Prism Technologies v. Adobe Systems Incorporated et al

Filing 1061

MEMORANDUM AND ORDER - Prism's motion for leave to file a second amended complaint (Filing No. 960 ) is granted. Prism shall file its amended complaint by November 7, 2012. Should they elect to do so, defendants may each file an additional mo tion for summary judgment as to Prism's induced infringement allegations only. The motions shall be filed on or before December 3, 2012. Prisms responsive briefs and defendants' reply briefs shall be filed following the usual timetable provided by rule. Ordered by Senior Judge Lyle E. Strom. (AOA)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
PRISM TECHNOLOGIES, LLC,

)
)
Plaintiff,
)
)
v.
)
)
McAFEE, INC.;
)
SYMANTEC CORPORATION;
)
and TREND MICRO INCORPORATED, )
)
Defendants.
)
______________________________)

8:10CV220
MEMORANDUM AND ORDER

This matter is before the Court on the motion of
plaintiff Prism Technologies, LLC (“Prism”) for leave to file a
second amended complaint, filed pursuant to Federal Rule of Civil
Procedure 15(a), with accompanying brief and indices of evidence
(Filing Nos. 960, 961, 962, and 964).

Defendants McAfee, Inc.

(“McAfee”), Symantec Corporation (“Symantec”), and Trend Micro
Incorporated (“Trend Micro”) filed a brief opposing the motion
with indices of evidence (Filing Nos. 1009, 1010, and 1012), and
Prism filed a reply brief with index of evidence (Filing Nos.
1046 and 1047).

The Court finds that Prism’s motion for leave to

file a second amended complaint should be granted.
I.

Legal Standard for Amendment of Pleadings.
If a party seeks to amend a pleading before trial but

after 21 days of serving the pleading, the party may amend “only
with the opposing party’s written consent or the court’s leave.
The court should freely give leave when justice so requires.”

Fed. R. Civ. P. 15(a)(2).

“A denial of leave to amend may be

justified by undue delay, bad faith on the part of the moving
party, futility of the amendment, or unfair prejudice to the
opposing party.”
2008).

Amrine v. Brooks, 522 F.3d 823, 833 (8th Cir.

“Likelihood of success on the new claim or defenses is

not a consideration for denying leave to amend unless the claim
is clearly frivolous.”

Becker v. Univ. of Neb. at Omaha, 191

F.3d 904, 908 (8th Cir. 1999).
“A district court appropriately denies the movant leave
to amend if ‘there are compelling reasons such as undue delay,
bad faith, or dilatory motive, repeated failure to cure
deficiencies by amendments previously allowed, undue prejudice to
the non-moving party, or futility of the amendment.’”

Sherman v.

Winco Fireworks, Inc., 532 F.3d 709, 715 (8th Cir. 2008) (quoting
Moses.com Sec., Inc. v. Comprehensive Software Sys., Inc., 406
F.3d 1052, 1065 (8th Cir. 2005)).

In Sherman, the defendant’s

motion to amend its answer to add an affirmative defense was made
“seventeen months after the established deadline for amending
pleadings.”

Sherman, 532 F.3d at 716.

Thus, “the district court

was required to apply Rule 16(b)’s good-cause standard in ruling
on [defendant’s] motion.”

Id.

Rule 16(b)(4) states, “A

schedul[ing order] may be modified only for good cause and with
the judge’s consent.”

Fed. R. Civ. Pro. 16(b)(4).

The Eighth

Circuit went on to say, “The interplay between Rule 15(a) and
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Rule 16(b) is settled in this circuit.

In Popoalii, we stated

that ‘[i]f a party files for leave to amend outside of the
court’s scheduling order, the party must show cause to modify the
schedule.’”

Sherman, 532 F.3d at 716 (quoting Popoalii v. Corr.

Med. Servs., 512 F.3d 488, 497 (8th Cir. 2008)(emphasis added)).
“The primary measure of Rule 16’s ‘good cause’ standard is the
moving party’s diligence in attempting to meet the case
management order’s requirements.”

Bradford v. DANA Corp., 249

F.3d 807, 809 (8th Cir. 2001).
II.

Background.
Prism filed its original complaint in this case on June

8, 2010, alleging direct and joint infringement of its patent,
U.S. Patent No. 7,290,288 (Filing No. 1).

Prism filed an amended

complaint, with an additional allegation of willful infringement
against defendant Symantec only, on July 10, 2012 (Filing No.
790).

Trial is set to begin on January 14, 2013.

As with

Prism’s first motion to amend its complaint, the Court will
analyze this motion using the Rule 16(b)(4) standard.
This second request for amending the complaint comes
more than two years after the original complaint was filed, and
less than four months before the rescheduled trial date.
Nevertheless, Prism claims that it has good cause for amending
the complaint at this late date.

First, Prism wants to add “new

allegations that Defendants have induced infringement of method
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claims 87, 88, 93, 103, 110, 111, and 186 of the patent-in-suit .
. .” (Filing No. 960, at 2).

Prism claims that the recent

Federal Circuit decision in Akamai Technologies, Inc. v.
Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012) “changed
the elements of proof for induced infringement of method claims,”
such that “Prism now has a new legal basis for alleging induced
infringement of these method claims that was previously
unavailable to Prism under the old law” (Filing No. 960, at 2).1
Second, Prism “seeks to amend the Complaint to provide
further detail regarding its allegation of induced infringement
against Defendants for system claim 187 of the patent-in-suit”
(Filing No. 960, at 2).

Prism claims that it “disclosed its

contentions regarding Defendants’ inducement of infringement for
claim 187 during discovery, but Defendants have argued that Prism
cannot assert this allegation at trial unless it is properly
pleaded in Prism’s Complaint” (Id.).

Prism concedes that its

delay in alleging induced infringement as to claim 187 in its
complaint is a “pleading error” (Filing No. 929, at 43) but
claims that the proposed amended complaint will not prejudice
defendants because Prism does not need any additional discovery
to support its amended claims (Filing No. 961, at 6).

1

In

In Akamai, the Federal Circuit overruled previous
precedent and held that “all the steps of a claimed method must
be performed in order to find induced infringement, but that it
is not necessary to prove that all the steps were committed by a
single entity.” Akamai, 692 F.3d at 1306.
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addition, Prism avers that there is no unfair surprise to
defendants, because Prism had “previously disclosed in discovery
and in expert reports its contention that Defendants induce
infringement by providing instructions and assistance to their
customers regarding software activation” (Id.).

Prism emphasizes

the fact that even though the original complaint did not include
a claim of induced infringement, each of the defendants denied
induced infringement in affirmative defenses included in their
answers to the original complaint (Filing Nos. 131, 107, and 121)
and to the first amended complaint (Filing Nos. 835, 834, and
833).

Therefore, “Prism requests leave to amend the Complaint to

conform the pleadings in this case with Prism’s previouslydisclosed infringement contentions” (Filing No. 960, at 2).
The parties dispute some of the details regarding
Prism’s disclosure during discovery of its intention to allege
induced infringement.

In addition, while Prism claims that

defendants’ expert rebuttal reports address induced infringement
allegations, defendants state that their experts “did not address
any issues specific to inducement.

Rather, Defendants’ experts

addressed only those theories of infringement alleged in the
Amended Complaint, i.e., direct infringement and joint
infringement” (Filing No. 1009, at 6).

The Court finds that

while McAfee’s and Symantec’s expert rebuttal reports did not
address induced infringement in detail, each of the three expert

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rebuttal reports did deny indirect infringement, of which induced
infringement is a subset, and Trend Micro’s expert specifically
addressed induced infringement.

See Ex. 11, Filing No. 962; Ex.

5, Filing No. 964; and Ex. 4, Filing No. 9642.

Defendants did

not move to dismiss the previous complaint or amended complaint
at the time they were filed due to deficiencies in pleading
induced infringement.

Instead, Trend Micro raised the issue in a

motion for summary judgment and all defendants raised the issue
in a motion in limine, both filed in the last few months (Filing
Nos. 849 and 902).
III.

Discussion.
A.

Futility of Amendment.

Defendants claim that

Prism’s proposed amendment would be futile because the proposed
amended complaint would not withstand a motion to dismiss under
Rule 12(b)(6).

Defendants claim that induced infringement

requires Prism to prove that defendants each acted with specific
intent to induce, that the proposed amended complaint does not
adequately plead such specific intent, and that defendants are
incapable of intending to induce infringement since each
defendant claims that none of its products infringe under any
circumstances.

2

Neither Prism’s expert’s reports nor defendants’ experts’
rebuttal reports analyze induced infringement of the method
claims in the context of the new Akamai decision.
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Direct infringement under 35 U.S.C. § 271(a) is a
strict liability tort.

See In re Seagate Tech., LLC, 497 F.3d

1360, 1368 (Fed. Cir. 2007).

In contrast, induced infringement

under 35 U.S.C. § 271(b) includes a scienter component:

“Whoever

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

35 U.S.C. § 271(b).

As described by the Supreme

Court in Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct.
2060, 2065 (2011), the statute is “ambiguous:”

“In referring to

a party that ‘induces infringement,’ this provision may require
merely that the inducer lead another to engage in conduct that
happens to amount to infringement, i.e., the making, using,
offering to sell, selling, or importing of a patented invention.”
Id.

“On the other hand, the reference to a party that ‘induces

infringement’ may also be read to mean that the inducer must
persuade another to engage in conduct that the inducer knows is
infringement.

Both readings are possible.”

Id.

The Supreme

Court resolved the issue by stating, “[W]e now hold that induced
infringement under § 271(b) requires knowledge that the induced
acts constitute patent infringement.”

Id. at 2068.

“‘Inducement requires a showing that the alleged
inducer knew of the patent, knowingly induced the infringing
acts, and possessed a specific intent to encourage another’s
infringement of the patent.’”

Bose Corp. v. SDI Techs. Imation

Corp., CIV.A. 09-11439-WGY, 2012 WL 2862057, at *9 (D. Mass. July

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10, 2012) (quoting Vita-Mix Corp. v. Basic Holding, Inc., 581
F.3d 1317, 1328 (Fed. Cir. 2009)).

“‘Intent can be shown by

circumstantial evidence, but the mere knowledge of possible
infringement will not suffice.’”

Id.

“On the other hand, inducement does not require that
the induced party be an agent of the inducer or be acting under
the inducer’s direction or control to such an extent that the act
of the induced party can be attributed to the inducer as a direct
infringer.”

Akamai, 692 F.3d at 1308.

“It is enough that the

inducer ‘cause[s], urge[s], encourage[s], or aid[s]’ the
infringing conduct and that the induced conduct is carried out.”
Id. (quoting Arris Grp., Inc. v. British Telecomms. PLC, 639 F.3d
1368, 1379 n.13 (Fed. Cir. 2011)).
Prism’s proposed amended complaint contains a similar
new paragraph for each defendant, for example, for McAfee:
Defendant McAfee also has been and
now is inducing its customers’
infringement of the ’288 Patent in
the State of Nebraska, in this
judicial district, and elsewhere in
the United States. McAfee has had
knowledge of the ‘288 Patent since
at least June 8, 2010, the filing
date of this action. Despite this
knowledge of the ‘288 Patent,
McAfee has continued to engage in
activities to encourage and assist
its customers who use various
McAfee software products
(including, without limitation,
AntiVirus Plus products) to
directly infringe one or more of
claims 87, 88, 93, 103, 110, 111,
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186, and 187 of the ‘288 Patent.
Such acts of encouragement and
assistance include providing
instructions and technical
support to customers on how to
activate McAfee software products
(including, without limitation,
AntiVirus Plus products) installed
on the customers’ computers through
McAfee’s software activation
system. This instruction and
technical support is provided by
McAfee, for example, through the
products themselves when they are
in use as well as through McAfee’s
website at www.mcafee.com.
(Ex. 2, Filing No. 962, at 4-5).
Defendants claim that such an allegation of induced
infringement is futile because knowledge of the patent is not the
same thing as knowledge that any induced acts constitute
infringement.

In fact, defendants claim that their states of

mind are just the opposite, that is, that each “knows” that any
induced acts do not constitute infringement.

Thus, defendants

claim that Prism’s allegations cannot satisfy the scienter
requirement for induced infringement and that the induced
infringement allegation in the proposed amended complaint is
inadequately pled.
While it is clear that Prism must establish that
defendants each had the specific intent to induce infringement to
ultimately prevail on that count, it is not clear that Prism must
prove so much at the pleading stage.

A complaint filed in

federal court must contain “a short and plain statement of the
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claim showing that the pleader is entitled to relief.”
Civ. P. 8(a)(2).

Fed. R.

“To survive a motion to dismiss, a complaint

must 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)).
“Twombly and Iqbal did not abrogate the notice pleading
standard of Rule 8(a)(2).

Rather, those decisions confirmed that

Rule 8(a)(2) is satisfied ‘when the plaintiff pleads factual
content that allows the court to draw the reasonable inference
that the defendant is liable for the misconduct alleged.’”
Hamilton v. Palm, 621 F.3d 816, 817 (8th Cir. 2010) (quoting
Iqbal, 556 U.S. at 678; citing Erickson v. Pardus, 551 U.S. 89,
93 (2007)).

“When ruling on a motion to dismiss, the court must

accept the allegations contained in the complaint as true and
draw all reasonable inferences in favor of the nonmoving party.”
Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005).

“The

plausibility standard requires a plaintiff to show at the
pleading stage that success on the merits is more than a ‘sheer
possibility.’”

Braden v. Wal-Mart Stores, Inc., 588 F.3d 585,

594 (8th Cir. 2009) (quoting Iqbal, 556 U.S. at 678.)
not, however, a ‘probability requirement.’”

“It is

Id.

As with Prism’s new allegation in its first amendment
to its complaint, this induced infringement allegation is not

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certain to succeed.

Yet the Court finds that Prism’s new

allegations of induced infringement meet the standards for a
well-pleaded complaint.
B.

Unfair Prejudice.

Defendants state, “Allowing

Prism to now add new claims of induced infringement, which
require fundamentally different elements of proof from direct
infringement, would deprive Defendants of the opportunity to
develop defenses regarding the mens rea components of inducement
. . . and to obtain discovery on this new theory of recovery
. . .” (Filing No. 1009, at 10-11).

Prism counters, “Obviously,

Defendants know whether they had the subjective intent to
infringe the patents or not, and thus they have no need to serve
discovery requests on Prism or any other third parties to
investigate their own state of mind” (Filing No. 1046, at 14).
The mens rea component of inducement involves the scienter of
each defendant itself, not some outside entity, information to
which the Court assumes each defendant is privy.

Thus it is not

obvious that additional discovery would be required for the new
allegation, and Prism is not requesting new discovery for its
part.
Nevertheless, the Court agrees that defendants should
not be deprived of the opportunity to file summary judgment
motions regarding the new induced infringement allegations.

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At this point, the parties have submitted motions for summary
judgment, which will be considered by the Court when all briefs
have been filed as of November 20, 2012 (See Filing No. 955).
McAfee and Symantec have not yet moved for summary judgment on
the issue of induced infringement.3

Therefore, the Court will

grant leave to all three defendants to file an additional motion
for summary judgment as to induced infringement only, as outlined
below.
IV.

Conclusion.
The Court finds that Prism has shown good cause in

filing its motion to amend.

With regard to method claims 87, 88,

93, 103, 110, 111, and 186, Prism could not justify a motion to
amend until the date of the Akamai decision, August 31, 2012.
With regard to system claim 187, the Court finds that defendants
have not suffered undue prejudice as indicated by their own
expert reports, which anticipate an allegation of indirect
infringement, and by their affirmative defenses asserted in their
answers.

In addition, the Court finds that the motion to amend

is not clearly frivolous, nor obviously futile.
Prism’s motion will be granted.

Consequently,

Accordingly,

3

While Trend Micro did include a motion for summary
judgment as to induced infringement in its previous filing, its
argument largely centered around the fact that the induced
infringement allegation had not been pled in Prism’s complaint.
See Filing No. 853.
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IT IS ORDERED:
1) Prism’s motion for leave to file a second amended
complaint (Filing No. 960) is granted.

Prism shall file its

amended complaint by November 7, 2012.
2) Should they elect to do so, defendants may each file
an additional motion for summary judgment as to Prism’s induced
infringement allegations only.
before December 3, 2012.

The motions shall be filed on or

Prism’s responsive briefs and

defendants’ reply briefs shall be filed following the usual
timetable provided by rule.
DATED this 1st day of November, 2012.
BY THE COURT:
/s/ Lyle E. Strom
____________________________
LYLE E. STROM, Senior Judge
United States District Court

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