Article written by Clyde Shuman
In a precedential decision, the Federal Circuit has once again addressed the stringency of pleading requirements in cases alleging patent infringement. In Bot M8 LLC v. Sony Corporation of America, et al, No. 2020-2218, the Court rejected any requirement that a plaintiff is required to plead infringement on an element-by-element basis, finding that such a requirement is “unsupported and goes beyond the standard the Supreme Court articulated in Iqbal and Twombly.” However, the Court also held that “a plaintiff cannot assert a plausible claim for infringement under the Iqbal/Twombly standard by reciting the claim elements and merely concluding that the accused product has those elements. There must be some factual allegations that, when taken as true, articulate why it is plausible that the accused product infringes the patent claim.” Further, and to the point, the Court held that “[w]here, as here, the factual allegations are [ ] inconsistent with and contradict infringement, they are [ ] insufficient to state a plausible claim.”
The background of the case is complex. With respect to technology, the asserted patents relate to gaming machines and are directed to casino, arcade, and video games generally. The patent relates to an authentication mechanism to verify that a game program has not been manipulated. In relevant part, the patent requires that a “game program for executing a game” and an “authentication program for authenticating the game program” are stored on the same “board including a memory,” which is separate from the motherboard and its memory.
The ’990 patent also relates to a gaming machine and requires storing gaming information and a mutual authentication program on the same medium. The patent claims an “authentication unit” that authenticates “gaming information,” and a separate “mutual authentication unit” that authenticates the “authentication program.” The claims require “a removable storage medium storing therein gaming information including a mutual authentication program,” with “the mutual authentication program [being] included in the gaming information authenticated by the authentication unit.”
The ’988 and ’670 patents generally relate to a gaming device with a fault inspection program. In both patents, execution of the “fault inspection program” must be com-pleted “before the game is started.”
Procedurally, Bot M8 sued Sony Corporation of America, et al. in the Southern District of New York, alleging infringement of six patents, including the ’540, ’990, ’988, and ’670 patents. After transfer to the Northern District of California, the district court held a case management conference, during the court directed Bot M8 to file an amended complaint specifying “every element of every claim that you say is infringed and/or explain why it can’t be done.” The court instructed Bot M8 that, “if this is a product you can buy on the market and reverse engineer, you have got to do that.”
The district court granted Sony’s motion to dismiss the first amended complaint (“FAC”) as to the ’540, ’990, ’988 and ’670 patents. For the ’540 and ‘990 patents, the district court found that “the complaint fails to allege when or where the game program and authentication program are stored together on the same memory board.” Because Bot M8’s allegations “do not address where the game program is stored,” the court found them insufficient.
For the ’988 and ’670 patents, the court found that “the complaint provides no basis to infer the proper timing of the inspection”—i.e., whether a “fault inspection program” is “completed before the game starts.” The court explained that Bot M8’s “allegation too closely tracks the claim language to be entitled to the presumption of truth,” and “[n]o underlying allegations of fact are offered.”
Bot M8 subsequently moved for leave to amend its complaint and attached a redlined version of its proposed Second Amended Complaint (“SAC”), explaining that the SAC was based on new evidence obtained only after it was authorized to “jailbreak” the PS4. The district court denied the motion, finding that Bot M8 should have included the “jailbreak” evidence in the FAC. Because Bot M8’s amendments “could have, and should have, been included in the [first] amended complaint,” the court found the proposed amendments untimely. The district court subsequently denied Mot M8’s motion for reconsideration.
On appeal, the Federal Circuit first rejected Bot M8’s argument that that “the district court erred in sua sponte forcing Bot M8 to replead” its original complaint. First, per the Court, the district court did not force Bot M8 to replead. Rather, Bot M8 chose to file an amended complaint rather than defend its original complaint. Second, also per the Court, under Ninth Circuit law, the lower court was permitted to “act on its own initiative to note the inadequacy of a complaint and dismiss it for failure to state a claim” if it “give[s] notice of its intention to dismiss and give[s] the plaintiff some opportunity to respond unless the ‘plaintiffs cannot possibly win relief.’” Accordingly, the district court had the authority to request an amended complaint, and its procedure here was fair.
With respect to the dismissal of the FAC, the Court disagreed with the lower court’s instruction to counsel for Bot M8 that it must “explain in [the] complaint every element of every claim that you say is infringed and/or explain why it can’t be done,” reiterating that a plaintiff “need not ‘prove its case at the pleading stage.’” The Court said that a plaintiff is not required to plead infringement on an element-by-element basis. Per the Court, “To the extent this district court and others have adopted a blanket element-by-element pleading standard for patent infringement, that approach is unsupported and goes beyond the standard the Supreme Court articulated in Iqbal and Twombly.”
Rather, per the Court, “[t]he relevant inquiry under Iqbal/Twombly is whether the factual allegations in the complaint are sufficient to show that the plaintiff has a plausible claim for relief.” Continuing, “In other words, a plausible claim must do more than merely allege entitlement to relief; it must support the grounds for that entitlement with sufficient factual content… The level of detail required in any given case will vary depending upon a number of factors, including the complexity of the technology, the materiality of any given element to practicing the asserted claim(s), and the nature of the allegedly infringing device.”
Accordingly, per the Court, “a plaintiff cannot assert a plausible claim for infringement under the Iqbal/Twombly standard by reciting the claim elements and merely concluding that the accused product has those elements. There must be some factual allegations that, when taken as true, articulate why it is plausible that the accused product infringes the patent claim.”
Applying the above-articulated pleading standard, the Court agreed with the district court that Bot M8’s allegations for the ’540 and ’990 patents were conclusory and at times contradictory but found that the lower court erred in dismissing the allegations for the ’988 and ’670 patents. Per the Federal Circuit, “With respect to the ’988 and ’670 patents, the court simply required too much.”
With respect to the pleading for the ’540 patent, the Court agreed with Sony that the FAC actually alleges away from infringement by asserting that the “authentication program” is stored on the PS4 motherboard, which is inconsistent with Bot M8’s infringement theory. The Court said, “Under Iqbal/Twombly, allegations that are ‘merely consistent with’ infringement are insufficient. Where, as here, the factual allegations are actually inconsistent with and contradict infringement, they are likewise insufficient to state a plausible claim.”
For the ’990 patent, the Court pointed to the district court’s finding found that Bot M8 failed to offer factual allegations that support a plausible inference that the PS4 actually stores the gaming information and mutual authentication program together. The Court also agreed with the district court that Bot M8’s allegations were conclusory, merely tracked the claim language, and did not plausibly allege that gaming information and a mutual authentication program are stored together on the same memory.
By contrast, for the ’988 and ’670 patents, the Court agrees with Bot M8 that the FAC plausibly alleged infringement. The Court found that Bot M8 expressly alleges—at least four different times—that the fault inspection program completes before the game is started. The Court further found that the FAC also identified specific error messages that are displayed by the PS4 when faults are detected. Per the Court, “These allegations give rise to a reasonable inference that the fault inspection program is completed before a game starts.”
The Court found that the FAC plausibly alleged that the PS4 completes its execution of the fault inspection program before the game is started and supported those assertions with specific factual allegations. “Nothing more is required.”
Finally, the Court concluded that the district court properly denied leave to amend, noting that leave to amend after a scheduling order deadline has passed requires “good cause” under Fed. R. Civ. P. 16. The Court referenced the lower court’s requiring reverse engineering of Sony’s products as a prerequisite to pleading infringement, finding that Bot M8 waived its objection to that obligation when it told the court it was happy to undertake that exercise. The Court noted that Bot M8 did not move for leave to amend for 12 weeks after the November conference.
Limiting itself to the question of whether Bot M8 was diligent in raising its concerns with the reverse engineering order only in seeking leave to file the SAC, the Court said, “Reviewing the district court order on appeal and under Rule 16, we cannot conclude that the district court abused its discretion.”
