Carson Optical Inc. v. eBay Inc.

202 F.Supp.3d 247

CARSON OPTICAL INC., Plaintiff,

v.EBAY INC., Defendant.

15-CV-3793 (KAM) (SIL)

United States District Court, E.D. New York.

Signed August 17, 2016

John Louis Cordani, John Richard Horvack, Carmody Torrance Sandak & Hennessey LLP, New Haven, CT, for Plaintiff.

Ian Charles Ballon, Greenberg Traurig, LLP, East Palo Alto, CA, Joshua Lee Raskin, Greenberg Tarurig LLP, New York, NY, for Defendant.

MEMORANDUM & ORDER

MATSUMOTO, United States District Judge

Plaintiff Carson Optical Inc. ("plaintiff") brought this patent infringement action against online marketplace eBay Inc. ("defendant"), claiming that defendant has induced infringement by permitting items that allegedly infringe plaintiff's patents to be sold on defendant's website. Plaintiff also asserts an unfair competition claim under New York state law. Defendant has moved to dismiss the operative Amended Complaint for failure to state a claim. For the reasons that follow, defendant's motion is GRANTED in part and DENIED in part.

BACKGROUND

The following facts derive from the Amended Complaint. (ECF No. 15, Amended Complaint ("Compl.").) All well-pleaded allegations are taken as true, and all reasonable inferences are drawn in favor of the plaintiff, for purposes of deciding the instant motion to dismiss. See Roth v. Jennings , 489 F.3d 499, 501 (2d Cir.2007).

I. The Parties

Plaintiff markets and sells optical products, and owns, by assignment, the two patents at issue in this action. (Compl. at 1-2.¹ ) The first of plaintiff's patents, U.S. Patent No. 6,116,729 (the "'729 patent"), is directed to a "head magnifying glass." (Id. at 2, 8, 10-11; see also id. Exs. A, C.) The second patent, U.S. Patent No. 6,215,601 (the "'601 patent"), "is directed to a head belt for a head magnifying glass." (Id. at 2, 16, 18-20; see also id. Exs. B-C.) The inventions claimed by the patents are embodied in plaintiff's "MagniVisor Deluxe" product, which is essentially a head visor with an attached magnifying lens and a light. (Id. at 2-3; see also id. Exs. A-C.) Plaintiff alleges that the MagniVisor Deluxe "has been well received by the consuming public, and it has become a commercial success, leading to rampant illegal copying by Chinese manufacture[r]s of the claimed inventions." (Id. at 3.)

Defendant is an e-commerce company that runs one of the "world's largest online marketplaces." (Id. ) Plaintiff does not allege that defendant ever takes possession of or sells the items offered for sale on its website. Instead, defendant's website provides a medium to connect individual buyers and sellers, and defendant provides a wide range of service that facilitate the sale and purchase of items on its website (Id. at 3-6.) For example, defendant offers vendors a service called "eBay University," which furnishes vendors with tips on how to improve sales. (Id. at 4.) Additionally, defendant "provides vendors with techniques and means to ensure that vendors receive payment" for items sold on its website. (Id. at 6.) Defendant generates revenue with a "complex system of fees for services, listing product features, and a Final Value Fee for sales proceeds received by sellers." (Id. at 3.) At any given time, 800 million items are listed on defendant's website, which has an annual revenue exceeding $17.9 billion. (Id. )

Defendant also maintains the Verified Rights Owner Program ("VeRO"), which permits "intellectual property owners [to] easily report listings that infringe their rights." (Id. at 6-7.) VeRO procedures allow aggrieved intellectual property owners to file online complaint forms, referred to as Notice of Claimed Infringement (or "NOCI") forms. (Id. )

II. The Instant Dispute

Plaintiff alleges that at least as early as February 7, 2014, after discovering that numerous items available on defendant's website infringed one or more claims of the '729 and '601 patents, plaintiff followed defendant's VeRO program procedures by submitting NOCI forms.² (Id. at 7-8, 16.) Plaintiff learned, however, that defendant would not remove a listing on its website without a determination, either by a court or by the United States International Trade Commission, that the listed item infringes one of plaintiff's patents. (Id. at 7.) Because plaintiff had not obtained such an order, defendant refused to remove the allegedly infringing listings. (Id. ) Plaintiff contends that defendant, besides refusing to "remove or cancel listings of infringing products," further refused "to even evaluate whether the listings of infringing products are inappropriate under its own published policies." (Id. at 15, 23-24.)

On June 29, 2015, plaintiff commenced this action against defendant, asserting three claims. (ECF No. 1.) Plaintiff subsequently amended its complaint. (Compl.) First, plaintiff alleges that defendant induced infringement of the '729 patent. (Id. at 8-16.) Second, plaintiff alleges that defendant induced infringement of the '601 patent. (Id. at 16-24.) Third, plaintiff alleges that defendant's actions constitute unfair competition under New York law. (Id. at 25-26.)

Defendant subsequently moved to dismiss the complaint and filed a memorandum in support of its motion. (ECF No. 17, Ex. 9, Defendant's Memorandum in Support of Defendant's Motion to Dismiss ("Def. Mem.").) Plaintiff filed a memorandum in opposition to defendant's motion, to which defendant replied. (ECF No. 17, Ex. 10, Plaintiff's Memorandum in Opposition to Defendant's Motion to Dismiss ("Pl. Opp'n"); ECF No. 17, Ex. 11, Defendant's Reply in Support of Defendant's Motion to Dismiss ("Def. Reply").)

LEGAL STANDARD

As noted earlier, on a motion to dismiss all well-pleaded factual allegations in the complaint are taken as true and all inferences are drawn in the plaintiff's favor. See Mills v. Polar Molecular Corp. , 12 F.3d 1170, 1174 (2d Cir.1993). A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief, in order to give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal quotation marks and citation omitted). The complaint must provide "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks and citation omitted). "[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely." Twombly , 550 U.S. at 556, 127 S.Ct. 1955 (internal quotation marks and citation omitted).

Although Federal Circuit law governs much of this action, the Federal Circuit applies regional circuit law in evaluating whether a complaint states a claim upon which relief can be granted. See In re Bill of Lading Transmission & Processing Sys. Patent Litig. , 681 F.3d 1323, 1331 (Fed.Cir.2012) ("Because it raises a purely procedural issue, an appeal from an order granting a motion to dismiss for failure to state a claim upon which relief can be granted is reviewed under the applicable law of the regional circuit." (citation omitted)).

DISCUSSION

I. Inducement

The Federal Patent Act, as relevant in this action, provides for two forms of liability: direct infringement and inducement to infringe. See 35 U.S.C. § 271 (" § 271"). Plaintiff does not allege that defendant is liable for direct infringement, which is governed by § 271(a).³ Instead, plaintiff alleges that defendant induced infringement within the meaning of § 271(b), which provides in relevant part: "Whoever actively induces infringement of a patent shall be liable as an infringer." § 271(b). Induced infringement, unlike direct infringement, requires a particular mental state. See Commil USA, LLC v. Cisco Sys. , Inc., ––– U.S. ––––, 135 S.Ct. 1920, 1926, 191 L.Ed.2d 883 (2015).

To state a claim for induced infringement, a plaintiff must plausibly allege that the defendant: (1) had knowledge of the patent-in-suit; (2) knew the induced acts were infringing; and (3) specifically intended to encourage another's infringement. See id. ("[I]nduced infringement ... requires knowledge of the patent in suit and knowledge of patent infringement."); Global – Tech Appliances, Inc. v. SEB S.A. , 563 U.S. 754, 766, 131 S.Ct. 2060, 179 L.Ed.2d 1167 (2011) ("[I]nduced infringement under § 271(b) requires knowledge that the induced acts constitute patent infringement."); Bill of Lading , 681 F.3d at 1339 ("[I]nducement requires that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another's infringement." (internal quotation marks and citation omitted)); see also Addiction & Detoxification Inst. L.L.C. v. Carpenter , 620 Fed.Appx. 934, 938 (Fed.Cir.2015) (applying Commil and Global–Tech —both post-trial decisions—at the pleading stage). Further, "inducement liability may arise if, but only if, [there is] ... direct infringement" by another party. Limelight Networks, Inc. v. Akamai Techs., Inc. , ––– U.S. ––––, 134 S.Ct. 2111, 2117, 189 L.Ed.2d 52 (2014) (citation omitted); see also Philippi–Hagenbuch, Inc. v. W. Tech. Servs. Int'l, Inc. , No. 12–CV–1099, 2015 WL 5785574, at *2 (C.D.Ill. Oct. 2, 2015) ("[T]here can be no inducing infringement without direct infringement by another party." (citing Limelight , 134 S.Ct. at 2115–17 )).

The Global–Tech Court held that the knowledge requirement for liability under § 271(b) could be met by a finding of willful blindness. See 563 U.S. at 766–71, 131 S.Ct. 2060. Willful blindness has "two basic requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact." Id. at 769, 131 S.Ct. 2060 (citations omitted). The Court contrasted the willfully blind (and therefore liable) defendant...