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Max Sound Corporation v. Google, Inc.

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

May 13, 2015

MAX SOUND CORPORATION and VEDANTI SYSTEMS LIMITED, Plaintiffs,
v.
GOOGLE, INC.; YOUTUBE, LLC; and ON2 TECHNOLOGIES, INC., Defendants.

ORDER DENYING MOTION TO DISMISS Re: Dkt. No. 28

EDWARD J. DAVILA, District Judge.

Plaintiff Max Sound Corp. ("Plaintiff") filed the instant patent infringement action against Defendants Google, Inc. ("Google"), YouTube, LLC ("YouTube"), and On2 Technologies, Inc. ("On2") (collectively, "Defendants"). Most recently, Plaintiff added patent owner Vedanti Systems Limited ("VSL") as a defendant. Presently before the Court is Defendants' Motion to Dismiss Plaintiff's First Amended Complaint. See Dkt. No. 28 ("Mot."). After fully reviewing the parties' papers and holding oral argument, the Court DENIES Defendants' Motion to Dismiss.

I. BACKGROUND

VSL, a British company, is the patent owner for United States Patent No. 7, 974, 339 entitled "Optimized Data Transmission System and Method" (the "339 Patent"). Dkt. No. 23, First Am. Compl. ("FAC") at ¶ 1, 5, 14; Exh. 1. The 339 Patent was issued by the United States Patent and Trademark Office (the "PTO") on July 5, 2011. Id. at ¶ 13. Plaintiff allegedly entered into a contract with VSL whereby Plaintiff would have a worldwide license to VSL's Optimized Data Transmission System and Method technology, including the technology claimed in the 339 Patent, for all fields of use. Id. at ¶ 15. Moreover, pursuant to the agreement, Plaintiff was also allegedly provided with the exclusive right to enforce VSL's patent rights on VSL's behalf, including an indefeasible right to exclude Defendants from practicing the patent. Id.

Plaintiff alleges that in 2001, the available technology for delivering digitized video relied solely on compression, i.e., the encoding of digital information by reducing the number of bits in the representation, by identifying and deleting unnecessary bits. Id. at ¶¶ 25, 28. This type of technology resulted in jittery, low-quality video and sound for large-sized video files. Id. at ¶ 27. To improve on this technology, two inventors conceived of and reduced to practice the technological concepts that ultimately became a video codec, [1] and the inventions disclosed in the 339 Patent. Id. at ¶¶ 25, 29. The VSL codec was created by VSL employees and personnel working under the direction of one of the inventors. Id. at ¶ 29. The VSL codec implemented a proprietary and unique system of optimizing data transmission using methods for key frame partitioning, slicing and analyzing pixel variation of video content to significantly reduce the volume of digital video files, while minimizing any resulting loss of video quality. Id. at ¶ 30. The U.S. patent application that resulted in the issuance of the 339 patent was filed on January 16, 2002. Id. at ¶ 32.

Plaintiff alleges that during the mid-to-late 2000s, video compression and streaming technology had become integral to Google products, including the YouTube.com website, the Chrome web browser, and the Android mobile device operating system. Id. at ¶ 33. In March 2010, VSL's CEO Alpesh Patel communicated with Google's Nikesh Arora to discuss licensing VSL's video technology and/or the possible acquisition of VSL and the 339 Patent. Id. at ¶ 51. In April 2010, Mr. Patel and Google's Vice President of New Business Development Megan Smith executed a non-disclosure agreement for the purpose of engaging in negotiations regarding VSL's technology. Id. at ¶ 52. During the course of the negotiations and pursuant to the non-disclosure agreement, VSL allegedly provided a working VSL codec to Google for testing and analysis, and provided copies of VSL's patents, patent application (including the patent application that led to the 339 Patent), and claim charts comparing the inventions claimed in the 339 Patent to the H.264 video codec used by Google. Id. at ¶ 54. By December 2010, negotiations between the parties had stalled, and the parties terminated discussions. Id. at ¶ 56. On December 16, 2010, Google's employees allegedly shipped back to VSL materials that VSL had provided pursuant to the non-disclosure agreement. Id. at ¶ 57.

Plaintiff alleges that Defendants incorporated the 339 Patent technology into products they made, used, sold, offered for sale, and/or imported, including VP8, VP9, WebM, H.264, YouTube, Google Adsense, Google Play, Android, Google TV, Chromebook, Google Drive, Google Chromecast, Google Play-per-view, Google Glasses, Google, Google's Simplify, Google Maps and Google Earth. Id. at ¶¶ 1, 62-63. Plaintiff further alleges that Google and On2 incorporated various claims of the 339 Patent into patent applications without disclosing to the PTO the 339 Patent or its underlying application as prior art, or its previous inventors. Id. at ¶ 59.

Plaintiff commenced the instant action on October 1, 2014 alleging a single claim of patent infringement against Defendants. See Dkt. No. 1. In December 2014, Defendants filed a motion to dismiss based on Plaintiff's improper joinder of VSL as an involuntary co-plaintiff. See Dkt. No. 15. In January 2015, Plaintiff filed its First Amended Complaint and named VSL as a defendant. See Dkt. No. 23. Defendants filed the instant Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). See Dkt. No. 28. The matter has been fully briefed, and oral argument was held on April 30, 2015. See Dkt Nos. 37, 49, 73.

II. LEGAL STANDARD

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient specificity to "give the defendant fair notice of what the... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). A complaint which falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). "Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). Moreover, the factual allegations "must be enough to raise a right to relief above the speculative level" such that the claim "is plausible on its face." Twombly, 550 U.S. at 556-57.

When deciding whether to grant a motion to dismiss, the court generally "may not consider any material beyond the pleadings." Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n.19 (9th Cir. 1990). However, the court may consider material submitted as part of the complaint or relied upon in the complaint, and may also consider material subject to judicial notice. See Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001).

In addition, the court must generally accept as true all "well-pleaded factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009). The court must also construe the alleged facts in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 1245 (9th Cir. 1988). However, "courts are not bound to accept as true a legal conclusion couched as a factual allegation." Id.

III. DISCUSSION

During the prosecution of the 339 Patent, the PTO omitted the language "optimization instead of data ...


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