When attempting to bring an early end to a litigation, a defendant may have several options, such as filing a motion to dismiss for failure to state a claim or arguing that the plaintiff is collaterally estopped from asserting the claims. The outcomes of these motions depend on the sufficiency of the plaintiff’s pleading and the similarity of the asserted claims to claims asserted in prior cases. The court in Grecia Estate Holdings LLC v. Meta Platforms, Inc. provided guidance to parties in patent cases involving complex technologies regarding both types of motions.

Background:

Grecia asserted infringement of U.S. Patent No. 8,402,555 (“the ’555 patent”) against defendant Meta Platforms, Inc. (“Facebook”) in the Western District of Texas, Waco Division. Grecia Estate Holdings LLC v. Meta Platforms, Inc., No. 6:21-CV-00677-ADA, 2022 WL 2019296, at *1 (W.D. Tex. June 6, 2022). The ’555 patent addressed the problem faced by users in “digital rights management” (“DRM”) of losing access to purchased digital content when “content providers . . . discontinue servers or even go out of business some years after DRM encrypted content was sold to consumers causing the ability to access files to terminate.” ’555 patent, 2:54-62. Under traditional DRM systems, “paying customers [may] lose[] the rights to recover purchased products” when servers face “hardware failure or property theft.” Id. 2:63-67. Grecia claimed that the ’555 patent solved this problem by “employ[ing] electronic IC, as part of a web service membership, to manage access rights across a plurality of devices.” Id. 1:23-26. Grecia asserted that Facebook’s Messenger app and Facebook Pay infringed claim 16 of the ’555 patent. Grecia, 2022 WL 2019296, at *2. In response, Facebook moved for dismissal of the complaint for failure to state a plausible infringement claim and under the collateral estoppel doctrine. Id. at *2–3.

Collateral estoppel applies when there is “identity of the issues”

Collateral estoppel applies if “(1) the identical issue was previously adjudicated; (2) the issue was actually litigated; and (3) the previous determination was necessary to the decision.” Bradberry v. Jefferson Cty., Tex., 732 F.3d 540, 548 (5th Cir. 2013). In the context of patent law, collateral estoppel does not require that two patent claims be identical; rather collateral estoppel requires an “identity of the issues.Ohio Willow Wood Co. v. Alps South, LLC, 735 F.3d 1333, 1342 (Fed. Cir. 2013) (emphasis in original). Under Federal Circuit precedent, collateral estoppel applies where the difference between the unadjudicated claims and the adjudicated claims “do not materially alter the question of invalidity.” Id. at 1342.

Facebook asserted that Grecia was collaterally estopped from alleging infringement of claim 16 of the ’555 patent because this claim was substantively identical to two claims which were found to be invalid in two prior cases in the Southern District of New York: (1) claim 21 of U.S. Patent No. 8,533,860 (“the ’860 patent”), which was invalidated under 35 U.S.C. § 112 ¶ 6, and (2) claim 1 of U.S. Patent No. 8,887,308 (“the ’308 patent”), which was invalidated under 35 U.S.C. § 101. Grecia, 2022 WL 2019296, at *5.

Turning first to claim 21 of the ’860 patent, Facebook acknowledged that claim 16 of the ’555 patent was not literally identical to the previously invalidated claim but argued that the two claims were substantively identical. Id. at *6. Further, Facebook argued that differences between the two claims were minor and did not affect the finding of invalidity. Id.

In response, Grecia noted that the Southern District of New York had invalidated claim 21 of the ’860 patent based on the term “customization module,” which did not appear in claim 16 of the ’555 patent. Id. Rather, claim 16 disclosed a “computer product.” Id. Grecia asserted that Facebook’s “substantively identical” argument improperly attempted to broaden the Southern District of New York’s ruling to apply to claim terms that were not expressly addressed in the previous case. Id. at *6–7.

The court found Grecia’s argument “compelling,” holding that it would be “unwise” to “conduct a premature validity determination” as to whether the terms “customization module” and “computer product” were interchangeable. Id. at *8. Accordingly, the court held in favor of Grecia, stating that it is “generally unwise” to “evaluate the merits of validity arguments . . . before claim construction.” Id.

Regarding claim 1 of the ’308 patent, Facebook asserted that claim 16 of the ’555 patent was substantively identical to the previously invalidated claim because both claims shared the same specification, priority claim, and several elements. Id. Therefore, Facebook argued that the claims were “substantively identical for purposes of Alice” because claim 16 of the ’555 Patent “adds nothing inventive to the subject matter in claim 1 of the ’308 patent.” Id.

In response, Grecia advanced three arguments to demonstrate that the two claims were “unique and materially different”: (1) claim 16 of the ’555 patent was narrower than claim 1 of the ’308 patent, (2) there is a presumption of validity to each patent claim under 35 U.S.C. § 282, and (3) the doctrine of claim differentiation creates a presumption that a dependent claim is unique from the independent claim from which it depends. Id. at *7–8.

As with Facebook’s § 112 arguments, the court was “equally unconvinced concerning § 101 eligibility.” Id. at *9. The court held that “the plain language between the two claims is objectively different . . . [and these differences] may be significant enough to raise substantially different validity issues.” Id. The court held that “[t]he plain meaning presumption, validity presumption under § 282, and doctrine of claim differentiation may not be determinative in isolation, but they collectively signal to this Court that it must scrutinize claim 16 of the ’555 Patent holistically.” Id. Thus, the court was unwilling to rule in Facebook’s favor regarding the estoppel/validity arguments at such an early stage of litigation. Id.

A complaint must provide “adequate factual basis” and “advance allegations for all claim limitations”

Although Facebook did not prevail on its arguments regarding collateral estoppel, the court favorably considered Facebook’s motion to dismiss for failure to state a claim. According to Facebook, Grecia could not plausibly allege that a Facebook Pay user’s PayPal account or credit card number corresponded to the claimed “membership verification token” of the ’555 patent because Grecia stated in an inter partes review (“IPR”) before the Patent Trial and Appeal Board (“PTAB”) that “payment account numbers do not correspond to any particular digital media.” Id. at *11–12. Based on these statements before the PTAB, Facebook argued that “Grecia expressly disavowed any position that payment account information could constitute a ‘membership verification token.’” Id. at *12. Grecia, on the other hand, argued that “Facebook unduly broaden[ed] the PTAB decision’s scope” and that Grecia “met its burden by supplying claim charts that demonstrate how the Accused Product practices each limitation of claim 16.” Id.

The court found in favor of Facebook on this argument, holding that “[u]ltimately, Grecia seeks to benefit from claiming a distinction between the ’555 Patent and [the prior art reference] during IPR yet refuses to confront the drawback of claiming the same distinction in litigation.” Id. at *13–14. Accordingly, the Court held that “Grecia’s allegations contradict[ed] prior sworn statements concerning the invention’s scope during IPR” and, therefore, “Grecia cannot plausibly allege infringement on this ground.” Id.

Facebook also argued that Grecia failed to plead with particularity how Facebook branded “metadata of the encrypted digital media” as required by claim 16 of the ’555 patent. Id. at *14. Facebook argued that “the Complaint contains, at best, vague allusions to ‘digital money’” in relation to this element of claim 16. Id. However, Facebook argued that “digital ‘media’ and digital ‘money’ are different” and therefore Grecia could not plausibly allege that Facebook’s “digital money” meets the “encrypted digital media” limitation of claim 16. Id. Facebook asserted that this difference between digital money and encrypted digital media is “critical . . . because Grecia cannot point to branded ‘metadata of the encrypted digital media’ without identifying any specific ‘encrypted digital media.’” Id.

Although Grecia “stress[ed] that it is not required to prove its case in the Complaint,” the court sided with Facebook, “agree[ing] that Grecia’s Complaint has not sufficiently pleaded infringement of the limitation in claim 16 of the ’555 patent.” Id. at *14–15. The court emphasized that “[t]he detail required to plead direct infringement adequately depends on ‘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.’” Id. at *15 (quoting Bot M8 LLC v. Sony Corp. of Am., 4 F.4th 1342, 1353 (Fed. Cir. 2021). Here, the court found that Grecia’s “allegations amount to blanket assertions of infringement insufficient to put Facebook on notice of Grecia’s general infringement theory, much less a particular one.” Id. Furthermore, the court found that “Grecia resorted to parroting claim language when . . . identify[ing] an accused instrumentality of the encrypted digital media.” Id. at *16. “Given the complexity of the disputed technology,” the court held that “Grecia [fell] short of providing sufficient evidence to show that infringement is a reasonable inference to draw” and granted Facebook’s motion to dismiss for failure to state a claim. Id.

Takeaways

When asserting a collateral estoppel argument based on an invalidity decision of a related patent, a defendant must carefully analyze the similarities and differences between the two claims. As noted in this case, courts may be unwilling to conduct claim construction and invalidity determinations at early stages in the litigation. Therefore, to succeed on such a motion, it is important to show that the previously invalidated, related claim is substantively identical to the presently asserted claim.

Further, when asserting patent infringement against a defendant, it is important to provide a level of detail in the Complaint that is commensurate with the complexity of the technology. Providing blanket assertions of infringement without significant detail may not be enough for a court to uphold the complaint against a motion to dismiss for failure to state a claim.

And be sure that you are not taking positions before the court that are inconsistent with positions taken before PTAB, such as in an IPR.