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Delphix Corp. v. Actifo, Inc.

United States District Court, N.D. California, San Francisco Division

March 19, 2014

DELPHIX CORP., Plaintiff,
v.
ACTIFO, INC., Defendant.

ORDER GRANTING MOTION TO DISMISS SECOND AMENDED COMPLAINT, WITH LEAVE TO AMEND

RICHARD SEEBORG, District Judge.

In this patent infringement action, defendant Actifo, Inc. seeks dismissal of those portions of the Second Amended Complaint in which plaintiff Delphix Corp. advances claims for willful infringement and indirect infringement. Pursuant to Civil Local Rule 7-1(b), the motion is suitable for disposition without oral argument, and the hearing set for March 20, 2014 is vacated.

The crux of the present dispute is whether Delphix has pleaded sufficient facts to show Actifo had pre-suit knowledge of the patents.[1] Delphix insists it has set out facts establishing either that Actifo had actual prior knowledge of the patents-in-suit or that Actifo was willfully blind. It relies on (1) averments that Actifo's founder and CEO, Ash Ashutosh, was previously a Delphix board member, who took an interest in its patent portfolio, (2) claims that Actifo representatives attended trade shows where marked Delphix products were displayed, and (3) assertions that Actifo representatives made comparisons to its customers between its products and those of Delphix.

Actifo responds that Ashutosh resigned from Delphix before the applications underlying the patents-in-suit had even been filed, and that the allegations are otherwise conclusory and/or implausible. Actifo points to the decision in Vasudevan Software, Inc. v. TIBCO Software Inc., No. C 11-06638 RS, 2012 WL 1831543 (N.D. Cal. May 18, 2012), in which conclusory averments of actual knowledge or willful blindness were found to be insufficient.

To distinguish Vasudevan, and similar cases, Delphix relies primarily on its allegation that Ashutosh "has continued to track the development of Delphix's patent portfolio" subsequent to his resignation from the board.[2] The shortcoming in Delphix's position is that it has chosen to cabin that particular allegation as being made "on information and belief." Despite the common appearance of that phrase in practice, it is not a recognized pleading device under the rules. Rather, Rule 11(b) of the Federal Rules of Civil Procedure provides that by submitting a pleading to the court, the signatory is always certifying that, "to the best of the person's knowledge, information, and belief, formed after an inquiry reasonable under the circumstances... the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery."

Thus, the phrase "on information and belief" at best would constitute surplusage. Where, as here, some of the allegations are qualified with the phrase and others are not, a reasonable inference arises that it is intended as caveat, to provide additional protection should plaintiff be unable to While Actifo urges the court to reconsider the issue in light of decisions from other districts, the issue will not arise unless Delphix is unable to plead pre-suit knowledge. prove any of the factual allegations.[3] It thus creates a further inference that plaintiff likely lacks knowledge of underlying facts to support the assertion, and is instead engaging in speculation to an undue degree. As such, even though the phrase is technically surplusage that could simply be disregarded in an appropriate case, here it undermines Delphix's argument that the facts it has pleaded are sufficient to support a plausible inference of pre-suit knowledge. Compare also Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1330 (Fed. Cir. 2009) ("Pleading on information and belief' is permitted under Rule 9(b) when essential information lies uniquely within another party's control, but only if the pleading sets forth the specific facts upon which the belief is reasonably based.")

Because Delphix is relying so heavily on its assertions regarding Ashutosh to support a plausible inference of either actual knowledge or willful blindness, it must be willing to make those averments without caveat and/or with additional detail explaining the basis of its beliefs. Delphix, of course, remains free to invoke the provision of Rule 11 that permits a party specifically to identify averments as ones which it in good faith believes, "will likely have evidentiary support after a reasonable opportunity for further investigation or discovery." The Second Amended Complaint, however, does not do so.

Accordingly, the motion to dismiss is granted, with leave to amend.[4] Any amended complaint shall be filed within 20 days of the date of this order.

IT IS SO ORDERED.


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