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In re Innovatio IP Ventures, LLC Patent Litigation

United States District Court, N.D. Illinois, Eastern Division

February 4, 2013

In re INNOVATIO IP VENTURES, LLC PATENT LITIGATION.
v.
Innovatio IP Ventures, LLC, Defendant. This Order Applies to Cisco Systems, Inc., and Motorola Solutions, Inc., Plaintiffs, Netgear, Inc., Plaintiff,
v.
Innovatio IP Ventures, LLC, Defendant. Nos. 11 C 9308, 11 C 9309, 12 C 427.

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[Copyrighted Material Omitted]

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Amanda Jean Hollis, Gianni L. Cutri, Kirkland & Ellis LLP, Chicago, IL, Brandon Hugh Brown, Kirkland & Ellis LLP, San Francisco, CA, for Plaintiffs.

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Brian Erik Haan, Gabriel I. Opatken, Matthew G. McAndrews, Raymond Pardo Niro, Jr., Oliver D. Yang, Niro, Scavone, Haller & Niro, Gregory Clements Schodde, Jean Dudek Kuelper, Peter J. McAndrews, Ronald H. Spuhler, Shawn Leonard Peterson, Patricia Jane McGrath, Scott P. McBride, McAndrews, Held & Malloy, P.C., Chicago, IL, Robert L. Wolter, Beusse Wolter Sanks Mora & Maire, PA, Orlando, FL, for Defendant.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART INNOVATIO'S MOTION TO DISMISS THE DEFENDANT'S AMENDED COMPLAINT (DKT. NO. 473)

JAMES F. HOLDERMAN, Chief Judge.

Plaintiff and patent-owner Innovatio IP Ventures, LLC (" Innovatio" ) has sued numerous hotels, coffee shops, restaurants, supermarkets, and other commercial users of wireless internet technology located throughout the United States (collectively, the " Wireless Network Users" ). ( See Dkt. No. 198 (" Second Am. Compl." ).) Innovatio alleges that, by making wireless internet available to their customers or using it to manage internal processes, the Wireless Network Users infringe various claims of seventeen patents owned by Innovatio. ( Id. ¶¶ 48-81.) Additionally, several manufacturers of the devices used by the Wireless Network Users to implement their wireless internet networks have brought declaratory judgment actions against Innovatio seeking a declaration that the manufacturers' products, and the networks or systems of which those products are a part, do not infringe Innovatio's patents. All claims and parties were consolidated before this court by the Judicial Panel on Multidistrict Litigation in this MDL case, No. 2303. (Dkt. No. 1.)

On October 1, 2012, three manufacturers of the allegedly infringing products, Cisco Systems, Inc. (" Cisco" ), Motorola Solutions, Inc. (" Motorola" ), and Netgear, Inc. (" Netgear" ) (collectively, the " Manufacturers" ), filed an amended complaint (" Manufacturers' Amended Complaint" or " MAC" ) against Innovatio, as well as against Innovatio Management LLC (" IM" ), a related entity, and Noel B. Whitley, the alleged founder of Innovatio and IM (where the context does not indicate otherwise, the court will refer to Innovatio, IM and Whitley collectively as " Innovatio" ). (Dkt. Nos. 431, 442 (" MAC" ) ¶ 57.) The MAC, which contains fifty-five counts in total, alleges, as relevant here, that Innovatio is liable for fraudulently enforcing its patents against the Manufacturers' customers. Count XLIX alleges violation of the Racketeer Influenced and Corrupt Organizations Act (" RICO" ), 18 U.S.C. §§ 1961-1968, based on underlying violations of the mail and wire fraud statutes, 18 U.S.C. § 1341 and § 1343, and violations of 18 U.S.C. § 1951, 18 U.S.C. § 1952, and California Penal Code § 518; Count L alleges violations under California Business & Professional Code § 17200, which prohibits " unfair competition" ; Count LI alleges a civil conspiracy; Count LII alleges breach of contract; Count LIII alleges promissory estoppel; Count LIV alleges intentional interference with prospective economic advantage; and Count LV alleges unclean hands. Currently pending before the court is Innovatio's motion to dismiss each of those counts. (Dkt. No. 473.) For the reasons explained below, that motion is granted in part and denied in part.

BACKGROUND

The MAC alleges that Noel B. Whitley, a former intellectual property executive at Broadcom Corporation (" Broadcom" ), founded Innovatio and IM in February

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2011 after leaving Broadcom. (MAC ¶ 57.) Thereafter, on February 28, 2011, Innovatio acquired from Broadcom the rights to a series of patents (the " Innovatio Patents" ) [1] related to wireless internet technology. ( Id. ¶ 59.) The patents allegedly cover technology that is necessary to implement the standards of the Institute of Electrical and Electronics Engineers (" IEEE" ) [2] for wireless local area networking technology (" WiFi" ), known among those in the wireless industry as the " 802.11 standards." In return for the Innovatio patents, Innovatio granted back to Broadcom a license to the Innovatio Patents and a covenant not to assert infringement of the Innovatio Patents against any products or methods using Broadcom components. ( Id. ¶ 59.)

Before the transfer to Innovatio, Broadcom had acquired some of the Innovatio Patents from other entities, including Intermec IP Corporation, Intermec Technologies Corporation, and Norand Corporation. ( Id. ¶ 60.) Each of those entities, as well as Broadcom, had taken part in the IEEE procedures for setting the 802.11 standards. ( Id. ¶¶ 61-67.) As part of those procedures, each of those entities had agreed with IEEE to license any patents it owned covering technology necessary to the operation of the adopted standards on reasonable, and non-discriminatory (" RAND" ) terms. Norand Corporation's June 20, 1997, letter of assurance to IEEE is a representative agreement:

In the event the proposed IEEE standard is adopted, and the standard cannot be practiced without the use of one or more patents which are now or hereafter owned by Norand, Norand would upon request be willing to negotiate a non-transferable, nonexclusive sole and personal license, under the relevant claims of such patent or patents, on a nondiscriminatory basis on reasonable terms and conditions.

( Id. ¶ 62.) The MAC alleges that Innovatio is bound by the RAND obligations of Broadcom and its other predecessors in ownership of the patents. ( Id. ¶ 68.)

Shortly after acquiring the Innovatio Patents, Innovatio began a campaign to enforce them by seeking to license entities Innovatio asserted infringed its patents. Rather than targeting the manufacturers of infringing devices, such as Cisco, Motorola, and Netgear, Innovatio's campaign " is largely directed at end users of Wi-Fi technology, such as bakeries, restaurants, cafes, hotels, and other small businesses that do not make or sell devices that provide the accused Wi-Fi functionality." ( Id. ¶ 73.) The court will refer to the purported infringers whom Innovatio has sought to license as the " Targets." Since February 2011, Innovatio has sent more than 8,000 letters to Targets in all 50 states alleging infringement of its patents and demanding that the Targets pay for a license.[3]( Id. ¶ 74.) According to the

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MAC, those letters " threaten protracted negotiations with onerous burdens on end users, and offer supposed ‘ discounts' for promptly paying Innovatio without engaging in such negotiations, while making it clear that Innovatio will initiate costly litigation with anyone that does not acquiesce." ( Id. ¶ 75.) The MAC alleges that the threats are particularly effective because the end users lack any expertise in the patented technologies, and because Innovatio encourages payment without investigation by threatening that " patent litigation is an extremely expensive and time-consuming method of resolving disputes." ( Id. ¶ 84; see also id. ¶ 73.)

In addition, the MAC alleges that Innovatio's communications with the Targets included a variety of misrepresentations and omissions. The MAC's allegations include the following:

1. Innovatio is attempting to enforce the patents in violation of its obligation to license the patents on RAND terms. ( Id. ¶ 75.) Specifically, Innovatio failed to disclose this obligation and demanded licenses costing " many times more than the allegedly infringing Wi-Fi components." ( Id. ¶ 76; see also id. ¶ 80.)
2. Broadcom components are covered by the license Innovatio granted to Broadcom, and the Innovatio Patents are subject to additional licenses, including licenses to Qualcomm Inc., Agere Systems Inc., Intermec Inc., and STMicroelectronics. Nonetheless, Innovatio has enforced the Innovatio Patents while failing to disclose that these licenses exist. ( Id. ¶¶ 69-70, 77.) In particular, Innovatio has ignored requests from Targets for information about past licensing of the patents.
3. As part of Innovatio's acquisition of the Innovatio Patents, it covenanted with Broadcom to not make any allegations of infringement based on the use of Broadcom's IEEE 802.11 Wi-Fi products. Innovatio failed to disclose the existence of the covenant and made infringement allegations in violation of it. ( Id. ¶ 79.)
4. At least ten of the thirty-one patents Innovatio has asserted are expired, and yet it still attempted to enforce those expired patents and failed to disclose that the patents were expired. ( Id. ¶ 81).
5. Innovatio's communications to the Targets state that the Innovatio Patents are " essential" to anyone practicing the IEEE 802.11 standards, whereas, as part of this litigation, Innovatio has asserted that only " 36 of the 348 asserted claims (in seven of the 17 asserted patents cover mandatory features of the 802.11 standard, while 333 of 348 asserted claims (in 14 of the 17 asserted patents) cover" optional portions of the standard. ( Id. ¶ 82.)
6. Innovatio's communications to the Targets also state that the named inventors of the Innovatio Patents are " widely considered to be the Fathers of Radio Frequency Local Area Networking Technology," a statement that the Manufacturers claim is false. ( Id. ¶ 83.)
7. Innovatio has overstated the number and value of the licenses that it has already granted on its patents. ( Id. )
8. Innovatio has misrepresented the " confirmed ... validity" of its patents when in fact only one of the

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patents was confirmed in reexamination before the Patent Office. ( Id. )

In addition, the MAC alleges that Innovatio has filed twenty-three " sham" lawsuits against Targets who refused to buy a license, all " to enhance the credibility of its threats" ( Id. ¶ 74) and " as part of its campaign to intimidate its other licensing targets to accept its unlawful demands for fear of suit" ( Id. ¶ 78). The MAC does not specify any further information about those lawsuits, but the court assumes that they are the twenty-three infringement actions filed by Innovatio currently pending before this court as part of MDL No. 2303.

The Manufacturers have attached to the MAC two representative letters from Innovatio to Targets, one dated May 9, 2012, and one dated June 19, 2012. [4] ( Id. Exs. 24 & 25.) The court may consider those two letters on a motion to dismiss because they were attached to the motion to dismiss, were referred to in the complaint, and are central to the plaintiffs' claims. See Menominee Indian Tribe v. Thompson, 161 F.3d 449, 456 (7th Cir.1998) ( " Documents attached to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to his claim." ). The Manufacturers have attached a number of other letters from Innovatio's licensing campaign, along with other materials, to their response to the motion to dismiss. (Dkt. No. 509.) The only document attached to the response that the court will consider is the " Patent Purchase Agreement" between Broadcom and Innovatio. (Dkt. No. 509, Ex. N.) The court may not consider the other materials on a motion to dismiss because they were not " exhibits attached to the complaint" or " documents referenced in the pleading" that " are central to the claim." Bogie v. Rosenberg, 705 F.3d 603, 609 (7th Cir.2013) (citing Fed.R.Civ.P. 10(c)).

LEGAL STANDARD

Under the Federal Rules of Civil Procedure, a complaint need contain only " a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). The complaint must " give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). While " detailed factual allegations" are not required, " labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555, 127 S.Ct. 1955. The complaint must " contain sufficient factual matter, accepted as true, to ‘ state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. " On a motion to dismiss, the court must accept as true all of the factual allegations contained in the complaint." Hall v. Bed Bath & Beyond, Inc., 705 F.3d 1357, 1362 (Fed.Cir.2013).

ANALYSIS

I. Noerr-Pennington

Innovatio first contends that its enforcement activity is protected by the Noerr - Pennington doctrine from the MAC's

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RICO, unfair competition, civil conspiracy, intentional interference with prospective economic advantage, and unclean hands claims. (Counts XLIX, L, LI, LIV, and LV.) The Noerr - Pennington doctrine derives from the First Amendment's guarantee of " the right of the people ... to petition the Government for a redress of grievances," U.S. Const. amend. I, and provides protection from liability for those who petition any department of the government. See BE & K Const. Co. v. N.L.R.B., 536 U.S. 516, 525, 122 S.Ct. 2390, 153 L.Ed.2d 499 (2002); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965); E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961); see also Tarpley v. Keistler, 188 F.3d 788, 794 (7th Cir.1999) (under Noerr - Pennington, " parties may petition the government for official action favorable to their interests without fear of suit, even if the result of the petition, if granted, might harm the interests of others" ). The Supreme Court has expanded Noerr - Pennington protection to groups' use of " the channels and procedures of state and federal ... courts to advocate their causes and points of view respecting resolution of their business and economic interests vis-á-vis their competitors." Cal. Motor Trans. Co. v. Trucking Unlimited, 404 U.S. 508, 511, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972). Although the Noerr - Pennington doctrine originally arose in the antitrust context, the Supreme Court has applied it to interpret the National Labor Relations Act (" NLRA" ). See BE & K Const., 536 U.S. at 526, 122 S.Ct. 2390; Bill Johnson's Restaurants, Inc. v. NLRB, 461 U.S. 731, 103 S.Ct. 2161, 76 L.Ed.2d 277 (1983).

The protection, however, is not absolute. The Supreme Court has made clear that Noerr - Pennington does not apply to " sham" litigation. Sham litigation is litigation that is both " objectively baseless" and subjectively brought in " an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process— as opposed to the outcome of that process." Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60-61, 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993) (citations, quotation marks, and alteration omitted).

The Supreme Court's determinations leave open several issues regarding the applicability of the Noerr - Pennington doctrine to protect Innovatio's enforcement activity in this case. For each issue, this court must decide whether to apply Federal Circuit law or Seventh Circuit law. See Ferguson Beauregard/Logic Controls, Div. of Dover Res., Inc. v. Mega Systems, LLC, 350 F.3d 1327, 1337 (Fed.Cir.2003) (court answers choice of law issue " on an issue by issue basis" ). The court will apply Seventh Circuit law " unless the issue pertains to or is unique to patent law, in which case" the court must apply Federal Circuit law " to both substantive and procedural issues intimately involved in the substance of enforcement of the patent right." Id. (citations and quotation marks omitted). Because the analysis differs for each issue, the court will discuss the law applicable to each issue below.

A. The Application of Noerr-Pennington Outside of Antitrust and Labor Law

First is the question of whether the Noerr - Pennington doctrine extends beyond the antitrust and labor law context to protect petitioning activity from the statutory and common law violations the MAC alleges. That question does not pertain to patent law, as it would be equally applicable to RICO, unfair competition, and other tort claims based on underlying requests to settle claims unrelated to the enforcement

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of a patent. Accordingly, Seventh Circuit law applies.

In the Seventh Circuit, " Noerr - Pennington has been extended beyond the antitrust laws, where it originated, and is today understood as an application of the first amendment's speech and petitioning clauses." New West, L.P. v. City of Joliet, 491 F.3d 717, 722 (7th Cir.2007) (applying the doctrine to federal housing laws). Accordingly, the Seventh Circuit has applied the doctrine broadly, including to RICO claims. Int'l Broth. of Teamsters, Local 734 Health & Welfare Trust Fund v. Philip Morris Inc., 196 F.3d 818, 826 (7th Cir.1999) (" Although the Noerr - Pennington doctrine originated in antitrust law, its rationale is equally applicable to RICO suits." ); Tarpley v. Keistler, 188 F.3d 788, 794 (7th Cir.1999) (applying Noerr - Pennington to § 1983 suits). Moreover, because the doctrine derives from a constitutional source, other regional circuit courts have held that it must also extend to state law statutory and common law claims. See, e.g., IGEN Int'l, Inc. v. Roche Diagnostics GmbH, 335 F.3d 303, 310 (4th Cir.2003) ( " [A]lthough originally developed in the antitrust context, the doctrine has now universally been applied to business torts." ); Cheminor Drugs, Ltd. v. Ethyl Corp., 168 F.3d 119, 128 (3d Cir.1999) (" We are persuaded that the same First Amendment principles on which Noerr - Pennington immunity is based apply to the New Jersey tort claims." ); Video Int'l Prod., Inc. v. Warner-Amex Cable Commc'ns, 858 F.2d 1075, 1084 (5th Cir.1988) (" There is simply no reason that a common-law tort doctrine can any more permissibly abridge or chill the constitutional right of petition than can a statutory claim such as antitrust." ); see also Evers v. Cnty. of Custer, 745 F.2d 1196, 1204 (9th Cir.1984); Gorman Towers, Inc. v. Bogoslavsky, 626 F.2d 607, 614 (8th Cir.1980). Accordingly, the Noerr - Pennington doctrine can protect petitioning activity to which it applies from the MAC's federal and state law claims.

B. The Application of Noerr-Pennington to Pre-suit Communications

Second, the court must consider whether Noerr - Pennington protects pre-suit demand letters like those the Manufacturers have accused Innovatio of sending to the Targets. Of significance here is that Innovatio's letters were sent to enforce its patent rights. The Federal Circuit has held that sending pre-suit letters is a necessary component of enforcing patent rights. See Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 869 (Fed.Cir.1997) (" [A] patentee must be allowed to make its rights known to a potential infringer so that the latter can determine whether to cease its allegedly infringing activities, negotiate a license if one is offered, or decide to run the risk of liability and/or the imposition of an injunction." ); see also Virtue v. Creamery Package Mfg. Co., 227 U.S. 8, 37-38, 33 S.Ct. 202, 57 L.Ed. 393 (1913) (" Patents would be of little value if infringers of them could not be notified of the consequences of infringement, or proceeded against in the courts. Such action, considered by itself, cannot be said to be illegal." ). Accordingly, any potential restrictions on a patent holder's right to send pre-suit demand letters asserting infringement implicates a substantive issue " intimately involved in the substance of enforcement of the patent right." Ferguson Beauregard/Logic, 350 F.3d at 1337 (citation and quotation marks omitted). The court will thus apply Federal Circuit law to this question.

The best guidance regarding the Federal Circuit's position on the question is that the Federal Circuit has applied a standard derived from the Noerr- Pennington doctrine to pre-suit demand letters in the ...


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