Execware LLC v. Amazon.com Inc. et al

Filing 124

REPORT AND RECOMMENDATIONS- granting 39 MOTION to Dismiss for Failure to State a Claim. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than ten (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 1/2/2013. Signed by Judge Sherry R. Fallon on 12/10/2012. (lih)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
EXECWARE, LLC,
Plaintiff,
V.

STAPLES, INC.,
Defendant.

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Civil Action No. 11-836-LPS-SRF

REPORT AND RECOMMENDATION
I.

INTRODUCTION
Presently before the court in this patent infringement action is a motion filed pursuant to

Fed. R. Civ. P. 12(b)(6) by defendants Amazon.com, Inc. ("Amazon") and Starwood Hotels &
Resorts Worldwide, Inc. ("Starwood"), seeking dismissal of plaintiff Execware, LLC' s
("Execware") amended complaint for failure to state a claim of indirect infringement. (D.I. 39)
Staples, Inc. ("Staples") joined in the motion to dismiss, and also sought dismissal ofExecware's
claim for willful infringement. (D.I. 51) Defendants Amazon and Starwood subsequently
entered into stipulations of dismissal with Execware, leaving Staples as the only remaining
movant. (D.I. 61, 64) For the reasons set forth below, I recommend that the court grant the
motion to dismiss the claims of indirect infringement and willfulness without prejudice. 1

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0n October 10, 2012, Judge Stark entered an order vacating the scheduling order in this
matter in light of the subsequent filing of multiple related cases alleging infringement of the same
patent-in-suit. (D.I. 115) On November 21, 2012, Judge Stark entered a scheduling order applicable
to the instant matter and related C.A. Nos. 12-380, 12-382, 12-383, 12-384, 12-556, 12-557, 12-558,
12-559, 12-561, and 12-562. (D.I. 120) Pursuant to the scheduling order, joinder of parties and
amended pleadings are due by May 21, 2013, a Markman hearing is set for October 3, 2013, the
discovery cutoff is January 15,2014, and dispositive motions are due by August 28,2014. (!d.)

II.

BACKGROUND
On April 10, 2001, United States Patent No. 6,216,139 ("the '139 patent"), entitled

"Integrated Dialog Box for Rapidly Altering Presentation of Parametric Text Data Objects on a
Computer Display," issued to Execware, the owner by assignment of the' 139 patent. (D.I. 32 at
~

10) Exec ware filed the present action on September 15, 2011, alleging infringement of the

'139 patent against Amazon, CDW Corporation ("CDW"), Marriott International, Inc.
("Marriott"), Staples, Starwood, and Travelocity.com LP ("Travelocity"). (D.I. 1) On November
14, 2011, defendants Amazon, Marriott, Starwood, and Travelocity filed motions to dismiss
Execware's claims of direct and indirect infringement pursuant to Fed. R. Civ. P. 12(b)(6). (D.I.
23, 25)
Execware filed its amended complaint and response to the motions to dismiss on
December 1, 2011, contending that the amended complaint rendered the motions to dismiss
moot. (D.I. 32, 33) In its amended complaint, Execware alleges causes of action for
contributory, induced, and willful infringement. (D.I. 32) On December 19, 2011, defendants
Amazon and Starwood moved to dismiss the claims of indirect infringement in Execware's
amended complaint pursuant to Fed. R. Civ. P. 12(b)(6). (D.I. 39) On January 24, 2012, Staples
joined in Amazon and Starwood's motion to dismiss, adding a request for dismissal of
Execware' s cause of action for willful infringement. (D .I. 51)

III.

LEGALSTANDARD
To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint

must contain a "short and plain statement of the claim showing that the pleader is entitled to
relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the
2

complaint must set forth sufficient factual matter, accepted as true, to "state a claim for relief that
is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also

Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual
allegations allow the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. Twombly, 550 U.S. at 555-56; Iqbal, 556 U.S. at 663. The court "need not
accept as true threadbare recitals of a cause of action's elements, supported by mere conclusory
statements." !d.
Following the Supreme Court's decision in Iqbal, district courts have conducted a twopart analysis in determining the sufficiency of the claims. First, the court must separate the
factual and legal elements of the claim, accepting the complaint's well-pleaded facts as true and
disregarding the legal conclusions. Iqbal, 556 U.S. at 663. "While legal conclusions can provide
the complaint's framework, they must be supported by factual allegations." !d. at 664. Second,
the court must determine whether the facts alleged in the complaint state a plausible claim by
conducting a context-specific inquiry that "draw[s] on [the court's] experience and common
sense." !d. at 663-64; Fowler v. UPMC Shadyside, 578 F.3d 203,210 (3d Cir. 2009). As the
Supreme Court instructed in Iqbal, "[w]here the well-pleaded facts do not permit the court to
infer more than the mere possibility of misconduct, the complaint has alleged - but it has not
'show[n]'- 'that the pleader is entitled to relief."' Iqbal, 556 U.S. at 679 (quoting Fed. R. Civ. P.
8(a)(2)).

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IV.

DISCUSSION
A.

Indirect Infringement
1.

Legal standard

To prevail on a claim for indirect infringement, a plaintiff must first demonstrate direct
infringement. See E.I DuPont de Nemours & Co. v. Heraeus Holding GmbH, C.A. No. 11-773SLR-CJB, 2012 WL 4511258, at *4 (D. Del. Sept. 28, 2012) (citations omitted). The Federal
Circuit has held that Form 18 of the Federal Rules of Civil Procedure, which sets forth a sample
complaint for direct infringement, meets the Twombly pleading standard, and no further details
are required. Thus, to adequately plead a claim for direct infringement, the complaint must
include:
(1) an allegation of jurisdiction; (2) a statement that the plaintiff owns the patent;
(3) a statement that defendant has been infringing the patent 'by making, selling,
and using [the device] embodying the patent'; (4) a statement that the plaintiff has
given the defendant notice of its infringement; and (5) a demand for an injunction
and damages.

McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1356-57 (Fed. Cir. 2007); see also St. Clair
Intellectual Property Consultants, Inc. v. Apple, Inc., C.A. No. 10-982-LPS; 2011 WL 4571812,
at *2 (D. Del. Sept. 30, 2011).
The plaintiff must next establish that the "defendant possessed the requisite knowledge
or intent to be held vicariously liable." Dynacore Holdings Corp. v. US. Philips Corp., 363 F.3d
1263, 1272-73 (Fed. Cir. 2004). At the pleading stage, "the question before the Court on
defendants' motions to dismiss is whether [the plaintiff] has plead sufficient facts ... for the
Court to infer that the defendants had knowledge of [the plaintiff's] patents and that their
products infringed on those patents." Trading Techs. Int'l, Inc. v. BCG Partners, Inc., 2011 WL

4

3946581, at *3 (N.D. Ill. Sept. 2, 2011) (emphasis in original) (citing Global-Tech Appliances,
Inc. v. SEB SA., 131 S. Ct. 2060, 2068 (May 31, 2011)). This court has held that a complaint

sufficiently pleads a defendant's actual knowledge when the plaintiff alleges that the defendant or
its predecessor learned of a patent-in-suit from an exchange of proprietary information pursuant
to a licensing agreement, 2 or when the plaintiff alleges that a defendant previously filed papers
with the PTO identifying the patents as prior art. 3 In contrast, a plaintiff fails to sufficiently plead
knowledge of the patent-in-suit when the plaintiff merely recites the elements for indirect
infringement without supporting facts, 4 or when the factual allegations merely support the
conclusion that the parties have patents in the same field.

2.

Analysis
(a)

Direct infringement

In support of the motion to dismiss, Staples contends that Execware fails to plead the
predicate direct infringement to support its claim that Staples either contributed to or induced
infringement of the '13 9 patent. (D .I. 40 at 6) Specifically, Staples alleges that the amended
complaint fails to identify the alleged direct infringer, or any acts of direct infringement allegedly

See Xpoint Techs. v. Microsoft Corp., 730 F. Supp. 2d 349, 357 (D. Del. 2010); Netgear,
Inc. v. Ruckus Wireless, Inc., 2012 WL 1118773, at *4 (D. Del. Mar. 28, 2012) ("Ruckus has had
knowledge of the '035 patent long before the filing of this lawsuit because Ruckus previously
licensed the '035 patent from IBM Corporation.").
2

3

See Mallinckrodt Inc. v. E-Z-Em, Inc., 671 F. Supp. 2d 563, 569 (D. Del. 2009); see also
Finjan, Inc. v. McAfee, Inc., C.A. No. 10-593-GMS, D.I. 244 (Jan. 24, 2012).
See Minkus Elec. Display Sys. Inc. v. Adaptive Micro Sys. LLC, C.A. No. 10-666-SLR, 2011
WL 941197, at *3 (D. Del. Mar. 16, 2011);Xpoint Techs., 730 F. Supp. 2d at357; Mallinckrodt, Inc.
v. E-Z-Em Inc., 670 F. Supp. 2d 349, 354 (D. Del. 2009); IpVenture Inc. v. Lenovo Group Ltd, 11588-RGA, 2012 WL 2564893, at *2 (D. Del. June 29, 2012); HSM Portfolio LLC v. Fujitsu Ltd,
2012 WL 2580547, at* 1 (D. Del. July 3, 2012).
4

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contributed to or induced by Staples. (!d.) According to Staples, the amended complaint does
not allege that Staples' customers actually infringe the '139 patent. (D.I. 53 at 2-3) In response,
Execware contends that it specifically identified Staples' customers as direct infringers by
alleging that Staples induced and contributed to infringement by offering to its customers the use
of the accused products. (D.I. 49 at 3-4)
The amended complaint states as follows:
14. Staples is directly infringing ... at least claim 1 of the' 139 patent in this
District and throughout the United States by, among other things, making, using,
selling, offering to sell, or importing a computer system to rapidly format and
reformat tabular displays of records or text data objects ... After being served
with the Complaint in this action, Staples has knowingly contributed to the
infringement, and continues to contribute to the infringement of one or more
claims of the '13 9 patent by offering to its customers use of its software ...
Staples has induced infringement, and continues to induce infringement, of one or
more of the claims of the '13 9 patent, with specific intent that its software be used
by Staples' customers to infringe the '13 9 patent ...
(D.I.

32at~

14)

The amended complaint sufficiently identifies Staples' customers as the alleged direct
infringers in support ofExecware's claims for indirect infringement, and a more specific
identification of third party infringers is not required to state a claim for indirect infringement.

See In re Bill of Lading Transmission & ProcessingSys. Patent Litig., 681 F.3d 1323, 1336 (Fed.
Cir. 2012) ("Given that a plaintiffs indirect infringement claims can succeed at trial absent direct
evidence of a specific direct infringer, we cannot establish a pleading standard that requires
something more."). A plaintiff "need not plead that a specific third party directly infringes the
patent-in-suit in order to state a claim for indirect infringement ... [I]dentifying third parties who
participated in allegedly infringing activities is a proper question for discovery." Minkus, 2011

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WL 941197, at *3.
However, the amended complaint fails to allege direct infringement of the' 139 patent by
Staples' customers. Although a claim for direct infringement need not "describe precisely how
each element of the asserted claims are practiced by their customers," In re Bill of Lading, 681
F.3d at 13 35, Form 18 requires a statement that the alleged infringer has been infringing the
patent by making, selling, and/or using the allegedly infringing product. The amended complaint
in the present matter alleges that Staples induced and contributed to infringement by "offering to
its customers use of its software," with the intent that "its software be used by Staples' customers
to infringe the '139 patent." (D.I. 32

at~

14) Nowhere in the amended complaint does Execware

allege that Staples' customers actually used the accused software, or that Staples caused its
customers to directly infringe the ' 13 9 patent.
The factual allegations in Execware's amended complaint are similar to the facts set forth
in Pragmatus Telecom, LLC v. Ford Motor Co., in which the court determined that the
allegations of direct infringement were insufficient to support the indirect infringement claims.
See Pragmatus Telecom, LLC v. Ford Motor Co., C.A. 12-92-RGA, 2012 WL 2700495, at *1
(D. Del. July 5, 2012). In Pragmatus, the plaintiff pled that the defendant possessed the intent
for its customers go on the website to infringe the patents, but the plaintiff never alleged that
those customers actually infringed the patents by using the website. !d. at n.3; see also Ip Venture
Inc., 2012 WL 2564893, at *2 (concluding that the allegations were insufficient to state a claim
for indirect infringement because, "[a]mong other things, there is no allegation relating to direct
infringement."). Similarly, Execware pleads that it offered the use of its software to its
customers and intended that its customers use the software to infringe the '139 patent, but fails to

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plead that Staples' customers actually infringed the '139 patent.
The facts of the present case are distinguishable from Minkus Electronics, in which the
court determined that direct infringement by third parties was adequately pled where the
complaint alleged that each defendant "actively induced and continues to actively induce
infringement by others ... by intentionally causing others to directly infringe the [patent-in-suit]
and/or by intentionally instructing others how to use the infringing products." Minkus, 2011 WL
941197, at *1. The plaintiff in Minkus specifically alleged that the defendants "caused" others to
directly infringe the patent-in-suit, whereas Execware's amended complaint alleges only that
Staples offered its customers the use of its software, and intended that its customers use the
software to infringe the '139 patent. For reasons similar to those set forth in Pragmatus,
Execware has failed to establish direct infringement in a manner sufficient to allow for the
survival of its claims for indirect infringement.

(b)

Knowledge

Even if the court were to conclude that the amended complaint sufficiently pleads direct
infringement by Staples' customers, Execware' s claims of indirect infringement should be
limited from the date of filing of the complaint. Staples contends that the amended complaint
does not allege sufficient facts to support a plausible claim that each defendant actually knew of
the '139 patent before the action was filed. (D.I. 40 at 5-6) Staples alleges that the filing of the
infringement complaint in the instant action is insufficient to provide the requisite knowledge to
establish a claim for indirect infringement. (!d. at 6) In response, Execware contends that the
amended complaint alleges knowledge of the' 139 patent based on the service of the complaint in
the instant action. (D.I. 49 at 3)

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The case law in this district is divided on the issue of whether pre-suit knowledge is
required to sufficiently state a claim for indirect infringement. See Soft View LLC v. Apple Inc.,
C.A. No. 10-389-LPS, 2012 WL 3061027, at *7 (D. Del. July 26, 2012). One line of cases holds
that the alleged infringer must know of the patent at the time it was committing the allegedly
infringing activities, and knowledge as of the date of the suit is insufficient for purposes of
pleading the requisite knowledge to state a claim for indirect infringement. See Xpoint Techs.,
730 F. Supp. 2d at 357; Mallinckrodt, 670 F. Supp. 2d at 354. The Central District of California
recently adopted this reasoning, holding that "a complaint fails to state a claim for indirect patent
infringement where the only allegation that purports to establish the knowledge element is the
allegation that the complaint itself or previous complaints in the same lawsuit establish the
defendant's knowledge of the patent." Proxyconn Inc. v. Microsoft Corp., C.A. No. 11-1681DOC, 2012 WL 1835680, at *7 (C.D. Cal. May 16, 2012) (rejecting this court's decision in

Walker Digital, LLC v. Facebook, Inc., 852 F. Supp. 2d 559 (D. Del. 2012), and concluding that
the defendant's post-suit knowledge would be "bootstrapped onto its conduct prior to the
complaint's filing.").
The other line of cases from this district holds that "the filing of a complaint is sufficient
to provide knowledge of the patents-in-suit for purposes of stating a claim for indirect
infringement occurring after the filing date." Soft View, 2012 WL 3061027, at *7; see also

British Telecomms. PLC v. Google Inc., C.A. No. 11-1249-LPS, D.I. 44

at~

5 (D. Del. Sept. 20,

2012); Apeldyn Corp. v. Sony Corp., 852 F. Supp. 2d 568,573-74 (D. Del. 2012); Walker

Digital, 852 F. Supp. 2d at 565; Minkus, 2011 WL 941197, at *3-4. These cases reason that "an
accused infringer is on notice of the patent(s)-in-suit once an initial pleading identifies the

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patents-in-suit, and a patentee that successfully proves the remaining legal elements of indirect
infringement is entitled to recover for any post-filing indirect infringement of those patents."
Soft View, 2012 WL 3061027, at *7. In Apeldyn and Walker Digital, the court concluded that a
plaintiff may plead actual knowledge of the patents-in-suit as of the filing of the initial complaint
to state a cause of action limited to the defendant's post-litigation conduct, and a defendant's
decision to continue its conduct despite knowledge gleaned from the complaint is sufficient to
establish the intent element required to state a claim for indirect infringement. See Apeldyn, 852
F. Supp. 2d at 573-74; Walker Digital, 852 F. Supp. 2d at 565-66. The court confirmed that presuit knowledge of the patent must be alleged unless the plaintiff limits its cause of action for
indirect infringement to post-litigation conduct. See id.
In the present action, Execware limits its causes of action for indirect infringement to
conduct occurring after the initiation of the litigation. (D.I. 32

at~

14) ("After being served with

the Complaint in this action, Staples has knowingly contributed to the infringement ... of one or
more claims of the '139 patent ... Further, after being served with the Complaint in this action,
Staples has induced infringement ... of one or more of the claims of the '139 patent"). In
keeping with the most recent decisions of this court, Staples' post-filing date knowledge of the

'139 patent is sufficient to state a claim for indirect infringement occurring after service of the
complaint. However, this result cannot save the indirect infringement claims from dismissal
because of the deficiency in pleading claims of direct infringement by Staples' customers, as
previously discussed.

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B.

Willful Infringement
1.

Legal standard

To prove a cause of action for willful infringement, a patent owner must demonstrate by
clear and convincing evidence that the infringer acted despite an "objectively high likelihood that
its actions constituted infringement" and that this "objectively-defined risk was ... either known
or so obvious that it should have been known to the accused infringer." In re Seagate Tech.,
LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007). If the first prong cannot be shown, then the court

should not put the issue of willfulness- including the second "subjective" prong- before a jury.
See Powell v. Home Depot USA., Inc., 663 F.3d 1221, 1236 (Fed. Cir. 2011) ("Should the court
determine that the infringer's reliance on a defense was not objectively reckless, it cannot send
the question of willfulness to the jury, since proving the objective prong is a predicate to
consideration of the subjective prong.").
At the pleading stage, a plaintiff alleging a cause of action for willful infringement must
"plead facts giving rise to at least a showing of objective recklessness of the infringement risk."
St. Clair Intellectual Prop. Consultants, Inc. v. Hewlett-Packard Co., 2012 WL 1134318, at *2-3
(D. Del. Mar. 28, 2012) (internal quotations omitted). "Actual knowledge of infringement or the
infringement risk is not necessary to plead a claim for willful infringement," but the complaint
must adequately allege "factual circumstances in which the patents-in-suit [a]re called to the
attention" of the defendants." !d. The complaint must "demonstrate[] a link between the
various allegations of knowledge of the patents-in-suit and the allegations that the risks of
infringement" were either known or were so obvious that they should have been known. !d. at
*3.
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2.

Analysis

In support of the motion to dismiss, Staples contends that the amended complaint fails to
state a claim for willful infringement because Execware's allegation that Staples was placed on
notice of alleged infringement of the '139 patent on the date it was served with the original
complaint does not meet the "objective recklessness" requirement under In re Seagate. (D.I. 51
at 2) According to Staples, Execware's failure to allege that Staples acted with reckless disregard
by operating its website prior to the filing of the original complaint is fatal to Execware's willful
infringement claim. (Id.)
In response, Execware contends that the amended complaint adequately alleges a claim
for willful infringement as of the date Staples was served with the original complaint in this
action. (D.I. 55 at 3) According to Execware, the Federal Circuit's decision in In re Seagate is
silent on the pleading requirements for willful infringement, and its discussion of the "objectively
reckless" pleading requirement has never been adopted by this court. (Id.) Execware alleges that
this court has held that post-filing actions may meet the recklessness standard for willfulness.
(ld. at 3-4)
Execware's failure to plead that Staples had pre-suit knowledge of the '139 patent is fatal
to its claim for willful infringement. The Federal Circuit has held that a patentee cannot recover
enhanced damages based solely on the accused infringer's post-filing conduct when the patentee
has not sought a preliminary injunction, stating that
a willfulness claim asserted in the original complaint must necessarily be
grounded exclusively in the accused infringer's pre-filing conduct. By contrast,
when an accused infringer's post-filing conduct is reckless, a patentee can move
for a preliminary injunction, which generally provides an adequate remedy for
combating post-filing willful infringement. A patentee who does not attempt to

12

stop an accused infringer's activities in this manner should not be allowed to
accrue enhanced damages based solely on the infringer's post-filing conduct.

In re Seagate Tech., LLC, 497 F.3d 1360, 1371 (Fed. Cir. 2007) (internal citations omitted).
Several recent cases from this district also support this view. See Walker Digital, 2012 WL
1129370, at *7-8 (upholding claim for willful infringement where the amended complaint
provided evidence that the defendant had pre-suit knowledge of the patents-in-suit due to the
defendant's interactions with the plaintiffs representatives); Netgear, 2012 WL 1118773, at *5
(same). As previously stated, Execware's amended complaint relies solely on allegations that
Staples was made aware of the '13 9 patent by the filing of the original complaint in the present
action. As a result, its claim for willful infringement must fail.

V.

CONCLUSION
For the foregoing reasons, I recommend that the court grant the motion to dismiss

Execware's claims in the amended complaint for induced, contributory, and willful infringement
of the '139 patent (D.I. 40), 5 without prejudice.
This Report and Recommendation is filed pursuant to 28 U.S.C. § 636(b)(l)(B), Fed. R.
Civ. P. 72(b)(1), and D. Del. LR 72.1. The parties may serve and file specific written objections
within fourteen (14) days after being served with a copy ofthis Report and Recommendation.
Fed. R. Civ. P. 72(b). The objections and responses to the objections are limited to ten (10)
pages each.
The parties are directed to the court's Standing Order In Non Pro Se Matters For

5

Execware suggested the potential for a cure of any pleading deficiencies by a further
amendment of the complaint. As there is no pending motion pursuant to Rule 15, I will not consider
the request at this stage. Pursuant to the court's scheduling order, the deadline for motions to amend
the pleadings in this matter is May 21, 2013. (D.I. 120)
13

Objections Filed Under Fed. R. Civ. P. 72, dated November 16, 2009, a copy of which is
available on the court's website, www.ded.uscourts.gov.

Dated: December 10,2012
Sherry R. ,all n

UNIT~ ES MAGISTRATE JUDGE

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