Drone Techs v. Parrot –Parrot appeals from a final judgment that awarded Drone damages for Parrot’s infringement of two patents and awarded Drone attorney fees pursuant to § 285 and Rule 37 of the Federal Rules. These awards came after the district court entered a default judgment against Parrot as a sanction for Parrot’s failure to comply with two discovery orders requiring production of, among other things, the source code used in its products.

The panel holds that the court abused its discretion in issuing the two discovery orders and in entering the “drastic” sanction of default against Parrot for its failure to comply with the orders. While the panel determines that Parrot’s in-house and litigation counsel both handled discovery matters inappropriately, this did not justify default judgment, which should be used in only the most egregious cases.

The panel affirms the denial of Parrot’s motion to dismiss for lack of standing based on Parrot’s contention that the assignments to Drone were invalid because the person named on the patents and who assigned the patents to Drone was not the true inventor. Parrot also raised the affirmative defense of improper inventorship under 35 U.S.C. § 102(f), which the district court struck as part of its default judgment. On remand, Parrot will have the opportunity to reassert this invalidity defense.

Lyda v. CBS – The panel affirms the dismissal of an infringement action, without leave to replead, because the Amended Complaint for joint infringement does not meet the pleading requirements of Twombly and Iqbal. Lyda sued CBS for ‎infringement of the patents directed to systems for obtaining real time ‎responses to TV programming by allowing persons viewing a broadcast to ‎respond in real time. ‎After CBS notified Lyda of deficiencies in the original complaint, Lyda filed an Amended Complaint, which Defendants ‎moved to dismiss for failure to state a claim. The ‎judge informed Lyda that Lyda could either amend the ‎complaint a second time, or oppose the motion and forfeit his ability to further amend the complaint. ‎Lyda elected to oppose the motion, which was granted by the district court.

The panel holds that the Amended Complaint sets forth allegations of joint infringement, which the panel then rules are measured by the pleading requirements of Twombly and Iqbal and not the minimal pleading requirements of Form 18.‎ To survive such a motion, a complaint must allege sufficient facts, taken as true, to ‎state ‎a ‎plausible claim for relief. Thus, under Twombly, Iqbal ‎and Akamai, a claim of joint ‎infringement requires pleading facts sufficient to allow a reasonable inference that all steps of the ‎claimed method are performed and either (1) one party exercises the requisite “direction or control” over ‎the others’ performance or (2) the actors form a joint enterprise such that performance of every step is ‎attributable to the controlling party. ‎

The panel holds that the ‎Amended ‎Complaint fails to meet the pleading requirements of Iqbal/Twombly. Moreover, because Lyda amended the complaint once, the panel holds that the district court did not abuse its discretion in denying Lyda leave to amend the complaint one more time.

This Amended Complaint was filed before the abrogation of Form 18 in the changes to the Federal Rules that went into effect December 1, 2015. It has previously been held that Form 18 does not apply to induced infringement actions that require more specificity allegations, and this case extends that to joint infringement. The Iqbal/Twombly standard will apply to all patent complaints filed after December 1, 2015, and some cases have even applied Iqbal/Twombly ‎to complaints filed prior to that date where it did not work an injustice to plaintiffs, such as where plaintiffs were permitted to replead.

Intellectual Ventures v. Symantec – Intellectual Ventures sued Symantec Corp. and Trend Micro for infringement of various claims of three patents directed to anti-malware and anti-spam software: the ’050, ’142 and ’610 patents. The district court held the asserted claims of the ’050 and ’142 patents to be ineligible under § 101, and the asserted claim of the ’610 patent to be eligible. The panel affirms as to the asserted claims of the ’050 and ’142 patents, and reverses as to the asserted claim of the ’610 patent, finding that patent invalid as well. Judge Stoll dissents as to the finding of the ’610 patent.

In our longer report we have included the claims at issue‎, and have excerpted the panel’s comments about the claim language. Given the variety of ways the inventions were claimed, the opinion provides good examples of claims that were found not to meet the ‎§ 101‎ bar when compared to the claims in the Alice, Bilski and Diamond v. Diehr Supreme Court cases as well as to claims in recent Circuit decisions like DDR, Content Extraction, Ultramercial, Enfish and BASCOM Global.

Drone Technologies, Inc. v. Parrot S.A., Fed. Cir. 2015-1892, -1955 (September 29, 2016)

Drone is a Taiwanese corporation and the assignee of the ’071 and ’748 patents directed to systems for a remotely controlled drone from a smartphone. Parrot, based in Paris, France, is a designer, developer, and marketer of hobby aircraft, i.e., “drones.” Drone sued Parrot, alleging that Parrot (by virtue of its customers’ actions) indirectly infringed the two patents. In particular, Drone contended that Parrot instructed customers who purchased the AR.Drone or AR.Drone 2.0 to download and use the FreeFlight application to pilot their aircraft. Once the customers followed Parrot’s instructions and implemented Parrot’s remote-controlled system, Drone alleged, they directly infringed the systems claimed in the patents-in-suit.

After discovery was underway, the parties began to dispute whether Parrot should be required to produce all source code used in operating its drones. Eventually, Drone filed a motion to compel, which the court granted, compelling Parrot to produce its on-board source code. Unsatisfied with Parrot’s subsequent productions, Drone filed another motion to compel Parrot to produce its on-board source code, which the court granted. Subsequently, the district court sanctioned Parrot for its failure to comply with its two prior discovery orders. In imposing sanctions, the court struck Parrot’s counterclaims and defenses and entered a default judgment against it as to liability.

The issue of damages was tried before a jury, with the jury finding that Drone was entitled to $7.8 million in damages for Parrot’s infringement. Thereafter, the court awarded Drone roughly $1.7 million in attorney fees pursuant to 35 U.S.C. § 285 and Fed. R. Civ. P. 37.

Parrot raises three issues on appeal. First, it contends that Drone did not have standing to sue and that, therefore, the district court should have dismissed Drone’s suit for lack of jurisdiction. Second, Parrot argues that the court abused its discretion in directing Parrot to turn over its on-board source code and then sanctioning Parrot by entering a default judgment against it when it failed to do so. Finally, Parrot urges that, even if the default judgment of liability is allowed to stand, the award of damages should be vacated because the district court misapplied the law on damages and abused its discretion in allowing the jury to consider certain evidence on damages. We turn first to the matter of standing.

Following the district court’s entry of default judgment, but before the trial on damages, Parrot moved for dismissal of Drone’s complaint for lack of standing. Parrot argued that the district court lacked jurisdiction because Drone did not have complete ownership of the ’071 and ’748 patents and thus did not have standing to bring an action for infringement. The district court denied Parrot’s motion. Despite viewing Parrot’s arguments as “re-styled versions” of invalidity defenses stricken as part of the default judgment, the court addressed Parrot’s challenge to inventorship. Although the court did not cite any particular evidence or case law, it nevertheless found that the record sufficiently supported Ms. Lee’s claim to be a properly named inventor and that it did not demonstrate that Mr. Ding is at least a coinventor. In light of Parrot’s concession that Ms. Lee is presumed to be the sole inventor, the court concluded that Drone had standing to sue as the rightful owner of the patents-in-suit by virtue of the assignment from her.

The Denial of Parrot’s Motion to Dismiss for Lack of Standing ‎Is Affirmed

To establish standing under Article III, a plaintiff must demonstrate, inter alia, that it has suffered an injury in fact. “Constitutional injury in fact” occurs when a party infringes a patent in violation of a party’s exclusionary rights. Before a court may exercise jurisdiction over a patent infringement action, it must be satisfied that, “in addition to Article III standing, the plaintiff also possesses standing as defined by § 281 of the Patent Act.” Under § 281, “[a] patentee shall have remedy by civil action for infringement of his patent.” 35 U.S.C. § 281.

There is a “presumption that [a patent’s] named inventors are the true and only inventors.” In our view, Parrot has failed to advance a persuasive reason for not accepting this presumption at this stage of the litigation, particularly when another avenue exists for it to challenge inventorship. Specifically, a party may raise the defense that a patent is invalid for failing to name the correct inventors. 35 U.S.C. § 102(f) Parrot recognized as much when it first attempted to add a claim and defense under § 102(f) to its answer, alleging both the misjoinder of Ms. Lee and the nonjoinder of Mr. Ding. J.A. 2437–38. However, the court denied as moot Parrot’s motion to amend its answer at the same time the court imposed sanctions. While “[i]t is well settled that questions of standing can be raised at any time,” we see no reason why Parrot should be allowed to reassert an invalidity challenge under the guise of a motion to dismiss for lack of standing.

Parrot suggests that Ethicon, Inc. v. U.S. Surgical Corp., 135 F.3d 1456 (Fed. Cir. 1998), requires us to assess inventorship when considering Drone’s standing. We do not agree. In Ethicon, the defendant obtained a license from a putative co-inventor and then moved the trial court, under 35 U.S.C. § 256, to add the co-inventor as a named inventor on the patent asserted against the defendant. After the court granted the motion to correct inventorship, the defendant successfully moved to dismiss the case for failure to join a co-inventor. We affirmed. The key difference between Ethicon and this case is that the district court in Ethicon had already established that the patent-in-suit had a co-inventor who was not named as a plaintiff when the defendant moved to dismiss. Unlike in Ethicon, here, the district court never granted (or even considered) a § 256 motion, so the court was not presented with a newly established inventorship when Parrot moved to dismiss based on Drone’s alleged lack of standing. Thus, even though Ethicon involved an issue of inventorship ultimately leading to a dismissal, it does not compel consideration of inventorship in determining standing in this case.

Since we need not address the merits of Parrot’s inventorship challenge, the standing analysis in this case is straightforward. Parrot concedes, as it must, that Ms. Lee is the presumed “true and only” inventor. We therefore affirm the district court’s denial of Parrot’s motion to dismiss for lack of standing without reviewing or endorsing the district court’s inventorship analysis. The district court had, and will continue to have, jurisdiction to hear Drone’s suit.

Parrot’s main argument on appeal is that the district court twice abused its discretion: first, when it directed Parrot to turn over its on-board source code; and, second, when it sanctioned Parrot by entering a default judgment against it after it failed to produce the source code.

Discovery began on June 11, 2014, when Parrot served on Drone its “Initial Disclosures,” which included over two-thousand pages of documents. The parties immediately began to dispute whether Parrot’s production met the requirements of LPR 3.1, with Drone insisting that Parrot was required to produce “source code, specifications, schematics, [and] flow charts” relating to the accused products and Parrot contending that its production was “sufficient to show the operation of the accused products as required by LPR 3.1.” After a series of email exchanges and a fruitless meet and confer, Drone moved the district court to compel Parrot to produce the requested information (the “Initial Motion”).

The district court sided with Drone, issuing a one page order on July 1, 2014 (the “July 1 Order”). In the July 1 Order, the court compelled Parrot to “produce all source code, specifications, schematics, [and] flow charts . . . relating to the operation of the accused products.” The court provided no analysis or reasoning in the July 1 Order. Two days later, Parrot filed an emergency motion for clarification and reconsideration of the July 1 Order. In it, Parrot made three requests. First, Parrot asked the court to allow it to make available for inspection its on-board source code, which it said is “extremely sensitive technical information.” Second, it requested that it be able to produce documents on a rolling basis beginning on July 9. And third, it sought permission to not produce documents relating to the Bebop Drone and MiniDrones because, in its view, those products were not accused of infringement. On July 8, 2014, the court denied Parrot’s emergency motion in a text order with no written analysis.

Shortly thereafter, Parrot produced various documents, as required by the July 1 Order. However, because Parrot did not produce, among other things, documents relating to the Bebop Drone, the MiniDrones, and the on-board source code, Drone moved the district court to order Parrot to comply with the July 1 Order (the “Second Motion”). The court granted Drone’s Second Motion in an order dated July 25, 2014 (the “July 25 Order”), and gave Parrot until August 13, 2014, to comply. The district court also ordered Parrot to file a “written confirmation” of its compliance. In addition, the court prompted Drone to file a “Motion to Show Cause why Parrot should not be held in contempt” if Parrot again failed to comply.

One week later, Parrot moved the district court to modify the existing protective order to include certain safeguards for the production of the on-board source code. Believing that the protective order in place adequately guarded Parrot’s interests, the court denied the motion. On August 13, 2014, the last day to comply, Parrot filed an emergency motion to seek relief from the July 25 Order. It urged the court to excuse it from producing its on-board source code and from producing documents relating to the Bebop Drone, and it sought an extension of time to produce documents relating to the MiniDrones. Parrot also requested, in the alternative, a stay of the litigation in order to allow it to file with this court (and to allow this court to resolve) an application for a writ of mandamus. The district court denied Parrot’s motion the following day.

Drone then filed a motion to show cause why Parrot should not be held in contempt, but the court found it more appropriate to impose a default sanction instead of holding Parrot in contempt. Concluding that “lesser sanctions” would have been inadequate, the court entered a default judgment against Parrot as to liability and struck its answer and counterclaims. In the meantime, Parrot had filed with us two petitions for writ of mandamus. We denied the petitions, stating that “the appeal from the default judgment” entered as a sanction “provides an adequate means to challenge the discovery order relating to the source code.”

As noted, Parrot contends that the district court (1) abused its discretion when it issued the July 1 and July 25 Orders and (2) abused its discretion again when it entered a default judgment against Parrot for its failure to comply with the orders. We conclude that, in this case, the district court twice abused its discretion: first, when it issued the July 1 and July 25 Orders; and second, when it imposed a default sanction on Parrot for not complying with those orders. We turn first to the discovery orders.

The District Court Abused Its Discretion in Granting Drone’s Initial and Second Motions

District courts must generally follow their own local rules. In issuing the July 1 and July 25 Orders, the district court failed to follow its local patent rules (as well as the Federal Rules) and also failed to provide any explanation for its deviation from those rules. In our view, the court erred in five respects.

First, the district court granted the Initial Motion even though it did not find (and Drone did not show) that Parrot had failed to meet its obligations under LPR 3.1. Second, in the July 1 and July 25 Orders, the district court appears to have overlooked the “sufficient to show” limitation in LPR 3.1 by forcing Parrot to turn over “all” of its technical information “relating to the operation of the accused products.” J.A. 5, 9. The court’s July 1 Order provides no explanation for its breadth; in fact, Drone did not even request such a broad order. Thus, even if Drone was entitled to some source code, the court provided no rationale for forcing Parrot to produce all of its source code and other technical documents as part of its Initial Disclosures. Third, in the July 1 and July 25 Orders, the district court also appears to have overlooked the “make available for inspection and copying” language in LPR 3.1 by directing Parrot to “produce” all information. The record contains no basis to support the court’s conclusion that Parrot had to produce its source code even though LPR 3.1 envisions inspection as an alternative.

Fourth, the district court’s July 1 and July 25 Orders failed to take into account the “identified in the claims pled” limitation in LPR 3.1 by forcing Parrot to produce documents relating to the Bebop Drone and MiniDrones. None of these products were identified in Drone’s complaint or otherwise accused of infringement. Finally, the July 1 and July 25 Orders failed to address the absence of any showing of relevance or need for the on-board source code and documents relating to the Bebop Drone and MiniDrones. Drone’s Initial Motion was virtually silent on the subject of the Bebop Drone and MiniDrones, offering no explanation as to how these non-accused products were relevant or necessary to any of its infringement claims. Notwithstanding that the Bebop Drone and MiniDrones seemed to have slipped into the fold, the court’s July 1 and July 25 Orders failed to address the relevance of, or need for discovery relating to, these products. Because there was neither a charge of infringement nor any evidence of relevance or need, discovery relating to the Bebop Drone and MiniDrones should not have been granted based solely on Drone’s suspicion.

As for the on-board source code, Drone also failed to show its relevance or establish any need for the code as it relates to the operation of the accused products. We do not decide today whether the on-board source code is relevant to this case. However, we note that source code is not necessary in every case. At this stage of the proceedings, it is far from clear that all source code—whether off-board or on-board—is necessary to Drone’s case. Nevertheless, on remand, Drone will have a chance to make a showing of need and relevance for the on-board source code, and Parrot will have a chance to dispute any such showings.

Taken together, the errors discussed above convince us that the district court abused its discretion in granting Drone’s Initial and Second Motions and in issuing the associated July 1 and July 25 Orders. Accordingly, the July 1 and July 25 Orders are vacated.

The “Drastic” Default Sanction Was Not Appropriate Here

We turn next to the district court’s default sanction. A dismissal or default is a “drastic” sanction, which is why the Third Circuit has “established [a] strong presumption against sanctions that decide the issues of a case.” Accordingly, a dismissal or default sanction is “disfavored absent the most egregious circumstances.” In this case, the district court concluded that five of the Third Circuit Poulis factors favor default, while one weighs neutrally. On that basis, the court imposed upon Parrot the sanction of a default judgment.

The extent of Parrot’s personal responsibility

We begin by looking at Parrot’s personal responsibility for not complying with the July 1 and July 25 Orders. The district court correctly found that Parrot was “personally involved in the decision to not produce required initial disclosures and, therefore, [was] responsible for [its] failure to comply with th[e] Court’s discovery Orders.” As a result, we see no reason to disturb the court’s conclusion on this factor.

History of dilatoriness & willful or bad-faith conduct

In evaluating these factors together, the district court reviewed Parrot’s various submissions to it relating to the discovery orders. Finding that Parrot took “shifting” and “inconsistent” positions as the case progressed and that its noncompliance was a tactical decision, the court concluded that these factors weighed in favor of “serious sanctions.” We do not think Parrot should be faulted for requesting clarification of the July 1 Order or for seeking additional safeguards for its source code. We also think Parrot made clear that it was willing to make its on-board source code available for inspection, as permitted by LPR 3.1, which demonstrates that it was not seeking to hide information. Nevertheless, the record reflects that Parrot was fully aware of the consequences of its actions and that it vacillated, at least to some extent, on whether it intended to comply with the court’s orders. The record therefore supports the court’s findings on these factors. However, we think our conclusion above—that the court abused its discretion in issuing the July 1 and July 25 Orders—sheds some favorable light on Parrot’s decision not to comply and thereby reduces the extent to which its dilatoriness and willfulness weigh in favor of serious sanctions.

Meritoriousness of claims or defenses

Despite the brevity of the court’s analysis on this issue, we agree that this factor is neutral because both parties “advanced prima facie cases.”

Prejudice to Drone caused by Parrot

As for prejudice to Drone, we think the district court erred by concluding that this factor “weighs heavily toward the imposition of severe sanctions.” The district court presumably was referring to the on-board source code and documents relating to the Bebop Drone and MiniDrones. However, as discussed above, Drone has not shown that this information is relevant or necessary to its case, so the record does not support a finding that lacking this information prejudiced Drone in any way, whether for claim construction purposes or for trial. Nor do we believe that Drone demonstrated that it was prejudiced by spending time and money on its motions and its responses to Parrot’s motions. Although the district court deemed Drone’s expenditures of time and money as being substantial, it did not state that they were “excessive” or “possibly irremediable.” Accordingly, because the apparent prejudice to Drone is unsubstantiated, we hold that this factor disfavors a severe sanction.

Effectiveness of sanctions other than default

The court’s analysis suggests it did not seriously consider alternative sanctions. As noted, the only real prejudice here was lost time, energy, and money. Had the court started with that premise, it would have determined that numerous, alternative sanctions were available to adequately account for any prejudice to Drone. Notwithstanding the “strong presumption” against a “drastic” sanction like default, the court rejected all alternatives without explanation.

In sum, we conclude that the district court erred in its findings on prejudice and the availability of alternative sanctions and, consequently, erred in weighing the Poulis factors. We conclude that, on the facts of this case, those two factors outweigh the three factors suggesting that the imposition of severe sanctions was appropriate. Moreover, because “all sanctions originate from the realm of equity,” we believe our vacatur of the district court’s discovery orders underscores the notion that a default sanction was improper here. Put most simply, bearing in mind that, in the Third Circuit, a default sanction is “disfavored absent the most egregious circumstances,” we think it would be illogical to uphold the sanction of default for Parrot’s failure to comply with discovery orders which we have determined represented abuses of discretion. The district court’s entry of default judgment against Parrot is vacated. The awards of damages and attorney fees which resulted from the entry of judgment against Parrot also are vacated.

Notwithstanding that we are vacating the district court’s discovery orders and its entry of a judgment of default, we recognize that Parrot’s actions displayed a measure of misconduct. Accordingly, on remand, in the event Drone again moves for sanctions for Parrot’s prior conduct in this case, the district court may, in its discretion, consider whether lesser sanctions are warranted for such conduct. If the court chooses to consider sanctions, it should take into account, Parrot’s production to date, its efforts to comply with the actual requirements of LPR 3.1, and the extent of any actual prejudice caused to Drone. It also should take into account the fact that we have vacated the July 1 and July 25 Orders.

Judge Newman Concurs

I agree that the default judgment was inappropriately imposed, and I join the court’s ruling. However, the record raises the question of inventorship, for the named sole inventor, Ms. Lee, testified that, “I came up with this idea about having the aircraft move following the motion of the remote controller,” but when asked whether she knew “how to make that idea work,” Ms. Lee answered, “I only came up with the ideas, and subsequently Bruce told me that there was such a chip that could detect movement.”

Precedent provides that “‘[o]ne who merely suggests an idea of a result to be accomplished, rather than means of accomplishing it, is not a joint inventor.’” Thus I do not share the view that it is unnecessary to undertake “a substantive examination of inventorship in order to resolve an issue of standing in an infringement action where the plaintiff’s claim to title is not otherwise in dispute.” Inventorship affects not only the validity of the patent, but also ownership and transfer of ownership. An incorrect inventor or inventive entity cannot pass title by assignment, because that entity has no title to pass.

Inventorship and standing appear to be critical to further proceedings. “The requirement that jurisdiction be established as a threshold matter ‘spring[s] from the nature and limits of the judicial power of the United States’ and is ‘inflexible and without exception.’”

Edwin Lyda v. CBS Corporation, Fed. Cir. 2015-1923 (September 30, 2016)

Mr. Lyda is the named inventor on the ’243 and ’506 patents directed to systems for “obtaining real time responses to remote programming” by “allowing persons viewing or listening to a TV broadcast to respond to the broadcast in real time without requiring a personal computer.” If the programming is being presented live as the responses are sent in, the program presenter can incorporate the responses into the programming and modify the programming to meet the audience’s needs.

Mr. Lyda sued CBS Corporation and its ‎wholly owned subsidiary CBS Interactive (collectively “CBS”) for infringement of the two patents for operating the show “Big Brother.” After CBS notified Mr. Lyda of alleged deficiencies in the original complaint, Mr. Lyda filed an Amended Complaint, which Defendants moved to dismiss for failure to state a claim under Rule 12(b)(6). During an initial pre-trial conference, the judge informed Mr. Lyda that, pursuant to his Individual Rules of Practice, he could either amend the complaint a second time, or oppose the motion and forfeit his ability to further amend the complaint. Mr. Lyda elected to oppose the motion to dismiss. The district court subsequently granted Defendants’ motion to dismiss and denied Mr. Lyda an opportunity for further amendments because “leave to replead would be futile.”

“To survive a motion to dismiss, a complaint must allege sufficient facts, taken as true, to state a plausible claim for relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662 (2009). Facial plausibility exists when the court can “draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id.

Allegations of Joint Infringement Are Measured by Iqbal and Twombly and Not Form 18

For claims of direct patent infringement, this court has determined that the pleading requirements of Form 18 suffice to survive a motion to dismiss. See In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323 (Fed. Cir. 2012). We have stated that when used properly, Form 18 “effectively immunizes a claimant from attack regarding the sufficiency of the pleading.”

Form 18 has the following minimal requirements:

(1) an allegation of jurisdiction; (2) a statement that the plaintiff owns the patent; (3) a statement that defendant has been infringing the patent “by making, selling, and using [the device] embodying the patent”; (4) a statement that the plaintiff has given the defendant notice of its infringement; and (5) a demand for an injunction and damages.

Federal Rule 84 provides that the forms in the Appendix suffice under these rules and illustrate the simplicity and brevity that these rules contemplate. Rule 84 and its accompanying Advisory Committee Notes indicate that the forms satisfy the rules as to the sufficiency of pleading direct infringement. To the extent any conflict exists between Twombly and the Forms regarding pleadings requirements, the Forms control.

We have also held that allegations of induced or contributory infringement, which have additional elements not found in direct infringement claims, are not governed by Form 18. In re Bill of Lading, “Rather, the pleading requirements set forth in Twombly and Iqbal apply” to claims of induced and contributory infringement. We have not, however, expressly considered whether claims of joint infringement should be measured by the sparse requirements of Form 18.

“Direct infringement under § 271(a) occurs where all steps of a claimed method are performed by or attributable to a single entity.” Akamai Techs., Inc. v. Limelight Networks, Inc., 797 F.3d 1020 (Fed. Cir. 2015) (en banc). To prove joint infringement, where multiple actors are involved in practicing the claim steps, the patent owner must show that the acts of one party are attributable to the other such that a single entity is responsible for the infringement. This court has held that an entity will be responsible for others’ performance of method steps in two circumstances: (1) where that entity directs or controls others’ performance, and (2) where the actors form a joint enterprise. Therefore, like claims of induced or contributory infringement, allegations of joint infringement require elements beyond those for the more typical act of direct infringement to which Form 18 is directed.

We agree with the district courts that have addressed this issue and concluded that the pleading requirements for joint infringement are not satisfied by Form 18. Because joint infringement requires additional elements not addressed by Form 18, we hold that allegations of joint infringement must be measured by the Iqbal and Twombly standard without reference to Form 18. A claim of joint infringement thus requires pleading facts sufficient to allow a reasonable inference that all steps of the claimed method are performed and either (1) one party exercises the requisite “direction or control” over the others’ performance or (2) the actors form a joint enterprise such that performance of every step is attributable to the controlling party. Akamai.

The Amended Complaint Implicates Joint Infringement

Mr. Lyda’s complaint does not explicitly indicate whether CBS infringes the asserted patents under a single or joint theory of direct infringement. The Amended Complaint, however, alleges that “Defendant CBS, as owner of the Defendant CBS Interactive, controls the operations of the Defendant CBS Interactive,” ¶ 13, and therefore that the purported steps taken by CBS Interactive are attributed to CBS. The Amended Complaint further alleges infringement by “the participation of people under the control or direction of an independent contractor” hired by CBS Interactive and “the computer processing systems under the control of Defendant CBS Interactive.” ¶¶ 16–18. It also alleges that the independent contractors direct or control unnamed people to use their own or borrowed cell phones to vote. ¶ 17. These allegations implicate joint infringement, which Mr. Lyda’s counsel acknowledged during oral argument when he agreed that the Amended Complaint asserts a joint infringement theory of direct infringement.

Our cases have applied joint infringement to method claims and not system claims. The purported system claims asserted in this case are, in fact, method claims because the body of the claims require the performance of particular method steps. Moreover, the Amended Complaint pleads the system claims like the method claims, alleging direction or control over the independent contractors, who in turn control the unnamed third parties. Therefore, each count of the Amended Complaint implicates joint infringement.

Dismissal of the Amended Complaint Was Proper

We note that Mr. Lyda does not attempt to argue that the Amended Complaint satisfies the Twombly/Iqbal pleading standard outside of relying on Form 18. Because we hold that Form 18 does not apply to claims of joint infringement, and because Mr. Lyda has not plausibly pled a claim of joint infringement in satisfaction of the Iqbal/Twombly pleading standard, we affirm the district court’s dismissal.

The Amended Complaint relies on a direction or control theory of joint infringement and does not plead that Defendants are in a joint enterprise. To survive a motion brought under Rule 12(b)(6), the Amended Complaint must plausibly allege that Defendants exercise the requisite “direction or control” over the performance of the claim steps, such that performance of every step is attributable to Defendants. Akamai. The Amended Complaint alleges that CBS Interactive controls certain independent contractors who in turn control the “participation” of unnamed third persons to send votes on either their own or borrowed cell phones. Mr. Lyda does not set forth any factual allegations in support of his assertion that CBS Interactive controlled the independent contractors. Nor does it contain factual allegations relating to how the independent contractors controlled the unnamed third parties. Most importantly, the Amended Complaint does not allege any relationship between the Defendants and the unnamed third parties, who own or borrow cell phones, in a way that the actions of these unnamed third parties should be attributed to Defendants. There are thus no allegations in the Amended Complaint that can form the basis of a reasonable inference that each claim step was performed by or should be attributed to Defendants. The Amended Complaint fails to plausibly plead sufficient facts to ground a joint infringement claim and does not satisfy the Iqbal/Twombly pleading standard. Akamai. Accordingly, dismissal of the Amended Complaint was proper.

The District Court Did Not Abuse Its Discretion in Denying Leave to Replead

Mr. Lyda amended the complaint once, and declined the opportunity to amend the complaint a second time, deciding instead to oppose Defendants’ motion to dismiss. The district court’s rules of practice freely allow a plaintiff to amend its complaint in the face of a motion to dismiss, but curtails leave to amend where the plaintiff declines to do so until after the court finds the pleadings insufficient. We see no reason to disturb the district court’s application of its own internal rules, so we cannot say that the court abused its discretion in denying Mr. Lyda leave to amend his complaint.

Intellectual Ventures I LLC v. Symantec Corp., Fed. Cir. 2015-1769, -1770, -1771 (September 30, 2016)

1. The ’050 Patent

The district court held patent-ineligible the asserted claims of the ’050 patent—claims 9, 13, 16, 22, and 24—directed to filtering emails that have unwanted content. We agree with the district court. Independent claim 9 is representative:

9. A method for identifying characteristics of data files, comprising:

receiving, on a processing system, file content identifiers for data files from a plurality of file content identifier generator agents, each agent provided on a source system and creating file content IDs using a mathematical algorithm, via a network;

determining, on the processing system, whether each received content identifier matches a characteristic of other identifiers; and

outputting, to at least one of the source systems responsive to a request from said source system, an indication of the characteristic of the data file based on said step of determining.

According to IV, this method of filtering emails is used to address the problems of spam email and the use of email to deliver computer viruses. We agree with the district court that receiving email (and other data file) identifiers, characterizing email based on the identifiers, and communicating the characterization—in other words, filtering files/email—is an abstract idea. The Supreme Court has held that “fundamental . . . practice[s] long prevalent” are abstract ideas. Alice. The Supreme Court and we have held that a wide variety of well-known and other activities constitute abstract ideas.

Here, it was long prevalent practice for people receiving paper mail to look at an envelope and discard certain letters, without opening them, from sources from which they did not wish to receive mail based on characteristics of the mail. The list of relevant characteristics could be kept in a person’s head. Characterizing e-mail based on a known list of identifiers is no less abstract. The patent merely applies a well-known idea using generic computers “to the particular technological environment of the Internet.” DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014).

The asserted claims of the ’050 patent also resemble claims we have held were directed to an abstract idea. Recently, in BASCOM Global Internet Services, Inc. v. AT&T Mobility LLC, we held that a claim to a “content filtering system for filtering content retrieved from an Internet computer network[, e.g., to prevent users from accessing certain websites] . . . is [directed to] an abstract idea.” 827 F.3d 1341 (Fed. Cir. 2016). And in Content Extraction, 776 F.3d at 1347, cert. denied, 136 S. Ct. 119 (2015), we found that the asserted patents were “drawn to the abstract idea of 1) collecting data, 2) recognizing certain data within the collected data set, and 3) storing that recognized data in a memory.”

Because we hold the asserted claims of the ’050 patent are directed to an abstract idea, we proceed to Mayo/Alice step two to determine whether the claims contain an “inventive concept” that renders them patent-eligible. IV argues that the jury verdict determined that Symantec’s proffered prior art did not anticipate or render obvious the asserted claims of the ’050 patent, and that the jury’s anticipation and obviousness determination is inconsistent with a determination that the claims are patent-ineligible. However, “the ‘novelty’ of any element or steps in a process, or even of the process itself, is of no relevance in determining whether the subject matter of a claim falls within the § 101 categories of possibly patentable subject matter.” Diamond v. Diehr, 450 U.S. 175 (1981). The steps of the asserted claims of the ’050 patent do not “improve the functioning of the computer itself,” Alice, for example by disclosing an “improved, particularized method of digital data compression,” DDR Holdings, or by improving “the way a computer stores and retrieves data in memory,” Enfish, LLC v. Microsoft Corp., 822 F.3d 1327 (Fed. Cir. 2016). Rather, these claims use generic computers to perform generic computer functions.

The asserted claims of the ’050 patent are not patent-eligible under § 101.

2. The ’142 Patent

The district court held ineligible claims 1, 7, 17, 22, 24, and 26 of the ’142 patent, which relate to systems and methods for receiving, screening, and distributing email, and we agree. Claim 1 is representative of how the ’142 patent screens email, and recites:

1. A post office for receiving and redistributing email messages on a computer network, the post office comprising:

a receipt mechanism that receives an email message from a sender, the email message having at least one specified recipient;

a database of business rules, each business rule specifying an action for controlling the delivery of an email message as a function of an attribute of the email message;

a rule engine coupled to receive an email message from the receipt mechanism and coupled to the database to selectively apply the business rules to the email message to determine from selected ones of the business rules a set of actions to be applied to the email message; and

a distribution mechanism coupled to receive the set of actions from the rule engine and apply at least one action thereof to the email message to control delivery of the email message and which in response to the rule engine applying an action of deferring delivery of the email message, the distribution engine automatically combines the email message with a new distribution list specifying at least one destination post office for receiving the email message for review by an administrator associated with the destination post office, and a rule history specifying the business rules that were determined to be applicable to the email message by at least one rule engine, and automatically delivers the email message to a first destination post office on the distribution list instead of a specified recipient of the email message.

The district court held that “the asserted claims of the ’142 patent are directed to human-practicable concepts, which could be implemented in, for example, a brick-and-mortar post office.” We agree, and think the district court’s analogy to a corporate mailroom is also useful. Such mailrooms receive correspondence, keep business rules defining actions to be taken regarding correspondence based on attributes of the correspondence, apply those business rules to correspondence, and take certain actions based on the application of business rules. Those actions include gating the message for further review, as in claim 1, and also releasing, deleting, returning, or forwarding the message, as described elsewhere in the ’142 patent.

With the exception of generic computer-implemented steps, there is nothing in the claims themselves that foreclose them from being performed by a human, mentally or with pen and paper. Indeed, the specification expressly states that one type of post office, the gatekeeping post office, which “provides for administrative review and processing of gated messages . . . provides for both manual review by a gatekeeper—a person designated to review gated messages—and automatic review and processing.” The ’142 patent is directed to a conventional business practice—the screening of messages by corporate organizations—in the context of electronic communications.

Since the claims are directed to an abstract idea, we proceed to Mayo/Alice step two. IV argues that the claims do not merely require routine and conventional use of computers and the Internet because “applying business rules to email is not what computers and the Internet do in the absence of this claim limitation” and “because computers and the Internet do not have ‘rule engines’ as a matter of course.” But the inquiry is not whether conventional computers already apply, for example, well-known business concepts like hedging or intermediated settlement. Rather, we determine whether “each step does no more than require a generic computer to perform generic computer functions.” Alice. Here that is the case.

The asserted claims of the ’142 patent are not patent-eligible under § 101.

3. The ’610 Patent

Claim 7 is the only asserted claim of the ’610 patent. The district court held eligible claim 7 of the ’610 patent. Claim 7 depends from claim 1, which provides:

1. A virus screening method comprising the steps of:

routing a call between a calling party and a called party of a telephone network;

receiving, within the telephone network, computer data from a first party selected from the group consisting of the calling party and the called party;

detecting, within the telephone network, a virus in the computer data; and

in response to detecting the virus, inhibiting communication of at least a portion of the computer data from the telephone network to a second party selected from the group consisting of the calling party and the called party.

7. The virus screening method of claim 1 further comprising the step of determining that virus screening is to be applied to the call based upon at least one of an identification code of the calling party and an identification code of the called party.

Unlike the asserted claims of the ’050 and ’142 patents, claim 7 involves an idea that originated in the computer era—computer virus screening. But the idea of virus screening was nonetheless well known when the ’610 patent was filed. Performing virus screening was a long prevalent practice in the field of computers, and, as the patent admits, performed by many computer users. The patent acknowledges that, prior to the invention, “[m]any computer users [had] virus screening and detection software installed on their computers.” Claim 7 of the ’610 patent, however, does not claim a new method of virus screening or improvements thereto—in fact, it requires only “detecting . . . a virus in the computer data.” The specification recites conventional “virus screening software.” By itself, virus screening is well-known and constitutes an abstract idea.

At step two of Mayo/Alice, there is no other aspect of the claim that is anything but conventional. The ’610 patent is directed to the use of well-known virus screening software within the telephone network or the Internet. We have previously determined that performing otherwise abstract activity on the Internet does not save the idea from being patent-ineligible. As we said in Intellectual Ventures v. Capitol One Bank, “[a]n abstract idea does not become nonabstract by limiting the invention to a particular . . . technological environment, such as the Internet. . . . [W]hile the claims recite budgeting using a ‘communication medium’ (broadly including the Internet and telephone networks), that limitation does not render the claims any less abstract.” 792 F.3d at 1366–67. See also Ultramercial, 772 F.3d at 716 (Fed. Cir. 2014).

Claim 7 recites no more than generic computers that use generic virus screening technology. But the “mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” Alice, 134 S. Ct. at 2358. “For the role of a computer in a computer-implemented invention to be deemed meaningful in the context of this analysis, it must involve more than performance of ‘well understood, routine, [and] conventional activities previously known to the industry.’” Content Extraction, 776 F.3d at 1347–48 (quoting Alice, 134 S. Ct. at 2359).

In summary, unlike the claims at issue in Enfish, which involved a “specific type of data structure designed to improve the way a computer stores and retrieves data in memory,” 822 F.3d at 1339, claim 7 of the ’610 patent does not improve or change the way a computer functions. Nor does claim 7 overcome a problem unique to the Internet as was the case in DDR Holdings. 773 F.3d at 1258–59.

Claim 7 of the ’610 patent is not patent-eligible under § 101.

Judge Mayer’s Concurrence

I agree that all claims on appeal fall outside of 35 U.S.C. § 101. I write separately, however, to make two points: (1) patents constricting the essential channels of online communication run afoul of the First Amendment; and (2) claims directed to software implemented on a generic computer are categorically not eligible for patent.

Judge Stoll’s Dissent in Part

I concur in the result reached by the majority except with respect to the ’610 patent. I would affirm the judgment of the district court that asserted claim 7 of the ’610 patent is eligible under § 101.

Claim 7 is eligible as an ordered combination. While the network components and virus screening software recited by the claim may themselves be conventional, “an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces.” BASCOM Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341 (Fed. Cir. 2016). The claimed invention is markedly similar to that in BASCOM, where we vacated the district court’s ineligibility determination on the basis of a step-two ordered combination. There is no meaningful difference between BASCOM and this case in terms of eligibility because claim 7 also “purport[s] to improve the functioning of the computer itself,” or, at the very least, the functioning of the network.

For these reasons, I respectfully dissent from the majority opinion regarding the ’610 patent and would affirm the judgment of the district court holding that asserted claim 7 of the ’610 patent is eligible under § 101.

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