PageMelding filed a patent infringement action against ESPN asserting a patent that enables internet service and content providers to form mutually beneficial collaborations where website content is customized in accordance with those collaborations. PageMelding asserted that examples of infringement include, but are not limited to, ESPN3 and WatchESPN websites.
After several attempts to amend after motions to dismiss, PageMelding ultimately succeeded in filing an operative complaint. ESPN then filed an answer with twelve affirmative defenses and two counterclaims, one for a declaration of non-infringement and another for invalidity of the patent-in-suit. PageMelding then filed a motion to dismiss the counterclaims on the ground that they failed to state any facts that would put plaintiff on notice of the basis of the claims and to strike the affirmative defenses because they lacked any factual allegations and were wholly conclusory.
After reviewing the law on motions to dismiss and a motion to strike affirmative defenses, the district court noted a distinction between the direct and indirect non-infringement counterclaims. "Pursuant to In re Bill of Lading, however, ESPN's counterclaim for declaratory relief regarding direct non-infringement is sufficient. In contrast, the lack of particular facts in its counterclaims for indirect non-infringement and invalidity, are fatal. While a court "must take all of the factual allegations in the complaint as true, it is "not bound to accept as true a legal conclusion couched as factual allegation." Iqbal, 556 U.S. at 678. . . . "The direct non-infringement portion of ESPN's counterclaim must be evaluated under Form 18, whereas the indirect non-infringement portion is subjected to the heightened pleading standard of Iqbal and Twombly."
On the direct non-infringement, the district court then found that PageMelding was trying to have it both ways. "Plaintiff wants it both ways. It wants to benefit of the skimpy Form 18 pleading for itself but when it comes to the mirror image pleading for declaratory relief by the accused infringer, it wants to impose an Iqbal and Twombly standard. This is most unfair. Defendant's direct non-infringement allegations are sufficient if they have at least as much detail as Form 18. The example of direct infringement allegations in Form 18 is as follows: 'The defendant has infringed and is still infringing the Letters Patent by making, selling, and using electric motors that embody the patented inventions, and the defendant will continue to do so unless enjoined by this court.' ESPN's explanation that there is a controversy over whether ESPN is not directly infringing upon one or more claims of the '577 patent though its WatchESPN and ESPN3 websites is substantially similar to the allegation in Form 18 because it identifies the allegedly infringing activity and the allegedly infringed patents (Ans. 3-8). Plaintiff's motion to dismiss this part of the counterclaim is therefore DENIED."
Nonetheless, the district court reached the opposite conclusion on the claim for indirect non-infringement. "Form 18 measures only the sufficiency of allegations of direct infringement, not induced infringement. In re Bill of Lading, 681 F.3d at 1336. Consequently, ESPN's indirect non-infringement counterclaim is evaluated under Iqbal and Twombly. ESPN has not alleged any facts, that if true, would lead to a reasonable inference that it did not intend another party to infringe the patent-at-issue. ESPN argues that it need not allege details supporting its counterclaim because PageMelding did not disclose "the specific manner in which the ESPN websites customize content based on a specific Participating Provider, or Internet Service Provider" (Ans. 4-5). Whereas the claim for infringement is plaintiff's burden, ESPN bears the burden of proof on its non-infringement counterclaim. Plaintiff's motion to dismiss this portion of the counterclaim is accordingly GRANTED WITH LEAVE TO AMEND."
In terms of the invalidity claim, the district court also agreed that the current allegations were insufficient. "Plaintiff argues that because ESPN did not specify the law or laws that allegedly invalidate claims of the '577 patent, it is left to speculate as to the factual basis for defendant's allegation of invalidity. According to defendant's answer
19. One or more claims of the '577 patent are invalid for failing to comply with one or more of the requirements of the Patent Laws of the United States, 35 U.S.C. §§ 100, et seq., including, but not limited to, §§ 101, 102, 103, and/or 112.
20. ESPN is entitled to a declaratory judgment that one or more claims of the '577 patent are invalid. (Id. at 13). Defendant's conclusory pleading of the statutes results in a general allegation that the '577 patent is defective, nothing more. This counterclaim falls short of the "fair notice" requirement of the FRCP 8 as interpreted by Iqbal and Twombly. Accordingly, plaintiff's motion to dismiss this counterclaim is GRANTED WITH LEAVE TO AMEND."
Looking at the motion to strike the affirmative defenses, the district court struck each of the affirmative defenses because they failed to allege any facts explaining their basis. "Because all twelve of ESPN's affirmative defenses fail to allege any facts explaining their basis, they are insufficient. Plaintiff's motion to strike affirmative defenses one through twelve is therefore GRANTED WITH LEAVE TO AMEND."
The district court explicitly recognized the unfairness in allowing the bare bones infringement complaint to proceed but requiring far more detail for affirmative defenses. "This order recognizes the unfairness in allowing a bare-bones Form 18 complaint to go forward in patent litigation with all of its bone-crushing burden while, at the same time, prohibiting the defendant from pleading affirmative defenses with such brevity. This unfairness is inherent in the court of appeals' decision to permit Form 18 pleading despite the Supreme Court's pronouncement in Iqbal and Twombly. In time this imbalance will perhaps be addressed by the Supreme Court. Meanwhile, district judges are obliged to acquiesce."
PageMelding, Inc v. ESPN, Inc., Case No. C 11-06263 WHA (N.D. Cal. Sept. 6, 2012)
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