Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 1 of 9 Page ID #:719
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`Present: The
`Honorable
`
`James V. Selna
`
`Karla J. Tunis
`Deputy Clerk
`Attorneys Present for Plaintiffs:
`Not Present
`
`Not Present
`Court Reporter
`Attorneys Present for Defendants:
`Not Present
`
`Proceedings:
`
`(IN CHAMBERS)
`
`Order GRANTING IN PART and
`DENYING IN PART Defendants’ to Dismiss
`
`Defendants Everlight Electronics Co., Ltd. and Everlight Americas, Inc. (collectively
`“Defendants”) filed a motion to dismiss Plaintiff Document Security Systems, Inc.’s (“DSS”)
`First Amended Complaint (“FAC”) for failure to state a claim upon which relief can be granted
`pursuant to Federal Rule of Civil Procedure 12(b)(6).1 (Mot., Docket No. 31.) DSS filed an
`opposition. (Opp’n, Docket No. 33.) Defendants replied. (Reply, Docket No. 34.)
`
`For the following reasons, Defendants’ motion to dismiss is granted in part and denied in
`part.
`
`I. BACKGROUND
`
`DSS holds all rights in and title to U.S. Patent Nos. 6,949,771 (“the ‘771 Patent”), 7,524,087
`(“the ‘087 Patent”), 7,919,787 (“the ‘787 Patent”), and 7,256,486 (“the ‘486 Patent”). (FAC,
`Docket No. 30 ¶¶ 8-12.) On June 8, 2017, DSS filed the present action against Defendants,
`which alleges infringement of the ‘771, ‘087, ‘787, and ‘486 Patents. (Id.) In particular, the
`FAC alleges direct, induced, and willful infringement of each asserted patent. (Id. ¶¶ 15-25, 28-
`39, 42-54, 57-67.) Defendants now move to dismiss the FAC for failure to state a claim upon
`
`1 Defendants filed a Request for Judicial Notice (“RJN”) in support of their motion to dismiss.
`(RJN, Docket No. 32.) The Court finds it unnecessary to rely upon these documents in order to reach a
`decision on the motion to dismiss. Therefore, the Court declines to grant the request.
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`
`Page 1 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 2 of 9 Page ID #:720
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6).2 (Mot.,
`Docket No. 31.)
`
`II. LEGAL STANDARD
`
`Under Federal Rule of Civil Procedure 12(b)(6), a defendant may move to dismiss for failure to
`state a claim upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). A plaintiff must state
`“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
`550 U.S. 544, 570 (2007). A claim has “facial plausibility” if the plaintiff pleaded facts that
`“allow[] the court to draw the reasonable inference that the defendant is liable for the
`misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009).
`
`In resolving a 12(b)(6) motion under Twombly, a court must follow a two-step approach. Id. at
`679. First, a court must accept all well-pleaded factual allegations as true, but “[t]hread-bare
`recitals of the elements of a cause of action, supported by mere conclusory statements, do not
`suffice.” Id. at 677. Furthermore, a court must not “accept as true a legal conclusion couched
`as a factual allegation.” Id. at 677-78 (quoting Twombly, 550 U.S. at 555). Second, assuming
`the veracity of well-pleaded factual allegations, a court must “determine whether they plausibly
`give rise to an entitlement to relief.” Id. at 664. This determination is context-specific,
`requiring a court to draw on its experience and common sense, but there is no plausibility
`“where the well-pleaded facts do not permit the court to infer more than the mere possibility of
`misconduct.” Id.
`
`III. DISCUSSION
`
`A.DSS’s Direct Infringement Allegations Regarding Other Product Lines
`
`Under Twombly, a plaintiff must assert a plausible claim for relief, and to “establish literal
`
`2 In the reply, Defendants state that they are no longer seeking a ruling at this stage of the
`proceedings on: (1) “whether the drawings use by DSS in the FAC provide notice of the infringement
`for the illustrative examples”; (2) “whether the induced infringement allegations for these illustrated
`examples are insufficient to the extent that the illustrated products are alleged to have been sold in the
`United States by Defendants”; and (3) “whether there is personal jurisdiction over [Defendant] Everlight
`Electronics based on the allegations of induced infringement relating to its own alleged sales of LED
`products into the United States.” (Reply, Docket No. 34 at 5-6.) Thus, the Court’s Order will address
`only the arguments Defendants appear to still advance in the reply.
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`
`Page 2 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 3 of 9 Page ID #:721
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`infringement, every limitation set forth in a claim must be found” in the accused product.
`Advanced Steel Recovery, LLC v. X-Body Equip., Inc., 808 F.3d 1313, 1319 (Fed. Cir. 2015).
`Furthermore, under the doctrine of equivalents, a claim for direct infringement “must be applied
`to individual elements of the claim, not to the invention as a whole.” E-Pass Techs., Inc. v.
`3Com Corp., 473 F.3d 1213, 1221 (Fed. Cir. 2007) (internal quotations and citations omitted).
`However, at this stage, a plaintiff only needs to provide sufficient factual allegations regarding
`how an accused product meets each of a claim’s limitations. See e.Digital Corp. v. iBaby Labs,
`Inc., No. 15-CV-05790 JST, 2016 WL 4427209, at *4 (N.D. Cal. Aug. 22, 2016) (“To require a
`patentee to plausibly allege that the accused product practices each of the limitations in at least
`one asserted claim should not impose an undue burden on most plaintiffs, because a patentee is
`already required to perform an adequate pre-filing investigation before bringing suit.”); see also
`TeleSign Corp. v. Twilio, Inc., No. CV 16-2106 PSG (SSX), 2016 WL 4703873, at *4 (C.D.
`Cal. Aug. 3, 2016) (“[I]t is irrelevant at this stage whether Plaintiff’s allegations are accurate, as
`the Court accepts all of Plaintiff’s allegations as true . . . . The Court only requires that Plaintiff
`plausibly alleges that a product or products of Defendant infringes on at least one claim of the
`’792 patent.”).
`
`Here, Defendants argue that DSS fails to allege that the illustrative examples used in the FAC
`are representative of the infringement claims for the vast majority of product lines identified in
`the FAC as accused instrumentalities. (Reply, Docket No. 34 at 14-15.) Thus, Defendants
`assert that DSS’s direct infringement allegations are deficient for those product lines that are not
`supported with representative illustrative examples. (Id. at 15.) In support of this contention,
`Defendants point to DSS’s allegation in the FAC, which states: “attorneys for DSS attempted to
`purchase from Defendants eighteen different representative models of Defendants’ products for
`the purposes of confirming that Defendants infringed the asserted patents prior to filing this
`lawsuit. Defendants initially confirmed the order but later cancelled it without notifying DSS or
`its attorneys.” (FAC, Docket No. 30 ¶ 13.) Additionally, Defendants cite one case in which the
`court found that a plaintiff’s allegations in a complaint that certain images were representative
`of other product lines and that there was no material difference between them insufficient to
`survive a motion to dismiss. See Continental Circuits LLC v. Intel Corp., No. CV16-2026 PHX
`DGC, 2017 WL 679116, at *6 (D. Ariz. Feb. 21, 2017).
`
`The Court is not persuaded. The Northern District’s Patent Local Rules provide:
`
`Not later than 14 days after the Initial Case Management
`Conference, a party claiming patent infringement shall
`CIVIL MINUTES - GENERAL
`
`CV-90 (06/04)
`
`Page 3 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 4 of 9 Page ID #:722
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`(b)
`
`serve on all parties a “Disclosure of Asserted Claims and
`Infringement Contentions.” Separately for each opposing
`party, the “Disclosure of Asserted Claims and Infringement
`Contentions” shall contain the following information:
`(a)
`Each claim of each patent in suit that is
`allegedly infringed by each opposing party,
`including for each claim the applicable
`statutory subsections of 35 U.S.C. §271
`asserted;
`Separately for each asserted claim, each
`accused apparatus, product, device, process,
`method, act, or other
`instrumentality
`(“Accused Instrumentality”) of each opposing
`party of which the party is aware. This
`identification shall be as specific as possible.
`Each product, device, and apparatus shall be
`identified by name or model number, if
`known. Each method or process shall be
`identified by name, if known, or by any
`product, device, or apparatus which, when
`used, allegedly results in the practice of the
`claimed method or process[.]
`
`Patent L.R. 3-1. These rules were promulgated post Twombly and Iqbal and are
`consistent with Defendants’, the Court’s, and the Federal Rules of Civil
`Procedure’s concern that a complaint “give the defendant fair notice of what the . .
`. claim is and the grounds upon which it rests.” Twombly, 550 U.S. at 555; Iqbal,
`556 U.S. at 698; see also Windy City Innovations, LLC, v. Microsoft Corp., 193 F.
`Supp. 3d 1109, 1115 (N.D. Cal. 2016) (denying a motion to dismiss in which the
`defendant alleged that plaintiffs were obligated to explain which specific products
`infringed each specific claim asserted because Local Rule 3-1 delegated such
`disclosure to discovery); cf. Philips v. ASUSTeK Comput. Inc., No. 15-1125-
`GMS, 2016 WL 6246763, at *3 (D. Del. Oct. 25, 2016) (denying motion to dismiss
`direct infringement claims where plaintiff pled exemplary list of accused products
`because the court’s local rules required infringement contentions that would
`provide detail of all the accused products and asserted claims).
`CIVIL MINUTES - GENERAL
`
`CV-90 (06/04)
`
`Page 4 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 5 of 9 Page ID #:723
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`Here, DSS provides specific allegations for one accused instrumentality as an
`illustrative example for each patent-in-suit. (FAC, Docket No. 30 ¶¶ 17-20, 30-33,
`44-49, 59-62.) Moreover, DSS alleges “[o]n information and belief” that
`Defendants have directly infringed and continue to directly infringe each patent-in-
`suit by making, using, offering for sale, selling, and/or importing all of the accused
`instrumentalities. (Id. ¶¶ 16, 29, 43, 58.) Further, DSS alleges “[o]n information
`and belief” that the accused instrumentalities are covered by one or more claims of
`the patents-in-suit. (Id.) These allegations are sufficient to withstand a motion to
`dismiss, especially considering that DSS will soon be required to serve detailed
`infringement contentions for each accused product. “The Court is not inclined to
`belabor the Rule 12 motion practice.” Windy, 193 F. Supp. 3d at 1115.
`Accordingly, the Court denies Defendants’ motion to dismiss on this ground.
`
`B.DSS’s Induced Infringement Allegations Based on Overseas Sales
`
`To be actionable, a claim for induced infringement must be supported by an
`actionable direct infringement claim by a third party. See Epcon Gas Sys., Inc. v.
`Bauer Compressors, Inc., 279 F.3d 1022, 1033 (Fed. Cir. 2002) (“It is well settled
`that there can be no inducement of infringement without direct infringement by
`some party.”). Two additional elements must be present. First, there must be
`allegations of conduct amounting to inducement. DSU Med. Corp. v. JMS Co.,
`471 F.3d 1293, 1306 (Fed. Cir. 2006) (“To establish liability under section 271(b),
`a patent holder must prove that once the defendants knew of the patent, they
`actively and knowingly aid[ed] and abett[ed] another’s direct infringement.”)
`(internal quotation marks and citation omitted). Second, there must be allegations
`of the intent to cause direct infringement; that is, a defendant must induce acts by
`another that are known by the defendant to constitute patent infringement. See
`Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011); see also
`DSU Med. Corp., 471 F.3d at 1305-06 (“[I]f an entity offers a product with the
`object of promoting its use to infringe, as shown by clear expression or other
`affirmative steps taken to foster infringement, it is then liable for the resulting acts
`of infringement by third parties.”).
`
` Here, Defendants argue that DSS’s allegations in support of their induced
`infringement claims are deficient to the extent that they are based on overseas
`sales. (Reply, Docket No. 34 at 10-14.) Defendants argue that DSS’s allegations
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`Page 5 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 6 of 9 Page ID #:724
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`regarding overseas sales are not supported by facts that plausibly show Defendants
`induced overseas customers to import their own manufactured products into the
`United States in order to develop Defendants’ United States market. (Id. at 13.)
`Defendants’ argument focuses on a single allegation, out of many upon which DSS
`bases its induced infringement claims, which states:
`
`Defendants also specifically intend their customers to
`infringe the [patents-in-suit] through selling [the] Accused
`Instrumentalities overseas with the specific intent that the
`customer import, offer to sell, and/or sell the . . . Accused
`Instrumentalities in order to develop and serve the United
`States market for Defendants’ LED products, either alone
`or used in products such as bulbs, displays, consumer
`products and/or
`fixtures. Such customers
`include
`Defendants’ LED distributors, consumer products
`companies and retailers that serve the United States market.
`
`(FAC, Docket No. 30 ¶¶ 24, 38, 53, 66.) The other allegations DSS states to
`support its induced infringement claims include: providing technical guides,
`product data sheets, demonstrations, software and hardware specifications,
`installation guides, and other forms of support that induce their customers to
`directly infringe the patents-in-suit. (Id. ¶ 22, 35, 51, 64.) Additionally, the FAC
`alleges that Defendants specifically intend the United States customers to infringe
`the patents-in-suit through use of the accused instrumentalities in this country by
`advertising and promoting the use of the products on the United States website.
`(Id. ¶¶ 23, 36, 52, 65.)
`
`As stated above, Defendants concede that DSS has sufficiently stated a claim
`for induced infringement to the extent that the products are alleged to have been
`sold in the United States by Defendants. (Reply, Docket No. 34 at 5.) The Court
`is not persuaded that the specific allegations related to overseas sales are markedly
`different from the other allegations Defendants concede are sufficient to state a
`claim for induced infringement. Moreover, the Court does not find that the
`overseas sales allegations are so devoid of facts that they warrant dismissal of
`DSS’s induced infringement claims to the extent that they are based upon these
`allegations. Given that the Court must accept all well-pleaded factual allegations
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`Page 6 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 7 of 9 Page ID #:725
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`as true, the Court finds that DSS has alleged enough facts to state a claim for relief
`that is plausible on its face and to put Defendants on notice of what they must
`defend.
`
`In the hearing on the Motion, Defendants argued that DSS’s induced
`infringement claims are deficient specifically as to Defendant Everlight Electronics
`because the FAC does not provide notice of what type of activities Defendant
`Everlight Electronics did to induce overseas customers to import their products
`into the United States. However, as discussed above, Defendants conceded that
`DSS sufficiently stated an induced infringement claim against both Defendants
`based on the allegations of sales in the United States. (Reply, Docket No. 34 at 5-
`6.) Defendants provide no support for their argument that the Court should dismiss
`the induced infringement claims to the extent they rely on particular factual
`allegations, even though Defendants have conceded that DSS has already stated
`claims for induced infringement based on other factual allegations. Defendants’
`argument needlessly splits hairs and the Court finds no reason to limit DSS’s
`induced infringement claims to the extent they are based on the specific allegations
`regarding overseas sales. Defendants’ argument is better presented on a full
`evidentiary record on a motion for summary adjudication. Accordingly, the Court
`denies Defendants’ motion to dismiss on this ground.
`
`The Court notes that in their motion to dismiss, Defendants argued that DSS
`failed to meet the standard for pleading personal jurisdiction against Defendant
`Everlight Electronics with respect to the induced infringement claims. (Mot.,
`Docket No. 31 at 4-5.) In their reply, Defendants state that “they no longer seek a
`ruling at this stage of the proceedings on . . . whether there is personal jurisdiction
`over [Defendant] Everlight Electronics based on the allegations of induced
`infringement relating to its own alleged sales of LED products into the United
`States.” (Reply, Docket No. 34 at 5-6.) Further, Defendants state that “[b]ecause
`the inducement claim based on sales to foreign customers has not been adequately
`pled and the basis for any such claim is unclear, it is not necessary for the Court to
`determine whether DSS has successfully asserted personal jurisdiction as to such
`an inducement claim.” (Id. at 14-15.) However, as stated above, the Court has
`found that DSS pled facts sufficient to state a claim for induced infringement based
`on overseas sales. Defendants do not otherwise argue why the Court lacks
`personal jurisdiction over Defendant Everlight Electronics regarding the induced
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`Page 7 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 8 of 9 Page ID #:726
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`infringement claims to the extent that they are based on the specific allegations
`regarding overseas sales. In their initial motion, Defendants contend that personal
`jurisdiction must exist for each claim asserted against a defendant. (Mot., Docket
`No. 31 at 5 (citing Action Embroidery Corp. v. Atlantic Embroidery, Inc., 368 F.3d
`1174, 1180 (9th Cir. 2004).) However, Defendants do not put forth any argument
`that personal jurisdiction must exist for each and every factual allegation
`underlying each claim. Given that the parties have not briefed this specific issue,
`the Court declines to address personal jurisdiction at this time.
`
`C. Willful Infringement
`
`Under 35 U.S.C. § 284, a court may “increase the damages up to three times
`the amount found or assessed” in a patent claim. In the Supreme Court’s recent
`decision Halo Electronics Inc. v. Pulse Electronics, Inc., 136 S. Ct. 1923 (2016),
`the Court rejected the Federal Circuit’s two-part test from In re Seagate, 497 F.3d
`1360 (Fed. Cir. 2007), for determining when a district court may award enhanced
`damages. The Court reaffirmed that awarding damages under § 284 is in the
`discretion of the district court. Halo, 136 S. Ct. at 1933-34. The Court found that
`the Seagate test was “unduly rigid” and “impermissibly encumber[ed]” the
`discretion of district courts. Id. at 1932. The Court did away with the requirement
`that “objective recklessness” be shown in every case, instead “limiting the award
`of enhanced damages to egregious cases of misconduct beyond typical
`infringement.” Id. at 1932, 1935. Even after Halo, “[k]nowledge of the patent
`alleged to be willfully infringed continues to be a prerequisite to enhanced
`damages.” WBIP, LLC v. Kohler Co., 829 F.3d 1317, 1341 (Fed. Cir. 2016).
`Further, the Court noted that § 284 “allows district courts to punish the full range
`of culpable behavior[,]” but “such punishment should generally be reserved for
`egregious cases typified by willful misconduct.” Halo, 136 S. Ct. at 1933-34.
`
`In the FAC, DSS alleges that “[t]o the extent additional facts learned in
`discovery confirm that Defendants’ infringement of the [patents-in-suit] [are] or
`[have] been willful and/or egregious, or to the extent that Defendants’ actions
`subsequent to the filing of this Complaint—such as their behavior as litigants or
`their continued failure to take remedial actions—render their infringement
`egregious, DSS reserves the right to request such a finding at time of trial.” (FAC,
`Docket No. 30 ¶¶ 25, 39, 54, 67.) Thus, DSS concedes that at this time, it cannot
`CIVIL MINUTES - GENERAL
`CV-90 (06/04)
`Page 8 of 9
`
`

`

`Case 2:17-cv-04273-JVS-JCG Document 47 Filed 11/16/17 Page 9 of 9 Page ID #:727
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`CIVIL MINUTES - GENERAL
`Case No. CV 17-04273 JVS(JCGx)
`Date November 16, 2017
`Document Security Systems, Inc. v. Everlight Electronics Co., Ltd., et al.
`Title
`
`plead facts sufficient to state a plausible claim for willful infringement. “Factual
`allegations must be enough to raise a right to relief above the speculative level.”
`Twombly, 550 U.S. at 555. Therefore, DSS’s willful infringement claims do not
`meet the standards of Twombly and Iqbal. Accordingly, DSS’s claims for willful
`infringement are dismissed with leave to amend.
`
`IV. CONCLUSION
`
`For the foregoing reasons, Defendants’ motion to dismiss is granted in part
`and denied in part.
`
`IT IS SO ORDERED.
`
`Initials of Preparer
`
`kjt
`
`:
`
`00
`
`CV-90 (06/04)
`
`CIVIL MINUTES - GENERAL
`
`Page 9 of 9
`
`