Cisco Sys., Inc. v. Innovatio IP Ventures, LLC (In re Innovatio Ip Ventures, LLC)

• Citation: 921 F.Supp.2d 903
• Decision Date: 04 February 2013
• Docket Number: Case Nos. 11 C 9308,12 C 427.,11 C 9309,MDL Docket No. 2303.
• Parties: In re INNOVATIO IP VENTURES, LLC PATENT LITIGATION. This Order Applies to Cisco Systems, Inc., and Motorola Solutions, Inc., Plaintiffs, v. Innovatio IP Ventures, LLC, Defendant. Netgear, Inc., Plaintiff, v. Innovatio IP Ventures, LLC, Defendant.
• Court: U.S. District Court — Northern District of Illinois

921 F.Supp.2d 903

In re INNOVATIO IP VENTURES, LLC PATENT LITIGATION.

This Order Applies to Cisco Systems, Inc., and Motorola Solutions, Inc., Plaintiffs,

v.Innovatio IP Ventures, LLC, Defendant.

Netgear, Inc., Plaintiff,

v.Innovatio IP Ventures, LLC, Defendant.

MDL Docket No. 2303.

Case Nos. 11 C 9308, 11 C 9309, 12 C 427.

United States District Court,

N.D. Illinois,

Eastern Division.

Feb. 4, 2013.

Amanda Jean Hollis, Gianni L. Cutri, Kirkland & Ellis LLP, Chicago, IL, Brandon Hugh Brown, Kirkland & Ellis LLP, San Francisco, CA, for Plaintiffs.

Brian Erik Haan, Gabriel I. Opatken, Matthew G. McAndrews, Raymond Pardo Niro, Jr., Oliver D. Yang, Niro, Scavone, Haller & Niro, Gregory Clements Schodde, Jean Dudek Kuelper, Peter J. McAndrews, Ronald H. Spuhler, Shawn Leonard Peterson, Patricia Jane McGrath, Scott P. McBride, McAndrews, Held & Malloy, P.C., Chicago, IL, Robert L. Wolter, Beusse Wolter Sanks Mora & Maire, PA, Orlando, FL, for Defendant.

MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART INNOVATIO'S MOTION TO DISMISS THE DEFENDANT'S AMENDED COMPLAINT (DKT. NO. 473)

JAMES F. HOLDERMAN, Chief Judge.

Plaintiff and patent-owner Innovatio IP Ventures, LLC (“Innovatio”) has sued numerous hotels, coffee shops, restaurants, supermarkets, and other commercial users of wireless internet technology located throughout the United States (collectively, the “Wireless Network Users”). ( See Dkt. No. 198 (“Second Am. Compl.”).) Innovatio alleges that, by making wireless internet available to their customers or using it to manage internal processes, the Wireless Network Users infringe various claims of seventeen patents owned by Innovatio. ( Id. ¶¶ 48–81.) Additionally, several manufacturers of the devices used by the Wireless Network Users to implement their wireless internet networks have brought declaratory judgment actions against Innovatio seeking a declaration that the manufacturers' products, and the networks or systems of which those products are a part, do not infringe Innovatio's patents. All claims and parties were consolidated before this court by the Judicial Panel on Multidistrict Litigation in this MDL case, No. 2303. (Dkt. No. 1.)

On October 1, 2012, three manufacturers of the allegedly infringing products, Cisco Systems, Inc. (“Cisco”), Motorola Solutions, Inc. (“Motorola”), and Netgear, Inc. (“Netgear”) (collectively, the “Manufacturers”), filed an amended complaint (“Manufacturers' Amended Complaint” or “MAC”) against Innovatio, as well as against Innovatio Management LLC (“IM”), a related entity, and Noel B. Whitley, the alleged founder of Innovatio and IM (where the context does not indicate otherwise, the court will refer to Innovatio, IM and Whitley collectively as “Innovatio”). (Dkt. Nos. 431, 442 (“MAC”) ¶ 57.) The MAC, which contains fifty-five counts in total, alleges, as relevant here, that Innovatio is liable for fraudulently enforcing its patents against the Manufacturers' customers. Count XLIX alleges violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961–1968, based on underlying violations of the mail and wire fraud statutes, 18 U.S.C. § 1341 and § 1343, and violations of 18 U.S.C. § 1951, 18 U.S.C. § 1952, and California Penal Code § 518; Count L alleges violations under California Business & Professional Code § 17200, which prohibits “unfair competition”; Count LI alleges a civil conspiracy; Count LII alleges breach of contract; Count LIII alleges promissory estoppel; Count LIV alleges intentional interference with prospective economic advantage; and Count LV alleges unclean hands. Currently pending before the court is Innovatio's motion to dismiss each of those counts. (Dkt. No. 473.) For the reasons explained below, that motion is granted in part and denied in part.

BACKGROUND

The MAC alleges that Noel B. Whitley, a former intellectual property executive at Broadcom Corporation (“Broadcom”), founded Innovatio and IM in February 2011 after leaving Broadcom. (MAC ¶ 57.) Thereafter, on February 28, 2011, Innovatio acquired from Broadcom the rights to a series of patents (the “Innovatio Patents”) ¹ related to wireless internet technology. ( Id. ¶ 59.) The patents allegedly cover technology that is necessary to implement the standards of the Institute of Electrical and Electronics Engineers (“IEEE”) ² for wireless local area networking technology (“WiFi”), known among those in the wireless industry as the “802.11 standards.” In return for the Innovatio patents, Innovatio granted back to Broadcom a license to the Innovatio Patents and a covenant not to assert infringement of the Innovatio Patents against any products or methods using Broadcom components. ( Id. ¶ 59.)

Before the transfer to Innovatio, Broadcom had acquired some of the Innovatio Patents from other entities, including Intermec IP Corporation, Intermec Technologies Corporation, and Norand Corporation. ( Id. ¶ 60.) Each of those entities, as well as Broadcom, had taken part in the IEEE procedures for setting the 802.11 standards. ( Id. ¶¶ 61–67.) As part of those procedures, each of those entities had agreed with IEEE to license any patents it owned covering technology necessary to the operation of the adopted standards on reasonable, and non-discriminatory (“RAND”) terms. Norand Corporation's June 20, 1997, letter of assurance to IEEE is a representative agreement:

In the event the proposed IEEE standard is adopted, and the standard cannot be practiced without the use of one or more patents which are now or hereafter owned by Norand, Norand would upon request be willing to negotiate a non-transferable, nonexclusive sole and personal license, under the relevant claims of such patent or patents, on a nondiscriminatory basis on reasonable terms and conditions.

( Id. ¶ 62.) The MAC alleges that Innovatio is bound by the RAND obligations of Broadcom and its other predecessors in ownership of the patents. ( Id. ¶ 68.)

Shortly after acquiring the Innovatio Patents, Innovatio began a campaign to enforce them by seeking to license entities Innovatio asserted infringed its patents. Rather than targeting the manufacturers of infringing devices, such as Cisco, Motorola, and Netgear, Innovatio's campaign “is largely directed at end users of Wi–Fi technology, such as bakeries, restaurants, cafes, hotels, and other small businesses that do not make or sell devices that provide the accused Wi–Fi functionality.” ( Id. ¶ 73.) The court will refer to the purported infringers whom Innovatio has sought to license as the “Targets.” Since February 2011, Innovatio has sent more than 8,000 letters to Targets in all 50 states alleging infringement of its patents and demanding that the Targets pay for a license.³( Id. ¶ 74.) According to the MAC, those letters “threaten protracted negotiations with onerous burdens on end users, and offer supposed ‘discounts' for promptly paying Innovatio without engaging in such negotiations, while making it clear that Innovatio will initiate costly litigation with anyone that does not acquiesce.” ( Id. ¶ 75.) The MAC alleges that the threats are particularly effective because the end users lack any expertise in the patented technologies, and because Innovatio encourages payment without investigation by threatening that “patent litigation is an extremely expensive and time-consuming method of resolving disputes.” ( Id. ¶ 84;see also id. ¶ 73.)

In addition, the MAC alleges that Innovatio's communications with the Targets included a variety of misrepresentations and omissions. The MAC's allegations include the following:

1. Innovatio is attempting to enforce the patents in violation of its obligation to license the patents on RAND terms. ( Id. ¶ 75.) Specifically, Innovatio failed to disclose this obligation and demanded licenses costing “many times more than the allegedly infringing Wi–Fi components.” ( Id. ¶ 76;see also id. ¶ 80.)

2. Broadcom components are covered by the license Innovatio granted to Broadcom, and the Innovatio Patents are subject to additional licenses, including licenses to Qualcomm Inc., Agere Systems Inc., Intermec Inc., and STMicroelectronics. Nonetheless, Innovatio has enforced the Innovatio Patents while failing to disclose that these licenses exist. ( Id. ¶¶ 69–70, 77.) In particular, Innovatio has ignored requests from Targets for information about past licensing of the patents.

3. As part of Innovatio's acquisition of the Innovatio Patents, it covenanted with Broadcom to not make any allegations of infringement based on the use of Broadcom's IEEE 802.11 Wi–Fi products. Innovatio failed to disclose the existence of the covenant and made infringement allegations in violation of it. ( Id. ¶ 79.)

4. At least ten of the thirty-one patents Innovatio has asserted are expired, and yet it still attempted to enforce those expired patents and failed to disclose that the patents were expired. ( Id. ¶ 81).

5. Innovatio's communications to the Targets state that the Innovatio Patents are “essential” to anyone practicing the IEEE 802.11 standards, whereas, as part of this litigation, Innovatio has asserted that only “36 of the 348 asserted claims (in seven of the 17 asserted patents cover mandatory features of the 802.11 standard, while 333 of 348 asserted claims (in 14 of the 17 asserted patents) cover” optional portions of the standard. ( Id. ¶ 82.)

6. Innovatio's communications to the Targets also state that the named inventors of the Innovatio Patents are “widely considered to be the Fathers of Radio Frequency Local Area Networking Technology,” a statement that the Manufacturers claim is false. ( Id. ¶ 83.)

7. Innovatio has overstated the number and value of the licenses that it has already granted on its patents. ( Id.)

8. Innovatio has misrepresented the “confirmed ... validity” of its patents when in fact only one of the patents was confirmed in reexamination before the Patent Office. ( Id.)

In addition, the MAC alleges that...