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As courts on both sides of the split have noted, applying Twombly and Iqbal to counterclaims may impose a higher standard on counterclaims for invalidity than on infringement claims, which must include only the barebones allegations of Form 18 of the Federal Rules of Civil Procedure. See McZeal v. Sprint Nextel Corp., 501 F.3d 1354 (Fed. Cir. 2007). (see our earlier posts on McZeal here and here).

Practical Problems Faced by Accused Infringers

The dichotomy between the requirements for pleading infringement and pleading invalidity raises an important issue. How can an infringement defendant assert potential counterclaims if a plaintiff-patentee is not required to identify the claims it asserts are infringed or how the accused product meets the elements of those claims? In Cleversafe and the other cases to date, the courts have not had to wrestle with that problem because the counterclaims at issue have only made broad, general claims of invalidity.

Likewise, it is not clear what a counterclaim for patent invalidity must allege to comply with Twombly/Iqbal. Must a counterclaim identify specific invalidating prior art? How can it do that without a disclosure of the plaintiff’s theory of infringement or proposed claim construction? Often, there is little that an accused infringer can assert based on the allegations of the Complaint, other than that it believes the patent is invalid as anticipated, obvious or unenforceable. Conversely, the standard for proving invalidity is so high that nothing short of specific allegations of how prior art invalidates the claims of a patent may rise to the level of factual plausibility necessary to meet Twombly/Iqbal.

Virginia Authority

In Virginia, several courts have referenced the Twombly/Iqbal standard when considering motions to dismiss counterclaims, see e.g. Columbia Gas Transmission, LLC v. David N. Martin Revocable Trust, 2011 U.S. Dist. LEXIS 134612 (E.D. Va. Nov. 22, 2011), but no Virginia Court has addressed the issue in the patent context. Further, there appears to be a split among Virginia federal courts on application of Twombly and Iqbal to affirmative defenses. Compare Francisco v. Verizon South, Inc., No. 3:09cv737, 2010 U.S. Dist. LEXIS 77083 (E.D. Va. July 29, 2010) (dismissing affirmative defense under Twombly/Iqbal); and Palmer v. Oakland Farms, Inc., 2010 U.S. Dist. LEXIS 63265 (W.D.Va. June 24, 2010) (same); with Lopez v. Mediterranean Food, Inc., No. 1:10CV1218, 2011 U.S. Dist. LEXIS 2265 (E.D.Va. Jan. 10, 2011) (rejecting Francisco and holding that an affirmative defense must only give fair notice of the nature of the defense). Thus, it remains to be seen how the Virginia federal courts will deal with this issue.

As we have posted here and here, the Eastern District of Virginia has followed the Federal Circuit’s decision in McZeal v. Sprint Nextel Corp., 501 F.3d 1354 (Fed. Cir. 2007), which held that allegations of direct patent infringement must only meet the requirements of Form 18 of the Federal Rules. See Adiscov, LLC v. Autonomy Corp., 762 F.Supp.2d 826 (E.D.Va. 2011) (Smith, J.) and Taltwell, LLC v. Zonet USA Corp., 2007 U.S. Dist. LEXIS 93465 (E.D. Va. Dec. 20, 2007) (Payne, J.).  Nielsen agreed with these rulings and held that the Amended Complaint met the requirements for a claim of direct infringement.

Form 18, however, only addresses direct infringement, and courts around the country have held that McZeal and Form 18 do not apply to indirect infringement.  Nielsen likewise held that claims of indirect infringement must be evaluated under the standards set forth in Twombly and Iqbal.

In analyzing the claims of indirect infringement in Nielsen, however, the Court did not look beyond the conclusory allegations of the Amended Complaint. With regard to induced infringement, Nielsen alleged that:

• comScore’s customers “used” the allegedly infringing products;
• comScore had “actual knowledge and constructive notice” of the patent at issue and provided a concrete example of an occasion on which comScore would have received such notice;

The Court’s analysis of the induced infringement allegations is probably correct. The claim of direct infringement by the customers satisfies McZeal just as the direct infringement claim does. Moreover, while Nielsen alleged little regarding the necessary intent, it did provide a factual example of notice of the patent to comScore.

Nielsen’s allegations of contributory infringement, however, were much thinner, consisting only of a recitation of the statutory elements of contributory infringement. Nielsen simply alleged that:

• comScore sells software components that have no substantial noninfringing use;
• these software components were a material part of the patented invention; and
• these software components were specially made or adapted for use in an infringement of the patent.

The Court held that these allegations were sufficient because “it is difficult to imagine a manner in which they could have been pled with greater factual detail.” “A component either is or is not material to a system … a component either has or does not have a substantial noninfringing use.” Moreover, the necessarily negative nature of the element of substantial noninfringing use, the Court held, made it “difficult to conceive how such an allegation could have been more factually detailed.”

But Nielsen’s contributory infringement allegations contained no specificity whatsoever and appear to be just the kind of “threadbare recitals of the elements of a cause of action supported by mere conclusory statements” that the Supreme Court rejected in Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). It’s difficult to argue that Nielsen did anything more than list the elements set forth in the statute along with a conclusory assertion that comScore met those elements.

Moreover, Nielsen's rationale – that Nielsen could not make more detailed allegations of materiality or substantial noninfringing use – is quite broad and may not hold up under scrutiny. 

First, the Court’s ruling is not fact specific. The Court does not cite any reason that Nielsen, in particular, could not have provided more detailed allegations. Rather, the Court appears to hold that the elements of materiality and noninfringing use are never susceptible to detailed factual allegations. 

Second, that an element of a cause of action is binary (a component is material or not material) or expressed in the negative (substantial noninfringing use) should not necessarily prevent a plaintiff from articulating the basis for its claim. A plaintiff can always explain how or why the defendant meets the elements of a cause of action. Thus, for example, Nielsen could have identified the software components it accused of contributory infringement, explained why they were material to the invention and why they had no substantial noninfringing use. 

It’s unclear whether the Court intended to make such a broad ruling, but as it stands, Nielsen decision would allow a plaintiff to overcome a motion to dismiss a contributory infringement claim if an accompanying claim of direct infringement met the lenient standard in McZeal. 

As a result, while the impact of Twombly and Iqbal on patent litigation will continue to evolve, it appears that those cases will not pose much of an obstacle in patent litigation in the Eastern District of Virginia.

The case is Softech Worldwide, LLC v. Internet Tech. Broadcasting Corp., et al., E.D. Va. case no. 1:10-cv-651, and a copy of the opinion is here.  Plaintiff Softech, which creates software for video streaming, alleged that it had been hired by Defendant ITBC to develop software and provide software services for the Department of Veterans Affairs.  ITBC was a subcontractor, operating under general contractor Fedstore.  Softech sued both ITBC and Fedstore, alleging copyright infringement and a claim under Virginia’s Uniform Trade Secrets Act.  With respect to Fedstore, the copyright infringement claims rested upon contributory and vicarious liability theories.

The instant motion was one by Fedstore under the “Twiqbal” test of Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007), and Ashcroft v. Iqbal, 129 S. Ct 1937 (2009), about which we’ve blogged several times.  We’ve also blogged about Judge Cacheris’s earlier opinion in this case on ITBC's Twiqbal challenge.  This time, the worm has turned.

The central issue raised by Fedstore’s motion was whether Softech had adequately pleaded the element of knowledge, necessary for both contributory liability and the trade secrets claim. 

Softech alleged: “Defendants’ ... Infringement has damaged Softech and has been and continues to be willful and deliberate with full knowledge of Softech’s rights.”  Fed. R. Civ. P. 9 specifically permits knowledge to be averred generally, and the Court acknowledged that the above allegation, on its own, would be sufficient under Twiqbal.

The Court concluded, however, that the above allegation contradicted two others, specifically:

• ITBC represents publicly, including to Fedstore and to others, that it owns, developed, or sponsored some or all of the Softech Software in a manner calculated to mislead the public, the trade, and consumers.


• ITBC takes active measures to restrict the visibility of Softech, including to Fedstore and others, in providing the ITBC Services in a manner calculated to mislead the public, the trade, and consumers. 

In short, the Court concluded that Plaintiffs were alleging both that Fedstore acted with knowledge and also that Fedstore was without knowledge because ITBC had been misleading Fedstore.

Because of the contradiction, the Court declined to consider the allegation of knowledge as well-pleaded, writing that it “cannot, therefore, ‘accept all well-pleaded allegations’ while reading the Complaint as adequately averring Fedstore’s knowledge of ITBC’s alleged infringement.” 

Although contributory liability fell by the wayside, the copyright claims survived on the vicarious liability theory.  The trade secrets claim, on the other hand, was doomed by the lack of knowledge.  Softech having amended once before, the opinion makes no mention of leave to amend again.

Fed. R. Civ. P. 8(d) permits a party to state a claim alternatively or hypothetically and also to state as many claims as it has, regardless of consistency.  The Court’s application of Twiqbal in a way that treats inconsistent allegations as not well-pleaded raises questions about the degree to which litigants must draft their pleadings to explicitly set up alternatives and invoke Rule 8(d).

Unjust enrichment claim dismissed

The order deals with Google’s motion to dismiss the unjust enrichment count of Rosetta Stone’s suit.  In it, the Court rules for Google on two grounds. 

First, applying the “Twiqbal” pleading standard (from the U.S. Supreme Court’s recent decisions in Twombly and Iqbal, about which we’ve previously posted with respect to patent cases here and here), the Court concludes that Rosetta Stone failed to plead sufficient factual material to make its unjust enrichment claim plausible.  Specifically, Rosetta Stone did not plead facts that would, if proven, show two of the three elements of a Virginia unjust enrichment claim -- namely, that Google (i) knew of the benefit conferred by use of Rosetta Stone’s marks; and (ii) accepted or retained the benefit under circumstances which render it inequitable for the defendant to do so without paying for its value.  On the latter point, the Court relies on Virginia law that the plaintiff cannot recover for an unjust enrichment claim unless he can show sufficient additional facts which imply that the defendant promised to pay the plaintiff for the benefit received, and the Court finds no facts that would show such a promise by Google.

Second, the Court concludes that Google is immune from such claims as an interactive computer service provider under the Communications Decency Act, which provides that such entities are not liable for the actions of third party content creators (here, the advertisers in Google’s AdWords program).

Summary judgment on trademark counts

The Court first identifies the five issues before it:

            1) whether Google's practice of auctioning Rosetta Stone's trademarks to third party advertisers for use in their Sponsored Link titles and advertisement text creates a likelihood of confusion to warrant granting summary judgment in favor of Rosetta Stone as to Counts I (trademark/service mark infringement under the Lanham Act), V (trademark infringement under Virginia Law), and VI (unfair competition under Virginia law).

            2) whether Google's use of Rosetta Stone's trademarks as keyword triggers under its advertising program is functional and, therefore, a non-infringing use.

            3) whether Google intentionally induces third party advertisers to bid on Rosetta Stone's trademarks or knowingly continues to permit advertisers selling counterfeit Rosetta Stone products to use the trademarks in their Sponsored Link titles and advertisement text, despite Rosetta Stone's reports of infringement, to warrant granting summary judgment in favor of Rosetta Stone as to Count II (contributory trademark/service mark infringement under the Lanham Act).

            4) whether Google exercises joint ownership and control over third party advertisers' Sponsored Link titles and advertisement text on its website to warrant granting summary judgment in favor of Rosetta Stone as to Count III (vicarious trademark/service mark infringement under the Lanham Act).

            5) whether Rosetta Stone sufficiently demonstrates economic loss resulting from a decline in its brand name, which is attributable to Google's practice of auctioning Rosetta Stone's trademarks for profit to third party advertisers, to warrant granting summary judgment in favor of Rosetta Stone as to Count IV (trademark/service mark dilution under the Lanham Act).

It then summarizes why it grants summary judgment to Google as follows:

The Court grants summary judgment in favor of Google on Counts I (trademark/service mark infringement under the Lanham Act), V (trademark infringement under Virginia Law), and VI (unfair competition under Virginia law) because “no reasonable trier of fact could find that Google's practice of auctioning Rosetta Stone's trademarks as keyword triggers to third party advertisers for use in their Sponsored Link titles and text creates a likelihood of confusion as to the source or origin of Rosetta Stone's goods.  Furthermore, because Google uses Rosetta Stone's trademark to identify relevant information to users searching on those trademarks, the use is a functional and non-infringing one.”

The Court grants summary judgment in favor of Google on Count II (contributory trademark/service mark infringement under the Lanham Act) because “no reasonable trier of fact could find that Google intentionally induces or knowingly continues to permit advertisers selling counterfeit Rosetta Stone products to use the trademarks in their Sponsored Link titles and advertisement text.”

The Court also grants summary judgment in favor of Google on Count III (vicarious trademark/service mark infringement under the Lanham Act) because “no reasonable trier of fact could find that Google exercises joint ownership and control over third party advertisers' Sponsored Links titles and text.  Neither Google's employees nor its Query Suggestion Tool directs or influences third party advertisers to bid on Rosetta Stone's trademarks when they subscribe to Google's advertising program.”

Finally, the Court grants summary judgment in favor of Google on Count IV (trademark/service mark dilution under the Lanham Act) because “there is no genuine dispute of material fact that Rosetta Stone's brand awareness has only increased since Google changed its trademark policy to permit the use of trademarked terms as keyword triggers and as words within Sponsored Link titles and advertisement text.”