Infernal Tech. v. Ubisoft, Inc.

INFERNAL TECHNOLOGY, LLC, and TERMINAL REALITY, INC., Plaintiffs, v. UBISOFT, INC., and UBISOFT ENTERTAINMENT SA., Defendants.

No. 5:20-CV-223-D

United States District Court, E.D. North Carolina, Western Division

September 3, 2021

ORDER

JAMES C. DEVER III United States District Judge.

On May 27, 2020, Infernal Technology, LLC ("Infernal") and Terminal Reality, Inc. ("Terminal") (collectively "plaintiffs") filed a complaint against Ubisoft Inc. and Ubisoft Entertainment SA (collectively "defendants") alleging infringement of two patents [D.E. 1]. On November 12, 2020, defendants moved to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) [D.E. 22] and filed a memorandum in support [D.E. 23]. On December 28, 2020, plaintiffs responded in opposition [D.E. 27]. On January 15, 2021, defendants replied [D.E. 28]. On January 28, 2021, plaintiffs filed a surreply with, the court's permission [D.E. 29-1, 40]. As explained below, the court grants in part and denies in part defendants' motion to dismiss and permits plaintiffs to file an amended complaint.

I.

Terminal is a limited liability company based in Texas that develops video games and graphics engines used to make video games. See Compl. [D.E. 1] ¶ 2. This case concerns two patents Terminal owns and licenses to other video game developers for use in making video games. See id. The first patent is U.S. Patent No. 6, 362, 822 (the "'822 patent"). See Ex. 1 [D.E. 1-1]. The second patent is U.S. Patent No. 7, 061, 488 (the "'488 patent"). See Ex. 2 [D.E. 1-2]. The '488 patent is a continuation-in-part of the '822 patent. See Compl. ¶ 15. Both patents cover a specific technique for rendering the application of light to a three-dimensional scene in a video game. See id., ¶¶ 48, 53; Ex. 1 [D.E. 1-1] 2; Ex. 2 [D.E. 1-2] 2. The U.S. Patent Trial and Appeal Board has judged both patents to be valid, see Compl. ¶¶ 17-18, and both patents expired on March 12, 2019. See [D.E. 23] 1; [D.E. 27] 8 n.2.^[1]

Infernal is a limited liability company based in Texas. See Compl. ¶ 1. In June 2014, June 2015, and May 2020, Terminal and Infernal entered into a series of agreements granting Infernal an exclusive right to use and enforce numerous patents owned by Terminal, including the' 822 and '488 patents. See Id. ¶ 2.

Ubisoft, Inc. is a corporation organized under California law with a principal place of business in San Francisco, California. See Id. ¶ 3. Ubisoft Entertainment SA is a company organized under French law, and its principal place of business is in France. See id. ¶ 4. Defendants create, market, and sell video games throughout the United States, including in North Carolina. See id., ¶¶ 8-10, 19-47.

Defendants' video games run on software called game engines. See Id. ¶ 48. Plaintiffs allege that at least 13 of defendants' video games use at least one game engine that violates the '822 and '488 patents. See id. ¶¶ 48-49; Ex. 3 [D.E. 1-3] ('822 claim sheet); Ex. 4 [D.E. 1-4] ('488 claim sheet).^[2] Specifically, plaintiffs allege that defendants use their infringing game engines to render light and shadow in their video games, that the renderings are displayed on a computer screen, and that defendants have tested and demonstrated these video games. See Id. ¶¶ 10, 51-76.

On May 27, 2020, plaintiffs filed this patent infringement action against defendants. See Compl. On November 12, 2020, defendants filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) [D.E. 22]. Defendants contend that plaintiffs failed to state a claim by not plausibly alleging compliance with the marking requirement in 35 U.S.C. § 287(a). See id.; [D.E. 23] 4-9. Plaintiffs disagree. See [D.E. 27] 10-19.

II.

A motion to dismiss under Rule 12(b)(6) tests the complaint's legal and factual sufficiency. See Ashcroft v. Iqbal. 556 U.S. 662, 677-80 (2009); Bell Atl. Corp. v. Twombly. 550 U.S. 544, 554-63 (2007); Coleman v. Md. Court of Appeals. 626 F.3d 187, 190 (4th Cir. 2010), affd, 566 U.S. 30 (2012); Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). To withstand a Rule 12(b)(6) motion, a pleading "must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal. 556 U.S. at 678 (quotation omitted); see Twombly. 550 U.S. at 570; Giarratano. 521 F.3d at 302. In considering the motion, the court must construe the facts and reasonable inferences "in the light most favorable to [the nonmoving party]." Massey v. Ojaniit, 759 F.3d 343, 352 (4th Cir. 2014) (quotation omitted); see Clatterbuck v. City of Charlottesville, 708 F.3d 549, 557 (4th Cir. 2013), abrogated on other grounds by Reed v. Town of Gilbert. 576 U.S. 155 (2015). A court need not accept as true a complaint's legal conclusions, "unwarranted inferences, unreasonable conclusions, or arguments." Giarrantano. 521 F.3d at 302 (quotation omitted); see Iqbal. 556 U.S. at 678-79. Rather, a plaintiffs factual allegations must "nudge[] [his] claims, Twombly. 550 U.S. at 570, beyond the realm of "mere possibility" into ''plausibility." Iqbal. 556 U.S. at 678-79.

When evaluating a motion to dismiss, a court considers the pleadings and any materials "attached or incorporated into the complaint." E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637F.3d435, 448 (4th.Cir. 2011); see Fed.R.Civ.P. 10(c); Goines v. ValleyCmty. Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016); Thompson v. Greene, 427 F.3d 263, 268 (4th Cir. 2005). A court may also consider a document submitted by a moving party if it is "integral to the complaint and there is no dispute about the document's authenticity" without converting the motion into one for snmmaey judgment. Goines, 822 F.3d at 166. "[I]n the event of conflict between the bare allegations of the complaint and any exhibit attached ... the exhibit prevails." Fayetteville Invs. v. Com. Builders, Inc., 936 F.2d 1462, 1465 (4th Cir. 1991). A court may also consider ''matters of which a court may take judicial notice." Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 322 (2007); see Philips v. Pitt Cnty. Mem'l Hosp., 572 F.3d 176, 180 (4th Cir. 2009).

The parties' arguments center on the marking statute in 35 U.S.C. § 287(a). It provides, in relevant part, that patentees, or those making or selling patented items or items made under them, "may give notice to the public that the same is patented, either by fixing thereon the word 'patent, '" or an appropriate abbreviation, along with an address to a website "that associates the patented article with the number of the patent" 35 U.S.C. § 287(a). When such marking is not feasible, the patentee may mark the packaging. See Id. "In the event of failure so to mark, no damages shall be recovered by the patentee in any action for infringement, except on proof that the infringer was notified of the infringement and continued to infringe thereafter, in which event damages may be recovered only for infringement occurring after such notice." Id.^[3]

Under the marking statute, a party may give actual or constructive notice, but it must give such notice as "a prerequisite to the patentee's right to recover damages." Dunlap v. Schofield. 152 U.S. 244, 248 (1894). Thus, "a party that does not mark a patented article is not entitled to damages for infringement prior to actual notice." Crown Packaging Tech., Inc. v. Rexam Beverage Can Co, . 559 F.3d 1308, 1316 (Fed. Cir. 2009). Failure to comply with the notice requirement only precludes recovery of damages "for any time prior to compliance." Am. Med. Sys.. Inc. v. Med. Eng'g Corp.. 6 F.3d 1523, 1537 (Fed. Cir. 1993). However, "recovery of damages is not limited... where there are no products to mark." Tex. Digit. Sys.. Inc. v. Telegenix, Inc, . 308 F.3d 1193, 1220 (Fed. Cir. 2002), abrogated on other grounds by Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005).

The duty of pleading "and the burden of proving either [actual or constructive notice] is upon the plaintiff." Dunlap. 152 U.S. at 248; see Arctic Cat Inc. v. Bombardier Recreational Prods, . Inc, . 876 F.3d 1350, 1366 (Fed. Cir. 2017); Maxwell v. J. Baker. Inc., 86 F.3d 1098, 1111 (Fed. Cir. 1996). However, "an alleged infringer who challenges the patentee's compliance... bears an initial burden of production to articulate the products it believes are unmarked" articles subject to the marking statute. Arctic Cat 876 F.3d at 1368. Even so, "[t]he burden of proving compliance with marking is and at all times remains on the patentee." Id. at 1367.

The marking requirement does not apply to all patents, including ''where the patent is directed to a process or method." Active Video Networks, Inc. v. Verizon Commc'ns., Inc., 694 F.3d 1312, 1334(Fed. Cir.2012); Crown Packaging, 559F.3dat 1316; Bandag, Inc. v Gerrard Tire Co., 704 F.2d 1578, 1581 (Fed. Cir. 1983). The marking statute's applicability also depends on what the plaintiff asserts in the complaint. When a patent contains both process or method claims and some other kind of claim (such as an apparatus claim), the marking statute applies differently when the patentee asserts infringement of the process or method as opposed to infringement of all the patent's claims. "Where the patent contains both apparatus and method claims ... to the extent that there is a tangible item to mark by which notice of the asserted method claims can be given, a party is obliged to do so if it intends to avail itself of the constructive notice provisions of section 278(a)." Am. Med. Sys., 6 F.3d at 1538-39; see Active Video, 694 F.3d at 1334. Accordingly, where there is a tangible item connected to a patent containing both method and apparatus claims that can be marked, it must be. See Active Video, 694 F .3d at 1334; ...