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FootBalance System Inc. v. Zero Gravity Inside, Inc.

United States District Court, S.D. California

April 3, 2017



          Hon. Janis L. Sammartino United States District Judge

         Presently before the Court is Defendants Patrik Louko and Eero Kaakkola's (collectively, the “Individual Defendants”) Motion to Dismiss Third Amended Complaint, (MTD, ECF No. 44), as well as their Request for Judicial Notice, (“RJN, ” ECF No. 44-2). Also before the Court are Plaintiffs FootBalance Systems Inc. and FootBalance Systems OY's (collectively, “FootBalance”) Opposition to, (ECF No. 47), and the Individual Defendants' Reply Supporting, (ECF No. 48), the MTD. The Court vacated the hearing on this motion and took the matter under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1). (ECF No. 49.)

         For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART the Individual Defendants' MTD with respect to FootBalance's direct infringement claims.[1]


         I. Factual Background

         FootBalance is a health and fitness company that sells individually formed footwear. (TAC ¶ 14.) It owns U.S. Patent Nos. 7, 793, 433 and 8, 171, 589, both of which cover inventions related to custom orthotic insoles and a method for providing and customizing these insoles. (Id. ¶¶ 15-20.) Per an agreement entered into in December 2008, FootBalance sold these patented insoles to retailer Road Runner Sports, Inc. (“RRS”), which then sold them to consumers using FootBalance's patented method to custom fit the insoles to the consumers' feet. (Id. ¶ 24.) RRS later canceled this agreement to work with a different custom insole supplier, defendant Zero Gravity Inside, Inc. (“ZGI”). (See Id. ¶ 25.)

         ZGI was founded by, among others, Louko, one of the Individual Defendants, who also served as the company's president and chief executive officer. (Id. ¶¶ 4, 9, 53.) Before founding ZGI, Louko was a consultant and eventually chief executive officer at FootBalance, where he participated with RRS in selling FootBalance's products to RRS until he left the company in 2010. (Id. at ¶¶ 4, 9, 26, 28.) Kaakkola, the other Individual Defendant, is a former deputy board member of ZGI. (Id. at ¶ 5.) ZGI was incorporated on January 3, 2014. (Id. ¶ 32.)

         ZGI's sales appear not to have been limited to RRS, however, as indicated by its sales figures that “exceed the number of custom insoles likely purchased by RRS.” (Id. ¶ 35.) For example, ZGI announced that it sold 650, 000 units in the year-and-a-half from May 2014 to November 2015. (Id.) Based on its own experience in the custom insole market, that amount of sales “vastly outnumbers the sales RRS could generate during an 18-month window.” (Id.)

         FootBalance has arbitrated a dispute with RRS, and ZGI is not a party to that arbitration. (See Id. at 8, n.2.) FootBalance states that documents produced in that arbitration show that ZGI, Louku, and Kaakkola had pre-suit knowledge of FootBalance's patents, but that FootBalance cannot produce them in this litigation because they are covered by a protective order and ZGI-although not a party to that protective order-has objected to their use in this case. (Id.)

         II. The Court's Prior Dismissal Order

         In its October 4, 2016 Order, the Court denied the Individual Defendants' MTD insofar as it concerned FootBalance's claims for indirect infringement. (“SAC MTD Order, ” ECF No. 39.) But the Court granted the Individual Defendants' MTD with regard to FootBalance's direct infringement claims, finding that FootBalance failed to adequately plead that the Individual Defendants directly infringed any of the patents either individually or under a theory of agency or alter ego liability. (Id.) Additionally, the Court “applie[d] the pleading standards explained in Twombly/Iqbal to FootBalance's direct infringement claims.” (Id. at 5.) Noting that FootBalance may be able to cure these deficiencies, the Court granted leave to amend. (Id. at 15.)

         FootBalance filed its Third Amended Complaint (“TAC”) on October 21, 2016. (ECF No. 41.) Individual Defendants filed their MTD on November 7, 2016. (ECF No. 44.)


         The Individual Defendants request that the Court take judicial notice of the registration at the Finnish Patent and Registration Office and the Finnish Tax Administration Business Information System for Zero Gravity Inside Oy. (RJN 2, ECF No. 44-2.) The Individual Defendants argue that Zero Gravity Inside Oy's registration is relevant because it specifies the dates in which it was an active corporation in Finland, and because FootBalance incorporated their counsel's correspondence concerning alleged infringement as Exhibit E to the TAC, which references that Kaakkola was a former board member of Zero Gravity Inside Oy. (Id.)

         Although within the context of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a Court generally may not consider matters outside of the pleadings, see Fed. R. Civ. P. 12(d), it is nonetheless “appropriate for the Court to take notice of ‘relevant facts obtained from the public record . . . .'” See Papasan, 478 U.S. at 298; see also Harris v. Cty. of Orange, 682 F.3d 1126, 1132-33 (9th Cir. 2012) (noting that a court may “take judicial notice of undisputed matters of public record” and that “documents not attached to a complaint may be considered if no party questions their authenticity and the complaint relies on those documents” (citing Lee v. City of L.A., 250 F.3d 668, 688, 689 (9th Cir. 2001))).

         Under, Federal Rule of Evidence 201(b)(2), a court may judicially notice a fact that is not subject to reasonable dispute because it “can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Zero Gravity Inside Oy's registration is a government record, and thus its accuracy cannot reasonably be questioned. Additionally, FootBalance does not argue against taking judicial notice of this registration.

         Accordingly, the Court GRANTS the Individual Defendants' Request for Judicial Notice. See, e.g., Gerritsen v. Warner Bros. Entm't Inc., 112 F.Supp.3d 1011, 1033-34 (C.D. Cal. 2015) (taking judicial notice of business entity profiles retrieved from the California Secretary of State's website).


         Pursuant to Federal Rule of Civil Procedure 12(b)(6), courts must dismiss complaints that “fail[] to state a claim upon which relief can be granted.” The Court evaluates whether a complaint supports a cognizable legal theory and states sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a “short and plain statement of the claim showing that the pleader is entitled to relief.” In patent cases, courts previously looked to Federal Rule of Civil Procedure 84, which in turn referred to “forms in the Appendix.” See Rembrandt Patent Innovations LLC v. Apple Inc., Nos. C 14-05094 (WHA), C 14-05093 WHA, 2015 WL 8607390, at *2 (N.D. Cal. Dec. 13, 2015); In re Bill of Lading, 681 F.3d 1323, 1334 (Fed. Cir. 2012) (“[T]o the extent the parties argue that Twombly and its progeny conflict with the Forms and create differing pleadings requirements, the Forms control.”). One form in the Appendix was Form 18, an example complaint for patent infringement that “merely included an allegation that the defendant infringed the asserted patent by making, using, or selling ‘electric motors' without specifying the model of the accused motors.” Rembrandt Patent, 2015 WL 8607390, at *2. The 2015 Amendments to the Federal Rules, which the Supreme Court submitted to Congress in April 2015 pursuant to 28 U.S.C. § 2072, abrogated Rule 84, with the notation that it was “no longer necessary.” See Fed. R. Civ. P. 84 advisory committee's note to 2015 amendment; RAH Color Techs. LLC v. Ricoh USA Inc., No. 2:15-CV-05203-JCJ, 2016 WL 3632720, at *2 (E.D. Pa. July 7, 2016). The 2015 Amendments took effect December 1, 2015. See Fed. R. Civ. P. 84; RAH Color Techs. LLC, 2016 WL 3632720, at *2.

         The abrogation of Rule 84 means that the Rule 8 pleading standards as construed by the Supreme Court in Ashcroft v. Iqbal, 556 U.S. 662 (2009) and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) govern in patent cases. See, e.g., Rembrandt Patent, 2015 WL 8607390, at *2; Rah Color Techs. LLC, 2016 WL 3632720, at *3 (“Following the reasoning of In re Bill of Lading, it appears the Federal Rules' amendment abrogating both Rule 84 and the Appendix of Forms means that claims of direct infringement are now also subject to the Twombly/Iqbal pleading standard.”). This Court has already determined that the pleading standards explained in Twombly/Iqbal apply to FootBalance's direct infringement claims presented in its amended complaints. (See SAC MTD Order 5, ECF No. 39.)

         Although Rule 8 “does not require ‘detailed factual allegations, ' . . . it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 555). In other words, “a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do.” Twombly, 550 U.S. at 555 (alteration in original). “Nor does a complaint suffice if it tenders ‘naked ...

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