United States: Lumping Parent-Subsidiary Defendants Together Is Fatal To Patent Infringement Claims Against Foreign Parent

Abstract

A Delaware federal district court recently ruled that the pleading requirements were not met in a patent infringement action where the patentee's complaint lumped its allegations of infringing acts against co-defendants, a foreign parent and its U.S. subsidiary. To adequately state its claim against the foreign parent based on an alleged parent-subsidiary relationship, the patentee should have provided facts demonstrating the parent's effective control over the subsidiary. The court also ruled that induced infringement claims were inadequately pled because the patentee failed to provide any factual support showing knowledge by the foreign parent of direct infringement by third parties.


In M2M Solutions LLC v. Telit Communications PLC,1 a patent infringement case against a U.S. subsidiary and its United Kingdom-based parent, the UK parent won a dismissal of the claims against it for failure to state a claim under Rule 12(b)(6). The District of Delaware court faulted the complaint for lumping together the UK parent and its U.S. subsidiary in setting forth the alleged acts of infringement. The court also held that induced infringement was inadequately pled because no plausible facts were alleged to demonstrate knowledge by the UK parent of direct patent infringement by a third party.

Under the foundational standards of Twombly and Iqbal, in order to survive a 12(b)(6) motion to dismiss, a complaint must contain enough facts to state a claim for relief that is plausible on its face such that, accepting all factual allegations as true, a court may draw the reasonable inference that that the defendant is liable for the misconduct alleged. For claims of direct patent infringement, the Federal Circuit has held that compliance with Form 18 of the Federal Rules of Civil Procedure is sufficient. With respect to enumerated acts of infringement, Form 18 merely requires a statement that the defendant has been infringing the patent by "making, selling, and using the device embodying the patent."

Applying the standards of Form 18, the court held that M2M's complaint adequately enumerated acts that constitute direct infringement by alleging that "Telit has and continues to directly infringe" by "making, using, offering for sale, and/or selling within the United States" various "M2M module products" that are "designed and promoted for use in M2M communications applications, and that embody and/or practice the inventions of one or more claims of the . . . patent-in-suit." The court, however, found a pleading defect not explicitly raised by Telit UK—that lumping the two defendants together, simply referred to under the umbrella term "Telit," cannot pass muster under Form 18, which requires the identification of the accused product, process or method for each defendant.

M2M's explanation that it decided to group Telit UK and its U.S. subsidiary together because there is little distinction between them based on Telit UK's control over the U.S. subsidiary was unavailing. To adequately plead that a foreign parent is responsible for the alleged infringement by its domestic subsidiary, the court explained, a complaint must allege the existence of a parent-subsidiary relationship along with facts that justify piercing the corporate veil, such as facts showing the existence of an agency relationship where the parent effective controls the subsidiary. Although M2M's complaint alleged the existence of a parent-subsidiary relationship, it failed to provide facts supporting the assertion that Telit UK controls its U.S. subsidiary. The court rejected M2M's attempt to raise supporting facts of Telit UK's effective control over the U.S. subsidiary in its opposition to the motion to dismiss as an improper attempt to amend a complaint through motion to dismiss briefing.

M2M's lumping of two defendants together was also fatal to its claims of induced and contributory infringement. Pleading induced infringement requires that the patentee show direct infringement by another, and that the alleged infringer knowingly induced infringement and possessed specific intent to encourage another's infringement. Notwithstanding its fusing of the two defendants together, M2M's complaint failed to adequately plead knowledge of direct infringement by a third party through its conclusory assertion that "Telit has performed the acts that constitute inducement of infringement with the knowledge or willful blindness that the acts induced thereby would constitute direct infringement by its customers." This assertion, the court reasoned, was "based on no factual allegations and cannot pass muster under the plausibility standards."

With respect to specific intent to encourage another's infringement, the court looked to M2M's general allegations that Telit published manuals and promotional materials instructing customers on how to configure and operate its products in an infringing manner. The court held that although these allegations would be sufficient to plead specific intent to infringe, fusing together the alleged acts of two defendants rendered the pleading defective. In articulating its specific inducement allegations, the court explained that M2M should have identified which defendant or defendants are said to have disseminated the manuals and promotional materials at issue. Treating the defendants as a single group undermined the plausibility as to what either of them might have done and therefore M2M did not plead a plausible inducement claim.

The court similarly found that M2M's claims of contributory infringement—along with being factually too conclusory to state a claim—were insufficiently stated because it lumped together the two defendants. Because the acts of each defendant were not addressed separately, M2M's claim failed to provide evidence demonstrating that Telit UK offers to sell, sells or imports any products or components in or to the United States, as required to state a contributory infringement claim.

Strategy and Conclusion

This case demonstrates the importance of distinguishing between defendants and the acts of each specific defendant in presenting claims in a complaint. When including a foreign parent entity in a claim for patent infringement by the subsidiary, adequate points should be presented for such claim, such as justifying piercing the corporate veil and facts demonstrating the parent's effective control over the subsidiary.

Footnote

1. The District of Delaware's decision can be found at http://www.finnegan.com/files/upload/LES_Insights_Column/2015/M2M Solutions v. Telit Wireless.pdf.

Previously published by LES Insights

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