Rothschild Digital Confirmation, LLC v. Skedulo Holdings Inc. ( 2020 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 ROTHSCHILD DIGITAL Case No. 3:19-cv-02659-JD CONFIRMATION, LLC, 8 Plaintiff, ORDER RE MOTION TO DISMISS 9 v. Re: Dkt. No. 11 10 SKEDULO HOLDINGS INC., 11 Defendant. 12 13 Plaintiff Rothschild Digital Confirmation, LLC (“Rothschild”) alleges that defendant 14 Skedulo Holdings Inc.’s (“Skedulo”) products violate U.S. Patent No. 7,456,872 (the “’872 15 patent”), “Device and Method for Embedding and Retrieving Information in Digital Images.” 16 Dkt. No. 1. Skedulo moves to dismiss Rothschild’s complaint under 35 U.S.C. § 101 and Alice 17 Corp. Pty. Ltd. v. CLS Bank International, 573 U.S. 208 (2014). Dkt. No. 11. 18 The Court found the motion suitable for decision without oral argument pursuant to Civil 19 L.R. 7-1(b). Dkt. No. 43. The complaint is dismissed, and Rothschild may file an amended 20 complaint by April 20, 2020. 21 BACKGROUND 22 The relevant background for a motion to dismiss on Alice grounds is generally limited to 23 the patent itself. See Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121, 1123- 24 24 (Fed. Cir. 2018). While the initial complaint asserted claims 1 and 27 of the ’827 patent, 25 Rothschild acknowledges that claim 27 has been cancelled and is not at issue in this case. Dkt. 26 No. 37 at 3 n.2. Accordingly, only claim 1, the remaining, asserted claim, will be considered. 27 Claim 1 recites: 1 a user verification module for verifying an identity of a user of the device, wherein upon verification, the user verification module 2 enables operation of the device and provides an assignment to the user; 3 a capture module for capturing an image relating to the assignment 4 and creating a digital image file, wherein the user verification module verifies the identity of the user of the device at a time of the image 5 capture; 6 a locational information module for determining a location of the device when capturing the image; 7 a date and time module for determining a date and time of the image 8 capture; 9 a processing module for associating the assignment, the user identity, location information and the time and date to the digital image file; 10 and 11 an encryption module for encrypting the digital image file and associated information upon image capture. 12 13 Dkt. No. 1-1 at 16:56-17:7. 14 DISCUSSION 15 I. LEGAL STANDARDS 16 Rule 8(a)(2) of the Federal Rules of Civil Procedure requires the complaint to provide “a 17 short and plain statement of the claim showing that the pleader is entitled to relief.” To meet that 18 rule and survive a Rule 12(b)(6) motion to dismiss, a plaintiff must allege “enough facts to state a 19 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 20 This calls for enough “factual content that allows the court to draw the reasonable inference that 21 the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 22 (citing Twombly, 550 U.S. at 556). The plausibility analysis is “context-specific” and not only 23 invites, but “requires the reviewing court to draw on its judicial experience and common sense.” 24 Id. at 679. 25 The Federal Circuit has “repeatedly recognized that in many cases it is possible and proper 26 to determine patent eligibility under 35 U.S.C. § 101 on a Rule 12(b)(6) motion. In many cases, 27 too, evaluation can proceed even before a formal claim construction.” Genetic Techs. Ltd. v. 1 F.3d at 1125. But as the circuit has recently emphasized, the question of eligibility may be 2 determined at the pleadings stage “only when there are no factual allegations that, taken as true, 3 prevent resolving the eligibility question as a matter of law.” Aatrix, 882 F.3d at 1125; see also 4 Cellspin Soft, Inc. v. Fitbit, Inc., 927 F.3d 1306, 1320 (Fed. Cir. 2019) (vacating Rule 12(b)(6) and 5 Rule 12(c) dismissals where complaint made plausible and “well-pleaded allegations” of 6 eligibility). This is particularly true for the element of an inventive concept in the Alice analysis, 7 which raises a question of fact that can be resolved in a motion to dismiss only if the answer may 8 be found in the complaint, the patent, and matters subject to judicial notice. Aatrix, 882 F.3d at 9 1128. 10 Even so, a patentee cannot avoid dismissal for ineligible claims purely on the basis of 11 conclusory or generalized factual allegations. The “tenet that a court must accept as true all of the 12 allegations contained in a complaint is inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678. 13 In a patent case, “a court need not accept as true allegations that contradict matters properly 14 subject to judicial notice or by exhibit, such as the claims and patent specification.” Secured Mail 15 Sols., LLC v. Universal Wilde, 873 F.3d 905, 913 (Fed. Cir. 2017) (internal quotation and citation 16 omitted). Not every “allegation about inventiveness, wholly divorced from the claims or the 17 specification, defeats a motion to dismiss.” Cellspin, 927 F.3d at 1317. To the extent claim 18 construction issues might arise, the Court should adopt the patentee’s proposed constructions. 19 Aatrix, 882 F.3d at 1125. 20 Rothschild says there are “substantial factual disputes” that preclude dismissal, Dkt. No. 37 21 at 15, but the issues it points to do not foreclose a determination of the Section 101 question at this 22 stage of the case. For example, “whether Defendant’s attempt to ‘reduced down’ [sic] the claims 23 to ‘claimed ideas’ is a proper interpretation of the claims,” id., is not a question of fact. “Rather, 24 the ‘directed to’ inquiry applies a stage-one filter to claims, considered in light of the specification, 25 based on whether their character as a whole is directed to excluded subject matter.” Enfish, LLC v. 26 Microsoft Corp., 822 F.3d 1327, 1335 (Fed. Cir. 2016). And while two other issues Rothschild 27 mentions -- “who is the skilled artisan” and “whether the skilled artisan would consider the claims 1 nothing in the patent, the complaint, or Rothschild’s own briefing that addresses the latter question 2 other than conclusory statements like “[t]he combination of a user verification module, capture 3 module, locational information module, date and time module, processing module and encryption 4 module in claim 1 represent an inventive concept that was not well-understood, routine, or 5 conventional at the time of filing of the ’872 patent.” Dkt. No. 37 at 13. This is not enough to 6 create a factual dispute under the prevailing standards. The “dispute” about the identity of the 7 skilled artisan is not raised until the final lines of the opposition brief, without any suggestion as to 8 what the dispute is or how it is relevant to Skedulo’s motion. 9 The parties have not contested the proper construction of any terms in claim 1, so it is 10 unnecessary to engage in claim construction before addressing validity under Section 101 and 11 Alice. ChargePoint, Inc. v. SemaConnect, Inc., 920 F.3d 759, 767 (Fed. Cir. 2019); TriDim 12 Innovations LLC v. Amazon.com, Inc., 207 F. Supp. 3d 1073, 1078 (N.D. Cal. 2016). 13 Consequently, the Section 101 inquiry may properly be made at this stage of the case. 14 Alice established a two-part test for the Section 101 inquiry. First, the Court “determine[s] 15 whether the claims at issue are directed to a patent-ineligible concept” such as an abstract idea, 16 law of nature or natural phenomenon. Alice, 573 U.S. at 218. It is often “sufficient to compare 17 claims at issue to those claims already found to be directed to an abstract idea in previous cases” 18 for purposes of the step 1 analysis. Enfish, 822 F.3d at 1334; see also Alice, 573 U.S. at 221. 19 The “purely functional nature of the claim confirms [whether it] is directed to an abstract 20 idea, not to a concrete embodiment of that idea.” Affinity Labs of Tex., LLC v. Amazon.com, Inc., 21 838 F.3d 1266, 1269 (Fed. Cir. 2016). “For an application of an abstract idea to satisfy step one, 22 the claim’s focus must be something other than the abstract idea itself.” BSG Tech LLC v. 23 BuySeasons, Inc., 899 F.3d 1281, 1287 (Fed. Cir. 2018). But oversimplifying claims must be 24 avoided because “[a]t some level, ‘all inventions . . . embody, use, reflect, rest upon, or apply laws 25 of nature, natural phenomena, or abstract ideas.’” Alice, 573 U.S. at 217 (second alteration in 26 original) (internal citation omitted). 27 If a patent is directed to a patent-ineligible concept, the second step in Alice is to look for 1 that the patent in practice amount to significantly more than a patent upon the [ineligible concept] 2 itself.” Id. at 217-18 (alteration in original) (internal quotation and citation omitted). This step 3 asks, “[w]hat else is there in the claims before us?” Mayo Collaborative Servs. v. Prometheus 4 Labs., 566 U.S. 66, 78 (2012). As in step 1, the answer must include something “significantly 5 more” than the abstract idea itself. BSG Tech, 899 F.3d at 1290. “It is well-settled that mere 6 recitation of concrete, tangible components is insufficient to confer patent eligibility to an 7 otherwise abstract idea. Rather, the components must involve more than performance of ‘well- 8 understood, routine, conventional activit[ies] previously known to the industry.’” In re TLI 9 Commc’ns LLC Patent Litig., 823 F.3d 607, 613 (Fed. Cir. 2016) (alteration in original) (quoting 10 Alice, 573 U.S. at 225). “If a claim’s only ‘inventive concept’ is the application of an abstract idea 11 using conventional and well-understood techniques, the claim has not been transformed into a 12 patent-eligible application of an abstract idea.” BSG Tech, 899 F.3d at 1290-91. 13 II. THE CLAIMED INVENTION IS NOT PATENTABLE 14 A. Claim 1 Is Directed to an Abstract Idea 15 Step 1 of the Alice test -- determining whether a claim is directed to a patent-ineligible 16 concept -- can be complicated in some cases. That is particularly true when the relevant inquiry 17 “ask[s] whether the claims are directed to an improvement to computer functionality versus being 18 directed to an abstract idea.” Enfish, 822 F.3d at 1335. 19 Rothschild says that this is one of those complicated cases, but the complaint and patent in 20 suit show otherwise. Considering the claims “in light of the specification,” as is required at this 21 step, claim 1, the sole remaining, asserted claim, is clearly directed to the abstract idea of 22 associating traditional information like date, location, and photographer with a picture and 23 securing the image. Id. 24 The patent’s specification shows the claims are directed to this abstract idea, and gainsays 25 a focus on computer technology. It notes, “In the prior art, when one desires to catalog . . . images 26 in a particular order, they [sic] usually are left to placing these images manually into photograph 27 albums.” Dkt. No. 1-1 at 1:34-38. The Court has previously recognized patents that analogize 1 bookshelves and desks, or in this case, photograph albums, are directed to an abstract idea. 2 TriDim Innovations, 207 F. Supp. 3d at 1079. In determining whether a patent claims an abstract 3 idea, courts often look for “fundamental . . . practice[s] long prevalent.” Intellectual Ventures I 4 LLC v. Symantec Corp., 838 F.3d 1307, 1314 (Fed. Cir. 2016) (second alteration in original) 5 (quoting Alice, 573 U.S. at 219). In this case, the Court need not look far for that practice -- it is 6 expressly stated in the specification. Popular culture and private life are replete with albums 7 organized by date, location, and subject, with handwritten notes scribbled on the back of the 8 photograph recording the same information as described in the patent. It is not a stretch to say 9 these practices have been routine in family, business and academic life since cameras became 10 widely available decades ago. 11 The Federal Circuit’s decision in In re TLI Communications Patent Litigation, which 12 invalidated claims relating to “an apparatus for recording of a digital image, communicating the 13 digital image from the recording device to a storage device, and to administering the digital image 14 in the storage device” compels the same result here. In re TLI Commc’ns Patent Litig., 823 F.3d 15 at 609. At step 1, the court found the claims were “directed to the abstract idea of classifying and 16 storing digital images in an organized manner.” Id. at 611. It is often “sufficient to compare 17 claims at issue to those claims already found to be directed to an abstract idea in previous cases.” 18 Enfish, 822 F.3d at 1334. Claim 1 of the ’872 patent is indistinguishable from the patent in In re 19 TLI and “[o]n its face, . . . is drawn to the concept of classifying an image and storing the image 20 based on its classification.” In re TLI Commc’ns Patent Litig., 823 F.3d at 611. 21 The elements of claim 1 are unspecified “user verification,” “capture,” locational 22 information,” “date and time,” “processing” and “encryption module[s],” Dkt. No. 1-1 at 16:56- 23 17:7, that “merely provide a generic environment in which to carry out the abstract idea of 24 classifying and storing digital images in an organized manner.” In re TLI Commc’ns Patent Litig., 25 823 F.3d at 611. The “claim language” is of an “essentially result-focused, functional character.” 26 Am. Axle & Mfg., Inc. v. Neapco Holdings LLC, 939 F.3d 1355, 1365 (Fed. Cir. 2019) (citation 27 omitted). The “user verification module,” “verf[ies] an identity of a user of the device,” the 1 specification does nothing to disturb this conclusion since it emphasizes the invention relates “to 2 devices, systems and methods for embedding and retrieving information in digital images and 3 using the information to organize, process and control the digital images.” Dkt. No. 1-1 4 at 1:23-26. 5 Rothschild strains to distinguish In re TLI, but without success. The complaint’s 6 conclusory allegation that the “’872 patent represents a technical solution to a problem associated 7 with digital image capture” because “the invention increased the ease of use and efficiency of 8 organizing images and associating vital information with a collection of images,” Dkt. No. 1 ¶ 24, 9 is contradicted by the patent itself. The specification “describes hardware devices, systems and 10 methods that will facilitate embedding information into digital images of any type (e.g., jpeg, bmp, 11 tiff, etc.) to organize, control and manipulate these images both while in digital form, and later 12 when in printed form.” Dkt. No. 1-1 at 2:18-23. This description demonstrates that the claims are 13 not directed to improvements in computer functionality as required by cases like Enfish, but rather 14 focus on associating information with images and organizing them, regardless of their digital or 15 physical nature. The Court “need not accept as true allegations that contradict matters properly 16 subject to judicial notice or by exhibit, such as the claims and patent specification,” Secured Mail 17 Sols., 873 F.3d at 913, and will not do so here. 18 The Federal Circuit’s decision in Ancora Technologies, Inc. v. HTC America, Inc., 908 19 F.3d 1343 (Fed. Cir. 2018) does not require a contrary result, as plaintiff suggests. In that case, 20 the court reversed dismissal on Alice grounds of a patent that placed software programming 21 licensing verification in an unconventional location -- the part of the memory “typically used for 22 storing programs that assist in the start-up of a computer, not verification structures comparable to 23 the software-licensing structure embodied by the claimed invention.” Id. at 1345. An advantage 24 of this location was that it is harder to hack -- “i.e., alter[] it without rendering the computer 25 inoperable.” Id. This improved security represented “a non-abstract computer-functionality 26 improvement” because it was directed to “a specific technique that departs from earlier approaches 27 to solve a specific computer problem.” Id. at 1348. The ’872 patent is distinguishable because of 1 its complete lack of specificity and the fact it is not directed to solve a specific computer problem, 2 but rather the timeless struggle to organize photographs. 3 B. Claim 1 Lacks an Inventive Concept 4 Claim 1 lacks an “‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea 5 into a patent eligible invention.” Alice, 573 U.S. at 221 (quoting Mayo, 566 U.S. at 72-73). The 6 presence of an inventive concept ensures a patent contains “an element or combination of elements 7 that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent 8 upon the ineligible concept itself.’” Id. at 217-18 (quoting Mayo, 566 U.S. at 72-73). The 9 “inventive concept must be evident in the claims” themselves. RecogniCorp, LLC v. Nintendo 10 Co., Ltd., 855 F.3d 1322, 1327 (Fed. Cir. 2017). 11 “It has been clear since Alice that a claimed invention’s use of the ineligible concept to 12 which it is directed cannot supply the inventive concept that renders the invention ‘significantly 13 more than that ineligible concept,” but that is precisely what Rothschild seeks to do here. BSG 14 Tech, 899 F.3d at 1291. The complaint alleges that “the invention increased the ease of use and 15 efficiency of organizing images and associating vital information with a collection of images.” 16 Dkt. No. 1 ¶ 24. From this, the complaint asserts that “[a]s such, the invention disclosed and 17 claimed in the ’872 patent represents a technical solution to a problem associated with digital 18 image capture.” Id. While “concrete allegations regarding the claimed combination’s 19 improvement to the functioning of the computer,” may suffice at Alice’s second step, since the 20 allegation is simply another formulation of the abstract idea to which the Court found the ’872 21 patent was directed to in step 1, this analysis is prima facie insufficient to allege an inventive 22 concept. Aartix, 882 F.3d at 1128. 23 Once the abstract idea is removed, there are no allegations in the complaint or patent as to 24 claim 1’s inventive concept or that the combination of claim limitations was not well-understood, 25 routine, or conventional. In opposing the motion to dismiss, which of course is not a proper 26 original source for allegations on a motion to dismiss, see id., Rothschild offers only conclusory 27 assertions like “devices at the time of the invention did not comprise the modules and did not 1 Plaintiff does not dispute that “the elements in the claimed product (apart from the 2 [abstract idea itself]) involve well-understood, routine, conventional activity previously engaged in 3 by researchers in the field,” so that issue need not be addressed. Chamberlain Grp., Inc. v. 4 Techtronic Indus. Co., 935 F.3d 1341, 1349 (Fed. Cir. 2019) (citation omitted). Even if plaintiff 5 || were to contest this conclusion, nowhere do the claims or specification appear to require anything 6 but “standard,” “conventional,” or “known” components, Dkt. No. 1-1 at 6:5-9; 6:32-34; 7:64-8:1, 7 || except for when it allows that a module may consist of “any other [model of component] that 8 || exists currently or will exist in the future,” id. at 4:33-34. 9 CONCLUSION 10 Because claim | of the ’872 patent is directed to an abstract idea and does not add an 11 inventive concept, the complaint is dismissed. In light of the plain language of the claims in the 12 |] patent, the Court has doubts that Rothschild can amend around this problem. Plaintiff is reminded 5 13 that “a patentee cannot avoid dismissal for ineligible claims purely on the basis of conclusory or 14 || generalized statements, and fanciful or exaggerated allegations that later prove to be unsupported 15 may lead to fee shifting or other sanctions.” Yu v. Apple Inc., 392 F. Supp. 3d 1096, 1102 16 (N.D Cal. 2019) (citations omitted). 3 17 Since the Court cannot say that any amendment would necessarily be futile and leave to S 18 || amend “when justice so requires” is to be granted with “extreme liberality,” Rothschild may file 19 an amended complaint by April 20, 2020. Hoang v. Bank of Am., N.A., 910 F.3d 1096, 1102 (9th 20 Cir. 2018) (citations omitted). If this deadline is not feasible in light of the public health situation, 21 the parties may agree on a new date by joint stipulation. If the parties cannot agree, a party may 22 || ask the Court to extend the deadline. Failure to respond to this order by April 20, 2020, will result 23 in dismissal with prejudice under Rule 41(b). 24 IT IS SO ORDERED. 25 Dated: March 19, 2020 26 27 JA ONATO 28 Unitef#f States District Judge