CG Technology Development, LLC et al v. Zynga, Inc.
Filing
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ORDER granting in part and denying in part ECF No. 65 Motion to Dismiss, with leave to amend within 30 days. Signed by Judge Robert C. Jones on 2/17/2017. (Copies have been distributed pursuant to the NEF - KR)
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UNITED STATES DISTRICT COURT
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DISTRICT OF NEVADA
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CG TECHNOLOGY DEVELOPMENT, LLC
et al.,
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2:16-cv-00859-RCJ-VCF
Plaintiffs,
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vs.
ORDER
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ZYNGA, INC.,
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Defendant.
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This case arises out of the alleged infringement of eight patents relating to online
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gambling. Pending before the Court is Defendant Zynga, Inc.’s Motion to Dismiss. (ECF No.
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65.) For the reasons given herein, the motion is granted in part and denied in part.
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I.
FACTS AND PROCEDURAL HISTORY
Plaintiff CG Technology Development, LLC (“CG Tech”) is a wholly owned subsidiary
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of non-party CG Technology, L.P. (“CG”), which provides technology solutions for lottery,
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gaming, racing, and sports wagering. (Am. Compl. ¶ 2, ECF No. 64.) “[CG] specializes in
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providing secure, scalable, mobile technology and risk management solutions to integrated
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resorts, gaming partners, race and sports books, and lottery industries.” (Id.) CG and CG Tech
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produce mobile phone applications for real-money and social casino gaming, as well as account-
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based wagering systems. (Id.).
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CG Tech is the assignee of U.S. Patent No. RE39,818. Plaintiff Interactive Games
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Limited (“IG Ltd”) is the assignee of U.S. Patent Nos. 6,899,628; 6,979,267; 8,342,924;
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7,029,394; 9,111,417; and 6,966,832. Plaintiff Interactive Games LLC (“IG LLC”) is the
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assignee of U.S. Patent No. 7,534,169. Plaintiffs sued Defendant Zynga, Inc. (“Defendant”) in
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this Court for direct, indirect, and willful infringement via operation of its various online casino
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games. On October 13, 2016, the Court granted Defendant’s motion to dismiss Plaintiffs’
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original Complaint, (ECF No.1), finding that (1) the ‘628, ‘267, ‘924, ‘394, ‘417, ‘832, and ‘169
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Patents are patent-ineligible under 35 U.S.C. § 101 and Alice Corp. Pty. v. CLS Bank lnt’l, 134 S.
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Ct. 2347 (2014); and (2) the ‘818 Patent is patent-eligible, but Plaintiffs had failed to state a
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plausible claim of relief. 1 (See Order, ECF No. 54.)
Plaintiffs have now amended their Complaint, asserting claims for direct, induced, and
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contributory infringement, as well as willful infringement of the ‘818 Patent. (Am. Compl., ECF
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No. 64.) Defendant moves again for dismissal. (Mot. Dismiss, ECF No. 65.)
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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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1 As noted in its order granting Defendant’s first motion to dismiss, (ECF No. 54), the Court has already given full
consideration to the patent-eligibility of the ‘818 Patent under Section 101, and has determined that the ‘818 Patent
is patent-eligible. Although Defendant raises this issue again in the instant motion, the Court will not reconsider or
revisit its prior ruling.
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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).
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“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).
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III.
ANALYSIS
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a. Direct Infringement of the ‘818 Patent
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The ‘818 Patent claims “[a] video game system . . . which includes a wireless game
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controller which stores information about the user of the controller.” (‘818 Patent Abstract, ECF
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No. 64-2 at 3.) The ‘818 Patent has thirteen independent claims and twenty dependent claims.
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(See id. at 5:40–8:64, ECF No. 64-2 at 9–10.) Plaintiffs allege infringement of “at least claims 1,
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16, 20, 21, 24, 31, and 32.” (Am. Compl. ¶ 20, ECF No. 64.) The Amended Complaint focuses
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solely on the alleged infringement of Claim 20 “by way of example,” although the Court finds
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that all of the asserted claims broadly contain certain essential elements: (1) a game controller or
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hand-held device, (2) which wirelessly transmits information (3) to a processor executing a
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game, (4) which authorizes game play based at least in part on the age of the player. (See ‘818
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Patent 5:40–59, 6:61–7:10, 7:25–40, 7:46–54, 8:34–49, ECF No. 64-2 at 9–10.)
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Here, after amendment, Plaintiffs’ claim of direct infringement of the ‘818 Patent is
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sufficient to survive the motion to dismiss. The allegations, including screenshots of Defendant’s
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online casino games, descriptions of how Defendant’s products allegedly work, and assertions of
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testing, use, and demonstration of the ‘818 Patent, are enough to make Plaintiffs’ legal theory
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clear and definite: By using smartphones, tablets, or personal computers to test its products and
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demonstrate them at promotional events, Defendants infringed the ‘818 Patent. Under this
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theory, these various electronic devices would constitute the “controllers” described in the
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Patent, and would wirelessly transmit information to a remote processor executing Defendant’s
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casino games. Plaintiffs have specifically and plausibly pled Defendant’s use of the ‘818 Patent
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in testing, promoting, and demonstrating its products, and the screenshots are enough to show
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that game play is indeed authorized “based at least in part on the age of the player,” and that “a
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plurality of input controls . . . allow the player to interact with the processor.” (See Am. Compl.
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¶¶ 34–35, ECF No. 64.) Indeed, Plaintiffs specifically allege that prior to gameplay, “each user
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must confirm they are at least 13 years of age to create and register an account with Zynga by
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agreeing to Zynga’s Terms of Service.” (Id. at ¶ 34.) After confirming their age and registering
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an account, users must enter a unique username and password to log in and play, which could
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reasonably constitute the “identification code” required by the ‘818 Patent’s claims.
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Furthermore, Defendant’s development and distribution of integrated software (i.e., apps) for
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various mobile devices gives rise to a plausible claim that Defendant adopted the “controllers”
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used by its customers to play Defendant’s games. Therefore, Plaintiffs’ allegations are
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sufficiently pled to state a claim of direct infringement of at least Claim 20, and the Court denies
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the motion to dismiss Plaintiffs’ claim of direct infringement of the ‘818 Patent.
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b. Induced and Contributory Infringement of the ‘818 Patent
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“In contrast to direct infringement, liability for inducing infringement attaches only if the
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defendant knew of the patent and that the induced acts constitute patent infringement.” Commil
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USA, LLC v. Cisco Sys., Inc., 135 S. Ct. 1920, 1926 (2015) (citation omitted). “Like induced
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infringement, contributory infringement requires knowledge of the patent in suit and knowledge
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of patent infringement.” Id. Accordingly, proving either induced or contributory infringement
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“requires proof the defendant knew the acts were infringing.” Id. at 1928. In other words, if a
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defendant makes the conclusion that its acts are non-infringing, and that conclusion is based on a
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reasonable reading of the patent, the defendant will not be liable for induced or contributory
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infringement for acts based on such reasonable reading, even if it is later established that the
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defendant’s acts did in fact infringe the patent. See id.
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Here, Plaintiffs allege that Defendant has had knowledge of the ‘818 Patent since
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September 23, 2014, when Defendant was sent a letter notifying it of its allegedly infringing use.
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(Am. Compl. ¶ 27, ECF No. 64.) Therefore, any surviving claim of induced or contributory
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infringement of the ‘818 Patent must be limited in scope to conduct occurring after Defendant
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received the September 23, 2014 notice. See Silver State Intellectual Techs., Inc. v. FourSquare
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Labs, Inc., No. 2:12-CV-01308-GMN, 2013 WL 5437363, at *3 (D. Nev. Sept. 26, 2013).
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With that said, the Court finds that Plaintiffs have sufficiently pled their claims of
induced and contributory infringement of the ‘818 Patent.
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Induced Infringement
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To survive a motion to dismiss, a plaintiff asserting induced infringement must plead (1)
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that the defendant had “knowledge of the existence of the patent that is infringed,” Global–Tech
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Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060, 2068 (2011), and (2) “facts that plausibly establish
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that the accused infringer ‘specifically intended their customers to infringe the [asserted] patent
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and knew that the customers’ acts constituted infringement,’” Silver State, 2013 WL 5437363, at
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*4 (quoting In re Bill of Lading Transmission and Processing Sys. Patent Litigation, 681 F.3d
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1323, 1336 (Fed. Cir. 2012)). First, Plaintiffs have plausibly alleged that Defendant has had
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knowledge of the ‘818 Patent since September 23, 2014. (Am. Compl. ¶ 27, ECF No. 64.)
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With respect to the element of Defendant’s intent, Plaintiffs have alleged that Defendant
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directs, promotes, encourages, and causes its customers to use its products “in a manner that it
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knows infringes the ‘818 Patent.” (Am. Compl. ¶ 24, ECF No. 64.) In so doing, Defendant
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“provid[es] detailed instructions to its customers through training videos, demonstrations,
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brochures, installation and/or user guides explaining how to use its social casino platform, and
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(2) tout[s] and advertis[es] features of its social casino games to its customers.” (Id. (citations
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omitted).) In Bill of Lading, the Federal Circuit reversed an order of dismissal because it was
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“more than reasonable to infer that [defendant] intended to induce its customers to use its
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products to practice the patented method and did so with knowledge of the patent.” 681 F.3d at
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1341. Such is the case here as well. Defendant was made aware of the ‘818 Patent by the
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September 23, 2014 letter and has continued to market its social casino games to its customers.
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Defendant makes much of the fact that it doesn’t produce or sell any physical, tangible
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components. However, Defendant specifically induces its customers to couple its social casino
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games with tangible components (i.e., mobile phones and/or computers) in a way that implicates
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all of the elements of certain of the ‘818 Patent’s claims. Therefore, Plaintiff’s allegations are
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sufficient to raise the plausible inference of induced infringement. See id. at 1339–40 (stating
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that a plaintiff is not required to “prove its case at the pleading stage,” and that all reasonable
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inferences must be drawn in the plaintiff’s favor).
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ii.
Contributory Infringement
Similarly, a plaintiff asserting contributory infringement must plead (1) again, knowledge
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of the existence of the patent, and (2) “facts from which the Court can infer that the accused
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device has no substantial non-infringing uses.” Silver State, 2013 WL 5437363, at *4. Here,
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Plaintiff has not only adequately pled knowledge based on the September 23, 2014 letter, but has
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also plausibly pled that the online casino game products Defendant marketed and sold to its
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customers have no substantial non-infringing uses. Plaintiffs’ theory of the case is that
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smartphones, tablets, and personal computers, with which Defendant’s games are meant to be
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played, constitute the “controllers” described in the ‘818 Patent, which wirelessly transmit
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information to a remote processor executing Defendant’s casino games, and that Defendant’s
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games authorize play based on the age of the player. In order to play Defendant’s games,
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Defendant’s customers are required to use one of these “controllers”; there is no way to use
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Defendant’s allegedly infringing products without such a device. Therefore, if Defendant’s use
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and testing of its online casino games actually infringes the ‘818 Patent—that is to say, if
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Plaintiffs’ theory of the case is successful—then any customer use of Defendant’s games would
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necessarily infringe as well.
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Therefore, the motion to dismiss the claims of induced and contributory infringement is
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granted with respect to Defendant’s conduct prior to September 23, 2014, but denied with respect
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to Defendant’s conduct thereafter.
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c. Willful Infringement of the ‘818 Patent
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Lastly, Defendant argues that Plaintiffs have failed to state a claim of willful
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infringement. In In re Seagate Tech., LLC, 497 F.3d 1360 (Fed. Cir. 2007), the Federal Circuit
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established a two-part test for determining whether infringement is willful. Under the Seagate
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test, a patentee was required to “show by clear and convincing evidence that the infringer acted
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despite an objectively high likelihood that its actions constituted infringement of a valid patent.”
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Id. at 1371. In addition, the patentee also had to “demonstrate that this objectively-defined risk
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(determined by the record developed in the infringement proceeding) was either known or so
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obvious that it should have been known to the accused infringer.” Id.
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On June 13, 2016, the Supreme Court abrogated the Seagate test in Halo Elecs., Inc. v.
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Pulse Elecs., Inc., 136 S. Ct. 1923 (2016). In Halo, the Court held that the Seagate opinion
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properly recognized “that enhanced damages are generally appropriate under § 284 only in
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egregious cases”; however, the Seagate test “is unduly rigid, and it impermissibly encumbers the
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statutory grant of discretion to district courts.” Id. at 1932. Specifically, the Court found that
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requiring a finding of objective recklessness in every case “excludes from discretionary
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punishment many of the most culpable offenders, such as the ‘wanton and malicious pirate’ who
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intentionally infringes another’s patent—with no doubts about its validity or any notion of a
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defense—for no purpose other than to steal the patentee’s business.” Id. The Court also
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determined that no basis exists for imposing a standard of clear and convincing evidence to
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prove recklessness. Id. at 1934.
The Supreme Court emphasized the discretion of district courts in awarding enhanced
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damages in patent cases while noting that there are “longstanding considerations” limiting such
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discretion. Id. Those considerations restrict “the award of enhanced damages to egregious cases
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of misconduct beyond typical infringement.” Id. at 1935. In a concurring opinion, Justice Breyer
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added that “the Court’s references to ‘willful misconduct’ do not mean that a court may award
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enhanced damages simply because the evidence shows that the infringer knew about the patent
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and nothing more.” Id. at 1936 (Breyer, J., concurring) (emphasis in original).
Under Halo, Plaintiffs have failed to state a claim for willful infringement because they
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have failed to allege any facts suggesting that Defendant’s conduct is “egregious . . . beyond
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typical infringement.” Id. at 1935. Plaintiffs have simply made the conclusory allegations that
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Defendant was aware of the ‘818 Patent and that the “continued offer, use, and promotion of its
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infringing social casino products . . . constitutes willful and egregious infringement behavior.”
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(Am. Compl. ¶ 40, ECF No. 64.) As Justice Breyer stated, merely asserting that Defendant knew
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about the patent and continued its allegedly infringing activity is not enough to constitute willful
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infringement.
Therefore, the Court grants Defendant’s motion to dismiss the claim of willful
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infringement, with leave to amend.
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CONCLUSION
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IT IS HEREBY ORDERED that the Motion to Dismiss (ECF No. 65) is GRANTED IN
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PART AND DENIED IN PART, with leave to amend within 30 days of the entry of this order.
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IT IS SO ORDERED.
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_____________________________________
ROBERT C. JONES
United States District Judge
DATED: This 17th day of February, 2017.
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