“To the extent this district court and others have adopted a blanket element-by-element pleading standard for patent infringement, that approach is unsupported and goes beyond the standard the Supreme Court articulated in Iqbal and Twombly.” – CAFC
On July 13, the U.S. Court of Appeals for the Federal Circuit (CAFC) affirmed in part, reversed in part, and remanded the U.S. District Court for the Northern District of California’s decision that Sony Corporation of America, et al (Sony) did not infringe Bot M8 LLC’s (Bot M8) patents, again clarifying the pleading standard for patent infringement.
Bot M8 filed suit against Sony in the United States District Court for the Southern District of New York, alleging infringement of six of their patents, five of which remain relevant on appeal: U.S. Patent Nos. 8,078,540 (the ‘540 patent); 8,095,990 (the ‘990 patent); 7,664,988 (the ‘988 patent); 8,112,670 (“the ‘670 patent”); and 7,338,363 (the ‘363 patent). Bot M8 accused Sony’s PlayStation 4 (PS4) gaming consoles and aspects of Sony’s PlayStation network of infringing their ‘540, ‘990, ‘988, and ‘670 patents. Additionally, Bot M8 accused certain PS4 video games of infringing their ‘363 patent.
In its answer, Sony asserted noninfringement of the alleged patents and argued that “the Complaint fails to identify legitimate theories for how the claim limitations of the patents-in-suit are allegedly satisfied” and moved to transfer the case to the Northern District of California. Once transferred, a case management conference was held, where the court sua sponte directed Bot M8 to file an amended complaint, specifying “every element of every claim that [they thought] was infringed and/or explain why it can’t be done.” The court also instructed Bot M8 that it must reverse engineer the PS4 if it could. In response, counsel for Bot M8 stated they “would be happy to put in an Amended Complaint with claim charts” and “element-by-element” allegations. Bot M8 also informed the court that reverse engineering would not be a problem because it had already “torn down the PlayStation.” The district court set a December 5, 2019 deadline for Bot M8 to file an amended complaint.
After Bot M8 timely filed the first amended complaint (FAC), Sony moved to have it dismissed for failure to state a claim. The district court then held oral arguments on Sony’s motion. At the hearing, the court questioned Bot M8 about why it had not cited to Sony’s source code in the FAC, a deficiency that Sony did not note in its motion to dismiss. In reply, Bot M8 indicated that Sony’s source code is not publicly available and that the software on the PS4 is encrypted and protected by Sony’s access control technology.
In a January 27, 2020 decision, the district court granted dismissal for the ‘540, ‘990, 988, and the ‘670 patents, which prompted Bot M8 to motion for leave to file a second amended complaint. The district court reluctantly allowed Bot M8 to amend its complaint, setting a deadline for February 13, 2020. At a discovery hearing, two days after the district court decided Sony’s motion to dismiss, Bot M8 raised, for the first time, concerns over the legality of reverse engineering the PS4’s software. Counsel for Bot M8 explained that they had not previously reverse engineered the PS4 to support their earlier pleadings because according to the Digital Millennium Copyright Act (DMCA) and other anti-hacking statutes, it is illegal to do so. In response, the court asked Sony to allow Bot M8 permission to reverse engineer the PS4, to which they agreed.
On February 13, 2020, Bot M8 filed a motion for leave to amend its complaint and attached a redlined version of its proposed Second Amended Complaint (SAC). Bot M8 explained that the SAC was based on new information obtained after it received permission to reverse engineer the PS4. Though Bot M8’s motion for leave to file the SAC was timely, the district court still denied it for lack of diligence. In response, Bot M8 sought leave to motion for reconsideration of the district court’s order denying leave to amend. The district court also denied this motion, reasoning that Bot M8’s “theory of the [DMCA] crossing paths with patent rights remain[ed] unsupported by caselaw, and Bot M8 offer[ed] no binding decision directing a different pleading or amendment standard.”
Both parties filed motions for summary judgment as to claim 1 of the ‘363 patent. Bot M8 moved for summary judgment of infringement, whereas Sony moved for summary judgment of non-infringement and patent ineligibility under 35 U.S.C. 101. The district court granted Sony’s motion for summary judgment, holding that the ‘363 patent is directed towards patent ineligible subject matter under 101.
On appeal, Bot M8 alleged that the district court erred in sua sponte requiring an amended complaint. Furthermore, Bot M8 argued that the district court erred in dismissing its FAC and abused its discretion by denying Bot M8 leave to amend the FAC.
Amending the Original Complaint
The CAFC was not persuaded by Bot M8’s argument that the district court erred in sua sponte requiring them to amend their complaint for two reasons. First, while the CAFC recognized that the district court made its opinion about Bot M8’s original complaint clear, it did not force Bot M8 to replead. Instead, the court stated that it would give M8 “another chance to plead if it wanted to try again.” Second, the CAFC reasoned that “Ninth Circuit law is clear,” a trial court has discretion to note the inadequacy of a complaint and dismiss it for failure to state a claim if it gives notice of its intention to dismiss and allows the plaintiff time to respond. Accordingly, the CAFC found no issue with the sua sponte requirement, as it was a suggestion and not compulsory.
Dismissal of the FAC: The Standard
According to FRCP 8(a)(2), generally only a plausible “short and plain” statement of the plaintiffs claim that indicates their entitlement to relief is required. Citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), the CAFC noted that to survive a motion to dismiss under Rule 12(b)(6), a complaint “must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” A claim is facially plausible when “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable” Id. Here, the CAFC found, the district court’s instruction that Bot M8 plead “every element of every claim and explain why it can’t be done” was improper. Noting that “to the extent this district court and others have adopted a blanket element-by-element pleading standard for patent infringement, that approach is unsupported and goes beyond the standard the Supreme Court articulated in Iqbal and Twombly.” Instead, the level of detail required in any given case will vary upon several factors but will only ever require plaintiffs to provide sufficient factual information to show plausibility of the accused infringement. Once the standard was clarified, the CAFC turned to Sony’s motion to dismiss.
Claim 1 of the ‘540 patent requires “a board including a memory in which a game program…and an authentication program…are stored” separately from “a motherboard” (the board limitation). The district court found Bot M8’s allegations regarding this claim insufficient because it failed to present a plausible pleading. On appeal, Bot M8 argued that the FAC describes the ‘540 patent in “fourteen pages of factual allegations” and “fifteen pages of claim charts.”
The CAFC agreed with Sony’s response, which stated that the FAC actually alleged away from infringement by asserting that the purported “authentication program” is stored in the PS4 motherboard, which is inconsistent with bot M8’s infringement theory. Claim 1 requires the game program for executing the game and the authentication program for authenticating the game program be stored on the same board including a memory separate from the motherboard and its memory. However, in the complaint Bot M8 asserted that “the authentication program for the [PS4] hard drive, Operating System, and games is stored on [PS4]…flash memory” which is allegedly in the PS4 motherboard. This allegation, according to the CAFC, renders the claim “not even possible.”
Bot M8 argued that the district court ignored its factual allegations because they were not supported by source-code-level evidence. The CAFC agreed with Bot M8 that source-code-level allegations are not required at the pleading stage but rejected the notion that this was the basis for the district court’s dismissal. Instead, the district court found Bot M8’s allegations to be merely conclusory, noting that while Bot M8 pointed to different storage components in the allegedly infringing devices, it never specified which one or ones satisfy the “mutual authentication limitation.” Accordingly, the CAFC affirmed the district courts dismissal.
‘988 and ‘670 Patents
The ‘988 and ‘670 patents require a control device that executes a “fault inspection program” and “completes the inspection program before the game is started.” The district court noted that this claim was plausible but dismissed it because the allegations “too closely tracked the claim language to be deemed plausible.” On appeal, Bot M8 argued that the district court erred in its dismissal because it alleged error codes and messages shown by the PS4 that “support a plausible inference that the PS4’s fault inspection program can be concluded prior to the start of the game program.” The CAFC agreed with Bot M8, noting that they need not prove their case at the pleading stage.
Leave to Amend
The CAFC found that the district court’s denial of leave to amend was proper, because under FRCP 16 there must be “good cause” to amend. The district court found there was not “good cause” and the CAFC reasoned that this was not an abuse of discretion since Bot M8 did not raise concerns about reverse engineering until its request to file the SAC. In fact, Bot M8 previously represented that it had already done so, and accordingly waived its right to object to that obligation.
The district court granted summary judgment in favor of Sony regarding the ‘363 patent, holding claim 1 ineligible under 35 U.S.C. §101. The CAFC affirmed the district court’s decision, finding their Section 101 analysis persuasive.
Accordingly, the CAFC affirmed in part and reversed in part the decision of the district court and remanded for further proceedings regarding the infringement of the ‘988 and ‘670 patents.