Barebones Complaint Leaves Nestlé With Bitter Taste

April 24, 2012

In a patent case pending before Judge Selna in the Central District of California, Defendant Nestlé USA, Inc. ("Nestlé") moved pursuant to Rule 12(b)(6) to dismiss Plaintiff Network Signatures, Inc.'s ("NSI") infringement claims under Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007) and Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). The Court denied Nestlé's motion finding that NSI's complaint alleged enough facts to plausibly state a claim for direct, indirect and willful infringement.

The Court recited the well established legal standard for attacking a complaint under Twombly and Iqbal:

In resolving a Rule 12(b)(6) motion under Twombly, the Court must follow a two-pronged approach. First, the Court must accept all well-pleaded factual allegations as true, but "[t]hread-bare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. Most succinctly stated, a pleading must set forth allegations that have "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. at 1940. Courts "'are not bound to accept as true a legal conclusion couched as a factual allegation.'" Id. at 1950 (quoting Twombly, 550 U.S. at 555). "In keeping with these principles[,] a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth." Iqbal, 129 S.Ct. at 1950.
Second, assuming the veracity of well-pleaded factual allegations, the Court must "determine whether they plausibly give rise to an entitlement to relief." Id. at 1950. This determination is context-specific, requiring the Court to draw on its experience and common sense; there is no plausibility "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct." Id.

Nestlé argued that NSI had not alleged that Nestlé performed all of the steps in the patents-in-suit nor did NSI sufficiently allege that Nestlé controlled or directed third parties who may have performed the remaining steps. Nonetheless, the Court rejected this argument and found that the following allegations sufficiently stated a claim for direct infringement:

On information and belief, Defendant uses digital certificates and digital signatures implemented through the use of public key infrastructure to facilitate communication with its employees, business partners, affiliates, and customers. For example, Defendant enables a computer of a Defendant customer, affiliate, business partner, or employee ("sending computer") to send a secure communication over the Internet to another computer ("receiving computer") by using a confidential private key, and a public key, to digitally sign the message being sent. When the computer receives the signed message, it uses the sending computer's public key, and its private key, to decrypt the signature (collectively referred to as "Defendant Authentication Activities").
By making, using, selling, and offering for sale Defendant Authentication Activities, Defendant has directly infringed and continues to directly infringe the '122 Patent, including infringement under 35 U.S.C. § 271(a) and (f).

In terms of inducing infringement, the Court concluded that NSI alleged the two additional elements of knowledge and intent to induce infringement. Specifically, the Court relied on NSI's allegations that Nestlé "enables [another's] computer...to send a secure communication...by using a confidential private key, and a public key, to digitally sign the message" in a manner that infringes the '122 Patent" and that "Defendant had knowledge of the '122 Patent and knew or should have known that their actions would induce direct infringement by others and intended that their actions would induce direct infringement by others." According to the Court, this was sufficient to state a claim for inducing infringement.

Notably, the Court was not troubled, at least at the pleading stage, by the fact that NSI did not allege the exact manner in which Nestlé allegedly enabled the infringing activities of others. The Court concluded that "[b]y describing in the Complaint the manner in which the '122 Patent is allegedly infringed, NSI meets its Twombly/Iqbal burden."

Similarly, the Court found as sufficient to state a claim for contributory infringement the allegations of direct infringement (above) coupled with the allegation that "Defendant has also indirectly infringed and continues to indirectly infringe the '122 Patent by contributory infringement by providing non-staple articles of commerce to others for use in an infringing system or method with knowledge of the '122 Patent and knowledge that these non-staple articles of commerce are used as a material part of the claimed invention of the '122 Patent."

Finally, in terms of alleging willful infringement, the Court found that allegations of direct infringement and Nestlé's knowledge of the '122 Patent were sufficient to allege a claim for willful infringement even though the complaint did not specifically allege that Nestlé acted despite an objectively high likelihood that its actions constituted infringement of a valid patent.

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This case illustrates the difficulty of attacking claims of indirect and willful infringement at the pleading stage, even with a complaint having only minimal, general allegations supporting such claims. It is also reinforces that defendants should be careful not to conflate the requirements of pleading a claim with proving a claim when attacking claims at the pleading stage.

Network Signatures, Inc. v. Nestlé USA, Inc., Case No. SACV 11-1614 JVS (RNBx), Docket No. 25 (C.D. California April 16, 2012).

The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Greg Cordrey at 949.623.7236 or GCordrey@jmbm.com.