In an order entered on February 8, 2013, the Northern District of Georgia followed recent Federal Circuit precedent holding that the Supreme Court’s decisions in Twombly and Iqbal^[1] apply to allegations of indirect patent infringement (i.e., inducement of infringement and contributory infringement).  However, disagreeing with the defendant that the Federal Circuit precedent applied a fact-pleading standard to such allegations, the court denied a motion to dismiss them.  Notably, the court prefaced its analysis with a discussion of what it views as misinterpretations of Twombly and Iqbal.

Twombly, Iqbal, and In re Bill of Lading

“Generally, under the Federal Rules of Civil Procedure, a complaint need only contain ‘a short and plain statement of the claim showing that the pleader is entitled to relief.’”^[2]  “To survive a 12(b)(6) motion to dismiss, the complaint ‘does not need detailed factual allegations,’ but must ‘give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.’”^[3]  In Twombly, the Supreme Court instructed:

While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.  Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).^[4]

In Iqbal, the Supreme Court elaborated upon Twombly:

Two working principles underlie our decision in Twombly.  First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.  Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. . . . Second, only a complaint that states a plausible claim for relief survives a motion to dismiss.

*  *  *

In keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.  While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.  When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.^[5]

In its 2012 decision In re Bill of Lading Transmission and Processing System Patent Litigation, the Federal Circuit specifically held, for its first time, that: (1) regarding direct infringement allegations, to the extent that Twombly/Iqbal pleading standards conflict with comparatively-lenient Form 18, a form in the Federal Rules of Civil Procedure that exemplifies a sufficient complaint for patent infringement, Form 18 controls; but that (2) the Twombly/Iqbal pleading standards, not Form 18, govern indirect infringement allegations.^[6]  

Thus, when pleading a claim for inducement (under 35 U.S.C. § 271(b)):

To survive [defendants’] motion to dismiss, therefore, [the patentee’s complaint] must contain facts plausibly showing that defendants specifically intended their customers to infringe the [patent] and knew that the customer’s acts constituted infringement.  This does not mean, however, that [the patentee] must prove its case at the pleading stage.^[7] 

When pleading a claim for contributory infringement (under 35 U.S.C. § 271(c))^[8]:

To state a claim for contributory infringement, therefore, a plaintiff must, among other things, plead facts that allow an inference that the components sold or offered for sale have no substantial non-infringing uses.

*  * *

For purposes of contributory infringement, the inquiry focuses on whether the accused products can be used for purposes other than infringement. . . . Where the product is equally capable of, and interchangeably capable of both infringing and substantial non-infringing uses, a claim for contributory infringement does not lie.^[9]

The Canon v. Color Imaging Order

In Canon Inc. v. Color Imaging, Inc. and Gen. Plastic Indus. Co., Ltd. the Northern District of Georgia analyzed the defendants’ motion for judgment on the pleadings under Rule 12(c) of the Federal Rules of Civil Procedure^[10] regarding Canon’s indirect infringement allegations.  The court summarized defendants’ position as “the plaintiff’s amended complaint does not adequately plead induced and contributory infringement under the so-called ‘heightened pleading standard’ set forth by the Federal Circuit in In re Bill of Lading.”^[11] 

Before evaluating the specifics of the issue raised by defendants’ motion, the Northern District of Georgia paused to comment upon what it views as misinterpretations of Twombly and Iqbal:

Since the United States Supreme Court issued its decisions in [Twombly], and [Iqbal], there has been a considerable amount of confusion in the federal courts over the standard of review to be employed when evaluating motions to dismiss and motions for judgment on the pleadings. While many courts, academics, and attorneys for defendants have referred to the standard established by Twombly/Iqbal as a “heightened pleading standard,” the court notes that the United States Supreme Court never used that term in Twombly/Iqbal.  Nor did the United States Supreme Court in Twombly/Iqbal replace notice pleading with a new fact-pleading standard.  Instead of radically changing the standard of review employed when evaluating motions to dismiss or abrogating Rule 8’s notice pleading standard, the United States Supreme Court in Twombly/Iqbal attempted to interpret certain terms contained in Rule 8 as well as to provide courts with guidance regarding the standard of review to be employed when evaluating motions to dismiss.^[12]

The court added:

• “In Twombly/Iqbal, the Supreme Court inserted a ‘plausibility standard’ for evaluating the facts as alleged in a complaint, but did not require ‘fact pleading.’  The court believes that the widespread misunderstanding of the difference between fact and notice pleading has contributed to the current confusion over Twombly/Iqbal.”^[13]
• In Iqbal, the Supreme Court did not dismiss the case; rather, it remanded the case so that Mr. Iqbal could seek leave to amend.  “This is a fact ignored by almost all defendants, jurists, and academics who cite Twombly/Iqbal.”^[14]
• “[M]any defendants, jurists, and academics who cite Twombly/Iqbal ignore the relationship among Rules 8, 15 and 16 of the Federal Rules of Civil Procedure. . . . Thus, rather than providing district courts with broad and sweeping power to dismiss cases based on pleading deficiencies, the Court in Twombly/Iqbal, in this court’s opinion, intended to provide district courts with a screening power to prevent needless appeals by allowing amendment of deficient complaints prior to an appeal or dismissal.”^[15]

The court then acknowledged the applicability of the Twombly/Iqbal standards to indirect infringement allegations.^[16]  Nevertheless, reasoned the court, In re Bill of Lading “did not adopt the ‘fact pleading’ standard advocated by the defendants,” as there, the Federal Circuit “noted that plaintiffs do not have to set forth or prove specific facts that provide the basis for the plaintiff’s cause of action to survive a motion to dismiss.”^[17]

Paragraph 22 of Canon’s Amended Complaint recites Canon’s indirect infringement allegations, which read as follows:

22.  Defendants are also indirectly infringing the ’012 patent by inducing and/or contributing to the direct infringement of the ’012 patent by end users of the Accused Toner Bottle Products.  On information and belief, Defendants are aware of the ’012 patent and of their infringement thereof, or, alternatively, Defendants are willfully blind as to the existence of the ’012 patent and their infringement thereof.  Further, on information and belief, Defendants knowingly induce end users to use the Accused Toner Bottle Products, thereby inducing infringement of the ’012 patent.  On information and belief, Defendants also contribute to infringement of the ’012 patent.  In particular, the Accused Toner Bottle Products are specially adapted for an infringing use, and they are not staple articles of commerce suitable for substantial non-infringing use.^[18]

The court ruled that Canon’s allegations satisfied Twombly/Iqbal pleading standards because the Amended Complaint: (a) “expressly identifies ‘end users’ as direct infringers”; (b) “alleges the requisite intent and knowledge for induced infringement”; and (c) “alleges all of the elements for contributory infringement.”^[19]  As a result, the court denied the defendants’ motion for judgment on the pleadings.

Even though it upheld Canon’s allegations, the court granted Canon leave to further amend its complaint within 14 days from the docketing of the order if, at Canon’s option, it elects to do so. 

The decision is Canon, Inc. v. Color Imaging, Inc. and General Plastic Indus. Co., Ltd., No. 1:11-cv-3855-RLV (N.D. Ga. Feb. 8, 2013), written by Senior U.S. District Judge Robert L. Vining, Jr.

_{[1] Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007);  Ashcroft v. Iqbal, 556 U.S. 662 (2009).}

_{[2] Randall v. Scott, 610 F.3d 701, 705 (11th Cir. 2010) (quoting  Fed. R. Civ. P. (8)(a)(2)).}

_{[3] Randall, 610 F.3d at 705 (citations omitted).}

_{[4] Twombly, 550 U.S. at 555 (citations omitted).} 

_{[5] Iqbal, 556 U.S. at 678-79.}

_{[6] 681 F.3d 1323, 1334 & 1336-37 (Fed. Cir. 2012).}

_{[7] Id. at 1339.}

_{[8] “To hold a component supplier liable for contributory infringement, a patent holder must show, inter alia, that (a) the supplier's product was used to commit acts of direct infringement; (b) the product’s use constituted ‘a material part of the invention’; (c) the supplier knew its product was ‘especially made or especially adapted for use in an infringement’ of the patent; and (d) the product is ‘not a staple article or commodity of commerce suitable for substantial noninfringing use.’”   Arris Group, Inc. v. British Telecomms. PLC, 639 F.3d 1368, 1376 (Fed. Cir. 2011) (quoting 35 U.S.C. § 271(c));  see also Fujitsu Ltd. v. Netgear, Inc., 620 F.3d 1321, 1326 (Fed. Cir. 2010) (“To establish contributory infringement, the patent owner must show the following elements relevant to this appeal: 1) that there is direct infringement, 2) that the accused infringer had knowledge of the patent, 3) that the component has no substantial noninfringing uses, and 4) that the component is a material part of the invention.”).}

_{[9] In re Bill of Lading, 681 F.3d at 1337 & 1338 (italics in original).}

_{[10] “A motion under this rule challenges the legal sufficiency of the parties’ allegations.  The standard applied on a Rule 12(c) motion is essentially the same as that applied to a Rule 12(b)(6) motion, i.e., even if all material facts in the pleading are true, the moving party is entitled to judgment as a matter of law.”  High Sierra Hikers Ass’n v. Powell, 150 F.Supp.2d 1023, 1031 (N.D. Cal. 2001).}

_{[11] Canon, Inc. v. Color Imaging, Inc., No. 1:11-cv-3855-RLV, slip op. at 2 (N.D. Ga. Feb. 8, 2013).}

_{[12] Id., slip op. at 2-3.}

_{[13] Id. at 3 n.1.}

_{[14] Id. at 3.}

_{[15] Id. at 4-5.}

_{[16] Id. at 6.  Contrast indirect infringement allegations with affirmative defenses, to which the Northern District of Georgia held Iqbal / Twombly standards do not apply.  See prior post.}

_{[17] Id. at 7.}

_{[18] Canon, Inc. v. Color Imaging, Inc. and General Plastic Indus. Co., Ltd., No. 1:11-cv-3855-RLV, atDkt. No.62, Amended Complaint for Patent Infringement, ¶ 22.}

_{[19] Canon, supra, slip op. at 6.}