Schwendimann v. Stahls', Inc.

510 F.Supp.3d 503

Jodi A. SCHWENDIMANN, et al., Plaintiffs,

v.STAHLS’, INC., Defendant.

Civil Action No. 19-CV-12139

United States District Court, E.D. Michigan, Southern Division.

Signed January 4, 2021

Brett Gelbord, Matthew J. Lund, Troutman Pepper Hamilton Sanders LLP, Southfield, MI, Britta Schnoor Loftus, DeVan V. Padmanabhan, Padmanabhan and Dawson, PLLC, Minneapolis, MN, for Plaintiffs.

Glenn E. Forbis, Harness, Dickey & Pierce, Troy, MI, for Defendant.

OPINION AND ORDER GRANTING DEFENDANT'S MOTION TO DISMISS THE WILLFUL AND INDIRECT INFRINGEMENT CLAIMS OF PLAINTIFFS’ FIRST AMENDED COMPLAINT

Bernard A. Friedman, Senior United States District Judge

This is a patent infringement case in which plaintiffs Jodi A. Schwendimann ("Schwendimann") and NuCoat, Inc. ("NuCoat") allege that products sold by Stahls’, Inc. ("Stahls") infringe three of Schwendimann's patents directed to coating technology for preparing a transfer sheet commonly used in heat transfer (or "iron-on") T-shirt customization, U.S. Patent Nos. 6,410,200 (the "’200 patent"), 6,723,773 (the "’773 patent"), and 7,008,746 (the "’746 patent") (collectively, the "patents-in-suit").

This matter is presently before the Court on defendant's motion under Fed. R. Civ. P. 12(b)(6) to dismiss the willful and indirect infringement claims of plaintiffs’ first amended complaint (the "FAC"). Defendant argues that plaintiffs have failed to plausibly allege defendant's knowledge of the patents-in-suit, willful infringement, and knowledge of infringement. Plaintiffs have responded and defendant has replied. Pursuant to E.D. Mich. LR 7.1(f)(2) the Court shall decide this motion without a hearing. Accordingly, the hearing scheduled for January 13, 2021, is canceled.¹ For the reasons set forth below, the Court shall grant the motion.

I. Procedural History

Plaintiffs filed their original complaint on July 22, 2019, alleging that defendant's products infringe the ’200 and ’773 patents. Plaintiffs filed the FAC on August 12, 2020, further alleging that defendant infringes the ’746 patent. Plaintiffs allege that, in addition to directly infringing the patents-in-suit, defendant is liable for "indirect" (i.e., induced and contributory) infringement, and that defendant's infringement is willful. In lieu of answering the FAC, defendant filed the instant motion. At this stage of the case, defendant does not challenge plaintiffs’ direct infringement claims. However, defendant moves to dismiss the willful and indirect infringement claims.

II. The Patents-in-Suit

The patents-in-suit, a patent "family" entitled "Polymeric Composition and Printer/Copier Transfer Sheet Containing the Composition," were filed in the 2000-2003 timeframe and issued in the 2002-2006 timeframe.² See FAC Ex. A ( ’200 patent), Ex. B ( ’773 patent), Ex. C ( ’746 patent).

The patents-in-suit are directed to coating technology for preparing a transfer sheet commonly used in heat transfer (or "iron-on") T-shirt customization. The transfer sheet is usable to transfer an image printed (or otherwise "imaged") thereon from the transfer sheet to a fabric (or other "receptor") under the application of heat and pressure. For example, as shown in Figure 4 of the ’200 patent, reproduced below, an end-user can use the transfer sheet (50) to customize a T-shirt (62) with a selected design. In this example, the end-user can print the design on the transfer sheet (50) with a copier or printer, and, after placing the transfer sheet (50) on the T-shirt (62), run an iron (64) across the back (52A) of the transfer sheet (50) to transfer the design to the T-shirt (62).

Id. at Ex. A, at 5.

The parties agree which types of products are and are not covered by the patents-in-suit. While the patents-in-suit are directed to the transfer "sheet," as understood by the parties, the patents-in-suit generally cover transfer "products." More importantly, the patents-in-suit are "light fabric" (as opposed to "dark fabric") transfer product patents, although the patents-in-suit do not speak to the color of the fabric itself. In other words, the patents-in-suit cover transfer products used to transfer images to white or otherwise light-colored fabrics, not those used to transfer images to dark-colored fabrics.

Relevant to the following discussion of plaintiffs’ factual allegations, see infra Sections IV and V, Schwendimann's numerous transfer product patents include many others unrelated to the patents-in-suit, including dark fabric transfer product patents, as well as other light fabric transfer product patents.

III. Legal Standards

A. Pleading Standards

Federal Rule of Civil Procedure 8(a)(2) requires a complaint to include "a short and plain statement of the claim showing that the pleader is entitled to relief." A complaint that fails to make such a showing may be dismissed pursuant to Rule 12(b)(6) for failure to state a claim.

When deciding a motion to dismiss under Rule 12(b)(6), the Court must construe the complaint in the light most favorable to the plaintiff and accept all the factual allegations contained in the complaint as true. See Lambert v. Hartman , 517 F.3d 433, 439 (6th Cir. 2008). In order to survive a Rule 12(b)(6) motion, a complaint need contain only "enough facts to state a claim for relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly , 550 U.S. at 556, 127 S.Ct. 1955 ). "Where a complaint pleads facts that are merely consistent with a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.’ " Id. (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ). "Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937.

B. Enhanced Damages and Willful Infringement

In cases of infringement, the Patent Act provides that district courts "shall award the claimant damages adequate to compensate for the infringement." 35 U.S.C. § 284. The statutory mandate is designed to ensure "full compensation" for "any damages" suffered "as a result of the infringement." General Motors Corp. v. Devex Corp. , 461 U.S. 648, 654-55, 103 S.Ct. 2058, 76 L.Ed.2d 211 (1983). To the extent actual damages cannot be proven, the floor is set at "a reasonable royalty for the use made of the invention by the infringer." Section 284 ; see also Rite-Hite Corp. v. Kelley Co. , 56 F.3d 1538, 1544 (Fed. Cir. 1995) (en banc ).

Section 284 also provides that district courts may award enhanced damages "up to three times the amount found or assessed." Section 284 ; see also Halo Elecs., Inc. v. Pulse Elecs., Inc. , ––– U.S. ––––, 136 S. Ct. 1923, 1934, 195 L.Ed.2d 278 (2016). In Halo , the Supreme Court stated that such damages "are not to be meted out in a typical infringement case, but are instead designed as a ‘punitive’ or ‘vindictive’ sanction for egregious infringement behavior." 136 S. Ct. at 1932. Observing a long history of awards of enhanced damages, the Supreme Court cited conduct that is "willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate." Id. Accordingly, when deciding whether to award enhanced damages, district courts should "take into account the particular circumstances of each case" in recognition that "such punishment should generally be reserved for egregious cases typified by willful misconduct." Id. at 1933-34.

With respect to liability for willful infringement, in Halo the Supreme Court rejected the Federal Circuit's Seagate test, which required a two-prong showing of objective recklessness and subjective willfulness. See In re Seagate Tech., LLC , 497 F.3d 1360, 1371 (Fed. Cir. 2007) (en banc ). The Supreme Court explained that the "principle problem" with the Seagate test is the first prong: "[t]he subjective willfulness of a patent infringer, intentional or knowing, may warrant enhanced damages, without regard to whether his infringement was objectively reckless." 136 S. Ct. at 1932-33. As to the difference between willful and typical infringement, Justice Breyer, writing in concurrence, stated that an award of enhanced damages is not justified "simply because ... the infringer knew about the patent and nothing more. " Id. at 1936 (Breyer, J., concurring) (emphasis in original). While "intentional or knowing" infringement "may" justify an award of enhanced damages, "[i]t is ‘circumstanc[e]’ that transforms simple knowledge into such egregious behavior, and that makes all the difference." Id. (quoting id. at 1933 ).

Following Halo , the Federal Circuit has held that liability for willful infringement requires knowledge of the patent and intentional or knowing infringement – i.e., acting despite a risk of infringement that was either known or so obvious that it should have been known. See Eko Brands, LLC v. Adrian Rivera Maynez Enters., Inc. , 946 F.3d 1367, 1378 (Fed. Cir. 2020) (apart from "considerations of egregious behavior and punishment" relevant to district court discretion to award enhanced damages, the underlying concept of willfulness "requires a jury to find no more than deliberate or intentional infringement") (citing Halo , 136 S. Ct. at 1933 ); WesternGeco L.L.C. v. ION Geophysical Corp. , 837 F.3d 1358, 1362 (Fed. Cir. 2016) ("subjective willfulness alone—i.e., proof that the defendant acted despite a risk of infringement that was either known or so obvious that it should have been known to the accused infringer—can support an award of enhanced damages") (citing Halo , 136 S. Ct. at 1933 ) (internal...