Did the Defendant Know? Filing a Complaint Can Sustain the Knowledge Element Required to Maintain a Claim of Induced Infringement

Order Granting Motion to Dismiss and Denying Request for Attorneys’ Fees and Sanctions, Edwin Lyda v. CBS Interactive, Inc., Case No. 16-cv-06592-JSW (Judge Jeffrey S. White)

In a helpful ruling for defendants, Judge White held in a recent order that res judicata prevented a plaintiff from filing a complaint for alleged inducement of patent infringement after a prior suit for direct infringement was dismissed with prejudice.  He held that the filing of the original complaint provided a colorable basis to allege the knowledge element of an inducement claim, and thus there was nothing to prevent the pursuit of an inducement claim in the original case.

The doctrine of res judicata incentivizes litigants to raise all related claims in a single cause of action.  When litigants fail to raise a ripe claim in an earlier suit, they are barred from asserting that claim in a later suit if the earlier suit (1) involved the same claim or cause of action; (2) reached a final judgment on the merits; and (3) involved identical parties or privies.

In 2014, Plaintiff filed a complaint against Defendant CBS alleging direct infringement of his patents.  The Lyda I court dismissed that complaint for failure to state a claim and denied leave to file a second amended complaint.  Then, in 2016, Plaintiff filed the instant case alleging indirect (induced) infringement of the same patents.  Plaintiff alleged that CBS induced infringement by broadcasting the television show “Big Brother” and permitting audience voting using the patented methods.  CBS moved to dismiss, arguing that Plaintiff’s claims were barred by res judicata because they could have been raised in Lyda I.

The Court explained that Lyda I involved the same two patents and at least some of the same claims because Plaintiff’s direct infringement claims were also based on the same voting procedures used in connection with “Big Brother”.  Because Lyda I reached a final judgment on the merits and involved the same parties, the only issue was whether Plaintiff could have asserted induced infringement claims in Lyda I.

In order to establish liability for induced infringement, a patent holder must prove that the defendant knew of the patent and actively and knowingly aided and abetted another’s direct infringement.  Plaintiff argued CBS was unaware of the patents-in-suit before Lyda I and was therefore incapable of knowingly inducing infringement, thus precluding that claim in Lyda I.  The Federal Circuit has not squarely addressed whether claims based on induced infringement may proceed without pre-suit knowledge of a patent, and district courts are split on the issue—many maintain that the filing of a lawsuit satisfies the knowledge element for indirect infringement, thereby allowing a patent holder to recover damages for indirect infringement based on post-filing conduct.

In this case, Judge White held that Plaintiff had “at least a colorable basis to allege the knowledge element of a claim for induced infringement based on the filing of the complaint.”  More importantly, letters sent from Plaintiff to CBS before he initiated Lyda I suggest that CBS was, in fact, aware of the patents-in-suit before Plaintiff filed Lyda I.  Additionally, the facts alleged in this case arose from the same set of transactional facts that gave rise to Lyda I.

Ultimately, the Court granted CBS’s motion to dismiss with prejudice because Plaintiff failed to demonstrate that he was precluded from asserting claims of induced infringement in Lyda I, and thus, those claims were now barred by res judicata.  While the Court also denied CBS’s motion for attorney’s fees and sanctions, it did so without prejudice, allowing CBS to file a properly noticed motion within 14 days after the entry of judgment.  As Judge White’s decision makes clear, it is often safer to include all “colorable” claims in an original suit to avoid the potential for later preclusion.