Opinion
Case No. 2:22-cv-01009-MCS-MRW
09-07-2022
MICROSOFT CORPORATION v. MEDIAPOINTE, INC. et al.
Betty H. Chen, Jason W. Wolff, Fish and Richardson PC, Los Angeles, CA, for Microsoft Corporation. Kalpana Srinivasan, Susman Godfrey L.L.P., Los Angeles, CA, Justin C. Kenney, Pro Hac Vice, Meng Xi, Susman Godfrey LLP, Houston, TX, for MediaPointe, Inc., et al.
Betty H. Chen, Jason W. Wolff, Fish and Richardson PC, Los Angeles, CA, for Microsoft Corporation. Kalpana Srinivasan, Susman Godfrey L.L.P., Los Angeles, CA, Justin C. Kenney, Pro Hac Vice, Meng Xi, Susman Godfrey LLP, Houston, TX, for MediaPointe, Inc., et al.
Proceedings: (IN CHAMBERS) ORDER GRANTING MOTION TO DISMISS AND DENYING MOTION TO STRIKE COMPLAINT (ECF No. 24)
Mark C. Scarsi, United States District Judge
Defendants MediaPointe, Inc., AHMC, Inc., and Steven E. Villoria move to dismiss all claims in Plaintiff Microsoft Corporation's complaint and move to strike one of the claims under California's anti-strategic lawsuit against public participation ("anti-SLAPP") law. (Mot., ECF No. 24; see also Mem., ECF No. 25.) Plaintiff opposed the motion, (Opp'n, ECF No. 32), and Defendants replied, (Reply, ECF No. 33). The Court deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78(b); C.D. Cal. R. 7-15.
I. BACKGROUND
Plaintiff brings a declaratory judgment action against Defendants to declare that Plaintiff does not infringe U.S. Patent Nos. 8,559,426 ("the '426 patent") and 9,426,195 ("the '195 patent") and that the patents are invalid. (Compl. ¶ 1, ECF No. 1.) Plaintiff alleges that both corporate defendants are alter egos of Villoria. (Id. ¶¶ 16, 18.)
Plaintiff alleges the chain of title of these patents has a troubled history. Plaintiff states that "Defendants allege their title [to these patents] is derived through a series of transactions that ultimately purport to assign all right title and interest to MediaPointe." (Id. ¶ 30.) Plaintiff claims, however, that "[t]he only known purported assignment from both inventors [of the patents] is from 2001 and was made to SMA [Streaming Media Australia Party Limited]." (Id. ¶ 31; see id. ¶ 20.) SMA apparently was dissolved or deregistered in Australia in 2003 before transferring whatever rights it had in the patents to any other entity. (Id. ¶ 32.) Villoria engaged in a series of transactions, having Advanced Media Design, Inc. ("AMDI") acquire certain assets of Conferserv, Inc. in 2005. (Id. ¶ 33.) Shortly afterward, Conferserv was dissolved. (Id.) In 2011, AMDI assigned its purported rights in the patents to AMHC, in an assignment allegedly not countersigned by AMHC. (Id. ¶ 34.) Villoria dissolved AMDI in 2012. (Id.) After the initiation of litigation between MediaPointe and Plaintiff in the Western District of Texas, Defendants allegedly took affirmative steps to perfect title, including contacting individuals formerly associated with SMA to make a confirmatory assignment of the patents. (Id. ¶ 38.) Plaintiff claims that counsel for MediaPointe alleged that SMA transferred the patents to Conferserv, which subsequently assigned the patents to AMHC. (Id. ¶ 40.) In the context of one of the claims, Plaintiff also alleges that "[t]he chain of title was broken at SMA," leaving MediaPointe without a legal right to initiate a past suit against Plaintiff. (Id. ¶ 81.)
Plaintiff brings five claims: (i) a claim for a declaration that Plaintiff does not infringe the '426 patent, (id. ¶¶ 41-45); (ii) a claim for a declaration that Plaintiff does not infringe the '195 patent, (id. ¶¶ 46-50); (iii) a claim for a declaration that the '426 patent is invalid, (id. ¶¶ 51-64); (iv) a claim for a declaration that the '195 patent is invalid, (id. ¶¶ 65-79); and (v) a claim that Defendants made bad faith assertions of patent infringement in violation of Washington's Patent Troll Prevention Act ("PTPA"), (id. ¶¶ 80-87).
II. LEGAL STANDARD
A. 12(b)(1) Standard
Federal Rule of Civil Procedure 12(b)(1) authorizes a party to seek dismissal of an action for lack of subject-matter jurisdiction. "Because standing and ripeness pertain to federal courts' subject matter jurisdiction, they are properly raised in a Rule 12(b)(1) motion to dismiss." Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010). In the context of a 12(b)(1) motion, the plaintiff bears the burden of establishing Article III standing to assert the claims. Id.
Rule 12(b)(1) jurisdictional challenges can be either facial or factual. Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). When a motion to dismiss attacks subject-matter jurisdiction on the face of the complaint, the court assumes the factual allegations in the complaint are true and draws all reasonable inferences in the plaintiff's favor. Doe v. Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009). Moreover, the standards set forth in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), apply with equal force to Article III standing when it is being challenged on the face of the complaint. See Terenkian v. Republic of Iraq, 694 F.3d 1122, 1131 (9th Cir. 2012) (applying Iqbal). Thus, in terms of Article III standing, the complaint must allege "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955).
B. 12(b)(6) Standard
Federal Rule of Civil Procedure 12(b)(6) allows an attack on the pleadings for "failure to state a claim upon which relief can be granted." "To survive a motion to dismiss, a 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 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "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." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937.
The determination of whether a complaint satisfies the plausibility standard is a "context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 679, 129 S.Ct. 1937. Generally, a court must accept the factual allegations in the pleadings as true and view them in the light most favorable to the plaintiff. Park v. Thompson, 851 F.3d 910, 918 (9th Cir. 2017); Lee v. City of Los Angeles, 250 F.3d 668, 679 (9th Cir. 2001). But a court is "not bound to accept as true a legal conclusion couched as a factual allegation." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
III. DISCUSSION
Defendants move to dismiss Plaintiff's claims on two theories: first, that Plaintiff has no standing to bring its declaratory judgment claims; and second, that Plaintiff's PTPA claim is insufficiently pleaded and that the Court should dismiss it under California's anti-SLAPP procedure and Rule 12(b)(6). (See generally Mem.)
A. Standing to Bring Claims
Defendants move to dismiss Plaintiff's non-infringement and invalidity declaratory claims under Rule 12(b)(1) on the ground Plaintiff's allegations vitiate the standing of Defendants to bring a patent infringement suit. Defendants bring a facial challenge to the allegations in Plaintiff's complaint. (Mem. 14.)
"Under the Declaratory Judgment Act, a federal court 'may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought,' but only '[i]n a case of actual controversy.' " United States v. Schlenker, 24 F.4th 1301, 1306 (9th Cir. 2022) (alteration in original) (quoting 28 U.S.C. § 2201(a)). This "actual controversy" requirement is the same as the "case or controversy" requirement under Article III. Id.
Only patentees, assignees, and exclusive licensees have standing to bring patent infringement suits. Sicom Sys. Ltd. v. Agilent Techs., Inc., 427 F.3d 971, 976 (Fed. Cir. 2005). Because the Declaratory Judgment Act does not depart from this requirement, a defendant in a declaratory action for non-infringement of a patent must be the patentee, assignee, or exclusive licensee of the patentee or assignee. Digitech Image Techs., LLC v. Newegg, Inc., No. 2:12-cv-01688-ODW, 2013 WL 1871513, at *2 C.D. Cal. May 3, 2013.
Plaintiff brings contradictory allegations regarding whether any defendant is the patentee, assignee, or exclusive licensee of the patents. On one hand, Plaintiff alleges that SMA's dissolution broke the chain of title, leaving Defendants without the ability to assert the patents. (Compl. ¶¶ 32, 81.) On the other hand, several allegations imply Defendants have the proper title to bring suit. (Id. ¶¶ 38, 40.) Plaintiff has not sufficiently alleged that Defendants are the patentees, assignees, or licensees of the patents. Instead, the allegations leave doubt about whether Defendants in fact possess the necessary rights to grant this Court the Article III power to hear Plaintiff's declaratory judgment claims. "[W]hen faced with two possible explanations, only one of which can be true and only one of which results in liability, plaintiffs cannot offer allegations that are merely consistent with their favored explanation but are also consistent with the alternative explanation." Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 996 (9th Cir. 2014) (internal quotation marks omitted). The Court thus dismisses these claims on the basis that the allegations as plead create doubt about Defendants' chain of title.
Plaintiff resists dismissal by arguing that disputes about the facts demonstrate a ground for jurisdictional discovery, not outright dismissal. (Opp'n 16-20.) This misunderstands the nature of a facial jurisdictional challenge to the pleadings. The Court must assume Plaintiff's allegations are true, Iqbal, 556 U.S. at 678, 129 S.Ct. 1937, so any uncertainty in the facts stated in the complaint affecting possible liability goes to Plaintiff's detriment, not Defendants'. The Court accordingly dismisses the declaratory judgment claims.
The Court grants leave to amend. While a Court may deny leave to amend when a plaintiff would have to plead facts contradictory to the ones alleged in the complaint, Great Minds v. Office Depot, Inc., 945 F.3d 1106, 1112 (9th Cir. 2019), here, Plaintiff would not have to allege contradictory facts to remedy the defects in its complaint—it just needs to resolve internal inconsistencies within the pleaded facts.
B. PTPA
Defendants move to dismiss Plaintiff's PTPA claim both under California's anti-SLAPP law and under Rule 12(b)(6).
1. Anti-SLAPP Motion
The parties dispute whether the Court must apply California or Washington law to resolve Defendants' anti-SLAPP motion. (Compare Mem. 3-4, with Opp'n 6-9.)
A federal district court applies the choice-of-law rules of the states in which it sits. Senne v. Kan. City Royals Baseball Corp., 934 F.3d 918, 934 (9th Cir. 2019) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). California applies a governmental interest test with three steps:
First, the court determines whether the relevant law of each of the potentially affected jurisdictions with regard to the particular issue in question is the same or different. Second, if there is a difference, the court examines each jurisdiction's interest in the application of its own law under the circumstances of the particular case to determine whether a true conflict exists. Third, if the court finds that there is a true conflict, it carefully evaluates and compares the nature and strength of the interest of each jurisdiction in the application of its own law to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state, and then ultimately applies the law of the state whose interest would be the more impaired if its law were not applied.Id. (quoting Kearney v. Salomon Smith Barney, Inc., 39 Cal. 4th 95, 107-08, 45 Cal.Rptr.3d 730, 137 P.3d 914 (2006)).
Plaintiff claims that Washington's anti-SLAPP statute exempts certain consumer protection actions from its coverage. Washington's anti-SLAPP statute does not apply to any "cause of action . . . [b]rought under the consumer protection act, chapter 19.86 RCW," Wash. Rev. Code § 4.105.010(3)(a)(xi), unless the action is related to the creation "of a dramatic, literary, musical, political, journalistic, or otherwise artistic work" or is related to "consumer opinions or commentary, evaluations of consumer complaints, or reviews or ratings of business," id. § 4.105.010(3)(b). As discussed below, a private cause of action alleging a violation of the PTPA is properly thought of as an action under chapter 19.86, and the PTPA does not fall within one of the two exceptions delineated above. Washington's anti-SLAPP statute would thus bar Defendants' motion to strike.
Because the relevant law is different, the Court must examine each state's interests and determine whether Washington or California's interests would be more impaired were the law not to apply. Plaintiff claims that Washington's interest is stronger because the alleged harm occurred in Washington, where it resides. (Opp'n 8-9.) Defendants claim that California's interest is greater because Defendants reside in California and because the lawsuit is occurring in California. (Mem. 3.) Here, the Court has difficulty seeing the harm California would suffer from not applying its anti-SLAPP statute. The harm to California is the same harm California suffers any time a court applies another state's law in a California court against a California defendant. Washington's harm is much more specific—declining to apply Washington law would subject one of its residents to potential liability for attorney's fees under California law despite the threat its legislature recognized when it enacted PTPA and exempted the PTPA from Washington anti-SLAPP procedure. See Wash. Rev. Code § 19.350.005 (finding bad faith patent infringement actions "impose a significant burden on individual Washington businesses and other entities" and "undermine Washington's efforts to attract and nurture information technology and knowledge-based businesses"). Courts decline to apply California's anti-SLAPP statute in similar situations. See, e.g., Cline v. Reetz-Laiolo, 329 F. Sup. 3d 1000, 1028-29 (N.D. Cal. 2018). The Court thus applies Washington law, which bars the motion.
Accordingly, the Court denies Defendant's anti-SLAPP motion to strike.
2. Motion to Dismiss
The Court now addresses the propriety of Defendants' Rule 12(b)(6) challenge to the PTPA claim. Defendants argue that Plaintiff's PTPA claim fails because the PTPA contains no private right of action and because Plaintiff did not plausibly plead that Defendants engaged in activity violating the PTPA.
The enforcement provision of the PTPA states that "[t]he attorney general may bring an action in the name of the state, or as parens patriae on behalf of persons residing in the state, to enforce this chapter." Wash. Rev. Code § 19.350.030. This section also states that "the practices covered by this section are matters vitally affecting the public interest for the purpose of applying the consumer protection act, chapter 19.86 RCW," and that "a violation of this chapter . . . is an unfair or deceptive act in trade or commerce and an unfair method of competition for purposes of applying the consumer protection act, chapter 19.86 RCW." Id.
While this statute only appears to permit the Washington attorney general to bring suit to enforce its provisions, other statutory provisions provide a private right of action. The consumer protection act states that "[i]n a private action in which an unfair or deceptive act or practice is alleged under RCW 19.86.020, a claimant may establish that the act or practice is injurious to the public interest because it . . . (2) [v]iolates a statute that contains a specific legislative declaration of public interest impact." Wash. Rev. Code § 19.86.093. Section 19.86.020 covers "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." The Court interprets the plain text of the statutes to explicitly grant a litigant the ability to bring a claim for a violation of the PTPA under section 19.86.093. The consumer protection act also provides a private right of action for damages. Section 19.86.090 permits "[a]ny person who is injured in his or her business or property by a violation of 19.86.020 . . . [to] bring a civil action . . . to enjoin further violations, to recover the actual damages sustained by him or her, or both, together with the costs of suit, including a reasonable attorney's fee." Because a violation of the PTPA is an unfair method of competition in violation of section 19.86.020, section 19.86.090 also gives a private right of action for a violation of the PTPA.
Defendants cite legislative history indicating the Washington legislature only intended for the attorney general to bring an action for violation of the PTPA. (Mem. 9-10.) Under Washington law, this invocation of legislative history provides no recourse. "Where the plain language of a statute is unambiguous and legislative intent is apparent," a court should "not construe the statute otherwise." Anthis v. Copland, 173 Wash.2d 752, 270 P.3d 574, 576 (2012). Only when a "statute is still susceptible to more than one interpretation" may "a court . . . resort to statutory construction, legislative history, and relevant case law for assistance in discerning legislative intent." Id. (cleaned up). Here, the language of the PTPA is plain. Under section 19.350.030, a PTPA violation is a cognizable unfair method of competition for which Washington's consumer protection act provides a private right of action. The Court will not construe a statute contrary to Washington law or use legislative statements of purpose to vitiate a cause of action the plain text of the statute provides. See id.
To plead a viable consumer protection claim, a plaintiff must demonstrate that a defendant engaged in a form of prohibited activity, among other elements. See Panag v. Farmers Ins. Co. of Wash, 166 Wash.2d 27, 204 P.3d 885, 889 (2009). The PTPA prohibits "assertions of patent infringement in bad faith." Wash. Rev. Code § 19.350.020(1). The PTPA defines an assertion of patent infringement as one of four activities: "(a) [s]ending or delivering a demand to a target; (b) [t]hreatening a target with litigation asserting, alleging, or claiming that the target has engaged in patent infringement; (c) [s]ending or delivering a demand to the customers of a target; or (d) [o]therwise making claims or allegations, other than those made in litigation against a target, that a target has engaged in patent infringement or that a target should obtain a license to a patent in order to avoid litigation." Id. § 19.350.010(1) (emphasis added).
Plaintiff has not made any allegation that Defendants made an assertion of patent infringement. Plaintiff argues paragraphs 35-40 and 80-87 in the complaint describe assertions of patent infringement. (Opp'n 14.) These paragraphs, however, do not do any such thing. Paragraphs 35-40 describe discussions surrounding MediaPointe's standing in a prior suit in the Western District of Texas, (Compl. ¶¶ 35-40), and paragraphs 80-87 only discuss MediaPointe's actions in the Western District of Texas litigation, (id. ¶¶ 80-87). None of these allegations describes any claims of patent infringement or licensing demands "other than those made in litigation against a target." Wash. Rev. Code § 19.350.010(1)(d). The Court thus must dismiss the claim for failure to properly allege that Defendants engaged in an assertion of patent infringement.
Plaintiff makes two arguments against this conclusion. Plaintiff first argues that paragraphs 39 and 40 of the complaint demonstrate that MediaPointe continued to make an assertion it had the right to assert the patents. There are two problems with this. One, MediaPointe made the statements alleged in paragraphs 39 and 40 on February 8, 2022; the Western District of Texas litigation was ongoing until February 10, 2022. (Compl. ¶¶ 6, 39-40.) Two, MediaPointe's statements only describe MediaPointe's basis for the belief that it had observed all necessary formalities in the many transfers of the patents. None of these statements contain an assertion of patent infringement as defined by section 19.350.010.
Plaintiff then argues that allowing a PTPA claim for bad faith arguments made during litigation would comport with the legislature's intent in enacting the PTPA. (Opp'n 14-15.) While this may be true, the Court declines the invitation to depart from the plain text of the statute, which only covers activity outside of litigation. The proper body to expand the coverage of the statute is the Washington legislature, not a federal judge in California applying Washington law.
Because Plaintiff fails to plead an unfair or deceptive act or practice, the Court must dismiss the claim. As a general rule, leave to amend a dismissed complaint should be freely granted unless it is clear the complaint could not be saved by any amendment. Fed. R. Civ. P. 15(a); Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008). Here, Plaintiff can plead additional facts consistent with the allegations already made in the complaint to state a consumer protection claim. See Great Minds, 945 F.3d at 1112. The Court grants leave to amend.
While Plaintiff's complaint only mentions chapter 19.350 as its statutory source of authority to bring a claim under Washington law, this is not fatal to Plaintiff's complaint. In general, a failure to identify the proper statute identifying cause of action is not fatal to a complaint. Johnson v. City of Shelby, 574 U.S. 10, 11-12, 135 S.Ct. 346, 190 L.Ed.2d 309 (2014); see Alvarez v. Hill, 518 F.3d 1152, 1157 (9th Cir. 2008) (explaining that a "complaint need not identify the statutory or constitutional source of the claim raised" in order to state a claim). To the extent that it is, the Court will permit Plaintiff to amend its complaint to clarify the source of the private right of action.
IV. CONCLUSION
The Court grants the motion to dismiss and denies the motion to strike. Plaintiff may file an amended complaint no later than 14 days from the date of this Order, if it can do so consistent with Federal Rule of Civil Procedure 11(b) and this Order. Failure to file a timely amended complaint will waive the right to do so. Leave to add new defendants or claims must be sought by a separate, properly noticed motion.
The Court encourages Plaintiff to consider carefully how and whether to amend its pleading to solve the standing defects identified above, and notes that the Court explicitly granted leave to amend on the basis of pleading internally consistent facts. Should Plaintiff wish to only proceed on its claim under Washington law, the Court encourages Plaintiff to carefully allege diversity jurisdiction, including the amount in controversy, to avoid unnecessary motion practice.