I/P Engine, Inc. v. AOL, Inc. et al

Filing 294

Memorandum in Support re 293 MOTION to Dismiss all Claims Against AOL Inc., Gannett Co., Inc., IAC Search & Media, Inc. and Target Corporation filed by AOL Inc., Gannett Company, Inc., IAC Search & Media, Inc., Target Corporation. (Noona, Stephen)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF VIRGINIA
NORFOLK DIVISION
I/P ENGINE, INC.
Plaintiff,

Civil Action No. 2:11-cv-512

v.
AOL INC., et al.,
Defendants.

DEFENDANTS’ MEMORANDUM IN SUPPORT OF THEIR MOTION TO DISMISS
ALL CLAIMS AGAINST AOL INC., GANNETT CO., INC., IAC SEARCH & MEDIA,
INC., AND TARGET CORPORATION
Introduction
Pursuant to Federal Rule of Civil Procedure 12(b)(1), Defendants AOL Inc., Gannett Co.,
Inc., IAC Search & Media, Inc., and Target Corporation move to dismiss all claims against them.
For these Defendants, there is no actual “case” or “controversy” necessary for subject matter
jurisdiction. Specifically, Plaintiff I/P Engine, Inc. has failed to identify any “injury in fact” that
the Court may redress. I/P Engine has never sought an injunction with respect to any of the
Defendants in this case. And in its contentions and expert reports, I/P Engine seeks damages only
from Google, and not from any of the other Defendants. Without any request for a remedy or
cognizable relief from the Court, there is no injury in fact, and I/P Engine has no standing to
maintain its claims against these Defendants. Thus, there is no subject matter jurisdiction, and all
claims against AOL, Gannett, IAC, and Target should be dismissed with prejudice.
Legal Standard
Article III, § 2 of the Constitution limits the jurisdiction of federal courts to matters
involving actual “Cases” or “Controversies.” WiAV Solutions LLC v. Motorola, Inc., 631 F.3d

1257, 1263-64 (Fed. Cir. 2010). “The doctrine of constitutional standing serves to identify
which disputes fall within these broad categories and therefore may be resolved by a federal
court.” Id. at 1264 (citing Elk Grove Unified Sch. Dist. v. Newdow, 542 U.S. 1 (2004); Lujan v.
Defenders of Wildlife, 504 U.S. 555 (1992)).
Standing requires “at an irreducible minimum an injury in fact.” Biotechnology Indus.
Org. v. Dist. of Columbia, 496 F.3d 1362, 1370 (Fed. Cir. 2007) (quoting Virginia v. Am.
Booksellers Ass’n, 484 U.S. 383, 392 (1988)). An injury in fact is a harm that must be (1)
“‘concrete’ and actual or imminent, not ‘conjectural’ or ‘hypothetical,’” (2) “‘fairly traceable’ to
the defendant’s conduct,” and (3) “redressable by a favorable decision.” Prasco, LLC v. Medicis
Pharm. Corp., 537 F.3d 1329, 1338 (Fed. Cir. 2008) (quoting Steel Co. v. Citizens for a Better
Env’t, 523 U.S. 83 (1998)). “Thus, the touchstone of constitutional standing in a patent
infringement suit is whether a party can establish that it has an exclusionary right in a patent that,
if violated by another, would cause the party holding the exclusionary right to suffer legal injury.
WiAV Solutions, 631 F.3d at 1265.
The question of standing is essential to subject matter jurisdiction. As such, it is not
subject to waiver, and any party, and even the court sua sponte, may raise the issue for the first
time at any stage of the litigation. FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 230-31 (1990)
(issue of standing raised sua sponte on appeal to Supreme Court); Apple, Inc. v. Motorola, Inc.,
1:11-CV-08540, 2012 WL 2376664 (N.D. Ill. June 22, 2012) (dismissing sua sponte a patent
infringement case based on the parties’ failure to establish any admissible evidence of an injury
in fact). Therefore, if standing is found to be lacking, the case must be dismissed. See Fed. R.
Civ. P. 12(h)(3). “The burden of demonstrating standing falls to [the plaintiff] . . . .” Ortho
Pharm. Corp. v. Genetics Inst., Inc., 52 F.3d 1026, 1032 (Fed. Cir. 1995) (citations omitted).

Argument
In this case, I/P Engine has failed to allege any injury in fact with respect to AOL,
Gannett, IAC, and Target. I/P Engine has never sought an injunction with respect to any
activities of any of the Defendants. And I/P Engine’s damages contentions are directed only to
Google. There are no compensable damages traceable to any other Defendant. Without the
requisite injury in fact, I/P Engine lacks standing to bring its claims against AOL, Gannett, IAC,
and Target. Accordingly, the claims against these Defendants should be dismissed for lack of
subject matter jurisdiction.
In the Complaint, filed on September 15, 2011, I/P Engine “seeks compensatory
damages” for alleged patent infringement. (D.N. 1, ¶ 1; see also id., ¶¶ 103-104, 133-134,
Prayer for Relief ¶ 2.) Specifically, I/P Engine alleges that Google’s search advertising systems
– such as AdWords and AdSense for Search – infringe the asserted patents. (Id., ¶ 44.) I/P
Engine further alleges that Google uses certain systems – such as AdSense for Search – to serve
ads for websites operated by each of the Defendants. (Id., ¶¶ 45, 57-58, 69, 75, 77.)
I/P Engine does not seek an injunction against any Defendant. (See D.N. 1, Prayer for Relief.)1
During fact and expert discovery, I/P Engine only identified an injury in fact traceable to
Google’s operation of its accused systems. As compensation for this alleged injury, IP Engine
claims damages in the form of a reasonable royalty from Google, and not from any of the other
Defendants. The expert report of I/P Engine’s expert, Stephen L. Becker, sets forth I/P Engine’s
damages theory. (See Declaration of Emily C. O'Brien in Support of Defendants’ Motion to

1

In the Complaint, I/P Engine also accused AOL’s Advertising.com Sponsored Listings
and IAC’s Ask Sponsored Listings of separately infringing the asserted patents. (D.N. 1 at ¶¶
55-56, 68.) I/P Engine and AOL subsequently settled the claims regarding Advertising.com
Sponsored Listings. (See D.N. 202.) And during discovery, I/P Engine agreed to withdraw its
claims against IAC’s Ask Sponsored Listings. (D.N. 203.)

Exclude, Ex. 1 (7/25/12 Expert Report of Stephen L. Becker, Ph.D. (“Becker Report”)),
¶ 11(b).) Dr. Becker bases his calculation of a reasonable royalty on a hypothetical negotiation
in 2004 between Google and Lycos Inc. (the predecessor in interest to the patents in suit). (Id.,
¶ 11(b).) In the context of this hypothetical negotiation, Dr. Becker determines a royalty base
that is calculated using Google’s incremental revenue generated from the accused systems –
AdWords, AdSense for Search, and AdSense for Mobile. (Id., ¶ 11(d), Ex. SLB-1.) He also
identifies a royalty rate that he contends Google would have been willing to pay to license the
asserted patents. (Id, ¶ 11(e).) Applying this rate to the royalty base, Dr. Becker calculates the
amount of damages that he contends Google owes I/P Engine for the alleged infringement. (Id.,
¶ 11(f).) As Dr. Becker explains in his expert report, a license resulting from this hypothetical
negotiation would cover “not only Google, but Google customers, such as AOL, IAC, Gannett
and Target, for whom Google served search-based ads through the accused Google Systems.”
(Id., ¶11(b).) And Dr. Becker identifies the figures in his Reasonable Royalty Summary as
“inclusive of AdSense for Search revenues (and associated damages) that Google shares with
published websites such as co-defendants AOL, IAC, Gannett, and Target.” (Id., ¶ 191.)
Nowhere in his report does Dr. Becker undertake a separate damages analysis for any of
the other Defendants. He does not perform a reasonable royalty calculation based on a separate
hypothetical negotiation involving any other Defendant. And he does not base any damages
claim on any revenue from any Defendant, other than Google.2
At most, in his report, Dr. Becker attempts to allocate Google’s revenue by website. He
calculates the portion of Google damages attributable to the Google revenue he believes is

2

Additionally, I/P Engine does not contend that any other Defendant is jointly and
severally liable for the damages attributed to Google’s operation of its accused systems. Indeed,
I/P Engine has no factual or legal basis to do so.

derived from serving advertisements to each of the other Defendants’ websites. (Becker Report,
¶ 191.) And he reports those calculations in charts titled “Accused Revenue, Royalty Base and
Reasonable Royalty Detail” for AOL, Gannett, IAC, and Target. (Id., Ex. SLB-2A.) But this
allocation of Google revenue is not the basis for a separate claim for damages. Indeed, Dr.
Becker explicitly notes that “the damages reflected in [the allocation] in Exhibit SLB-2a are not
additive with the overall damages reflected in [his calculation of total damages] in Exhibit SLB1. (Id., ¶ 191 n.245 (emphasis in original).) Accordingly, this analysis is merely an
apportionment of Google revenue that Dr. Becker attributes to Google’s partnerships with the
other Defendants. These amounts are already captured in Dr. Becker’s royalty base and his
calculation of reasonable royalty damages against Google.
Moreover, in response to interrogatories asking for I/P Engine’s damages contentions
with respect to Gannett, IAC, and Target, I/P Engine provided no additional allegations. Instead,
I/P Engine merely incorporated by reference the expert report of Dr. Becker.3 But as Dr.
Becker’s report makes plain, I/P Engine claims damages from Google only. He does not make
any separate claim for damages against any other Defendant. Without any alleged damages
traceable to AOL, Gannett, IAC, and Target, there is no injury in fact, and the claims as to these
Defendants should be dismissed.
I/P Engine’s damages contentions are not surprising. If Google pays a reasonable royalty
for the use of the accused systems to serve advertisements on its website as well as the websites
of the other Defendants, I/P engine has been fully compensated for the alleged infringement.

3

See Kammerud Dec., Ex. A, Plaintiff I/P Engine, Inc.’s Responses and Objections to
Defendant Gannett Company, Inc.’s First Set of Interrogatories; Kammerud Dec., Ex. B, Plaintiff
I/P Engine, Inc.’s Responses and Objections to Defendant IAC Search & Media, Inc.’s First Set
of Interrogatories; Kammerud Dec., Ex. C, Plaintiff I/P Engine, Inc’s Responses and Objections
to Defendant Target Corp.’s First Set of Interrogatories.

Seeking additional damages from the other Defendants would be double dipping by claiming
damages twice – once against Google and again against the other Defendants – for the same
allegedly infringing activity.
Earlier this year, Judge Posner, sitting by designation in the Northern District of Illinois,
dismissed with prejudice a similar patent infringement case for lack of subject matter jurisdiction
because the parties had failed to identify admissible evidence necessary to prove monetary
damages or justify injunctive relief. See Apple, Inc. v. Motorola, Inc., 1:11-CV-08540, 2012 WL
2376664 (N.D. Ill. June 22, 2012). In that case, Judge Posner excluded the opinions of damages
experts for both Apple and Motorola as unreliable under Daubert v. Merrell Dow Pharms., Inc.,
509 U.S. 579 (1993). Apple, 2012 WL 2376664 at *1-*11. And he determined that neither party
was entitled to an injunction. Id. at *12-*22. In light of those rulings, Judge Posner dismissed
the case with prejudice because neither party could establish a cognizable basis for relief. Id. at
*23. He concluded that – even assuming the asserted patents were valid and infringed – the
inability to prove an injury in fact arising from any accused activities warranted dismissal with
prejudice. Id. (“It would be ridiculous to dismiss a suit for failure to prove damages and allow
the plaintiff to refile the suit so that he could have a second chance to prove damages.”).
Similarly, here, Plaintiff has failed to identify any evidence in its contentions or expert reports of
any injury in fact against Defendants AOL, Gannett, IAC, and Target, as it is required to do.
Thus, there is no subject matter jurisdiction, and the claims against these Defendants should be
dismissed with prejudice.
Conclusion
For the foregoing reasons, Defendants respectfully request that the Court dismiss with
prejudice Plaintiff’s claims against Defendants AOL, Gannett, IAC, and Target for lack of
subject matter jurisdiction.

DATED: September 21, 2012

/s/ Stephen E. Noona
Stephen E. Noona
Virginia State Bar No. 25367
KAUFMAN & CANOLES, P.C.
150 West Main Street, Suite 2100
Norfolk, VA 23510
Telephone: [phone]
Facsimile: [phone]
[e-mail]
David Bilsker
David A. Perlson
QUINN EMANUEL URQUHART &
SULLIVAN, LLP
50 California Street, 22nd Floor
San Francisco, California 94111
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
Counsel for Google Inc., Target Corporation,
IAC Search & Media, Inc., and Gannett Co., Inc.

By: /s/ Stephen E. Noona
Stephen E. Noona
Virginia State Bar No. 25367
KAUFMAN & CANOLES, P.C.
150 W. Main Street, Suite 2100
Norfolk, VA 23510
Telephone: [phone]
Facsimile: [phone]
Robert L. Burns
FINNEGAN, HENDERSON, FARABOW, GARRETT &
DUNNER, LLP
Two Freedom Square
11955 Freedom Drive
Reston, VA 20190
Telephone: [phone]
Facsimile: [phone]

Cortney S. Alexander
FINNEGAN, HENDERSON, FARABOW, GARRETT &
DUNNER, LLP
3500 SunTrust Plaza
303 Peachtree Street, NE
Atlanta, GA 94111
Telephone: [phone]
Facsimile: [phone]
Counsel for Defendant AOL Inc.

CERTIFICATE OF SERVICE
I hereby certify that on September 21, 2012, I will electronically file the foregoing with
the Clerk of Court using the CM/ECF system, which will send a notification of such filing (NEF)
to the following:
Jeffrey K. Sherwood
Kenneth W. Brothers
DICKSTEIN SHAPIRO LLP
1825 Eye Street NW
Washington, DC 20006
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
Donald C. Schultz
W. Ryan Snow
Steven Stancliff
CRENSHAW, WARE & MARTIN, P.L.C.
150 West Main Street, Suite 1500
Norfolk, VA 23510
Telephone: [phone]
Facsimile: [phone]
[e-mail]
[e-mail]
[e-mail]
Counsel for Plaintiff, I/P Engine, Inc.

/s/ Stephen E. Noona
Stephen E. Noona
Virginia State Bar No. 25367
KAUFMAN & CANOLES, P.C.
150 West Main Street, Suite 2100
Norfolk, VA 23510
Telephone: [phone]
Facsimile: [phone]
[e-mail]

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