CG Technology Development, LLC et al v. FanDuel, Inc.

Filing 113

ORDER that ECF No. 88 Motion to Dismiss is GRANTED IN PART and DENIED IN PART. The Court will not dismiss the claim of infringement (or willful infringement) of the '818 Patent, but the motion is otherwise granted. Signed by Judge Robert C. Jones on 01/04/2017. (Copies have been distributed pursuant to the NEF - KW)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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______________________________________
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CG TECHNOLOGY DEVELOPMENT, LLC )
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et al.,
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Plaintiffs,
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vs.
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FANDUEL, INC.,
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Defendant.
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2:16-cv-00801-RCJ-VCF
ORDER

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These consolidates cases arise out of the alleged infringement of several patents relating

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to automated gambling. Defendant in the Lead Case, No. 2:16-cv-801, has filed a partial motion

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to dismiss the Second Amended Complaint (“SAC”).

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I.

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FACTS AND PROCEDURAL HISTORY
Plaintiffs CG Technology Development, Inc. (“CG Tech”), Interactive Games Limited

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(“IG Ltd.”), and Interactive Games LLC (“IG LLC”) accuse Defendant FanDuel, Inc. of

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infringing the following claims of the listed patents (“the Patents”) through the use of its online

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fantasy sports contests (“the Accused Games”): (1) Claim 20 of U.S. Patent No. RE39,818; (2)

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Claim 31 of U.S. Patent No. 6,899,628; (3) Claim 1 of U.S. Patent No. 9,111,417; (4) Claim 16

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of U.S. Patent No. 8,641,511; (5) Claim 11 of U.S. Patent No. 8,342,924; (6) Claim 1 of U.S.

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Patent No. 7,029,394; (7) Claim 39 of U.S. Patent No. 6,884,166; (8) Claim 1 of U.S. Patent No.

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7,534,169; (9) Claim 19 of U.S. Patent No. 8,771,058; (10) Claim 17 of U.S. Patent No.

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8,814,664; (11) Claim 9 of U.S. Patent No. 9,355,518; and (12) Claim 1 of U.S. Patent No.

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9,306,952. CG Tech owns the ‘818 Patent for a wireless controller (Cause of Action 1); IG Ltd.

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owns the ‘628, ‘417, ‘924, ‘394, and ‘166 Patents for enhanced services for gaming applications

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(Causes of Action 2, 3, 5, 6, and 7), and IG LLC owns the ‘511, ‘169, ‘058, ‘664, ‘518, and ‘952

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Patents for location-based game configurations (Causes of Action 4, 8, 9, 10, 11, and 12).
Defendant previously asked the Court to: (1) dismiss for failure to state a claim; (2) stay

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the case with respect to the ‘818 Patent pending the resolution of its ownership in the U.S.

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District Court for the Southern District of New York; and (3) sever the case into three cases

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according to ownership of the Patents and category of technology. The Court denied the motions

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to stay and to sever and granted the motion to dismiss, with leave to amend. Specifically, the

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Court ruled that the ‘628, ‘417, ‘924, ‘394, and ‘169 Patents were directed to unpatentable

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subject matter under 35 U.S.C. § 101 and Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct.

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2347 (2014), and that Plaintiffs had failed to state a claim of infringement as to the ‘818, ‘511,

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‘166, ‘058, ‘664, ‘518, and ‘952 Patents.
Plaintiffs have filed the SAC, alleging infringement of the ‘818, ‘511, ’166, ‘058, ‘518,

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and ‘952 Patents in the first six causes of action, respectively, and willful infringement of each of

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them in the seventh cause of action. Defendant has asked the Court to: (1) dismiss the claims of

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infringement of the ‘818, ‘511, and ‘166 Patents for failure to state a claim and without leave to

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amend; (2) dismiss the claims of infringement of the ‘511, and ‘166 Patents under § 101 and

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Alice Corp.; and (3) dismiss the claims of willful infringement of the ‘058, ‘518, and ‘952

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Patents for failure to state a claim and without leave to amend. Because Defendant answered the

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SAC before filing the present motion to dismiss it, the present motion must be treated under Rule

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12(c) rather than Rule 12(b).

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II.

LEGAL STANDARDS

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Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the

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claim showing that the pleader is entitled to relief” in order to “give the defendant fair notice of

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what the . . . claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47

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(1957). Federal Rule of Civil Procedure 12(b)(6) mandates that a court dismiss a cause of action

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that fails to state a claim upon which relief can be granted. A motion to dismiss under Rule

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12(b)(6) tests the complaint’s sufficiency. See N. Star Int’l v. Ariz. Corp. Comm’n, 720

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F.2d 578, 581 (9th Cir. 1983). When considering a motion to dismiss under Rule 12(b)(6) for

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failure to state a claim, dismissal is appropriate only when the complaint does not give the

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defendant fair notice of a legally cognizable claim and the grounds on which it rests. See Bell

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Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In considering whether the complaint is

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sufficient to state a claim, the court will take all material allegations as true and construe them in

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the light most favorable to the plaintiff. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th

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Cir. 1986). The court, however, is not required to accept as true allegations that are merely

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conclusory, unwarranted deductions of fact, or unreasonable inferences. See Sprewell v. Golden

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State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).

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A formulaic recitation of a cause of action with conclusory allegations is not sufficient; a

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plaintiff must plead facts pertaining to his own case making a violation “plausible,” not just

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“possible.” Ashcroft v. Iqbal, 556 U.S. 662, 677–79 (2009) (citing Twombly, 550 U.S. at 556)

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(“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to

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draw the reasonable inference that the defendant is liable for the misconduct alleged.”). That is,

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under the modern interpretation of Rule 8(a), a plaintiff must not only specify or imply a

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cognizable cause of action (Conley review), but also must allege the facts of his case so that the

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court can determine whether the plaintiff has any basis for relief under the cause of action he has

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specified or implied, assuming the facts are as he alleges (Twombly-Iqbal review). Put

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differently, Conley only required a plaintiff to identify a major premise (a cause of action), but

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Twombly and Iqbal require a plaintiff also to allege minor premises (facts of the plaintiff’s case)

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such that the syllogism showing liability is logically complete and that liability necessarily, not

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only possibly, follows (assuming the allegations are true).
“Generally, a district court may not consider any material beyond the pleadings in ruling

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on a Rule 12(b)(6) motion. However, material which is properly submitted as part of the

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complaint may be considered on a motion to dismiss.” Hal Roach Studios, Inc. v. Richard Feiner

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& Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990) (citation omitted). Similarly, “documents

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whose contents are alleged in a complaint and whose authenticity no party questions, but which

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are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6)

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motion to dismiss” without converting the motion to dismiss into a motion for summary

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judgment. Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir. 1994). Moreover, under Federal Rule

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of Evidence 201, a court may take judicial notice of “matters of public record.” Mack v. S. Bay

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Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th Cir. 1986). Otherwise, if the district court

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considers materials outside of the pleadings, the motion to dismiss is converted into a motion for

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summary judgment. See Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir.

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2001).
“After the pleadings are closed—but early enough not to delay trial—a party may move

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for judgment on the pleadings.” Fed. R. Civ. P. 12(c). The standards governing a Rule 12(c)

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motion are the same as those governing a Rule 12(b)(6) motion. See Dworkin v. Hustler

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Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989) (“The principal difference . . . is the time of

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filing. . . . [T]he motions are functionally identical . . . .”).

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III.

ANALYSIS

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A.

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A defendant is liable for direct patent infringement if he “without authority makes, uses,

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offers to sell, or sells any patented invention, within the United States or imports into the United

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States any patented invention during the term of the patent therefor . . . .” 35 U.S.C. § 271(a).

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“Under the ‘all elements’ rule, to find infringement, the accused device must contain ‘each

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limitation of the claim, either literally or by an equivalent.’” TIP Sys., LLC v. Phillips &

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Brooks/Gladwin, Inc., 529 F.3d 1364, 1379 (Fed. Cir. 2008) (quoting Freedman Seating Co. v.

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Am. Seating Co., 420 F.3d 1350, 1358 (Fed. Cir. 2005) (citing Warner–Jenkinson Co. v. Hilton

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Infringement of the ‘818, ‘511, and ‘166 Patents

Davis Chem. Co., 520 U.S. 17, 29 (1997))).
The requirement of providing infringement contentions element-by-element under the

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Local Rules does not permit a more flexible application of Civil Rule 8(a) at the dismissal stage.

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Iqbal and Twombly have always applied to claims of indirect infringement. See Superior Indus.,

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LLC v. Thor Global Enters. Ltd., 700 F.3d 1287, 1295 (Fed. Cir. 2012) (citing In re Bill of

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Lading Transmission & Processing Sys. Patent Litig. (R+L Carriers, Inc. v. DriverTech LLC ),

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681 F.3d 1323, 1336 (Fed. Cir. 2012)) (noting that only claims of direct infringement, not claims

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of indirect infringement, could be pled using Form 18). Although Form 18 formerly applied to

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claims of direct infringement, obviating the Twombly/Iqbal pleading standard for such claims if

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the form was used, both Form 18 and Civil Rule 84 (authorizing the form) were deleted from the

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Civil Rules in 2015, extinguishing the exception to the Twombly/Iqbal pleading standard for

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direct infringement claims.

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Local Rule 16.1-6, providing for the initial disclosure of infringement contentions before

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discovery, was adopted no later than 2011, i.e., at a time when Form 18 permitted a direct

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infringement plaintiff to obtain full discovery with a bare-bones pleading that would not survive

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Iqbal and Twombly. As in other districts with similar local rules, “[b]y requiring the party

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claiming invalidity to flesh out and support its invalidity contentions early on, the Patent Local

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Rules fulfill[ed] the function of Twombly and Iqbal.” Wistron Corp. v. Phillip M. Adams &

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Assocs., LLC, 2011 WL 1654466, at *11 (N.D. Cal. Apr. 28, 2011) (Chen, Mag. J.). But the fact

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that certain aspects of Local Rule 16.1-6 may have been rendered redundant via Civil Rule 84’s

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deletion and the resulting application of Iqbal and Twombly to direct infringement claims does

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not mean that the Local Rules may be interpreted so as to abrogate the operation of the Civil

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Rules. See Fed. R. Civ. P. 83(a)(1). The Supreme Court’s interpretation of Civil Rule 8(a)

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requires plausible allegations as to all elements of a cause of action, and the elements of a cause

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of action for direct infringement include each limitation of the patent claim at issue. In any case,

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the current (2016) version of Local Patent Rule 1-6 (the infringement contentions rule) requires

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much more detailed allegations than Iqbal and Twombly do, so it is not redundant to hold

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infringement plaintiffs to the lesser strictures of Civil Rule 8(a) at the pleading stage.

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1.

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Claim 20 of the ‘818 Patent reads in full:

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A game apparatus comprising:

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a wireless transmitter to transmit both an identification code and game control
signals to a processor executing a game, the identification code is used by the
processor to retrieve identification data and authorize game play based at least in
part on an age of a player; and

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The ‘818 Patent

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a plurality of input controls to allow the player to interact with the processor to play
the game.
U.S. Patent No. RE39,818 col. 7, ll. 25–33. Claim 20 contains two elements.
The SAC contains allegations that the Accused Games contain each limitation of Claim

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20 of the ‘818 Patent. (See Second Am. Compl. ¶¶ 34–36). The Court finds that the screen shots

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of the Accused Games incorporated into the SAC may substitute for written allegations of fact

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where the relevant allegations are clearly implied thereby. The first element is sufficiently

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alleged via screenshots (the screenshot includes the well-known symbol for Wi-Fi access at the

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top), implying transmission of an identification code linked to identification data, including age

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(the screenshots indicate that at least a name, username, address, and date of birth must be

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entered to register to play the game). (See id. ¶¶ 34–35). Game control signals are also required

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to play the game (screenshots indicate that players choose sports players via the wireless

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controller), satisfying the second element. (See id. ¶¶ 34, 36). The Court therefore denies the

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motion to dismiss the claim of infringement of the ‘818 Patent.

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2.

The ‘511 Patent

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Claim 16 of the ‘511 Patent reads in full:

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A method comprising:

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opening, by a computer system, a gaming account for a client;

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establishing, by the computer system, an amount of consideration in the gaming
account of the client, in which the money may be used to play games;

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after opening the gaming account and establishing the amount of consideration,
authorizing, by the computer system, the client to access the gaming account from
a computing device by verifying login credentials of the client received from the
computing device;

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determining, by the computer system, a set of events on which the games are based;

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presenting, by the computer system, to the client through the computing device, a
display indicating at least some of the set of event;

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receiving, by the computer system, a first request from the client to enter into a
game based on at least one event;
receiving, by the computer system, a second request from another client to enter
into an opposite side of the game based on the at least one event;

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matching, by the computer system, the first request and the second request in
response to receiving the first offer and the second offer into the game, in which
the game includes a game between the client and the other client;

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forming, by the computer system, one obligation with a gaming operator to pay the
first client for winning the game with the client and forming one other obligation
with the gaming operator to pay the second client for winning the game with the
other client; and

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managing, by the computer system, the amount of consideration in the wagering
account credits based on placement of the one or more wagers and outcomes of the
one or more wagers.

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U.S. Patent No. 8,641,511 col. 13, l. 17–col. 14, l. 37. Claim 16 contains ten elements. See id.

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The SAC contains allegations that the Accused Games contain each limitation of Claim

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16 of the ‘511 Patent. (See Second Am. Compl. ¶¶ 45–54). The Court finds that the screen shots

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of the Accused Games incorporated into the SAC may substitute for written allegations of fact

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and that the relevant allegations are clearly implied thereby. The SAC sufficiently alleges that

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the Accused Games contain each element of Claim 16. (See id.).

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3.

The ‘166 Patent

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Claim 39 of the ‘166 Patent reads in full:

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A system for establishing a wager associated with a gaming application,
comprising:

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a server that hosts a gaming application for a plurality of users;

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a processor remotely coupled to the server that:

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receives a wager offer generated by a first user, wherein the wager offer is
associated with the gaming application;

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presents the wager offer to a plurality of second users;

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receives a wager acceptance by a second user, the wager offer and the wager
acceptance combining to form a wager between the first user and the second
user; and

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generates a wager record in response to receiving the wager acceptance, the
wager record associated with the wager between the first user and the
second user and comprising a plurality of wager parameters; and

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a memory coupled to the processor that stores the wager record according to a
wager record identifier.

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U.S. Patent No. 6,884,166 col. 23, l. 55–col. 24, l. 6. Claim 39 contains three elements, the

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second of which contains four sub-elements. See id.

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The SAC contains allegations that the Accused Games contain each limitation of Claim

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39 of the ‘166 Patent. (See Second Am. Compl. ¶¶ 63–68). The Court finds that the screen shots

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of the Accused Games incorporated into the SAC may substitute for written allegations of fact

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and that the relevant allegations are clearly implied thereby. The SAC addresses the first and

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second elements, (id. ¶ 64), the sub-elements of the second element, (id. ¶¶ 65–67), and the third

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element, (see id. ¶ 68). Although Plaintiffs do not have access to Defendant’s equipment, it is a

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fair allegation based on the screen shots of the Accused Games that they are operated by means

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of a processor coupled to a server and a memory.

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B.

Patentability of the ‘511 and ‘166 Patents

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Movants argue that the ‘511 and ‘166 Patents are patent-ineligible under Alice Corp. Pty.

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Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014). Plaintiffs respond that they disagree and wish to

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preserve their right to appeal but are content for the Court to rule that these Patents are patent-

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ineligible under § 101, consistent with the Court’s ruling in Case No. 2:16-cv-781. The Court so

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rules, for the reasons given in that case.

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C.

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Plaintiffs allege:

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FanDuel has been aware of at least the RE’818, ‘511, and ‘166 patents since
receiving notice on or about July 15, 2014. FanDuel was also made aware of the
’058, ’518, and ’952 patents as early as the filing of the First Amended Complaint
(ECF No. 31). FanDuel’s continued offer, use, and promotion of its infringing
platforms constitutes willful and egregious infringement behavior.

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(Second Am. Compl. ¶ 121; Notice Letter, July 15, 2014, ECF No. 31-1 (accusing Defendant of

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infringement of, inter alia, the RE’818, ‘511, and ‘166 Patents, but not the ’058, ’518, or ’952

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Willful Infringement of the ‘058, ‘518, and ‘952 Patents

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Patents)). The date of an alleged infringer’s knowledge of his infringement of asserted patents is

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crucial to allegations of willfuness:

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[I]n ordinary circumstances, willfulness will depend on an infringer’s prelitigation
conduct. It is certainly true that patent infringement is an ongoing offense that can
continue after litigation has commenced. However, when a complaint is filed, a
patentee must have a good faith basis for alleging willful infringement. So 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
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. Similarly, if
a patentee attempts to secure injunctive relief but fails, it is likely the infringement
did not rise to the level of recklessness.

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In re Seagate Tech., LLC, 497 F.3d 1360, 1374 (Fed. Cir. 2007) (en banc) (citations omitted). In

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re Seagate Tech. has been vacated based on a rejection of the rule that willful infringement

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necessarily requires objective recklessness. See Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct.

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1923 (2016). But the above analysis as to the timing of allegations of willfulness (whatever the

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standard of willfulness) is a remedies issue, not an issue concerning the substantive standards of

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willfulness, and it presumably remains valid based on the independent authorities directly cited

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in In re Seagate. See, e.g., Radware, Ltd. v. F5 Networks, Inc., No. 5:13-cv-2024, 2016 WL

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4427490, at *6 (N.D. Cal. Aug. 22, 2016). Although a willful infringement plaintiff need no

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longer allege objective recklessness, he must allege some “egregious . . . misconduct,” Halo

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Elecs., Inc., 136 S. Ct. at 1935, occurring before the initial claim of infringement was filed,

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otherwise his remedy will ordinarily be limited to a preliminary injunction.

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The FAC (the first version of the Complaint alleging infringement of the ’058, ’518, and

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’952 Patents) was filed on June 13, 2016. The Court finds that Plaintiffs have not sufficiently

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alleged willful infringement of those Patents by reference to a pre-suit Notice Letter that did not

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identify them but only other patents that were “part of a much larger portfolio.” Nor are the

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allegations of infringement in the FAC sufficient to support allegations of willful infringement in

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the SAC. If Plaintiffs believe Defendant’s post-FAC conduct with respect to the ’058, ’518, and

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’952 Patents has been reckless, the proper remedy is to ask the Court for a preliminary

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injunction, not to simply seek enhanced damages via the SAC. See 35 U.S.C. § 283; Fed. R. Civ.

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P. 8; Amazon.com, Inc. v. Barnesandnoble.com, Inc., 239 F.3d 1343, 1350 (Fed. Cir. 2001). The

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Court dismisses the willful infringement claim as to the ’058, ’518, and ’952 Patents, this time

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without leave to amend.
CONCLUSION

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IT IS HEREBY ORDERED that the Motion to Dismiss (ECF No. 88) is GRANTED IN

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PART and DENIED IN PART. The Court will not dismiss the claim of infringement (or willful

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infringement) of the ‘818 Patent, but the motion is otherwise granted.

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IT IS SO ORDERED.
Dated this 28th 4, 2017.
January day of December, 2016.

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_____________________________________
ROBERT C. JONES
United States District Judge

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