Sentius Int'l, LLC v. Apple Inc.

SENTIUS INTERNATIONAL, LLC, Plaintiff, v. APPLE INC., Defendant.

CASE NO. 4:20-cv-00477-YGR

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

October 15, 2020

ORDER GRANTING IN PART AND DENYING IN PART APPLE INC.'S PARTIAL MOTION TO DISMISS THIRD AMENDED COMPLAINT FOR PATENT INFRINGEMENT

Re: Dkt. No. 61

Plaintiff Sentius International, LLC ("Sentius") brings this patent infringement action against defendant Apple Inc. for alleged infringement of two of its patents, U.S. Patent No. RE43,633 (the "'633 Patent") and 7,672,985 (the "'985 Patent"). On June 2, 2020, the Court granted Apple's partial motion to dismiss on the grounds that Sentius failed to state a claim for direct infringement of the '633 Patent method claims and joint infringement of the '633 and '985 Patent method claims, with leave to amend. (Dkt. No. 55 ("Order").) On June 23, 2020, Sentius filed an amended complaint, continuing to assert direct and joint infringement of the asserted method claims. (Dkt. No. 58 ("TAC").)

Now before the Court is Apple's partial motion to dismiss the third amended complaint. (Dkt. No. 61 ("MTD").) Having carefully reviewed the pleadings and submitted papers, and for the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART defendant's partial motion to dismiss.¹

I. BACKGROUND

The background giving rise to this action is well-known, and the Court does not repeat it here. (See Order at 1:21-3:27.) In brief, Sentius asserts infringement of the '633 Patent methodclaims. (TAC ¶ 20.) Sentius accuses certain Apple products (such as iPhones and MacBooks) as well as Apple online applications (Pages and Keynote) through their spellcheck functionality. (Id. ¶¶ 11-17.) Specifically, Sentius alleges that these products and applications practice the claimed methods when a user selects a misspelled word to see spelling suggestions. (Id. ¶ 12.)

Previously, Sentius alleged that Apple uses the '633 Patent methods through software that automatically executes the claimed steps in response to user selection. (See Dkt. No. 37 ("SAC") ¶¶ 35-46.) The Court dismissed these allegations because Federal Circuit precedent considers software to be instructions, such that party that operates the device to execute the software (the user) infringes a method claim, as opposed to the party that sells the device together with the software (Apple). (Order at 4:21-8:2.) In the third amended complaint, Sentius continues to assert infringement through software, but also alleges that "Apple and other users . . . have each respectively operated devices" to execute software that performs the claimed methods. (TAC ¶¶ 22-33.) Sentius also alleges that Apple operated these devices to execute the methods "on servers, computers and devices controlled by Apple." (Id. ¶ 20.)

Separately, Sentius asserts a "joint infringement" theory by alleging that Apple "is directly responsible for any infringing acts of its users" because it conditions a benefit of the spell check functionality on user performance of claimed steps. (Id. ¶¶ 34, 42.) The joint infringement theory is relevant to both the '633 Patent—the claims of which require "selecting a discrete portion of an image of the textual source material" (i.e., the misspelled word)—and the '985 Patent, the claims of which require linked content to be displayed "based upon user interaction with at least a portion of the one or more source documents." (Id. ¶¶ 28, 59, 61.) Although the Court has previously dismissed these claims, it did so on the grounds that Sentius' allegations did not reflect its theory of infringement and did not consider the merits. (Order at 9:7-20.)

In response to Apple's current motion, Sentius agrees not to pursue joint infringement for the '633 Patent, but asserts, in its place, that Apple is vicariously liable for its users' operation of the accused products. (Dkt. No. 63 ("Opp.") at 1:19-25.) Although the third amended complaint does not allege vicarious infringement, the Court considers the issue to determine whether amendment would be futile.

II. LEGAL STANDARD

Pursuant to Rule 12(b)(6), a complaint may be dismissed for failure to state a claim upon which relief may be granted. Dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is proper if there is a "lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory." Conservation Force v. Salazar, 646 F.3d 1240, 1242 (9th Cir. 2011) (citing Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988)). The complaint must plead "enough facts to state a claim [for] relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face "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 (2009). If the facts alleged do not support a reasonable inference of liability, stronger than a mere possibility, the claim must be dismissed. Id. at 678-79. Mere "conclusory allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss." Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004).

III. DISCUSSION

Apple moves to dismiss Sentius direct and joint infringement claims for the '633 Patent and joint infringement claims for the '633 and '985 Patents. In light of Sentius' representations that it will no longer pursue joint infringement claims for the '633 Patent, the Court considers the three remaining issues: (1) direct infringement of the '633 Patent, (2) vicarious infringement of the '633 Patent, and (3) joint infringement of the '985 Patent.²

A. Direct Infringement ('633 Patent)

Direct infringement of a method claim 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, 1022 (Fed. Cir. 2015). As stated in the Court's Order, direct infringement of amethod claim requires that "(1) Apple actually operates the device to perform the method, (2) at least one step of the method is performed on equipment controlled by Apple (per SiRF), or (3) Apple exercises direction or control over the users." (Order at 7:11-14.) For example, in Ericsson, Inc. v. D-Link Systems, Inc., the court held that device makers whose products automatically performed a claimed method were not directly liable because all of the steps were performed on user-controlled devices and defendants neither performed the steps nor exercised direction or control over the users. 773 F.3d 1201, 1221-22 (Fed. Cir. 2014).

Here, Sentius alleges that each step of the claimed methods was performed when "Apple and other users of the accused functionality . . . each respectively operated devices, such as the Accused Products, executing the software that performed [the step]." (TAC ¶¶ 23-33.) Sentius also alleges that the claimed methods were executed on "servers, computers and devices controlled by Apple," but clarifies that this refers to Apple's own use of the devices. (Id. ¶ 20; Opp. at 6:6-13.) Sentius thus alleges two theories of direct infringement: (1) direct infringement through Apple's own operation of the devices, and (2) direct infringement through direction and control over users who operate the devices.

As to the first theory, Sentius states a viable claim. While Apple undoubtedly designs its products for other users, the Court finds it plausible that Apple may have tested its products or otherwise executed the relevant methods in the course of product development and support. See, e.g., Carnegie Mellon U. v. Marvell Tech. Grp., Ltd., 807 F.3d 1283, 1296-97 (Fed. Cir. 2015) (upholding jury verdict of direct infringement based on infringer's simulation of accused feature operation during development); Finjan, Inc. v. Sophos, Inc., 244 F. Supp. 3d 1016, 1046 (N.D. Cal. 2017) (affirming jury verdict of direct infringement based on substantial evidence that defendant tested its products in the United States). But see Packet Intelligence LLC v. NetScout Sys., Inc., 965 F.3d 1299, 1314-15 (Fed. Cir. 2020) (reversing damages award based on device sales which was not tied to the internal use of the claimed methods).

With regard to the second theory, Sentius argues that Apple directs and controls users' actions because Apple conditions the benefits of spell check on user performance of the claimed methods and establishes the manner and timing of that performance. (TAC ¶ 34.) This is thestandard for joint infringement. See Akamai, 797 F.3d at 1023 (expanding attribution principles for joint liability to include "condition[ing] participation in an activity or receipt of a benefit upon performance of a step or steps of a patented method and establish[ing] the manner or timing of that performance'). Apple thus argues that because Sentius abandoned its joint infringement claim, the "conditioned benefit" test is no longer applicable. Sentius disagrees and contends that the Federal Circuit intended to expand principles of attribution in Akamai to allow for direct liability where a third party performs all steps of a claimed method based on the defendant's conditioned benefit and control.

Sentius is correct. In Nalco Company v. Chem-Mod, LLC, an accused infringer allegedly practiced a method to remove mercury pollutant from power plant gas. 883 F.3d 1337, 1342-43 (Fed. Cir. 2018). The patentee alleged "three ways" in which all steps of the method could be attributable to defendants, namely they (i) operated the process at a power plant, (ii) directed and controlled operation of a test facility that carried out all steps, and (iii) carried out all steps during testing. Id. at 1350. The district court dismissed the claims because the patentee "failed to allege that any Defendant is directly responsible for performing all method steps," but the Federal Circuit reversed. Id...