The Software IP Report

Divided Infringement Results in Judgment on Pleadings on Induced Infringement

Finding that a complaint failed to sufficiently allege that the defendant exercised direction or control over all asserted steps of a method patent claim, a court has dismissed a complaint alleging induced infringement under FRCP 12(c). Robert Mankes v. Vivid Seats, Limited, No. 5:13-CV-717-FL, 2015 U.S. Dist. LEXIS 24327 (E.D.N.C. Feb 26, 2015). Based on this ruling, it appears that the doctrine of “divided infringement” continues to have some traction.

Plaintiff alleged direct and induced infringement of U.S. Pat. No. 6,477,503, directed to a method for a reservation system that controls inventory. Vivid Seats at *1. Defendant, an Internet ticket seller, argued that the complaint failed to allege adequately alleged direct or induced infringement. Id. at *2. In particular, defendant argued plaintiff had not alleged that defendant performed every step of the asserted method claim, or that defendant exercised control over other parties committing some of the steps of the claimed methods. Miniauction, Inc. v. Thomson Corp., 532 F.3d 1318, 1328 (Fed. Cir. 2007).

The plaintiff responded that third parties, acting at arm’s length, when combined to perform all steps of the claimed method, qualifies as infringement. Vivid Seats at *2-*3. In particular, plaintiff argued that the third parties, sellers of tickets (“the Sellers”), found defendant’s system “irresistible,” and that because the Sellers’ actions were a “natural, ordinary and reasonable consequence” of defendant’s conduct, that the standard for showing that the defendant exercised control had been met.

The Court rejected plaintiff’s argument, holding that “the complaint contains no allegations that the Sellers are defendant’s agents.” Id. at *6. The Court held that “under a theory of divided infringement, plaintiff must allege defendant exercised ‘direction or control over [the Sellers] in a principal-agent relationship or like contractual relationship.’” Id. Because plaintiff offered no allegations that the Sellers were under the defendant’s direction or control, the defendant did not directly infringe the asserted patent claim. Id. at *8. Furthermore, under Limelight Networks v. Akamai Technologies, 134 S. Ct. 2111 (2014), induced infringement requires direct infringement.. Plaintiff could not show that the Sellers infringed the patent, and without direct infringement, plaintiff’s arguments for induced infringement failed. Vivid Seats at *8.

This case seems fairly straightforward, because well-understood Federal Circuit and Supreme Court precedent on divided infringement requires the plaintiff to have at least alleged some direction or control by the defendant of all allegedly infringing acts, and the plaintiff here could not make allegations rising to this seemingly low bar. However, beyond being a good illustration of the divided infringement doctrine, what may be of significance is that this case was decided on a motion on the pleadings. In particular, plaintiff failed to “allege facts permitting the inference that defendant directs or controls the [Sellers],” the primary argument against direct infringement. Id. The Supreme Court has held that pleadings must contain enough facts “to raise a reasonable expectation that discovery will reveal evidence,” Ashcroft v. Iqbal, 556 U.S. 662,678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). However, the Federal Circuit more recently held that the bare-bones patent infringement Form 18 is sufficient for claims of direct infringement, albeit not necessarily for claims of contributory or induced infringement, such as were made here. See K-Tech Telecommunications v. Time Warner, 714 F.3d 1277 (Fed. Cir. 2013).

In granting judgment on the pleadings, the court here noted that “the complaint need not set for detailed factual allegations,” just enough facts to allow a court to infer “more than the mere possibility of misconduct.” Vivid Seats at *4 (internal quotations omitted). Here, because “the complaint contains no allegations the Sellers are defendant’s agents” and plaintiff did not “allege the existence of a contract between defendant and the Sellers requiring the Sellers to complete the steps” of the claimed method, the Court held that “plaintiff has failed to successfully allege direct infringement.” Id. at 6-8. Without direct infringement, there is no possibility of induced infringement – a basic lesson for anyone contemplating a complaint for patent infringement to consider.