The Software IP Report

Patent Infringement Pleadings Standards Defined by Federal Circuit

A claim for direct patent infringement is adequately stated by following Form 18 attached to the Federal Rules of Civil Procedure.  However, Form 18 does not set the standard for claims of indirect infringement (i.e., contributory infringement and inducing infringement); these claims must be evaluated against the standards established by the U.S. Supreme Court in the Iqbal and Twombley cases.  In re Bill of Lading Transmission Processing and System Patent Litigation, Nos. 2010-1493, 2010-1494, 2010-1495, 2010-1496, 2011-1101, 2011-1102 (Fed. Cir. June 7, 2012).  The majority’s opinion in this case appears to put to rest some of the recent uncertainty concerning patent infringement pleading standards.  That said, Judge Newman’s partial dissent keeps some controversy alive.  Furthermore, the issue addressed in this case, lying at the fundament of patent litigation, would seem to be one ripe for en banc, or even Supreme Court, review.

United States Patent No. 6,401,078, at issue here, claims a “method for transferring shipping documentation data for a package from a transporting vehicle to a remote processing center.”  The patent owner, R+L Carriers, Inc., filed amended complaints against the respective defendants in this consolidated litigation that included “detailed factual allegations” based on “quotations from Appellees’ websites, advertising, and industry publications.”  R+L also made “allegations about Appellees’ strategic partnerships with other companies, their advertising, and their involvement at trade shows.”  Based on its factual allegations and the inferences it drew from them, R+L asserted that at least one defendant was a direct infringer, and also claimed “that each Appellee is liable for inducing infringement and contributory infringement of the ’078 patent.”

The trial court held that R+L had failed to state a claim for direct infringement because it had not identified any specific customers who had directly infringed the ’078 patent claims.  According to the trial court, reasonable inferences that R+L claimed could been drawn concerning specific customers were not in fact reasonable.  Although a finding of indirect infringement requires direct infringement, the trial court went on to consider whether R+L had adequately pled either contributory infringement or infringement by inducement.  The trial court held that R+L had not pled in the specific intent required for infringement by inducement, nor had it “plausibly plead that the accused products were not capable of substantial noninfringing uses” to sustain a claim for contributory infringement.  The case thus came before the Federal Circuit when R+L appealed the trial court’s dismissal of its claims.

The Federal Circuit found that R+L’s claims of direct infringement were adequately pled because they provided “the specificity required by Form 18.”  Thus, the court followed its holding in McZeal v. Sprint Nextel Corp., 501 F.3d 1354 (Fed. Cir. 2007), which some had thought, or perhaps hoped, was limited to the facts there (McZeal was a pro se plaintiff).  Further, the court took pains to state that it recognized that some of the forms attached to the Federal Rules would not satisfy the requirements of Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009).  Moreover, R+L’s complaints here, identifying specific direct infringers, and stating facts from which one could infer how they infringed, went beyond the requirements of Form 18.

Turning to the question of indirect infringement, the court began by stating that a claim for indirect infringement could be properly pled where a plaintiff failed to identify a specific direct infringer “if it pleads facts sufficient to allow an inference that at least one direct infringer exists.”  Further, the court “agree[d] with several district courts that have addressed this issue that Form 18 should be strictly construed as measuring only the sufficiency of allegations of direct infringement, and not indirect infringement.”

However, unfortunately for R+L, “the facts alleged demonstrated that the Appellees’ products do have substantial non-infringing uses.”  R+L argued that the defendants’ products as combined had no non-infringing uses, but the court explained that this simply meant that the system in which component products were used infringed.  The fact that a component with substantial non-infringing uses was used in an infringing system did not amount to contributory infringement.  Further, contrary to R+L’s argument, the question of whether contributory infringement was adequately pled could be resolved without claim construction.

To survive motions to dismiss claims of induced infringement, “R+L’s amended complaints must contain facts plausibly showing that Appellees specifically intended their customers to infringe the ‘078 patent and knew that the customer’s acts constituted infringement.”  However, intent could be sufficiently pled if a plaintiff pled facts from which intent could be inferred.  R+L was not required to prove all of these facts at the pleading stage.  Looking at the respective complaints against each of the defendants in turn, the court found that the requisite intent in fact could be inferred.

Judge Newman filed a strong dissent from the majority’s opinion that a complaint following Form 18 was sufficient under Iqbal and Twombley.  According to Judge Newman, the majority held “that pleadings of direct patent infringement need not provide the information otherwise required in all complaints.”  Upon reviewing Form 18, Judge Newman stated that it “does not require general or specific facts of infringement, or any other accommodation of complexity.”  Further, as lower courts have recognized, “the forms are to be read along with Supreme Court guidance, and not as a separate pleading standard.”  Providing a detailed review of the history of the Federal Rules of Civil Procedure and the appended forms, Judge Newman saw no reason to follow Form 18 here.  Moreover, there was no justification for evaluating pleadings of direct and indirect infringement under separate standards, as the majority had done.

That said, “applying the pleading standards of Twombly and Iqbal,” Judge Newman thought “that the pleading requirements of direct and indirect infringement are met.”  She concurred in the majority’s decision “to this extent.”

Finally, given the nature of the claim at issue here, the failure of any defendant to raise arguments under 35 U.S.C. § 101 must be due to the early stage of the litigation, and the defendants’ hope that a motion  under Rule 12(b)(6) addressing the facial sufficiency of R+L’s complaints, would carry the day.  Assuming this litigation persists, surely the patent-eligibility argument is coming.