Troutman Sanders LLP: Federal Circuit Applies Twombly and Iqbal to Indirect Patent Infringement Claims

By Dabney Carr

As we discussed here, one Eastern District of Virginia court has set a low bar for pleading claims of indirect infringement under the Supreme Court's "Twiqbal" decisions. In a ruling last week, the Federal Circuit weighed in on the issue, making clear that the low pleading standard for direct infringement does not apply to claims of indirect infringementIn re Bill of Lading Transmission and Processing System Patent Litigation (R+L Carriers), 2012 U.S. App. LEXIS 11519 (Fed. Cir. June 7, 2012) (found here).

R+L Carriers involves a claim of indirect infringement of a patent relating to the freight industry. The patented method allows shipping documents to be scanned and sent directly from a truck driver so that billing and load planning can occur while freight is on route. The patentee, R+L Carriers, sent cease and desist letters to several companies selling allegedly infringing products. Several of the target companies filed declaratory judgment actions, and R+L responded by asserting claims that the defendants had indirectly infringed the patent through their customers. The District Court dismissed all of R+L's claims with prejudice for failure to state a claim under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007) [enhanced version available to lexis.com subscribersand Ashcroft v. Iqbal, 556 U.S. 662 (2009) [enhanced version available to lexis.com subscribers]. The Federal Circuit affirmed in part and reversed in part and remanded.

In McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1360 (Fed. Cir. 2007) [enhanced version available to lexis.com subscribers], the Court held that a claim of direct infringement must only meet the bare-bones pleading requirements set forth in Form 18 of the Federal Rules of Civil Procedure.  Our earlier posts on the EDVA's application of McZeal can be found here and here.  In R+L, the Court reiterated its holding in McZeal but held that Form 18 does not apply to claims of indirect infringement. 

The highlights of the Court's decision are as follows:

  • A plaintiff asserting indirect infringement need not identify a specific direct infringer, "if it pleads facts sufficient to allow an inference that at least one direct infringer exists." Circumstantial evidence of direct infringement by unknown parties is sufficient. 
  • Form 18 does not apply to the sufficiency of allegations of indirect infringement. Rather, claims of contributory infringement or inducement of infringement must meet the stricter requirements of Twombly and Iqbal. 
  • The Court did not delve into the requirements for pleading contributory infringement because it held that the Complaint itself alleged substantial non-infringing uses that precluded a finding of contributory infringement. Thus, while a "formulaic recitation" of the elements of contributory infringement is insufficient, it remains to be seen what a plaintiff must assert to adequately allege the lack of a substantial non-infringing use and the other elements of contributory infringement
  • Claims of inducement must contain facts "plausibly showing" specific intent to induce another to infringe, drawing all reasonable inferences are drawn in favor of the plaintiff. 
  • To determine whether it is reasonable to infer intent from statements or conduct, the Court looked to the standard the Supreme Court adopted in Matrixx Initiatives, Inc. v. Siracusano, 131 S.Ct. 1309, 1323 (2011) [enhanced version available to lexis.com subscribers] for pleading intent in a securities fraud action. There, the Supreme Court held that "a court must assess the facts in the context in which they occurred and from the standpoint of the speakers and listeners within that context." That alternative inferences are also reasonable does not render a complaint deficient.
  • R+L's allegations of intent to induce infringement relied on the defendants' public statements that the accused products increased efficiency by scanning and transmitting shipping documents from the truck and notice of the patent through its cease and desist letters. The Court found these allegations to be sufficient, based in part on the defendants' failure to identify a non-infringing method by which a trucking company could increase efficiency by scanning shipping documents and transmitting them from the cab of the truck.  
  • The Court rejected the argument that R+L must produce statements from the defendants that specifically instructed customers to perform all the steps of the patented method on the grounds that such a standard would require R+L to prove its claims at the pleading stage. 
  • The Court also rejected the argument that a plaintiff must plead facts showing that every step in a claimed method is performed in the claimed order, holding that "nothing in Twombly or Iqbal demands this level of factual specificity at the pleading stage," though under other circumstances, "failure to allege facts that plausibly suggest a specific element or elements of a claim have been practiced may be fatal." 

While Form 18 sets a bar for pleading direct infringement that is easy to meet, the Federal Circuit's application of Twombly and Iqubal to indirect infringement claims may prove to be a substantial hurdle. Contributory infringement claims, for example, will require allegation of specific facts showing the lack of a substantial non-infringing use. Likewise, claims for inducement of infringement will require facts which allow an inference of specific intent. In R+L Carriers, the inducement claims survived because of the broad scope of the claimed method. For narrower claims, it will likely be far more difficult to establish the plausibility of allegations of specific intent based on a defendant's advertising and public statements. Thus, accused infringers can be expected to use R+L Carriers to continue to attack the specificity of claims of indirect infringement, particularly the specificity of allegations of the elements of indirect infringement other than direct infringement.

Copyright © 2012, Troutman Sanders LLP

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