Encoditech LLC v. Qardio, Inc.

Filing 34

MEMORANDUM ORDER DENYING (8 in 1:18-cv-02059-MN) MOTION to Dismiss for Failure to State a Claim, DENYING (17 in 1:18-cv-00864-MN) MOTION to Dismiss for Failure to State a Claim, DENYING (7 in 1:19-cv-00151-MN) MOTION to Dismiss for Failure to State a Claim. Signed by Judge Maryellen Noreika on 6/19/2019. (dlw)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
ENCODITECH LLC,
Plaintiff,
v.
QARDIO, INC.,
Defendant.
ENCODITECH LLC,
Plaintiff,
v.
BUSHNELL HOLDINGS, INC.,
Defendant.
ENCODITECH LLC,
Plaintiff,
v.
NEUROMETRIX, INC.,
Defendant.

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C.A. No. 18-864 (MN)

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C.A. No. 18-2059 (MN)

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C.A. No. 19-151 (MN)

MEMORANDUM ORDER
At Wilmington this 19th day of June 2019:
As announced at the hearing on June 14, 2019, IT IS HEREBY ORDERED that:
1.

Qardio, Inc.’s (“Qardio”) Motion to Dismiss for Failure to State a Claim (D.I. 17

in C.A. No. 18-864) is DENIED.
2.

Bushnell Holdings, Inc.’s (“Bushnell”) Motion to Dismiss for Failure to State a

Claim (D.I. 8 in C.A. No. 18-2059) is DENIED.

3.

NeuroMetrix, Inc.’s (“NeuroMetrix”) Motion to Dismiss for Failure to State a

Claim (D.I. 7 in C.A. No. 19-151) is DENIED.
Defendants moved to dismiss the operative complaints in each of their actions pursuant to
Federal Rule of Civil Procedure 12(b)(6), alleging that the claims of U.S. Patent No. 6,321,095
(“the ’095 Patent”) are invalid as claiming ineligible subject matter under 35 U.S.C. § 101. In
their motions, Defendants also seek dismissal of Plaintiff’s allegations of direct and indirect
infringement under Rule 12(b)(6) as insufficiently pled under Iqbal / Twombly. Defendants’
motions were fully briefed as of May 22, 2019, 1 and the Court received further submissions in the
Qardio case regarding which Supreme Court or Federal Circuit case each party contends is
analogous to the claims at issue in Defendants’ motions as related to the § 101 arguments.
(See D.I. 29, 30 in C.A. No. 18-864; see also D.I. 27 in C.A. No. 18-864). 2 The Court carefully
reviewed all submissions in connection with Defendants’ motions, heard oral argument 3 and
applied the following legal standard in reaching its decision:

1

Qardio’s motion was fully briefed as of December 7, 2018 (see D.I. 18, 23, 25 in C.A. No.
18-864), Bushnell’s motion was fully briefed as of April 24, 2019 (see D.I. 9, 14, 15 in
C.A. No. 18-2059), and NeuroMetrix’s motion was fully briefed as of May 22, 2019 (see
D.I. 8, 13, 15 in C.A. No. 19-151).

2

Despite being filed after the Qardio case and involving allegations of infringement of the
same ’095 Patent, Plaintiff did not mark the Bushnell Holdings and NeuroMatrix cases as
related to the Qardio case as required by Local Rule 3.1(b)(3). As a result, the Bushnell
Holdings and NeuroMetrix cases were originally assigned to The Honorable Richard G.
Andrews but were reassigned to the undersigned judge on June 12, 2019. (See D.I. 18 in
C.A. No. 18-2059; D.I. 17 in C.A. No. 19-151). Because these cases were reassigned two
days prior to the hearing, no further letter submissions were filed by the parties.

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(See D.I. 33 in C.A. 18-864; D.I. 21 in C.A. No. 18-2059; D.I. 20 in C.A. No. 19-151).
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I.

LEGAL STANDARDS
A.

Motion to Dismiss for Failure to State a Claim

In ruling on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the 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 Mayer v. Belichick, 605 F.3d 223, 229 (3d Cir. 2010); see also
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 232-33 (3d Cir. 2008). “[A] court need not ‘accept
as true allegations that contradict matters properly subject to judicial notice or by exhibit,’ such as
the claims and the patent specification.” Secured Mail Sols. LLC v. Universal Wilde, Inc., 873
F.3d 905, 913 (Fed. Cir. 2017) (quoting Anderson v. Kimberly-Clark Corp., 570 F. App’x 927,
931 (Fed. Cir. 2014)). Dismissal under Rule 12(b)(6) is only appropriate if a complaint does not
contain “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)); see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). “[P]atent
eligibility can be determined at the Rule 12(b)(6) stage . . . when there are no factual allegations
that, taken as true, prevent resolving the eligibility question as a matter of law.” Aatrix Software,
Inc. v. Green Shades Software, Inc., 882 F.3d 1121, 1125 (Fed. Cir. 2018).
B.

Patent-Eligible Subject Matter

Section 101 of the Patent Act provides that anyone who “invents or discovers any new and
useful process, machine, manufacture, or composition of matter, or any new and useful
improvement thereof” may obtain a patent. 35 U.S.C. § 101. The Supreme Court has long
recognized three exceptions to the broad categories of subject matter eligible for patenting under
§ 101: laws of nature, physical phenomena, and abstract ideas. Alice Corp. Pty. v. CLS Bank Int’l,
573 U.S. 208, 134 S. Ct. 2347, 2354 (2014). These “are ‘the basic tools of scientific and

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technological work’ that lie beyond the domain of patent protection.” Ass’n for Molecular
Pathology v. Myriad Genetics, Inc., 569 U.S. 576, 589 (2013) (quoting Mayo Collaborative Servs.
v. Prometheus Labs., Inc., 566 U.S. 66, 77-78 (2012)); see also Alice, 134 S. Ct. at 2354. A claim
to any one of these three categories is directed to ineligible subject matter under § 101. “[W]hether
a claim recites patent eligible subject matter is a question of law which may contain underlying
facts.” Berkheimer v. HP Inc., 881 F.3d 1360, 1368 (Fed. Cir. 2018).
Courts follow a two-step “framework for distinguishing patents that claim laws of nature,
natural phenomena, and abstract ideas from those that claim patent-eligible applications of those
concepts.” Alice, 134 S. Ct. at 2355; see also Mayo, 566 U.S. at 77-78. First, at step one, the
Court determines whether the claims are directed to one of the three patent-ineligible concepts.
Alice, 134 S. Ct. at 2355. If the claims are not directed to a patent-ineligible concept, “the claims
satisfy § 101 and [the Court] need not proceed to the second step.” Core Wireless Licensing
S.A.R.L. v. LG Elecs., Inc., 880 F.3d 1356, 1361 (Fed. Cir. 2018). If, however, the Court finds that
the claims at issue are directed a patent-ineligible concept, the Court must then, at step two, search
for an “inventive concept” – i.e., “an element or combination of elements that is ‘sufficient to
ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible
concept] itself.’” Alice, 134 S. Ct. at 2355 (alteration in original) (quoting Mayo, 566 U.S. at 7273).
1.

Step One of the Alice Framework

At step one of Alice, “the claims are considered in their entirety to ascertain whether their
character as a whole is directed to excluded subject matter.” Internet Patents Corp. v. Active
Network, Inc., 790 F.3d 1343, 1346 (Fed. Cir. 2015); see also Affinity Labs of Texas, LLC v.
DIRECTV, LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016) (step one looks at the “focus of the claimed

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advance over the prior art” to determine if the claim’s “character as a whole” is to ineligible subject
matter). In performing step one of Alice, the Court should be careful not to oversimplify the claims
or the claimed invention because, at some level, all inventions are based upon or touch on abstract
ideas, natural phenomena, or laws of nature. Alice, 134 S. Ct. at 2354; see also McRO, Inc. v.
Bandai Namco Games Am. Inc., 837 F.3d 1299, 1313 (Fed. Cir. 2016). “At step one, therefore, it
is not enough to merely identify a patent-ineligible concept underlying the claim; [courts] must
determine whether that patent-ineligible concept is what the claim is ‘directed to.’” Rapid Litig.
Mgmt. Ltd. v. CellzDirect, Inc., 827 F.3d 1042, 1050 (Fed. Cir. 2016).
2.

Step Two of the Alice Framework

At step two of Alice, in searching for an inventive concept, the Court looks at the claim
elements and their combination to determine if they transform the ineligible concept into
something “significantly more.” Alice, 134 S. Ct. at 2355; see also McRO, 837 F.3d at 1312. This
second step is satisfied when the claim elements “involve more than performance of ‘wellunderstood, routine, [and] conventional activities previously known to the industry.’” Berkheimer,
881 F.3d at 1367 (citation and internal quotation marks omitted); see also Mayo, 566 U.S. at 73.
“The inventive concept inquiry requires more than recognizing that each claim element, by itself,
was known in the art. . . . [A]n inventive concept can be found in the non-conventional and nongeneric arrangement of known, conventional pieces.” Bascom Glob. Internet Servs., Inc. v. AT&T
Mobility LLC, 827 F.3d 1341, 1350 (Fed. Cir. 2016). Whether claim elements or their combination
are well-understood, routine, or conventional to a person of ordinary skill in the art is a question
of fact. Berkheimer, 881 F.3d at 1368.
At both steps of the Alice framework, courts often find it useful “to compare the claims at
issue with claims that have been considered in the now considerably large body of decisions

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applying § 101.” TMI Sols. LLC v. Bath & Body Works Direct, Inc., C.A. No. 17-965-LPS-CJB,
2018 WL 4660370, at *5 (D. Del. Sept. 28, 2018) (citing Amdocs (Israel) Ltd. v. Openet Telecom,
Inc., 841 F.3d 1288, 1294 (Fed. Cir. 2016)); see also Enfish, LLC v. Microsoft Corp., 822 F.3d
1327, 1334 (Fed. Cir. 2016).
C.

Pleading Direct Infringement

Liability for direct infringement arises under 35 U.S.C. § 271(a) when a party, without
authorization, “makes, uses, offers to sell, or sells any patented invention, within the United States
or imports into the United States any patented invention during the term of the patent.” The
activities set forth in § 271(a) do not result in direct infringement unless the accused product
embodies the complete patented invention. See Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d
1246, 1252 & n.2 (Fed. Cir. 2000). Therefore, to state a claim of direct infringement sufficient to
withstand a motion to dismiss, a plaintiff must plead facts that plausibly suggest that the accused
product meets each limitation of the asserted claim(s). See TMI Sols. LLC v. Bath & Body Works
Direct, Inc., C.A. No. 17-965-LPS-CJB, 2018 WL 4660370, at *9 (D. Del. Sept. 28, 2018).
The Federal Circuit recently provided guidance on pleading direct infringement under
Iqbal / Twombly. See generally Disc Disease Sols. Inc. v. VGH Sols., Inc., 888 F.3d 1256 (Fed.
Cir. 2018). In Disc Disease, the Federal Circuit reversed the district court’s dismissal of plaintiff’s
direct infringement claims, finding that the plaintiff’s allegations were sufficient under the
plausibility standard of Iqbal and Twombly because the complaint specifically identified the three
accused products and alleged that the accused products met “each and every element of at least
one claim” of the asserted patents, either literally or equivalently. Disc Disease, 888 F.3d at 1260.
Following Disc Disease, another court in this District similarly found that a plaintiff plausibly
pleaded an infringement claim where the complaint specifically identified the infringing product

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and alleged “that it practices each limitation of at least one claim in” the relevant patents. Promos
Tech., Inc. v. Samsung Elec. Co., No. 18-307-RGA, 2018 WL 5630585, at *4 (D. Del. Oct. 31,
2018); see also AgroFresh Inc. v. Hazel Techs., Inc., No. 18-1486-MN, 2019 WL 1859296, at *2
(D. Del. Apr. 25, 2019) (applying Disc Disease to find allegations of direct infringement
sufficiently pled); DoDots Licensing Sols. LLC v. Lenovo Holding Co., No. 18-98-MN, 2018 WL
6629709, at *2 (D. Del. Dec. 19, 2018) (same). 4
II.

THE COURT’S RULING
The ruling to deny Defendants’ motions to dismiss 5 under Federal Rule of Civil Procedure

12(b)(6) was announced from the bench at the conclusion of the hearing as follows:
. . . I’m prepared to rule on the pending motions. I will not be issuing
written opinions, but I will issue an order that states my ruling.
I want to emphasize before I get into the rulings that while
I’m not issuing a written opinion, we have followed a full process
for making the decisions that I’m about to state.
There was full briefing on each of the pending motions.
There were additional submissions regarding what each party
viewed as the most analogous case and there has been extensive oral
argument here today. All of the submissions and the arguments have
been carefully considered.
Now, as to my rulings, as an initial matter, I am not going to
read into the record my understanding of Section 101 law. I have a
legal standard that I’ve included in earlier opinions, including
somewhat recently in Kroy IP Holdings v. Groupon, Civil Action
No. 17-1405. I incorporate that law and adopt it to my ruling today,
and I will also set it out in the order that I now will issue.
*

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Finally, the three Encoditech cases; the Qardio case, Civil
Action Number 18-864; the Bushnell Holdings case, Civil Action
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The legal standard for direct infringement set forth in this Memorandum Order is derived
from the Court’s opinions in DoDots and AgroFresh.

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(D.I. 17 in C.A. No. 18-864; D.I. 8 in C.A. No. 18-2059; and D.I. 7 in C.A. No. 19-151).
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Number 18-2059; and the NeuroMetrix case, Civil Action Number
19-151.
There is one patent at issue, United States Patent Number
6,321,095, which generally relates to wireless communication
between mobile stations using encryption keys.
The defendant in each of the cases has moved pursuant to
Rule 12(b)(6) to dismiss for failure to state a claim based on Section
101 and also for failure to state a claim of direct and indirect
infringement. The bases for the 101 motions in each of the cases are
virtually identical.
First, as to the motions under section 101, after reviewing
the entire record, hearing argument, and applying the law as I
understand it, I cannot conclude at this stage that the claims are
directed to patent ineligible subject matter.
Thus, I will deny the defendant[s’] motions to dismiss on the
basis of 101 in each of the three cases.
Defendants treat claim 7 as representative, and Encoditech
does not seriously challenge that, so I will also treat the claim, that
claim as representative.
As to step one of Alice, defendants assert that claim 7 is
directed to the abstract idea of sending and receiving information to
establish a secure line of communication. Encoditech argues that
claim 7 provides a specific engineering design and method that
solves a particular problem in encrypting wireless messages.
I disagree with defendants as to step -- I’m sorry. I disagree
with plaintiff as to step one. The claim does not claim an improved
design or device, solution to a problem or method for securely
communicating wirelessly, but rather generic technology using
functional limitations. And the functional limitations here I find are
similar to those that were in cases such as Two-Way Media v.
Comcast, [874 F.3d] 1329 from the Federal Circuit in 2017.
The functional limitations in both cases claim a function
generally and not a particular way of performing that function.
When considered as a whole, claim seven is directed to the abstract
idea of establishing a secure wireless communication link and
sending and receiving encrypted messages.

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At step two, however, accepting the allegations as true, and
viewing them in the light most favorable to the plaintiff with every
doubt resolved in plaintiff’s favor, but disregarding conclusory
statements, I find that there are issues of fact that preclude dismissal.
Defendants argue that claim 7 only uses known processes
and generic hardware to send and receive data to establish secure
communication. They argue that public key encryption is
ubiquitous. Encoditech points to the novel use of common key
encryption to require wireless communication as supplying the
requisite inventive concept and argues that at the very least, the use
of a common encryption key is a fact that precludes dismissal under
Berkheimer.
I note that Encoditech also argued that claim construction is
necessary for the term common encryption key and C key and
perhaps others, but offers nothing on how this will change the
analysis other than to say it goes to the conventionality of public
encryption. While not dispositive in this case, the Court agrees with
those cases that require parties making such arguments to provide
the pertinent analysis before they can prevail. However, here, in
addition to that argument, in the Amended Complaint against Qardio
and the others, plaintiffs alleged, and I’m looking at paragraph 12 to
15 of each of those amended complaints, or at least the Amended
Complaint and the other complaints, plaintiff alleges that aspects of
the claim such as the use of RF band portions and subportions were
not well-known or established. In reviewing the allegations and the
patents, I find that it is unclear whether using RF band portions and
subportions and common encryption keys in the manner recited in
claim 7 was conventional, well-known and understood in the art.
The specification does not admit that these encryption techniques,
particularly in the recited claim language and claims processes were
well-known, and thus there seems to be an issue of fact that
precludes dismissal under Section 101.
As to the cases that Qardio cites as being most analogous,
that’s the Two-Way Media case I mentioned earlier, in Two-Way
Media, the claims were directed to methods for transmitting data
streams over communication networks and maintaining databases
and records of the information sent. There, the Federal Circuit found
claims were directed to an abstract idea because they were simply
methods of routing information recited in functional terms without
any indication how to accomplish the desired result, and further, that
there was no inventive concept recited in the claim, although there
was a purportedly innovative scalable architecture described in the
specification, but that there was just conventional computer and

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network components recited in the claim and ordered in a
conventional way.
I agree that the claims in Two-Way Media are similar as step
one because claim 7 uses functional limitations to claim a way of
wirelessly communicating securely without any real recitation of
how to do so, but I disagree that the claims are similar in step two.
There, the claims depart because there are questions here as to
whether the use of RF band portions and the C key as recited in the
claims were conventional and well-known.
As to defendants’ motion to dismiss the allegations of direct
and indirect infringement for failure to state a claim, I will deny
those as well. As I did with Section 101, I am not going to read into
the record my understanding of the law on this issue. I have a legal
standard section that I’ve included in earlier opinions, including
somewhat recently in DoDots, Civil Action No. 18-98. I incorporate
that law, adopt it into my ruling today and will also set it out in the
order that I issue.
In the papers, Qardio moves to dismiss allegations of direct
and indirect infringement because Encoditech did not allege that the
accused system contained all the limitations in claim 7, and which
is singled out in the first Amended Complaint, and particularly that
it was missing the elements providing the encrypted message to the
second mobile station.
Today it appears that all defendants argued that Encoditech
did not meet the pleading standard with respect to the limitation,
messages exchanged between the first and second mobile station are
encrypted using the C key, because Encoditech alleged simply, for
example, defendants allow[] for data to be shared between devices.
With respect to the assertions here, however, under Disc
Disease, the stated claim of direct infringement, Encoditech only
needed to identify and include product by name, allege that
defendants make, sell, offer to sell, sell, import or use in the United
States that accused product, and to allege that the accused product
satisfies each and every limitation of at least one claim. And
Encoditech alleges here in each of the cases that the defendant[] has
performed all of the steps of claim 7 by its internal testing of the
accused system. And there I’m looking at the Amended Complaint
in Qardio, paragraph 17 and in the complaint in the NeuroMetrix
and Bushnell cases, also paragraph 17. The Court agrees with
defendants, that plaintiff’s pleadings are sloppy, or at the very least,
not a model of clarity. In some instances, such as with Qardio, the

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pleadings appear to omit important information and specific claim
limitations, and they also fail to attach the patent[] and the certificate
of correction.
The Court finds, however, that Encoditech has nevertheless
met the relatively low threshold for stating a claim of direct
infringement set forth by the Federal Circuit in Disc Disease, and
because the only basis for seeking dismissal of the indirect
infringement claims was failure to adequately plead direct
infringement, I will deny that motion as well.

The Honorable Maryellen Noreika
United States District Judge

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