Sapphire Crossing LLC v. Abbyy Production LLC

• Court: District Court, N.D. California
• Decided: October 28, 2020
• Docket: 4:20-cv-03590
• Status: Unknown

Opinion

1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 SAPPHIRE CROSSING LLC, 9 Plaintiff, ORDER RE: MOTIONS TO DISMISS 10 v. 11 Case No. 20-cv-03590-YGR ABBYY USA SOFTWARE HOUSE, INC., 12 Dkt. Nos. 20 Defendant. 13

14 SAPPHIRE CROSSING LLC, 15 Plaintiff, Case No. 20-cv-03593-YGR 16 v. Dkt. No. 23 17 EVERNOTE CORPORATION,

18 Defendant.

20 Plaintiff Sapphire Crossing LLC brings these two patent infringement actions against 21 defendants Abbyy USA Software House, Inc. and Evernote Corporation, alleging infringement of 22 U.S. Patent No. 6,891,633 (the “’633 Patent”). Now before the Court are defendants’ motions to 23 dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) on the grounds that plaintiff fails to 24 plead direct or divided infringement and fails to plead compliance with the marking statute, 35 25 U.S.C. § 287(a). The two motions, filed through common counsel, make substantively identical 26 arguments. 27 1 Having considered the papers and pleadings in this action, the Court finds the motion 2 appropriate for resolution without oral argument and the matter is deemed submitted. Fed. R. Civ. 3 P. 78(b); Civ. L. R. 7-1(b). The Court GRANTS IN PART and DENIES IN PART defendants’ 4 motions. 5 I. BACKGROUND 6 The ’633 Patent, titled “Image Transfer System,” issued to Xerox Corporation on May 10, 7 2005. (Dkt. No. 1-1 (’633 Patent) at 2.)1 Xerox assigned all rights in the ’633 Patent to Ruby 8 Sands LLC on November 25, 2015. (Dkt. No. 1 (“Abbyy Compl.”) ¶ 10.) Ruby Sands LLC 9 assigned all rights in the ’633 Patent to plaintiff on May 26, 2018. (Id. ¶ 11.) The patent 10 apparently expired in July 2019. 11 The ’633 Patent is directed to an image transfer system that uses a device coupled to a 12 computer. (’633 Patent at 1:7-10.) The PTAB has previously found all claims, except claims 19 13 and 20, of the ’633 Patent invalid. (Dkt. No. 1-3 (“IPR2016-00723 Institution Decision”) at 54.) 14 Accordingly, plaintiff now asserts the two remaining claims. Claim 19 is an independent method 15 claim that requires “providing an image transfer device,” reading an image on a first medium (e.g., 16 a paper business card), uploading electronic data2 from a computer connected to the image transfer 17 device, and then merging the electronic data with the scanned image to provide a modified image 18 on a second medium. (’633 Patent at claim 19; Abbyy Complaint ¶¶ 12, 13.) Claim 20, which 19 depends on claim 19, requires the data to stay with the electronic device once the computer is 20 disconnected. (’633 Patent at claim 20.) 21 Sapphire accuses certain software applications, namely the Evernote App and the Abbyy 22 Business Card Reader. Both of these applications allegedly allow a user to take a picture of a 23 business card using a smartphone, automatically upload data, such as the contact’s name and 24 1 All citations refer to case number 4:20-cv-3590, unless otherwise noted. 25

2 The electronic data from a computer includes “at least a portion of an image transfer 26 menu.” (’633 Patent at claim 19.) Sapphire interprets this limitation, somewhat unusually, to refer to functions performed by the menu. (Abbyy Compl. ¶ 20.) For example, Sapphire claims 27 that imposing a watermark on the scanned image satisfies the limitation, even though the PTAB 1 phone number, from defendants’ servers, and then merge the data with the image on a medium 2 that can be sent over the internet. (See Dkt. No. 1-2 (“Abbyy Claim Chart”); Dkt. No. 1-2 in case 3 no. 20-3593 (“Evernote Claim Chart”).) Sapphire does not allege that either defendant provides 4 the smartphone. (See id. (claiming that “the method” provides the device).) Sapphire claims that 5 defendants directly infringe during internal testing of the applications, and also that defendants 6 indirectly infringe by inducing their customers to infringe and providing software to do so. (Abby 7 Compl. ¶¶ 37-57; Dkt. No. 1 in case no. 20-3593 (“Evernote Compl.”) ¶¶ 37-57.) 8 II. LEGAL STANDARD 9 A. Rule 12(b)(6) 10 Under Rule 12(b)(6), a complaint may be dismissed for failure to state a claim upon which 11 relief may be granted. Dismissal under Rule 12(b)(6) is proper if there is a “lack of a cognizable 12 legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” 13 Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (quoting Balistreri v. Pacifica 14 Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1988)). The complaint must plead “enough facts to state 15 a claim [for] relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 16 (2007). A claim is plausible on its face “when the plaintiff pleads factual content that allows the 17 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” 18 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). If the facts alleged do not support a reasonable 19 inference of liability, stronger than a mere possibility, the claim must be dismissed. Id. at 678-79; 20 see also In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) (stating that a court is 21 not required to accept as true “allegations that are merely conclusory, unwarranted deductions of 22 fact, or unreasonable inferences”). 23 If a court dismisses a complaint, it should give leave to amend unless “the pleading could 24 not possibly be cured by the allegation of other facts.” Cook, Perkiss & Liehe, Inc. v. N. Cal. 25 Collection Serv. Inc., 911 F.2d 242, 247 (9th Cir. 1990). 26 /// 27 /// III. DISCUSSION 1 Defendants, through substantively identical motions, seek to dismiss on the grounds that 2 (1) neither defendant provides a device (they both provide software), (2) defendants do not direct 3 or control users for purposes of divided infringement, and (3) plaintiff failed to allege compliance 4 with the marking requirement under 35 U.S.C. § 287(a). Plaintiff argues, in response, that the 5 complaint adequately alleges three modes of direct infringement: infringement through internal 6 testing of devices; divided infringement though direction and control over users; and direct 7 infringement where the “image transfer device” constitutes software or infringement under SiRF 8 Technology, Inc. v. International Trade Commission, 601 F.3d 1319 (Fed. Cir. 2010). 9 In their replies, defendants indicate that they do not challenge plaintiff’s claims based on 10 internal testing and that their motion is therefore only a partial motion to dismiss.3 Accordingly, 11 the Court DENIES defendants’ motion to dismiss as to direct infringement based on internal testing 12 allegations and addresses the remaining arguments by claim type.4 13 A. Direct Infringement 14 Plaintiff claims that it adequately alleges direct infringement because claim construction 15 could find that defendants’ software apps constitute the “image transfer device.” Plaintiff also 16 claims that direct infringement allegations are proper under SiRF. It is not clear how these 17 arguments relate to each other, so the Court addresses each. 18 First, Plaintiff is correct that claim construction is not properly resolved on a motion to 19 dismiss. See Nalco Co. v. Chem-Mod, LLC, 883 F.3d 1337, 1349-50 (Fed. Cir. 2018). However, 20 that does not require the Court to accept implausible claims. See Ottah v. Fiat Chrysler, 884 F.3d 21 22 3 While Sapphire may pursue its claims based on internal testing, damages for such 23 infringement are limited and must be tied to the internal use. See Packet Intelligence LLC v. NetScout Sys., Inc., 965 F.3d 1299, 1314-15 (Fed. Cir. 2020); see also De La Vega v. Microsoft 24 Corp., No. W-19-CV-00612-ADA, 2020 WL 3528411, at *5 n.7 (W.D. Tex. Feb. 11, 2020) (questioning whether such claims are “financially justifiable”). 25

4 The Court notes that defendants do not seek to dismiss the indirect infringement claims, 26 despite claiming that they had no knowledge of the patent prior to its expiration. It is not clear how plaintiff intends to pursue indirect infringement claims where the only allegation of 27 knowledge is that defendants knew of the patent from the filing of the complaints one year after it 1 1135, 1141-42 (Fed. Cir. 2018). In Ottah, the court affirmed the dismissal of a complaint that 2 sought to equate a camera with a “book,” finding that the “liberally construed” infringement 3 allegations lacked plausibility. Id. at 1142. Here, another district court has already found that 4 plaintiff’s interpretation was implausible and questioned whether plaintiff complied with Rule 11 5 pre-suit investigation requirements. See Ruby Sands LLC v. Am. Nat’l Bank of Tex., No. 2:15-cv- 6 1955-JRG, 2016 WL 3542430, at *4 (E.D. Tex. June 28, 2016). Moreover, even if the Court 7 were to accept plaintiff’s construction, that would not state a plausible direct infringement claim 8 where the other steps are still performed by users. 9 Second, SiRF does not provide a claim here. In SiRF, the accused infringer operated a 10 global positioning system (GPS) that sent data to user-controlled GPS devices from servers. 601 11 F.3d at 1324. The end user elected to receive updates, and SiRF then transmitted the files to its 12 customers (equipment manufacturers), who forwarded the data to end-user devices. Id. at 1330. 13 The court found that SiRF directly performed “communication” and “processing” steps and that 14 neither the customers nor the end users were necessary for a divided infringement claim. Id. First, 15 the customers’ forwarding of data did not defeat direct infringement because the claims permitted 16 indirect communication. Id. In other words, the forwarding step was equivalent to a “switched 17 telephone network” that routes parties’ communications and did not mean that defendant did not 18 itself communicate. Id. Second, SiRF performed the step of “processing satellite signals received 19 at the mobile GPS receiver” because its software automatically performed the processing after 20 enablement on end user devices. Id. at 1331. Again, the claims permitted intermediate steps, such 21 as enablement, and “only SiRF’s actions are involved in ‘processing.’” Id. 22 The claims here are entirely dissimilar to those in SiRF. Defendants do not operate a 23 system where some steps are performed on servers and others on end-user devices. They provide 24 software. Although plaintiff claims that the accused software downloads data from defendants’ 25 servers, the claims are drafted in a way that requires all steps to be performed on end-user devices. 26 For example, claim 19 recites “automatically uploading electronic data . . . from a computer”—not 27 “automatically transmitting electronic data . . . by a computer.” (’633 Patent at claim 19.) Thus, 1 require steps performed on end-user devices. For this reason, SiRF is not applicable and plaintiff 2 fails to state a claim for direct infringement. See Ericsson, Inc. v. D-Link Systems, Inc., 773 F.3d 3 1201, 1221-22 (Fed. Cir. 2014) (no direct infringement where all steps are performed on end user 4 devices); see also Int’l Bus. Machines Corp. v. Booking Holdings Inc., 775 F. App’x 674, 678 5 (Fed. Cir. 2019) (finding SiRF inapplicable where third party performs any step). 6 Accordingly, the Court finds that plaintiff fails to state a claim for direct infringement 7 based on allegations of end-users performing the claimed methods on their smartphones. 8 B. Divided Infringement 9 To state a claim for divided infringement, plaintiff must allege facts “sufficient to allow a 10 reasonable inference that all steps of the claimed method are performed and either (1) one party 11 exercises the requisite ‘direction or control’ over the others performance or (2) the actors form a 12 joint enterprise such that performance of every step is attributable to the controlling party.” Lyda 13 v. CBS Corp., 838 F.3d 1331, 1339 (Fed. Cir. 2016) (quoting Akamai Techs., Inc. v. Limelight 14 Networks, Inc., 797 F.3d 1020, 1022 (Fed. Cir. 2015) (en banc)). Direction and control may be 15 satisfied by an agency relationship, contractual requirements, or “conditioned benefit,” where the 16 alleged infringer “conditions participation in an activity or receipt of a benefit upon performance 17 of a step or steps of a patented method and establishes the manner or timing of that performance.” 18 Akamai, 797 F.3d at 1023. 19 Here, plaintiff claims that defendants control the users’ performance of the method steps 20 through software. This Court recently addressed the question of whether software satisfies the 21 “conditioned benefit” theory, and decided that it does not. As the Court explained: 22

23 Each Federal Circuit case under this standard involves some version of offline control and conditioned benefit over users. In Akamai, the 24 defendant imposed contractual requirements for users to perform certain steps to use its service. 797 F.3d at 1024. In Eli Lilly & Co. 25 v. Teva Parenteral Medicines, Inc., doctors conditioned patient treatment on their taking of folic acid. 845 F.3d 1357, 1366 (Fed. Cir. 26 2017). In Travel Sentry, Inc. v. Tropp, the defendant had a “memorandum of understanding” with the TSA to perform certain 27 steps. 877 F.3d 1370, 1383-84 (Fed. Cir. 2017). And in Nalco, the control and conditioning—not control through a device. 1 By contrast, the Court is aware of no case where software 2 functionality alone satisfied the “conditioned benefit” test. Although the Federal Circuit warned against limiting the standard to legal 3 obligations and technological prerequisites, it has repeatedly stated that “mere guidance or instruction is insufficient” to show 4 conditioned benefit. Eli Lilly, 845 F.3d at 1367; Travel Sentry, 877 F.3d at 1379. Under governing precedent, software is exactly that: 5 instructions. See Ricoh Co., Ltd. v. Quanta Comp. Inc 550 F.3d 1325, 1335 (Fed. Cir. 2008) (“[S]oftware is not itself a sequence of actions, 6 but rather it is a set of instructions that directs hardware to perform a sequence of actions.”); Fantasy Sports Props., Inc. v. SportsLine.com, 7 Inc., 287 F.3d 1108, 1118 (Fed. Cir. 2002) (“Software is a set of instructions, known as code, that directs a computer to perform 8 specified functions or operations.”); see also Microsoft Corp. v. AT & T Corp., 550 U.S. 437, 447 (2007) (relying on Fantasy Sports to 9 equate software with instructions).

10 Moreover, the Patent Act provides different provisions for infringement through supply of a device for infringement. See 35 11 U.S.C. § 271. Section 271(c) states that “[w]hoever offers to sell or sells . . . a material or apparatus for use in practicing a patented 12 process . . . shall be liable as a contributory infringer.” Section 271(b) provides liability for “active inducement,” which includes providing 13 instructions for infringement. See Barry v. Medtronic, Inc., 914 F.3d 1310, 1336 (Fed. Cir. 2019). The Federal Circuit has consistently 14 analyzed provision of infringing devices under these standards, not the direct infringement of section 271(a). See, e.g., Mirror Worlds, 15 LLC v. Apple Inc., 692 F.3d 1352, 1360 (Fed. Cir. 2012); Fujitsu Ltd. v. Netgear Inc., 620 F.3d 1321, 1326-32 (Fed. Cir. 2010); Ricoh, 550 16 F.3d at 1341; see also Commil USA, LLC v. Cisco Sys., Inc., 575 U.S. 632 (2015); cf. Hilgraeve Corp. v. Symatec Corp., 265 F.3d 1336, 17 1342 n.2 (Fed. Cir. 2001) (“While the parties, and the district court’s decision, speak of the accused devices as infringing, more properly 18 the allegation is that the operation of the devices directly infringes the method claims at issue, or that that the sale of the devices induces 19 customers to infringe the method claims.”).

20 Thus, “in the context of the facts presented,” the Court concludes that Sentius fails to state a claim for direct infringement based on 21 allegations of direction and control through the provision of infringing software to end-user devices. 22 Sentius Int’l, LLC v. Apple Inc., No. 4:20-cv-00477-YGR, 2020 WL 6081775, at **4-5 (N.D. Cal. 23 Oct. 15, 2020). 24 The Court adopts the same reasoning here and finds that plaintiff fails to state a claim for 25 divided infringement based on allegations that defendants provide software that performs a 26 claimed method to end-user devices.5 27 1 C. Marking 2 The Patent Act states that “[p]atentees, and persons making, offering for sale, or selling 3 within the United States any patented article for or under them . . . may give notice to the public 4 that the same is patented, either by fixing thereon the word ‘patent’ or the abbreviation ‘pat.’ 5 together with the number of the patent.” 35 U.S.C. § 287(a). Such “marking” of patented 6 products is required before the patent owner may recover damages, unless notice was provided 7 another way, such as through the filing of the complaint. See id. 8 Defendants move to dismiss because plaintiff fails to plead compliance with the marking 9 statute. This is not appropriate for three reasons. First, plaintiff asserts method claims, which 10 neither require, nor are capable of, being marked. See Crown Pack. Tech., Inc. v. Rexam Beverage 11 Can Co., 559 F.3d 1308, 1316 (Fed. Cir. 2009). “The law is clear that the notice provisions of 12 § 287 do not apply where the patent is directed to a process or method.” Id. Defendants’ 13 argument that the statute applies because the ’633 contains unasserted apparatus claims was 14 directly addressed and rejected by Crown Packaging. See id. Second, even if marking was 15 required, defendants have the initial burden to identify unmarked products. See Arctic Cat Inc. v. 16 Bomardier Rec. Prods. Inc., 876 F.3d 1350, 1368 (Fed. Cir. 2017). That renders dismissal 17 inappropriate unless plaintiff cannot plead even pro forma compliance. Third, plaintiff alleges 18 willful infringement, which is enough to satisfy the minimal pleading standard for marking.6 See 19 Sentry Protection Prods., Inc. v. Eagle Mfg. Co., 400 F.3d 910, 918 (Fed. Cir. 2005). 20 Accordingly, the Court does not dismiss on this ground. 21 // 22 // 23 24 Federal Circuit cited Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 545 U.S. 913 (2005) as 25 “cf.” support in Akamai. 797 F.3d at 1023. That is incorrect for both divided infringement and for Grokster. See Lyda 838 F.3d at 1339 (listing elements); Grokster, 545 U.S. at 930 n.9 (no 26 knowledge requirement).

27 6 That said, the Court again questions how plaintiff intends to proceed on willful IV. CONCLUSION For the foregoing reasons, the Court GRANTS defendants’ motions to dismiss as to direct 2 and divided infringement based on user operation of defendants’ software, but DENIES the motion 3 as to defendants’ internal testing of the software 4 Liberal pleading standards exist. Accordingly, by November 9, 2020, plaintiff shall file 5 either an amended complaint consistent with Rule 11 obligations or a notice that it shall stand on 6 the operative complaint as defined by this order. Defendants shall respond within fourteen (14) 7 days of plaintiff’s filing. 8 IT Is SO ORDERED. 9 10 Dated: October 28, 2020 11 YVONNE GONZALEZ ROGERS 2 UNITED STATES DISTRICT COURT JUDGE

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