PalTalk Holdings, Inc. v. Riot Games, Inc.

Filing 22

MEMORANDUM ORDER denying 9 MOTION to Dismiss for Failure to State a Claim . Signed by Judge Sue L. Robinson on 5/15/2017. (nmfn)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

)
)
)
)
) Civ. No. 16-1240-SLR
)
)
)
)

PALTALK HOLDINGS, INC.
Plaintiff,
v.
RIOT GAMES, INC.
Defendant.

MEMORANDUM ORDER
At Wilmington this

\~day of May,

2017, having reviewed the papers submitted

in connection with defendant's motion to dismiss (D.I. 9), the court issues its decision as
follows:
1. Background. PalTalk Holdings, Inc. ("plaintiff') is the owner of U.S. Patent
Nos. 5,822,523 ("the '523 patent") and 6,226,686 1 ("the '686 patent) (collectively "the
patents-in-suit"). (D.I. 1 at

,.m 6-7)

The patents-in-suit relate to distribution of messages

between computers in interactive environments, such as online gaming. (D.I. 1 at

,.m 11-14)

Riot Games, Inc. ("defendant") publishes video games such as League of

Legends, which is a multiplayer online video game. (D.I. 1 at~ 22) On December 16,
2016, plaintiff filed an action against defendant, alleging that defendant directly infringes
the patents-in-suit. (D.I. 1) Defendant moved to dismiss for failure to state a claim for
relief under Federal Rules of Civil Procedure 12(b)(6). (D.I. 9) The court has
jurisdiction pursuant to 28 U.S.C. §§ 1331 and 1338(a).

1

The '686 issued on an application that is a continuation of the '523 patent application.

2. Standard of Review. A motion filed under Federal Rule of Civil Procedure

12(b)(6) tests the sufficiency of a complaint's factual allegations. Bell At/. Corp. v.
Twombly, 550 U.S. 544, 555 (2007); Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.

1993). A complaint must contain "a short and plain statement of the claim showing that
the pleader is entitled to relief, in order to give the defendant fair notice of what the ...
claim is and the grounds upon which it rests." Twombly, 550 U.S. at 545 (internal
quotation marks omitted) (interpreting Fed. R. Civ. P. 8(a)). Consistent with the
Supreme Court's rulings in Twombly and Ashcroft v. Iqbal, 556 U.S. 662 (2009), the
Third Circuit requires a three-part analysis when reviewing a Rule 12(b)(6) motion.
Connelly v. Lane Const. Corp., 809 F.3d 780, 787 (3d. Cir. 2016). In the first step, the

court "must tak[e] note of the elements a plaintiff must plead to state a claim." Next, the
court "should identify allegations that, because they are no more than conclusions, are
not entitled to the assumption of truth." Lastly, "[w]hen there are well-pleaded factual
allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief." Id. (citations omitted).
3. Under Twombly and Iqbal, the complaint must sufficiently show that the
pleader has a plausible claim. McDermott v. Clondalkin Grp., 2016 WL 2893844, at *3
(3d Cir. May 18, 2016). Although "an exposition of [the] legal argument" is
unnecessary, Skinner v. Switzer, 562 U.S. 521 (2011 ), a complaint should provide
reasonable notice under the circumstances. Id. at 530. A filed pleading must be "to the
best of the person's knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances," such that "the factual contents have evidentiary
support, or if so identified, will likely have evidentiary support after a reasonable
opportunity for further investigation or discovery." Anderson v. Bd. of Sch. Directors of
Millcreek Twp. Sch. Dist., 574 F. App'x 169, 174 (3d Cir. 2014) (quoting Fed. R. Civ. P.

11 (b)). So long as plaintiffs do not use "boilerplate and conclusory allegations" and

2

"accompany their legal theory with factual allegations that make their theoretically viable
claim plausible," the Third Circuit has held "pleading upon information and belief [to be]
permissible where it can be shown that the requisite factual information is peculiarly
within the defendant's knowledge or control." McDermott, 2016 WL 2893844, at *4
(quotation marks, citation, and emphasis omitted).
4. As part of the analysis, a court must accept all well-pleaded factual allegations
in the complaint as true, and view them in the light most favorable to the plaintiff. See
Erickson v. Pardus, 551 U.S. 89, 94 (2007); Christopher v. Harbury, 536 U.S. 403, 406

(2002); Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008). In this regard, a
court may consider the pleadings, public record, orders, exhibits attached to the
complaint, and documents incorporated into the complaint by reference. Tellabs, Inc. v.
Makar Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Oshiver v. Levin, Fishbein,
Sedran & Berman, 38 F.3d 1380, 1384-85 n.2 (3d Cir. 1994). The court's analysis is a

context-specific task requiring the court "to draw on its judicial experience and common
sense." Iqbal, 556 U.S. at 663-64.
5. § 101. Defendant argues that dismissal is appropriate, "because the asserted
patents do not claim patent eligible subject matter under 35 U.S.C. § 101." (D.I. 10 at 1)
The Patent Act extends patent protection to "any new and useful process, machine,
manufacture, or composition of matter, or any new and useful improvement thereof ...
subject to the conditions and requirements of this title." 35 U.S.C. § 101. Despite the
protections of§ 101, the Supreme Court has held that, "[e]xcluded from such protection
are laws of nature, natural phenomena, and abstract ideas." Diamond v. Diehr, 450
U.S. 175, 185 (1981 ). The purpose of these exceptions is to protect the "basic tools of
scientific and technological work." Mayo Collaborative Servs. v. Prometheus Labs.,
Inc.,_ U.S._, 132 S.Ct. 1289, 1293 (2012). In Alice, the Supreme Court endorsed a

two-step "framework for distinguishing patents that claim laws of nature, natural

3

phenomena, and abstract ideas from those that claim patent-eligible applications of
those concepts." Alice Corp. Pty. Ltd. v. CLS Bank Int'!,_ U.S._, 134 S.Ct. 2347, 2355
(2014). First, the court must determine if the claims at issue are directed to a patentineligible concept. Id. If the answer is no, that ends the matter and the defendant's
motion is denied. See, e.g., Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1337 (Fed.
Cir. 2016) (finding in step one that the claims were not directed to an abstract idea and,
therefore, not addressing step two). If, however, the answer is yes, then the court must
"determine whether the additional elements transform the nature of the claim into a
patent-eligible application." Alice, 134 S.Ct. at 2355.
6. Alice, Step One. "[T]he 'directed to' inquiry applies a stage-one filter to
claims, considered in light of the specification, based on whether 'their character as a
whole is directed to excluded subject matter."' Enfish, 822 F.3d at 1335 (citing Internet

Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 1346 (Fed.Cir.2015)). While the
Supreme Court "has not established a definitive rule to determine what constitutes an
'abstract idea' .... [, it is] sufficient to compare claims at issue to those claims already
found to be directed to an abstract idea in previous cases." Id. at 1334. Defendant
argues that claim 1 of the '523 patent and claim 7 of the '686 patent are "substantially
identical" and are representative of all the claims in the patents-in-suit, because claims
1 and 7 are directed to "the abstract idea of group communication that uses an agent to
aggregate those communications for delivery, "2 and "the remaining claims are directed
to this same abstract idea under Alice step 1." (D. I. 10 at 5-6, 18) Defendant contends
that claims 1 and 7 are similar to claim 1 of U.S. Patent No. 6,073, 142 ("the '142
patent"), which was found to be invalid under§ 101. 3 (D.I. 17 at 2-3, citing Intellectual

2

Elsewhere, defendant argues that the claims "are directed to the abstract idea of using
a central office to bundle group communications for delivery." (D.I. 10 at 18, 20)
3

Defendant raised the comparison to case law in its reply brief and at oral argument.
(D.I. 17 at 2-3) Prior to that, defendant had argued an analogy to a "hypothetical inter-

4

Ventures I LLC v. Symantec Corp., 838 F.3d 1307 (Fed. Cir. 2016)) Meanwhile, plaintiff

cites Enfish and argues that the patents-in-suit are not directed to an abstract idea and,
instead, "claim a specific improvement directed to solving a critical problem in the prior
art that specifically arises in shared, networked, interactive computer applications such
as online games." (D.I. 16 at 11 (citing '523 Patent, 2:47-3:22))
7. The claims. Claim 1 of the '523 patent recites:
A method for providing group messages to a plurality of host computers
connected over a unicast wide area communication network, comprising
the steps of:
providing a group messaging server coupled to said network, said
server communicating with said plurality of host computers using
said unicast network and maintaining a list of message groups, each
message group containing at least one host computer;
sending, by a plurality of host computers belonging to a first message
group, messages to said server via said unicast network, said
messages containing a payload portion and a portion for identifying
said first message group;
aggregating, by said server in a time interval determined in accordance
with a predefined criterion, said payload portions of said messages
to create an aggregated payload;
forming an aggregated message using said aggregated payload; and
transmitting, by said server via said unicast network, said aggregated
message to a recipient host computer belonging to said first
message group.
('523 patent, 28:4-27) The preamble of claim 1 recites "a plurality of host computers
connected over a unicast wide area network." ('523 patent, 28:4-6) This phrase
provides antecedent bases for "said plurality of host computers," "said network," and
"said unicast network" elsewhere in claim 1 and, therefore, is limiting. ('523 patent,
28:8-9; 28:9-10; 28:14-15; 28:25) In light of the specification, claim 1 is limited to

office mail" system, which involves matter outside of the pleadings. (D.I. 10 at 12-15)
Plaintiff disagrees with how the inter-office mail analogy would apply to the claims at
issue.

5

unicast networks, as opposed to the multicast and asynchronous transfer mode ("ATM")
architectures as discussed in detail with reference to the prior art. ('523 patent, 4:297: 19) Claim 1 is limited, among other things, to sending aggregated payloads and
aggregating payloads by time interval. ('523 patent, 10:20-49; 28:18-21; figure 7, items
100, 101, 102, and 103)
8. Claim 7 of the '686 patent recites:
A method for facilitating communications among a plurality of host
computers over a network to implement a shared, interactive application,
comprising the steps of:
(1) receiving messages from a subset of the plurality of host computers
belonging to a message group, wherein each of said messages
contains a payload portion and a portion that is used to identify said
message group;
(2) aggregating said payload portions of said messages to create an
aggregated payload; and
(3) transmitting said aggregated message to each of the plurality of host
computers belonging to said message group;
wherein said aggregated message keeps the shared, interactive
application operating consistently on each of the plurality of host
computers belonging to said message group.
('686 patent, 28:59-29:7) Claim 7 is limited to situations "wherein said aggregated
message keeps the shared, interactive application operating consistently on each of the
plurality of host computers belonging to said message group." ('686 patent, 29:4-7)
The antecedent basis for "the shared, interactive application" in the wherein clause is
the preamble, which recites "a shared, interactive application." ('686 patent, 28:60-61;
29:4-5) The preamble also recites "a plurality of host computers," which provides
antecedent basis for "the plurality of host computers" elsewhere in the claim. ('686
patent, 28:62-63; 29: 1-2; 29:5-6) Therefore, the preamble of claim 7 limits the claim to
communications among a plurality of host computers connected over a network to
implement shared, interactive applications. Claim 7 is limited, among other things, to

6

sending aggregated payloads. ('523 patent, 10:20-49; figure 7, items 100, 101, 102,
and 103)
9. Analysis. In Intellectual Ventures I, the Federal Circuit upheld a district
court's finding that various claims of the '142 patent were invalid for failing to claim
statutory subject matter under§ 101. Defendant asserts that claims 1 and 7 are similar
to the claims in the '142 patent and, therefore, are directed to an abstract idea. (D.I. 17
at 3) Claim 1 of the '142 patent recites:
A post office for receiving and redistributing email messages on a
computer network, the post office comprising:
a receipt mechanism that receives an e-mail message from a sender,
the e-mail message having at least one specified recipient;
a database of business rules, each business rule specifying an action
for controlling the delivery of an e-mail message as a function of an
attribute of the e-mail message;
a rule engine coupled to receive an e-mail message from the receipt
mechanism and coupled to the database to selectively apply the
business rules to the e-mail message to determine from selected
ones of the business rules a set of actions to be applied to the e-mail
message; and
a distribution mechanism coupled to receive the set of actions from the
rule engine and apply at least one action thereof to the e-mail
message to control delivery of the e-mail message and which in
response to the rule engine applying an action of deferring delivery
of the e-mail message, the distribution engine automatically
combines the email message with a new distribution list specifying at
least one destination post office for receiving the e-mail message for
review by an administrator associated with the destination post
office, and a rule history specifying the business rules that were
determined to be applicable to the e-mail message by at least one
rule engine, and automatically delivers the e-mail message to a first
destination post office on the distribution list instead of a specified
recipient of the e-mail message.
('142 patent, 27:2-32) The district court held this claim to be directed to the "abstract
idea of implementing post office functionality via a computer." Intellectual Ventures I

7

LLC v. Symantec Corp., 100 F. Supp. 3d 371, 391 (D. Del. 2015). The Federal Circuit

upheld the district court's invalidity finding under§ 101, noting that:
The written description is particularly useful in determining what is wellknown or conventional. The '142 patent's abstract describes the invention
as "[a] system, method and various software products ... for automatic
deferral and review of e-mail messages and other data objects in a
networked computer system, by applying business rules to the
messages as they are processed by post offices." Claim 1 also
describes the patented system as a "post office"-albeit an electronic one.
The district court held that "the asserted claims of the '142 patent are
directed to human-practicable concepts, which could be implemented in,
for example, a brick-and-mortar post office."
Intellectual Ventures I, 838 F.3d at 1317 (emphasis added) (citations omitted). The '142

patent claimed a "post office" and disclosed the operation of a brick-and-mortar post
office. (See '142 patent, 1:14-33) The district court took note of the operation of a post
office, because the specification invited the comparison.
10. The '523 and '686 patents (which share a common specification) invite no
such comparisons. Therefore, Intellectual Ventures I is distinguishable on the facts.
For example, the specification does not discuss post offices, mailrooms, e-mail, central
offices, agents or any of the concepts asserted by defendant. Nor does the
specification disclose brick-and-mortar comparisons to the key limitations of claims 1
and 7, which include: connecting a plurality of host computers over a unicast wide area
network; aggregating message payloads by time segment; communicating among a
plurality of host computers connected over a network to implement shared, interactive
applications; sending messages containing aggregated payloads; or keeping a shared,
interactive application operating consistently on each of the plurality of host computers.
11. Absent clear direction from the specification, the prosecution history, or the
pleadings, a comparison or analogy to post offices, mailrooms, or other aspects of the
'142 patent could enter the record through extrinsic evidence such as dictionary
definitions or expert reports. However, as with defendant's analogy to a "hypothetical

8

inter-office mail system," this would constitute matter beyond the pleadings. 4 Therefore,
defendant fails to carry its burden under Alice step one to demonstrate that claims 1 and
7 are directed to an abstract idea.
12. Meanwhile, plaintiff contends that the claims are directed to a technical
solution to a technical problem. (D.I. 16 at 11-13) "[T)he first step in the Alice inquiry ..
. asks whether the focus of the claims is on the specific asserted improvement in
computer capabilities ... or, instead, on a process that qualifies as an 'abstract idea' for
which computers are invoked merely as a tool." Enfish, 822 F.3d at 1335-36. The
specification describes the technical challenge inherent to shared, interactive
applications:
[T]he present invention deals with the issues of deploying an interactive
application for multiple participants on wide area networks by providing a
method for reducing the overall message rate and reducing latency. This
invention uses a server group messaging approach, as oppose[d] to the
above described "distributed multicast messaging" approach. The present
invention overcomes the undesirable side effects of the distributed
multicast messaging approach. Further, it reduces the message rate
between the hosts. As pointed out in an example discussed above, with
prior art distributed multicast messaging, each host will need to send only
one message to the group containing all of the hosts seven times persecond, but will still receive 9 messages, seven times per-second. The
present invention of server group messaging has each host sending one
message, seven times per-second and receiving one message, seven
times per-second.
('523 patent, 11 :26-42) The specification explains that sharing updates between host
computers is a key technical challenge in shared, interactive applications such as online
gaming. ('523 patent, 1: 11-11 :67) Claims 1 and 7 address, among other things, the
improvement associated with the datagram shown in figure 7 with respect to items 100
through 103. ('523 patent, 10:20-49; figure 7, items 100, 101, 102, and 103) This
improvement includes the group message server and the aggregated payloads shown

4

See supra note 3.

9

in the figure and described in the claims. The specification indicates that this technical
challenge is unique to the world of interactive software applications shared over a
computer network. Therefore, as with the relevant case law, the specification supports
the conclusion that the invention in claims 1 and 7 is "necessarily rooted in computer
technology in order to overcome a problem specifically arising in the realm of computer
networks." DOR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1257 (Fed. Cir.
2014). For these reasons, claims 1 and 7 are not directed to an abstract idea, and
defendant's motion to dismiss is denied. Enfish, 822 F.3d at 1337.
13. Conclusion. For the reasons stated, defendant's motion to dismiss (D. I. 9)
is denied.

Senior Unit d States District Judge

10