United States District Court, N.D. California
ORDER (1) GRANTING DEFENDANT DIGITAL ENTERTAINMENT CONTENT ECOSYSTEM (DECE) LLC's MOTION TO DISMISS AND (2) DENYING DEFENDANT VUDU, INC.'S MOTION TO DISMISS (DKT. NOS. 75, 82-C-14-1220)
EDWARD M. CHEN, District Judge.
Pending before the Court are Defendant VUDU and Defendant DECE's motions to dismiss. The operative complaint is the Second Amended Complaint ("SAC"). Docket No. 70. The SAC alleges direct and indirect infringement of United States Patent 8, 533, 860 (the "860 patent") against VUDU and DECE respectively.
I. FACTUAL & PROCEDURAL BACKGROUND
The patent-in-suit concerns the field of digital rights management ("DRM"). Grecia alleges that the object of the 860 patent is to provide a method for protecting against unlicensed use of digital content, while allowing a consumer of digital media to enjoy his content on multiple devices and to share that content with friends and family. SAC at ¶¶ 8-11. The relevant claims in the 860 patent describe a method or system for DRM authentication using a cloud computing system. Id. Plaintiff Grecia owns the 860 patent. Id. Grecia has sued multiple defendants, including Apple and Sony in the related consolidated matter (the Apple matter, Case No. C-14-0775), for infringement of the same patent claims at issue in this matter: claims 1, 2, 3, 4, 5, 9, and 10.
Grecia's original complaint against VUDU and DECE was dismissed for failure to adequately plead direct infringement under a theory of joint infringement according to the standard articulated in Muniauction, Inc. v. Thomson Corp., 532 F.3d 1318 (Fed. Cir. 2008). Docket No. 60. The initial complaint lacked any factual allegation that a single actor actually performed all the steps or was the "mastermind" who directed and controlled others in the performance of the steps. Id. Grecia's second claim, inducement, was also dismissed, because Grecia had not established the required predicate of direct infringement. Id. At the hearing on VUDU and DECE's initial motion to dismiss held on December 12, 2014, the Court granted leave to amend, but admonished Grecia that failure to amend his complaint to plead his claims sufficiently would lead to dismissal with prejudice. Docket No. 78-1 at 8:6-9.
Grecia then filed the SAC. As with his initial complaint, in the SAC, Grecia alleges two claims of infringement: (1) direct infringement, and (2) inducement of infringement. In the SAC, Grecia eliminated his prior contentions that DECE directly infringes the 860 patent and that DECE induces retailer entities other than VUDU to infringe the 860 patent. In other words, the SAC alleges direct infringement only against VUDU and alleges that DECE induced VUDU to infringe the 860 patent.
In his claim chart, Grecia contends that "VUDU is a movie streaming, digital rental, and digital download service." Docket No. 76-3 at 1-2. In turn, DECE's ecosystem, Ultraviolet, is a cloud-based DRM service that allows users to add digital "proofs of purchase" to their online movie collections. Id. Grecia claims that "VUDU allows users to link their UltraViolet account to their VUDU account to import previously purchased titles." Id. at 6. VUDU allegedly establishes this connection by presenting an Ultraviolet login screen using Ultraviolet's Application Programmable Interface. Id.
According to the SAC, the relationship between VUDU and DECE is governed by a license agreement. SAC at ¶ 20. The SAC alleges that VUDU directly infringed the patent by contracting with DECE for coordinator services. Under DECE's form license agreement, a licensee, such as VUDU, can enroll in various "Ecosystem Roles" within DECE's UltraViolet ecosystem. Docket No. 79-1 at ¶ 1.3. According to the license agreement, the "license" contemplated is a license from DECE to VUDU of DECE's copyrights and trade secrets in and to the UltraViolet Ecosystem Specifications. Docket No. 79-1 at ¶ 2.1. In exchange for this license, the licensee pays DECE fees pursuant to a fee schedule that is referenced, but not included, in the form agreement. Id. at ¶ 1.6.1. The licensee, in turn, agrees to comply with the Ultraviolet Ecosystem Specifications and Compliance Rules. Id. at ¶ 1.2. As to claim 1 of the 860 patent, the SAC alleges that VUDU uses DECE's services to perform the steps of (1) requesting and receiving an identification reference, and (2) writing the identification reference into the metadata.
VUDU argues that the direct infringement claim in the SAC should be dismissed, because (1) the allegation that VUDU directed and controlled DECE is contradicted by Grecia's claim that DECE induces VUDU to infringe; (2) the UltraViolet licensing agreement does not support a finding of direction and control; and (3) the pleadings are conclusory.
DECE challenges the factual sufficiency of Plaintiff's inducement claim. DECE argues that Plaintiff has not sufficiently alleged inducement because there are no non-conclusory allegations that DECE (1) knew of the 860 patent; (2) knowingly induced VUDU to perform infringing acts; or (3) specifically intended to encourage VUDU's direct infringement of the 860 patent. DECE echoes VUDU's argument that it is fundamentally inconsistent to allege that VUDU directs and controls DECE and also that DECE induces VUDU's infringement. And because there can be no inducement without direct infringement, DECE contends that therefore dismissal of Count 2 is proper.
For the reasons stated on the record at the hearing, and as supplemented herein, the Court DENIES VUDU's motion to dismiss and GRANTS DECE's motion to dismiss. The Court, having considered the supplemental briefing of the parties, grants DECE's motion to dismiss with prejudice.
A. Legal Standard
To state a claim for relief, a pleading must contain "a short and plain statement of the claim showing that the pleader is entitled to relief; and a demand for the relief sought." See Fed.R.Civ.P. 8(a)(2). In other words, the Complaint must provide a "defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests." Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001) (citation omitted).
"Dismissal under Rule 12(b)(6) is proper only when the complaint either (1) lacks a cognizable legal theory or (2) fails to allege sufficient facts to support a cognizable legal theory." Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013). A Rule 12(b)(6) motion tests whether plaintiff has sufficiently stated "a claim to relief that is plausible on its face." See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation omitted); Fed.R.Civ.P. 12(b)(6). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Dismissal is therefore proper when the complaint merely contains "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements." Id. Further, "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, " the complaint does not show a plausible claim for relief and should be dismissed. Id. "The plausibility standard is not akin to a probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. In reviewing a motion to dismiss, the court assumes all factual allegations in the complaint are true and views the pleadings in the light most favorable to the plaintiff. See Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).
B. Direct Infringement
"[W]hoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States... infringes the patent." 35 U.S.C. § 271(a). Under the statute, "liability for infringement requires a party to make, use, sell, or offer to sell the patented invention, meaning the entire patented invention." BMC Res., Inc. v. Paymentech, L.P., 498 F.3d 1373 , 1380 (Fed. Cir. 2007) overruled on other grounds by Akamai Technologies, Inc. v. Limelight Networks, Inc., 692 F.3d 1301 (Fed. Cir. 2012).
To prove direct infringement, the patentee must show that the accused device or process reads on each claim limitation. See Warner-Jenkinson Co. v. Hilton Davis Chem. Co., 520 U.S. 17, 40 (1997) (holding that doctrine of equivalents, like literal infringement should be applied on an element-by-element basis); TechSearch, L.L.C. v. Intel Corp., 286 F.3d 1360, 1371 (Fed. Cir. 2002) ("To establish literal infringement, all of the elements of the claim, as correctly construed, must be present in the accused system."). In a method or system invention, such as the inventions taught by the patent-in-suit, a patentee's rights extend only to the claimed combination of steps, and the patent "is not ...