint.”

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United States District Court
For the Northern District of California

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Cir. 1990).

In determining whether

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

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DISCUSSION

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In its renewed motion to dismiss, Netgear argues that USEI’s

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complaint fails to state a claim for indirect infringement or

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willful infringement.1

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I.

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Indirect infringement
For each patent, USEI alleges two different types of indirect

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infringement: inducement of the infringement of a patent under 35

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U.S.C. § 271(b); and contributory infringement of a patent under

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35 U.S.C. § 271(c).

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plead necessary elements of either theory.

Netgear argues that USEI has not sufficiently

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A. Contributory infringement

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“Contributory infringement occurs if a party sells or offers

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to sell, a material or apparatus for use in practicing a patented

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process, and that ‘material or apparatus’ is material to

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practicing the invention, has no substantial non-infringing uses,

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In its original motion to dismiss, Netgear also argued that
USEI failed to state a claim for direct infringement. Docket No.
18, 5. Netgear did not renew this argument in the instant motion.
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and is known by the party ‘to be especially made or especially

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adapted for use in an infringement of such patent.’”

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of Lading, 681 F.3d at 1337 (quoting 35 U.S.C. § 271(c)).

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state a claim for contributory infringement, therefore, a

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plaintiff must, among other things, plead facts that allow an

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inference that the components sold or offered for sale have no

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substantial non-infringing uses.”

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Inc. v. Medtronic Sofamor Danek, Inc., 424 F.3d 1293, 1312 (Fed.

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Cir. 2005)).

United States District Court
For the Northern District of California

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In re Bill
“To

Id. (citing Cross Med. Prods.,

Netgear argues that USEI failed “to plead facts sufficient to

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allow an inference that . . . the Accused Products have no

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substantial non-infringing uses, or are especially made or

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especially adapted for use in an infringement.”

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Docket No. 58, 8-9.2

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facts from which such reasonable inference can be drawn.

Renewed Mot.,

USEI responds that it has plead sufficient

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Netgear contends that, “in a parallel case” with “identical
allegations,” the “presiding court” in the Eastern District of
Texas “rejected USEI’s argument” and “held” that these allegations
were sufficient. Reply, Docket No. 62, 1-3 (citing U.S. Ethernet
Innovations, LLC v. Digi Int’l, Inc., Case No. 12-366 (E.D. Tex.
Apr. 2, 2013), Docket No. 187). Although Netgear did not cite
this purportedly persuasive authority in its opening briefing, it
relied on it heavily in its reply brief to support its arguments
not only on contributory infringement but also on induced and
willful infringement.
However, the presiding court never made the holdings that
Netgear claims that it did. The document that Netgear cites as
the order of the Eastern District of Texas is in fact a report and
recommendation from the Magistrate Judge to the presiding court,
recommending that the defendants’ motion to dismiss be granted.
See Digi Int’l, Docket No. 187. In that order, the Magistrate
Judge also granted USEI leave to amend its complaint. Id. at 7.
The presiding District Judge did not adopt the Magistrate Judge’s
recommendation that the motion to dismiss be granted. Instead,
because USEI had in fact amended its complaint, the court denied
the motion to dismiss as moot in light of the amended pleading.
Digi Int’l, Docket No. 225, 1-2.
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In its complaint, USEI pleads that the accused products

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“embody the patented invention” and that customers who operate

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Netgear’s products in accordance with its instructions directly

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infringe on the patents-in-suit.

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argues in its opposition that this allegation “allows an inference

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that the components sold or offered for sale have no substantial

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non-infringing uses and that the product[s are] especially made or

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especially adapted for use in an infringement.”

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60, 3-4.

United States District Court
For the Northern District of California

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See, e.g., Compl. ¶¶ 17-18.

USEI’s argument is not persuasive.

It

Opp., Docket No.

Even drawing all

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reasonable inferences in favor of USEI, these allegations simply

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do not imply what USEI contends.

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products infringe if used in accordance with Netgear’s

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instructions implies that the products can be used in a non-

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infringing manner if used in a way that deviates from those

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instructions.

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is not whether the products can be used only for infringement when

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the defendants’ instructions are followed.

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Circuit has stated clearly that “[f]or the purposes of

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contributory infringement, the inquiry focuses on whether the

In fact, the allegation that the

The relevant inquiry for contributory infringement

Instead, the Federal

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The Court reminds Netgear’s counsel of their obligation under
Federal Rule of Civil Procedure 11 not to make misleading or false
statements to the Court. Netgear’s counsel are cautioned that,
even if they inadvertently failed to recognize that the document
that they cited was a report and recommendation that was never
adopted by the presiding judge, misstatements such as the ones
made in their reply brief cast a pall upon their credibility as a
whole. The Court also notes that, because Netgear chose to cite
the Digi Int’l document for the first time in its reply brief-even though it was issued several months before it filed the
renewed motion to dismiss--USEI was deprived of the opportunity to
point out Netgear’s mischaracterization of that document.
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accused products can be used for purposes other than

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infringement.”

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In re Bill of Lading, 681 F.3d at 1337.

Accordingly, the Court finds that USEI has failed to state a

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claim for contributory infringement of the patents-in-suit and

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grants Netgear’s motion to dismiss the claims for contributory

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infringement.

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B. Induced infringement

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“Whoever actively induces infringement of a patent shall be

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liable as an infringer.”

35 U.S.C. § 271(b).

“Liability under

United States District Court
For the Northern District of California

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§ 271(b) ‘requires knowledge that the induced acts constitute

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patent infringement.’”

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(quoting Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct.

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2060, 2068 (2011)).

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infringement adequately, USEI’s complaint “must contain facts

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plausibly showing that [Netgear] specifically intended [its]

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customers to infringe the [patents-in-suit] and knew that the

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customer’s acts constituted infringement.”

In re Bill of Lading, 681 F.3d at 1339

Thus, to plead a claim for induced

Id.

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Netgear contends that USEI has not adequately plead that it

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intended for its customers to infringe on the patents-in-suit or

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that it knew that the customers’ acts constituted infringement.

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Drawing all reasonable inferences in favor of USEI, the Court

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finds that USEI has adequately plead that Netgear specifically

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intended for its customers to carry out the acts that constituted

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infringement of USEI’s patents.

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provided instructions to its customers on how to use its products

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and that, when the customers operated the products as instructed

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by Netgear, they directly infringed the patents-in-suit.

USEI has plead that Netgear

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However, USEI has not adequately plead that Netgear knew that

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these acts would constitute patent infringement.

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Netgear’s knowledge of such facts, USEI pleads only that

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“Defendant has had actual or constructive knowledge of the

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[patents-in-suit].”

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alleges that Netgear is aware of the patents at issue, it does not

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allege that Netgear knew that the acts that it encouraged its

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customers to take constituted infringement thereof.

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See, e.g., Compl. ¶ 20.

With regard to

Although USEI

Accordingly, the Court finds that USEI has failed to state a

United States District Court
For the Northern District of California

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claim for induced infringement of the patents-in-suit and grants

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Netgear’s motion to dismiss the claims for induced infringement.

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II.

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Willful infringement
“To willfully infringe a patent, the patent must exist, and

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one must have knowledge of it.”

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Corp., 751 F.2d 1226, 1236 (Fed. Cir. 1986) (emphasis in

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original).

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without more,’ is not enough to state a claim for willful

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infringement.”

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Solutions, LLC, 2012 WL 2803617, at *3 (N.D. Cal.) (quoting

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Vasudevan Software, Inc. v. TIBCO Software Inc., 2012 WL 1831543,

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at *4 (N.D. Cal.)).

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was aware of the asserted patent, but nonetheless acted despite an

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objectively high likelihood that its actions constituted

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infringement of a valid patent.”

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Corp., 598 F.3d 831, 861 (Fed. Cir. 2010) (citing In re Seagate

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Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007)).

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State Indus., Inc. v. A.O. Smith

However, “a mere ‘allegation of “actual knowledge,”

Robert Bosch Healthcare Sys., Inc. v. Express MD

“Infringement is willful when the infringer

i4i Ltd. P’ship v. Microsoft

Here, as stated above, USEI has merely alleged that Netgear
had “actual or constructive knowledge” of the relevant patents.
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This is not enough to state a claim for willful infringement.

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Accordingly, the Court grants Netgear’s motion to dismiss the

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allegations of willful infringement.

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CONCLUSION
For the reasons set forth above, the Court GRANTS Netgear’s

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renewed motion to dismiss.

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amend its pleading to remedy the deficiencies identified herein

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within two weeks of the date of this Order, provided that it is

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able to do so truthfully.

United States District Court
For the Northern District of California

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The Court also GRANTS USEI leave to

If USEI files an amended complaint, Netgear shall respond to

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it within fourteen days after it is filed.

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dismiss the amended complaint, USEI shall respond to the motion

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within fourteen days after it is filed.

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necessary, shall be due seven days thereafter.

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dismiss will be decided on the papers.

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If Netgear moves to

Netgear’s reply, if
Any motion to

IT IS SO ORDERED.

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Dated: 8/12/2013

CLAUDIA WILKEN
United States District Judge

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