Case 2:17-cv-00204-RWS-RSP Document 206 Filed 03/26/18 Page 1 of 6 PageID #: 3687
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`MARSHALL DIVISION
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`Plaintiff,
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`SOVERAIN IP, LLC,
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`v.
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`MICROSOFT CORPORATION,
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`Defendant.
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`No. 2:17-CV-00204-RWS-RSP
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`ORDER ADOPTING REPORT AND RECOMMENDATION
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`Now before the Court are Defendant AT&T Services, Inc.’s Objections (Docket No. 202)
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`to Magistrate Judge Payne’s Report and Recommendation (Docket No. 201), which recommends
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`that the Court deny AT&T’s motion to dismiss Soverain’s allegations of willful infringement under
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`Fed. R. Civ. P. 12(b)(6). For the reasons that follow, the Court OVERRULES AT&T’s objections
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`and DENIES the motion to dismiss.
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`BACKGROUND
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`This patent case concerns U.S. Patents 5,708,780, 7,191,447, and 8,606,900. According to
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`Soverain, these patents are part of a larger network management and data extraction patent
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`portfolio that teaches how to streamline and secure a “single sign-on” process, extract data from
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`hosts over a network, and authenticate and encrypt data using asymmetric keys. Compl. (Docket
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`No. 1, No. 2:17-CV-000293-RWS-RSP) ¶ 25.
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`According to the Complaint, the asserted patents arose from the work of Open Market, Inc.
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`during the infancy of e-commerce. See id. ¶ 2. Open Market’s flagship Internet transaction
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`product, called TRANSACT, included content management, authorization protocols, and
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`customer-relationship management technologies. Id. ¶ 5. TRANSACT contained functionality
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`for separating the management of transactions from the management of content, allowing
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`companies to securely and centrally manage transactions using content located on multiple
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`distributed servers. Id.
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`Soverain pleads that Open Market began commercial shipments of TRANSACT in 1995.
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`Id. ¶ 6. Early customers included Novell, Sprint, Disney, AT&T, Hewlett-Packard, Time Warner,
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`Banc One, and First Union. Id. By the late 1990s, TRANSACT was an established market leader
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`in e-commerce technology. Id. ¶ 7.
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`Soverain alleges both TRANSACT and the related patent portfolio are well-known within
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`the industry. From 1996 through 2000, TRANSACT held the majority of the global market for
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`transaction management systems and was praised for its secure, robust design. Id. ¶ 17. Soverain’s
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`patents and published applications have been cited in over 6000 issued United States patents and
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`published applications as prior art, including by AT&T. Id. ¶¶ 80 (alleging the ’447 Patent has
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`been cited 135 times), 101 (alleging the ’900 Patent has been cited 139 times), 130 (alleging AT&T
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`knew of and cited to the ’780 Patent in eleven of its own patents), and 132 (alleging the ’447 Patent
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`has been cited 1840 times).
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`APPLICABLE LAW
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`Because AT&T’s motion is dispositive, the Court reviews de novo those portions of the
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`Report and Recommendation to which AT&T objects. 28 U.S.C. § 636(b)(1)(C).
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`When considering a motion to dismiss under Fed. R. Civ. P. 12(b)(6), a court must assume
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`that all well-pled facts are true, and view those facts in the light most favorable to the plaintiff.
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`Bowlby v. City of Aberdeen, 681 F.3d 215, 218 (5th Cir. 2012). The court must then decide whether
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`those facts state a claim for relief that is plausible on its face. Id. at 217. “A claim has facial
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`plausibility when the pleaded factual content allows the court to draw the reasonable inference that
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`the defendant is liable for the misconduct alleged.” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662,
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`678 (2009)).
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`“The subjective willfulness of a patent infringer, intentional or knowing, may warrant
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`enhanced damages, without regard to whether his infringement was objectively reckless.” Halo
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`Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1933 (2016). “Actual knowledge of infringement
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`or the infringement risk is not necessary to plead a claim for willful infringement, but the complaint
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`must adequately allege factual circumstances in which the patents-in-suit [are] called to the
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`attention of the defendants.” Elbit Sys. Land & C4I Ltd. v. Hughes Network Sys., LLC, No. 2:15-
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`CV-00037-RWS-RSP, 2016 WL 3878246, at *1 (E.D. Tex. Mar. 30, 2016) (quoting MONEC
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`Holding AG v. Motorola Mobility, Inc., 897 F. Supp. 2d 225, 236 (D. Del. 2012)).
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`DISCUSSION
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`AT&T objects to Judge Payne’s recommendation on two grounds. First, AT&T contends
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`Soverain’s allegations of AT&T’s pre-suit knowledge concerning the asserted patents are
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`insufficient as a matter of law. AT&T’s Objs. (Docket No. 202) at 1–3. Second, AT&T claims
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`Soverain fails to allege sufficiently egregious misconduct to support a willfulness finding. Id. at
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`5.
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`As to the first ground—the extent of AT&T’s pre-suit knowledge—not only does Soverain
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`allege each patent is well-known in the industry by virtue of citations in patents and published
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`applications, Soverain alleges AT&T cited the ’780 Patent in eleven of its own patent applications,
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`favorable media coverage of the related technology, early use by AT&T of related technology, and
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`licensing by AT&T’s competitors. Considered together, these are sufficient for the Court to
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`reasonably infer AT&T knew of the asserted patents. See, e.g., SoftView LLC v. Apple Inc., No.
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`10-389-LPS, 2012 WL 3061027, at *5–6 (D. Del. July 26, 2012) (noting that “none of the
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`allegations standing alone adequately alleges [the defendant] was aware of the patents-in-suit prior
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`to the initiation of this litigation,” but “[t]aken in combination, the Court concludes that SoftView
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`has alleged a plausible basis from which one might reasonably infer [the defendant] had knowledge
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`of the patent-in-suit”); Elm 3DS Innovations, LLC v. Samsung Elecs. Co., No. 14-1430-LPS-CJB,
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`2015 WL 5725768, at *3 (D. Del. Sept. 29, 2015) (“[Separately,] (1) Defendants’ knowledge of
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`patents related to the ’239 patent or (2) the ’239 patent’s ubiquity in Defendants’ industry, may not
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`have been sufficient here. . . . But considered as a whole, they render it at least plausible that
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`Defendants were aware of the ’239 patent and its claims prior to suit.” (emphasis in original)).
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`The cases on which AT&T relies are distinguishable. In MONEC Holding, for example,
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`the court rejected that public disclosure stemming from two lawsuits against the defendants’
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`competitors was sufficient to show the asserted patents were widely known in the industry.
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`MONEC Holding, 897 F. Supp. 2d at 233–34 (distinguishing the facts from those of Investpic, LLC
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`v. FactSet Research Sys., Inc., No. 10-1028-SLR, 2011 WL 4591078 (D. Del. Sept. 30 2011)).
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`There are no such allegations here.
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`In Chalumeau Power Systems and Spherix, Inc., the courts rejected the plaintiffs’
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`arguments that the defendants knew of the asserted patents because the examiner cited the patents
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`during prosecution of the defendants’ patent applications. Chalumeau Power Sys. LLC v. Alcatel-
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`Lucent, No. 11-cv-1175-RGA, 2012 WL 6968938, at *1 (D. Del. July 18, 2012); Spherix Inc. v.
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`Juniper Networks, Inc., No. 14-cv-578-SLR, 2015 WL 1517508, at *3 (D. Del. Mar. 31, 2015).
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`Here, however, Soverain alleges AT&T (not an examiner) cited to one of the asserted patents in
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`eleven of its applications. That gives rise to a more-than-plausible inference that AT&T had
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`sufficient knowledge of the asserted patent given that AT&T decided the patent was material to the
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`prosecution of its own applications.
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`In EON Corp. IP Holdings LLC v. FLO TV, Inc., 802 F. Supp. 2d 527 (D. Del. 2011), the
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`court rejected the plaintiff’s argument that the defendant should have known of the asserted patent
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`simply because of its participation in the same market. The court also rejected the plaintiff’s
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`argument the defendant should have known of the asserted patent because it licensed two third-
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`party patents that cited the asserted patent. Soverain’s allegations here are considerably less
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`tenuous.
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`Having concluded that Soverain’s allegations about AT&T’s knowledge of the asserted
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`patents are at least plausible, AT&T’s alleged conduct may warrant enhanced damages. As Judge
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`Payne noted, inherent in Soverain’s allegation is that AT&T knew its competitors had licensed
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`rights in the technology, yet intentionally chose to use the technology without a license specifically
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`for gaining a financial edge over those competitors. Docket No. 201 at 3. Taking such allegations
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`as true, the Court can reasonably infer AT&T’s alleged behavior was “consciously wrongful”
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`because its decision to not pay royalties was based on financial reasons rather than a belief it did
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`not infringe the asserted patents. See Halo Elecs., Inc., 136 S. Ct. at 1932 (“The sort of conduct
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`warranting enhanced damages has been variously described in our cases as . . . consciously
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`wrongful”). The Court finds Soverain’s allegations and the reasonable inferences that can be
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`drawn from such allegations are sufficient to withstand AT&T’s objection on this point.
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`CONCLUSION
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`Having made a de novo review of the written objections filed by AT&T, and for the reasons
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`detailed above, the Court concludes that the findings and conclusions of the Magistrate Judge are
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`correct. Accordingly, the Court
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`OVERRULES AT&T’s objections and ADOPTS the Report and Recommendation
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`(Docket No. 201) in its entirety. The Court further
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`DENIES Defendant’s Motion to Dismiss Plaintiff’s Allegations of Willful Infringement
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`Under Rule 12(b)(6) (Docket No. 51).
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`.
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`____________________________________
`ROBERT W. SCHROEDER III
`UNITED STATES DISTRICT JUDGE
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`SIGNED this 26th day of March, 2018.
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