Texas Patent Litigation Monthly Wrap-Up: January 2022

This post summarizes several federal Texas patent decisions that issued in January 2022, focusing on three motions to dismiss addressed by Chief Judge Gilstrap of the Eastern District of Texas.

United Services Automobile Association v. PNC Bank N.A., No. 2:21-CV-00246-JRG (E.D. Tex. Jan. 14, 2022) Defendant's Motion to Dismiss for Failure to State a Claim Under Federal Rule of Civil Procedure 12(b)(6)

Defendant PNC Bank N.A. filed a motion to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). With respect to the '598 and '136 Patents, PNC Bank argued that USAA's direct infringement claim should be dismissed because USAA's Complaint alleged customer mobile devices running PNC's mobile application constituted the claimed system, yet the structure and text of the asserted claims dictated that the claimed processor performing the claimed steps must be something other than the customer mobile device. Specifically, PNC contended that USAA's allegations failed because to meet the requirement that the claimed steps occur on the processor, USAA pointed to steps that occur via the PNC mobile application on the user's mobile device instead of one that occurred on a separate device as required by the claims. With respect to the '638 Patent, PNC argued that USAA's claims should be dismissed because the '638 Patent contains four independent systems, but USAA does not allege that PNC makes, uses, offers to sell, or sells mobile devices. PNC further asserted that because the system included elements in possession of more than one actor, a divided infringement problem existed.

With respect to the '598 and '136 Patents, USAA's response focused on how its allegations are not directed solely to the user's mobile device and on how its Complaint identified the infringing instrumentality as a system that included more than just the mobile device as well as provided an explanation of how these additional electronics infringed the asserted claims. Furthermore, USAA argued that PNC's arguments sought premature claim construction. With respect to the '638 Patent, USAA argued that it was improper to assume that PNC's system included elements in possession of more than one actor at this early pleading stage and that its Complaint pled facts that PNC itself made and used the claimed invention.

In denying PNC Bank's motion, the Court found that USAA put forth sufficient allegations to make its infringement claims plausible, provided PNC with sufficient notice of the allegedly infringing conduct, and that nothing more was required at this stage of the lawsuit. The Court noted that, in essence, PNC was asking the Court to construe claims and consider issues of fact that were not ripe for resolution, which the Court was unwilling to do during this early pleading stage.

Gesture Technology Partners LLC v. Huawei Device Co. Ltd. et. al, No. 2:21-CV-00040-JRG (E.D.Tex. Jan. 14, 2022) Defendant's Motion to Dismiss for Failure to State a Claim under Federal Rule of Civil Procedure 12(b)(6)

Defendants Samsung Electronics Company and Samsung Electronics America, Inc. filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) requesting that the Court dismiss Plaintiff Gesture Technology Partners, LLC's Complaint for failure to plead a claim on which relief could be granted.

Specifically, Samsung argued that Gesture failed to adequately plead infringement of any of the asserted patents by failing to provide sufficient detail as to how the allegedly infringing features meet the limitations of the asserted claims when Gesture only submitted four screenshots from Samsung's website covering a fraction of the accused features and failed to allege how those screenshots meet the language of the exemplary claims. In doing so, Samsung relied on Chapterhouse, LLC v. Shopify, Inc. for the proposition that a plaintiff's complaint must provide an "explanation linking the screenshot to the claim element(s) they purportedly illustrate[]".¹ Gesture's response focused on how Samsung was attempting to impose an improperly high pleading standard and essentially asking the Court to require that detailed infringement contentions be included in its Complaint. Furthermore, Gesture argued that its Complaint was distinguishable from that in Chapterhouse because in that case, the complaint provided only screenshots with no accompanying factual allegations, whereas Gesture's Complaint in this lawsuit provided details on how the accused products infringed each asserted claim.

In denying Samsung's motion, the Court found that given the simplicity of the patents at issue, Gesture's Complaint contained sufficient factual allegations to provide Samsung fair notice of infringement. In doing so, the Court found that the simple technology was closer in complexity to that at issue is Disc Disease than the complex technology at issue in Chapterhouse², and in this context, concluded that the screenshots provided by Gesture in addition to the explanatory text in the Complaint was sufficient to provide Samsung with fair notice of infringement.

Turbocode LLC v. Asustek Computer Inc., No. 4:21-CV-294-SDJ (E.D.Tex. Jan. 19, 2022) Defendant's Motion to Dismiss under Federal Rule of Civil Procedure 41(b)

Defendant Asustek Computer Inc. filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 41(b) after the Court previously struck Plaintiff TurboCode's Notice of Partial Voluntary Dismissal pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i) following its finding that Rule 41(a) should not be available to dismiss only some claims that a plaintiff has against a defendant. Asustek argued that as a result of TurboCode's willful non-compliance with the Federal Rules of Civil Procedure, that the Court should issue an order of involuntary dismissal of the entire case with prejudice pursuant to Federal Rule of Civil Procedure 41(b) because such dismissal would make ongoing case management easier. In response, TurboCode argued that Asustek failed to apply the proper test for a Rule 41(b) dismissal.

In denying Asustek's motion, the Court found that Asustek failed to apply the proper test for dismissal under Rule 41(b). In doing so, the Court noted that dismissal with prejudice is a severe sanction, and such dismissals under Rule 41(b) are only proper when (1) there is a clear record of delay or contumacious conduct by the plaintiff and (2) when lesser sanctions would not prompt diligent prosecution.³ The Court further noted that in most cases when the Fifth Circuit has affirmed a dismissal with prejudice, aggravating factors such as "(1) delay caused by the plaintiff himself and not his attorney; (2) actual prejudice to the defendant; or (3) delay caused by intentional conduct" are present.⁴

Under these factors, the Court found that a Rule 41(b) dismissal was inappropriate because there was no record of delay or contumacious conduct by TurboCode, who was prompt in seeking dismissal of one claim despite using the wrong procedural mechanism to do so.

Arigna Technology Limited v. Bayerishe Motoren Werke AG, No. 2:21-CV-00172-JRP (E.D.Tex. Jan. 20, 2022) Defendant's Motion to Dismiss Under Rule 12(b)(5)

Defendant Bayerishe Motoren Werke AG ("BMW AG") filed a motion asserting improper service after Plaintiff Arigna served BMW of North America, LLC ("BMW NA") in California by delivering documents to its registered agent, CT Corporation, and attempted service on BMW AG on the same day and in the same manner.

1. The Court found that the Federal Rule of Civil Procedure Allowed California Law to Apply to Service

BMW AG argued that under Volkswagenwerk, the law of the state in which the forum court sits, in this case Texas, must apply where a plaintiff is attempting involuntary service on a foreign defendant residing in a country that is a signatory to the Hague Convention. In doing so, BMW AG relied on Volkswagenwerk's directive to look to the "internal law of the forum state" to determine whether the applicable method of service requires transmittal of documents abroad, and therefore, implicates the Hague Convention. Arigna argued that BMW AG misread Volkswagenwerk's reference to a "forum state" and asserts that the "forum state" and "internal law" references in Volkswagenwerk meant the law of the forum country. Accordingly, Arigna argued that it properly served BMW AG pursuant to the laws of United States, which in this lawsuit were the Federal Rules of Civil Procedure and the laws of California, and therefore, that its service methods within the United States complied with Volkswagenwerk and did not implicate the Hague Convention.

In denying BMW AG's motion on this issue, the Court agreed with Arigna's position that Volkswagenwerk's references to "forum state" are properly read in the context of the Hague Convention, which defines its signatory countries as "states." Accordingly, the Court found that so long as the internal law of the United Stated authorized substituted service that provide notice reasonably calculated under all circumstances to apprise interested parties of the pendency of the action and afford the party an opportunity to present their objections, such service was proper and does not implicate the Hague Convention. Further, the Court found that the Federal Rule of Civil Procedure 4(e)(1) authorized individuals to be served in a judicial district in the United States by following state law for serving summons in an action brought in courts of general jurisdiction in the state where the district court is located or where service is made in this case, California.

2. The Court found that Arigna Properly Served BMW AG via its General Manager Pursuant to California Law

The Court noted that California law authorized service of process on a corporation by delivering a copy of the summons and complaint to a "general manager" and that the California Supreme Court identified a general manager as an agent who (1) is of sufficient character and rank to make it reasonably certain that a defendant would be appraised of the service, and (2) has given the defendant substantially the business advantages that it would have enjoyed if it conducted its business through its own offices or paid agents in the state.

Because Arigna was able to show that BMW NA is BMW AG's point of contact within the United States for product development, product and warranty support, and the provision of English product manuals to customer, the Court found that BMW NA is of sufficient character and rank to make it reasonably certain that BMW AG would be apprised of service and that there would be ample regular contact between BMW NA and BMW AG to satisfy the first factor under California law. Under the second factor, the Court found that BMW NA has given BMW AG the business advantages that BMW AG would have enjoyed if it conducted its business through its own offices of paid agents, that BMW NA was the exclusive importer and distributor of BMW AG products in the United States, and that BMW NA managed the operations of BMW AG directly at issue in this lawsuit, therefore, satisfying this second factor. In doing so, the Court found that a degree of separation between BMW AG's ownership over BMW NA does not change the result of the general manger inquiry.

3. The Court found that Argina's Service Upon a General Manager of BMW AG Satisfied Due Process

BMW AG argued that even if the Federal Rules permit service pursuant to California law, and even if Arigna properly served BMW AG pursuant to such law, the Court should still disregard Arigna's service because it did not comply with the Fifth Circuit's interpretation of Due Process. Specifically, BMW AG asserted that under Fifth Circuit law, a domestic subsidiary may be considered an agent for service of process, absent express authorization, only where the foreign corporation exercises such control over the domestic subsidiary that the two entities are essentially one.

The Court found BMW AG's argument unpersuasive, noting that it is generally accepted that complying with Federal Rule of Civil Procedure 4 as to service, as discussed above, raises the presumption that due process has been provided. Further, the Court's ruling that service was proper rested on the basis that the domestic entity being served was the "general manager" of BMW AG under California law, which was therefore deemed to be an agent authorized to received service on BMW AG's behalf. The Court concluded that BMW AG's requests for extensions of the time to answer and the filing of the present motion evidenced that service upon BMW AG via its general manager provided BMW AG with notice of reasonably calculated to apprise BMW AG of the pendency of the action and therefore, satisfied the Due Process standard.

1. Chapterhouse, LLC v. Shopify, Inc., 2018 WL 6981828 (E.D.Tex. Dec. 10, 2018) (Gilstrap, J.).
2. See id. at *2 (citing Disc Disease Solutions Inc v. VGH Solutions, Inc., 888 F.3d 1256, 1260 (Fed. Cir. 2018)).
3. In determining when dismissals under Rule 41(b) were proper, the Court relied on the factors outlined in Campbell v. Wilkinson, 988 F.3d 798, 801 (5th Cir. 2021).
4. See id. at 802.