Uniloc 2017 LLC v. ZenPayroll, Inc.

UNILOC 2017 LLC, Plaintiff, v. ZENPAYROLL, INC., d/b/a GUSTO, Defendant.

Civil Action No. 19-1075-CFC-SRF

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

January 27, 2021

REPORT AND RECOMMENDATION

I. INTRODUCTION

Presently before the court in this patent infringement action is defendant ZenPayroll, Inc. d/b/a Gusto's ("Gusto") partial¹ motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6). (D.I. 33) For the reasons that follow, I recommend that the court GRANT Gusto's motion.

II. BACKGROUND

a. Procedural History

On June 10, 2019, plaintiff Uniloc 2017 LLC ("Uniloc") originally filed this action alleging that Gusto infringed two patents, United States Patent Numbers 7,069,293 ("the '293 patent") and 6,324,578 ("the '578 patent") (collectively, the "patents-in-suit"). (D.I. 1 at ¶¶ 4-26) Gusto moved to dismiss Uniloc's complaint on August 6, 2019. (D.I. 9) In response, Uniloc filed an amended complaint on August 20, 2019. (D.I. 14) Gusto filed a motion to partially² dismiss the amended complaint on September 3, 2019, which the court recommended granting. Uniloc 2017 LLC v. ZenPayroll Inc., C.A. No. 19-1075-CFC-SRF, 2020 WL 4260616 (D. Del. July 23, 2020)

On August 24, 2020, Uniloc notified the court that it would seek leave to file a second amended complaint, in which it would address all of the concerns raised by Gusto's motion to dismiss (D.I. 16) and the court's Report and Recommendation. (D.I. 30) On August 27, 2020, in light of Uniloc's letter, the court adopted the disposition recommended in the Report and Recommendation, granted Gusto's motion, and granted Uniloc leave to file another amended complaint. Uniloc 2017 LLC v. Zen Payroll, Inc., C.A. 19-1075-CFC-SRF, 2020 WL 5077416 (D. Del. Aug. 27, 2020). On September 11, 2020, Uniloc filed its second amended complaint ("the SAC"). (D.I. 32) On September 25, 2020, Gusto filed the present motion to dismiss the SAC for failure to state a claim, which has been fully briefed.³ (D.I. 33)

b. Facts⁴

Uniloc owns the patents-in-suit by assignment, which "relate[] to network management in general and in particular to application program management on a computer network." (D.I. 32 at ¶¶ 5, 15; '293 patent, col. 1:24-25; '578 patent, col. 1:22-24) "Gusto maintain[s] a network of high-security, access-controlled data centers," which "host[] a platform" where Gusto "provide[s] products and services such as Payroll, Health Benefits, and Human Resources services." (D.I. 32 at ¶ 6) Gusto's products and services make up the "Gusto platform." (Id.) Uniloc alleges that the Gusto platform infringes the patents-in-suit. (Id. at ¶¶ 7, 16) Gusto has known about the patents-in-suit since, at the latest, May 17, 2017, when it was served with a complaint in a prior patent infringement action in the United States District Court for the Eastern District of Texas. (Id. at ¶¶ 11, 25)

III. LEGAL STANDARD

Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court must accept as true all well pleaded factual allegations in the complaint and view them in the light most favorable to the plaintiff. See Umland v. Planco Fin. Servs. Inc., 542 F.3d 59, 64 (3d Cir. 2008).

To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Although detailed factual allegations are not required, the complaint must set forth sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual allegations allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. See Iqbal, 556 U.S. at 663; Twombly, 550 U.S. at 555-56.

The court's determination is not whether the non-moving party "will ultimately prevail," but whether that party is "entitled to offer evidence to support the claims." United States ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 302 (3d Cir. 2011). This "does not impose a probability requirement at the pleading stage," but instead "simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of [the necessary element]." Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). The court's analysis is a context-specific task requiring the court "to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.

IV. DISCUSSION

a. Direct Infringement of the '293 Patent

To survive a 12(b)(6) motion, a complaint alleging direct infringement must contain facts plausibly indicating that a defendant's accused product practices each limitation of the asserted patent because "if it is not plausible, after reading a complaint, that the accused infringer's product reads on a limitation in the one asserted claim from a patent-in-suit, then it is not plausible that the accused infringer actually infringes the patent claim (or the patent)." N. Star Innovations, Inc. v. Micron Tech., Inc., Civil Action No. 17-506-LPS-CJB, 2017 WL 5501489, at *1 (D. Del. Nov. 16, 2017). However, "the Federal Rules of Civil Procedure do not require a plaintiff to plead facts establishing that each element of an asserted claim is met," and a patent infringement plaintiff need not "prove its case at the pleading stage." Nalco Co. v. Chem-Mod, LLC, 883 F.3d 1337, 1350 (Fed. Cir. 2018) (quoting In re Bill of Lading Transmission & Processing Sys. Patent Litig., 681 F.3d 1323, 1335, 1339 (Fed. Cir. 2012)). "The complaint need only 'place the potential infringer on notice of what activity is being accused of infringement.'" Super Interconnect Techs. LLC v. Sony Corp., C.A. No. 18-1737-CFC, 2019 WL 4722677, at *1 (D. Del. Sept. 26, 2019) (quoting Nalco, 883 F.3d at 1350)); see also CAP-XX, Ltd. v. Maxwell Techs., Inc., C.A. No. 19-1733-CFC, 2020 WL 2914497, at *2 (D. Del. June 3, 2020) (quoting Nalco, 883 F.3d at 1350). "To provide notice, a plaintiff must generally do more than assert that the product infringes the claim; it must show how the defendant plausibly infringes by alleging some facts connecting the allegedly infringing product to the claim elements." Boston Sci. Corp. v. Nevro Corp., C.A. No. 18-644-CFC, 415 F. Supp. 3d 482, 489 (D. Del. 2019) (emphasis in original) (citing SIPCO, LLC v. Streetline, Inc., C.A. No. 16-830-RGA, 230 F. Supp. 3d 351, 353 (D. Del. 2017)).

i. Failure to Plead a Centralized Network Management Server (CMS) and a Target On-Demand Server (TODS)

Gusto argues that the SAC fails to plausibly allege that the Gusto platform practices every limitation of claim 1 of the '293 patent, which states:

1. A method for distribution of application programs to a target on-demand server on a network comprising the following executed on a centralized network management server coupled to the network:

providing an application program to be distributed to the network management server;

specifying a source directory and a target directory for distribution of the application program;

preparing a file packet associated with the application program and including a segment configured to initiate registration operations for the application program at the target on-demand server; and

distributing the file packet to the target on-demand server to make the application program available for use by a user at a client.

('293 patent, col. 21:21-37; D.I. 34 at 3, 4-8) More specifically, Gusto argues that the SAC fails to connect the centralized network management server ("CMS") and target on-demand sever ("TODS") elements of the claim language to the accused Gusto platform. (D.I. 34 at 7) In response, Uniloc argues the that SAC contains the required "distributing and specifying steps" to sufficiently state a claim for direct infringement of the '293 patent. (D.I. 35 at 2-5) Uniloc's argument fails because it ignores the pleading deficiencies Gusto identifies.

In its prior Report and Recommendation, the court concluded that "the amended complaint parrot[ted] the language of claim 1 of the '293 patent, and the incorporated claim charts d[id] not plausibly demonstrate how Gusto infringes the '293 patent." Uniloc 2017, 2020 WL 4260616, at *5 (citing DIFF Scale Operation Research, LLC v. MaxLinear, Inc., C.A. No. 19-2109-LPS-CJB, 2020 WL 2220031, at *2 (D. Del. May 7, 2020)). Unlike the amended complaint, the SAC does not incorporate or reference claim charts for the '293 patent. (Cf. D.I. 14 at ¶ 15; D.I. 32 at ¶¶ 14-27) Although claim charts are not necessarily required to successfully plead direct infringement, the allegations in the SAC suffer similar infirmities as those the court previously identified with respect to the amended complaint. See Helios Streaming LLC v. Vudu, Inc., C.A. No. 19-1792-CFC-SRF, 2020 WL 3167641, at *1 (D. Del. June 15, 2020) ("[T]he Magistrate Judge's observation that the letter did not include claim charts" does not mean that "claim charts are required."); see also Indus. Access, Inc. v. Ellie Mae, Inc., 2013 WL 12133653, at *5 n.4 (C.D. Cal. Sept. 18, 2013) (noting that "Courts do not require claim charts at the pleading stage").

The parties do not dispute that every step of claim 1 of the '293 patent must be performed on a CMS. (D.I. 35 at 4; see also '293 patent, col. 21:21-25) Accordingly, the SAC alleges that "[t]he Gusto web applications are distributed to Gusto end users/customers through content delivery networks ('CDNs') that include a [CMS] and a [TODS]." (Id. at ¶ 18) However, this allegation is conclusory and lacks any plausible facts supporting such a conclusion. See ...