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SourceProse Corp. v. RPX Corp.

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

May 5, 2017

SOURCEPROSE CORPORATION, Plaintiff,
v.
RPX CORPORATION, Defendant.

          ORDER GRANTING IN PART THE DEFENDANT'S MOTION TO DISMISS RE: ECF NO. 43

          LAUREL BEELER United States Magistrate Judge.

         INTRODUCTION

         This case concerns an oral agreement for the assignment of several patents.[1] SourceProse alleges that it and RPX entered an oral agreement under which SourceProse would assign the patents to RPX for $3 million and thus settle an underlying patent-infringement case.[2] But RPX allegedly backed out of the agreement and refused to buy the patents, harming SourceProse's position in the underlying litigation.[3] SourceProse then sued RPX and asserts three breach-of-contract claims in its Second Amended Complaint (“SAC”). RPX moves to dismiss the SAC under Federal Rule of Civil Procedure 12(b)(6).

         The court held a hearing on the motion on May 4, 2017. The court grants in part the motion and dismisses without prejudice SourceProse's claim for breach of the parties' nondisclosure agreement. SourceProse's other claims survive.

         STATEMENT

         RPX is a company that “acquires patents and patent rights and grants licenses to its clients to use them.”[4] In doing so, “‘[it] has helped clients achieve 1, 000 dismissals from active litigations and avoid thousands of patent lawsuits altogether.'”[5] SourceProse is a software development company that owns several patents.[6] In 2011, it filed a patent-infringement suit against five mobile-telephone carriers, including AT&T, MetroPCS, Sprint, T-Mobile, and Verizon.[7]Separately, Google sued SourceProse seeking a declaration that it was not infringing SourceProse's patents.[8] The two patent cases were consolidated.[9]

         Several of the parties to the consolidated patent case were RPX's clients, including some of the mobile-telephone carriers and Google.[10] (The rest of the carrier-defendants were Google's clients.[11]) So RPX, through its Director of Acquisitions, called SourceProse's attorney “to discuss resolving the [consolidated] Patent Litigation, ” a plan through which SourceProse would “convey[] rights to the Patents to RPX for the benefit of its clients.”[12] The parties then entered a mutual nondisclosure agreement (“NDA”) “to permit the free exchange of certain information necessary to further discussions regarding the sale of the Patents.”[13]

         The parties then met to discuss the patents and related litigation.[14] At the meeting, RPX proposed the following agreement:

a. RPX would pay SourceProse an agreed upon amount of money (the “Sales Price”);
b. SourceProse would drop the Patent Litigation and execute/file the appropriate paperwork with the Court to effectuate a dismissal with prejudice;
c. SourceProse would assign the Patents to RPX and execute documents sufficient to effectuate the assignment; and
d. RPX would grant SourceProse a limited license of one year's duration whereby SourceProse could, in its discretion, file suit against any non-RPX clients for pre-assignment patent infringements and execute any documents that were necessary to effectuate the license.[15]

         SourceProse agreed to those terms.[16] But the parties did not agree on the price.[17]

         The parties negotiated the sales price over the next several weeks.[18] RPX offered, by phone, $3 million to buy the patents.[19] SourceProse approved the price and its attorney called RPX and accepted the $3 million offer.[20] “[RPX] acknowledged that [it] and SourceProse had reached an agreement.”[21] “The parties intended that the [a]greement should be binding upon them immediately but that written documentation necessary to effectuate the parties' obligations, such as dismissal of the Patent Litigation and assignment/licensing of the Patent[s], would take place in the (near) future.”[22]

         SourceProse and RPX then discussed when to tell opposing counsel in the patent case about the deal.[23] SourceProse intended to “immediately inform opposing counsel and the Court” of the agreement.[24] But RPX “asked SourceProse [to] hold off so that RPX's upper management could ‘officially announce' the [a]greement to RPX's members.”[25] SourceProse agreed to wait but confirmed that it “would cease all further work on the Patent Litigation.”[26] Three days later, on the day SourceProse intended to inform opposing counsel, RPX called SourceProse and said that “Google was trying to back out of ‘the deal, ' and that [it] was concerned that Google may have withdrawn its support of the [a]greement.”[27] RPX did not announce the deal to its members.[28]

         The next day, SourceProse “notified opposing counsel in the Patent Litigation” that it had entered “a confidential agreement with a third party [that] would settle the [case].”[29] SourceProse also notified counsel that it “was standing down on discovery and would be preparing the paperwork necessary for the dismissal of the case.”[30] Indeed, SourceProse cancelled the deposition of a key Google witness who later became unavailable.[31]

         SourceProse then emailed RPX “providing wire transfer instructions for the $3 million.”[32]RPX responded, though, by stating that “there was no agreement between RPX and SourceProse, and that RPX did not intend to perform.”[33] SourceProse alleges that RPX's refusal to perform (and its breach of the parties' NDA) “materially and substantially” harmed its ability to continue in the consolidated patent litigation, which was dismissed two months later.[34]

         SourceProse therefore sued RPX. It asserts three claims in its SAC: (1) breach of the parties' NDA; (2) breach of the agreement to assign the patents; and (3) breach of the agreement to settle the patent litigation.[35] SourceProse seeks both damages and specific performance of the parties' agreement to assign.[36] RPX moves to dismiss the SAC under Rule 12(b)(6).[37]

         RULE 12(B)(6) LEGAL STANDARD

         Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of a “failure to state a claim upon which relief can be granted.” A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Johnson v. Riverside Healthcare Sys., 534 F.3d 1116, 1121 (9th Cir. 2008); Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001).

         A complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief” to give the defendant “fair notice” of what the claims are and the grounds upon which they rest. See Fed. R. Civ. P. 8(a)(2); Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). A complaint does not need detailed factual allegations, but “a plaintiff's obligation to provide the ‘grounds' of his ‘entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a claim for relief above the speculative level . . . .” Twombly, 550 U.S. at 555 (internal citations omitted).

         To survive a motion to dismiss, a complaint must contain sufficient factual allegations, accepted as true, “‘to state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “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. “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. (quoting Twombly, 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of ‘entitlement to relief.''” Id. (quoting Twombly, 550 U.S. at 557).

         If a court dismisses a complaint, it should give leave to amend unless the “the pleading could not possibly be cured by the allegation of other facts.” Cook, Perkiss and Liehe, Inc. v. Northern California Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990).

         ANALYSIS

         1. Breach of the Agreement to Assign

         SourceProse alleges that RPX breached the parties' oral agreement to assign the patents.[38] The issue is whether SourceProse can properly allege an oral “agreement to assign” in this context.

         “A patent is a creature of federal statute and may be transferred only according to the terms of the patent statutes.” United States v. Solomon, 825 F.2d 1292, 1296 (9th Cir. 1987). Under those statutes, patent assignments must be in writing. 35 U.S.C. § 261; Sky Techs. LLC v. SAP AG, 576 F.3d 1374, 1379 (Fed. Cir. 2009); Solomon, 825 F.2d at 1296 (“[T]he necessity of a writing, like the necessity of an automobile certificate or a deed, to effect a valid transfer of a patent right has long been a matter of hornbook law.”). But “[a] contract to assign a patent is legally distinguishable from an assignment of a patent.” Id.; see also Arachnid, Inc. v. Merit Indus., Inc., 939 F.2d 1574, 1580-81 (Fed. Cir. 1991) (distinguishing between an agreement to assign a patent in the future, which “may vest the promisee with equitable rights” in a patent, and an assignment, which grants legal title to a patent).

         Unlike a patent assignment, an agreement to assign a patent - i.e. to assign a patent in the future - does not have a statutory basis and does not need to be in writing. See Univ. Patents, Inc. v. Kligman, 762 F.Supp. 1212, 1219 (E.D. Pa. 1991) (citing Lipscomb, Walker on Patents § 19:16 (3d ed. 1986)). An oral agreement to assign a patent - or an agreement to assign the right to obtain a patent - may be specifically enforced. See Dalzell v. Dueber Watch-Case Mfg. Co., 149 U.S. 315, 320 (1893). So, although “an assignment must be in writing, an agreement to assign may be oral.” 60 Am. Jur. 2d Patents § 895 (2016); 71 Am. Jur. 2d Specific Performance § 178 (2016) (“Parol executory contracts to assign patent rights may also be enforced in equity although the statutes of the United States provide that the assignment itself must be in writing.”).

         RPX argues that the “[c]ases recognizing ‘agreements to make an assignment' are limited to agreements involving rights in future inventions” in the employment context.[39] Indeed, the cases they cite (and many of the cases that the court found) concern employers' rights in employees' inventions. That makes sense: employees innovate in the workplace, and courts are often asked to evaluate those inventive rights. And, in that context, courts have recognized at least three situations where an employer has rights in an employee's patent. First, the parties may expressly agree that the employee will assign his or her rights to the employer. See Teets v. Chromalloy Gas Turbine Co., 83 F.3d 403, 407 (Fed. Cir. 1996); Univ. Patents, 762 F.Supp. at 1219. Second, absent such an agreement, “employers may still claim an employee's inventive work where the employer specifically hires or directs the employee to exercise inventive faculties.” Teets, 83 F.3d at 407 (noting that this analysis requires the court to “determine if the parties entered an implied-in-fact contract to assign patent rights”); Univ. Patents, 762 F.Supp. at 1219-20. And third, even without an express or implied-in-fact contract, “an employer may obtain a shop right in employee inventions” - the right to use the “invention without liability for infringement” - “where it has contributed to the development of the invention.” Teets, 83 F.3d at 407; Univ. Patents, 762 F.Supp. at 1220 (citing United States v. Dubilier, 289 U.S. 178, 187-89 (1933)).

         RPX asserts that these cases are distinguishable and thus inapplicable.[40] It points out that there is no employment relationship: the transaction at issue here was between two entities. And it argues that those cases merely “acknowledge that parties sometimes need to agree to transfer patent rights not yet in existence” (i.e. for an employee's yet-to-be-developed inventions), but that here, the patent rights existed at the time of the alleged agreement to assign.

         Those points are well taken: this is not an employment case about future inventive rights. But those cases do not necessarily foreclosure the oral “agreement to assign” alleged here. Here, SourceProse alleges that it and RPX orally agreed that SourceProse would later assign the patents and thus settle the underlying litigation:

a. RPX would pay SourceProse an agreed upon amount of money (the “Sales Price”);[41]
b. SourceProse would drop the Patent Litigation and execute/file the appropriate paperwork with the Court to effectuate a dismissal with prejudice;
c. SourceProse would assign the Patents to RPX and execute documents sufficient to effectuate the assignment; and
d. RPX would grant SourceProse a limited license of one year's duration whereby SourceProse could, in its discretion, file suit against any non-RPX clients for pre-assignment patent infringements and execute any ...

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