Kroy Ip Holdings, LLC v. Groupon, Inc.

• Decision Date: 09 October 2018
• Docket Number: Civil Action No. 17-1405-MN-SRF
• Parties: KROY IP HOLDINGS, LLC, Plaintiff, v. GROUPON, INC., Defendant.
• Court: U.S. District Court — District of Delaware

KROY IP HOLDINGS, LLC, Plaintiff, v. GROUPON, INC., Defendant.

Civil Action No. 17-1405-MN-SRF

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

October 9, 2018

REPORT AND RECOMMENDATION

I. INTRODUCTION

Presently before the court in this patent infringement action are the following motions: (1) a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), filed by defendant Groupon, Inc. ("Groupon") (D.I. 10); (2) Groupon's motion to transfer venue to the Northern District of California pursuant to 28 U.S.C. § 1404 (D.I. 17); and (3) plaintiff Kroy IP Holdings, LLC's ("Kroy") alternative motion for stay of a decision pending jurisdictional and venue-related discovery (D.I. 26). For the following reasons, I recommend that the court deny each of the pending motions.

II. BACKGROUND

Kroy is a limited liability company organized and existing under the laws of Delaware with its principal place of business in Baltimore, Maryland. (D.I. 1 at ¶ 2) Kroy is the owner by assignment of all right, title, and interest in and to U.S. Patent No. 6,061,660 ("the '660 patent"). (Id. at ¶ 8) The '660 patent, which was filed on March 18, 1998 and issued on May 9, 2000, is entitled "System and Method for Incentive Programs And Award Fulfillment," and lists York Eggleston and Andrey Ukhov as inventors. (Id.) The '660 patent claims an incentive program builder with an award fulfillment system that permits multiple sponsors to customize and market incentive programs through a central market place using an interface. (Id. at ¶ 9)

Groupon is incorporated in Delaware and maintains its headquarters in Chicago, Illinois. (Id. at ¶ 3) Groupon operates online local commerce marketplaces to connect merchants to customers by offering goods and services at a discount through its website and mobile applications. (Id. at ¶ 4)

Kroy filed this lawsuit on October 6, 2017, accusing Groupon of infringing the '660 patent by making, using, offering to sell, selling, providing, maintaining, and/or supporting its website portals and applications. (Id. at ¶ 43) Specifically, Kroy identifies the following allegedly infringing platforms and applications launched by Groupon: Merchant Center for Groupon Stores, Merchant Center for Now! Deals, Deal Builder, and the rebranding of Groupon Merchant. (Id. at ¶¶ 31-40) Kroy asserts that Groupon infringes claims 1, 10, 16-21, 25, and 27-30 of the '660 patent. (Id. at ¶ 43) In the complaint, Kroy identifies independent claim 1 of the '660 patent as exemplary:

A system for incentive program generation, comprising:

a network;

a sponsor computer connected to the network;

a host computer connected to the network, the host computer having a server;

an incentive program builder application, running on the server;

a database of objects associated with parameters of the incentive program builder application; and

an interface of the incentive program builder application for sponsor entry of parameters for an incentive program,wherein the sponsor builds an incentive program by interacting with the incentive program builder application,

wherein the host computer is configured to receive input from a plurality of sponsors corresponding to the parameters for creating a plurality of incentive programs associated with the plurality of sponsors via the interface of the incentive program builder application from a plurality of sponsors, receive second input from a consumer selecting an incentive program from among the plurality of incentive programs, issue an award to the consumer corresponding to the selected incentive program, receive a request to validate the award from a sponsor among the plurality of sponsors associated with the selected incentive program, and validate the award,

wherein the host, the sponsor, and the consumer are different entities, and

wherein the host and sponsor are different individuals or corporate entities.

(D.I. 1 at ¶ 45 (quoting '660 patent, claim 1)) Independent claim 10 adds that the award is delivered via "electronic card," and recites the generation of "code," claiming that the selectable code components for the incentive programs purchased by sponsors are catalogued and a list of those selected by the sponsor is recorded in a "table." ('660 patent, col. 48:22-26, 48:41-48)

The '660 specification acknowledges that "[i]ncentive award programs, in which companies contract with sponsoring companies for programs to promote sales of the sponsoring companies' products or services, are well-known." ('660 patent, col. 1:27-30) These programs "offer awards and incentives to modify behavior of individual customers and to direct the consumers to some pre-determined action, such as purchase of products or services upon visiting a retail site, viewing advertising, testing a product, or the like." (Id., col. 1:36-40) However, the specification describes numerous advantages offered by the invention over traditional incentive programs, including the reduced costs of generating and administering the programs, the ease of tracking consumer participation in the programs, and improvements in fulfilling the awards or prizes won in the programs. ('660 patent, col. 1:47-2:55)

The specification also describes prior art incentive programs implemented on digital computers on the Internet, but stresses that "none of the existing systems address all of the problems inherent in known incentive programs, particularly the problem of the need for an incentive program system that conveniently tracks participation while offering automated generation of incentive programs and automated fulfillment of awards won in incentive programs." (Id., col. 4:11-16) Specifically, computerized incentive programs offered on the Internet "are generally offered by a single sponsor and are generally limited to offering consumers the ability to participate in incentive programs," but "do not offer sponsors the ability to conveniently generate incentive programs, to track participation of consumers in multiple incentive programs, or to provide for automated fulfillment of awards." (Id., col. 4:17-24) These prior art systems also lack efficient means for fulfilling awards promised in promotional campaigns. (Id., col. 4:25-32) The '660 patent specification identifies the advantages of the patented invention as "provid[ing] consumer access to expanded incentive programs, using a conventional computer," "permit[ting] sponsors to build, buy, store, modify, offer, track and administer incentive programs," and permit[ting] sponsors and retailers to offer improved award fulfillment for participants in incentive programs." ('660 patent, col. 5:47-54)

III. DISCUSSION

A. Venue

1. Legal standard

Section 1404(a) of Title 28 of the United States Code grants district courts the authority to transfer venue "[f]or the convenience of parties and witnesses, in the interests of justice . . . to any other district or division where it might have been brought." 28 U.S.C. § 1404(a). In accordance with the analytical framework described in Helicos Biosciences Corp. v. Illumina,Inc., 858 F. Supp. 2d 367 (D. Del. 2012), the court starts with the premise that a defendant's state of incorporation has always been "a predictable, legitimate venue for bringing suit" and that "a plaintiff, as the injured party, generally ha[s] been 'accorded [the] privilege of bringing an action where he chooses.'" 858 F. Supp. 2d at 371 (quoting Norwood v. Kirkpatrick, 349 U.S. 29, 31 (1955)). The Third Circuit in Jumara v. State Farm Insurance Co. reminds the reader that "[t]he burden of establishing the need for transfer . . . rests with the movant" and that, "in ruling on defendants' motion, the plaintiff's choice of venue should not be lightly disturbed." 55 F.3d 873, 879 (3d Cir. 1995) (citation omitted).

The Third Circuit goes on to recognize that,

[i]n ruling on § 1404(a) motions, courts have not limited their consideration to the three enumerated factors in § 1404(a) (convenience of parties, convenience of witnesses, or interests of justice), and, indeed, commentators have called on the courts to "consider all relevant factors to determine whether on balance the litigation would more conveniently proceed and the interests of justice be better served by transfer to a different forum."

Id. (citation omitted). The Court then describes some of the "many variants of the private and public interests protected by the language of § 1404(a)." Id.

The private interests have included: plaintiff's forum of preference as manifested in the original choice; the defendant's preference; whether the claim arose elsewhere; the convenience of the parties as indicated by their relative physical and financial condition; the convenience of the witnesses - but only to the extent that the witnesses may actually be unavailable for trial in one of the fora; and the location of books and records (similarly limited to the extent that the files could not be produced in the alternative forum).

The public interests have included: the enforceability of the judgment; practical considerations that could make the trial easy, expeditious, or inexpensive; the relative administrative difficulty in the two fora resulting from court congestion; the local interest in deciding local controversies at home; the public policies of the fora; and the familiarity of the trial judge with the applicable state law in diversity cases.

Id. (citations omitted).

2. Whether the case could have been brought in the Northern District of California

Considering these "jurisdictional guideposts," the court turns to the "difficult issue of federal comity" presented by transfer motions. E.E.O.C. v. Univ. of Pa., 850 F.2d 969, 976 (3d Cir. 1988). The parties disagree as to whether the action could have been brought in the proposed transferee venue. Specifically, Kroy IP alleges that Groupon failed to meet its burden under § 1400(b) to establish that the Northern District of California would...