Nasdaq, Inc. v. Iex Grp., Inc.
| Decision Date | 04 January 2019 |
| Docket Number | Civil Action No. 18-3014-BRM-DEA |
| Parties | NASDAQ, INC. and NASDAQ TECHNOLOGY AB, Plaintiffs, v. IEX GROUP, INC. and INVESTORS EXCHANGE, LLC, Defendants. |
| Court | U.S. District Court — District of New Jersey |
NOT FOR PUBLICATION
Before this Court is Defendants IEX Group, Inc. and Investors Exchange, LLC's (collectively "IEX") Motion to Dismiss. (ECF No. 23.) Plaintiffs Nasdaq, Inc. and Nasdaq Technology AB (collectively "Nasdaq") oppose the Motion. (ECF No. 27.) Having reviewed the parties' submissions filed in connection with the Motion and having heard oral argument pursuant to Federal Rule of Civil Procedure 78(a) on December 19, 2018, for the reasons set forth below, and for good cause shown, the Motion is GRANTED in part and DENIED in part.
For the purpose of the Motion to Dismiss, the Court accepts the factual allegations in the Complaint as true and draws all inferences in the light most favorable to Nasdaq. See Phillips v. Cty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). Further, the Court also considers any "document integral to or explicitly relied upon in the complaint." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).
This matter arises from alleged patent infringements relating to electronic trading technologies. Nasdaq was the first electronic stock market. (ECF No. 1 ¶ 2.) Over the years, it has "evolved into a company that not only operates its own markets (e.g., the Nasdaq Stock Market), but also provides technology to other market operators." (Id.) Now, "Nasdaq provides mission-critical technology solutions that power more than a hundred market infrastructure organizations across the globe." (Id. ¶ 3.) Nasdaq and its subsidiaries hold more than 250 patents in this area, seven of which are at issue in this case. (Id.) "IEX was founded in 2012, quickly developed the initial version of its electronic trading platform, and began operating the platform in 2013." (Id. ¶ 4.)
Nasdaq is the assignee of U.S. Patent Nos. 7,647,264; 7,895,112; 7,933,827; 8,117,609; 8,244,622; 8,280,797; and 8,386,362 (collectively the "Patents-in-Suit"). (Id. ¶ 13.) Nasdaq alleges its technology played a central role in IEX's electronic trading platform launch and operation because "at least four key technology employees left Nasdaq for IEX" in 2012 and 2013. (Id. ¶ 5.) All the former employees who left Nasdaq for IEX "were likely familiar with the four patented Nasdaq technologies at issue in this case: (1) closing auction processes, (2) multi-parallel order processing, (3) matching engine performance, and (4) data feed optimizations." (Id. ¶ 6.) These former Nasdaq employees allegedly helped construct "the earliest version of IEX's trading platform and continued to work on modifications thereafter." (Id. ¶ 5.)
An example of IEX's "unauthorized borrowing can be seen with respect to closing auction technology." (Id. ¶ 7.) In 2004, Nasdaq launched its first fully-electronic closing auction, and obtained multiple patents protecting this innovation. (Id. ¶ 8.) The closing auction process "facilitates trading during some of the busiest trading periods in the markets." (Id. ¶ 9.) IEX has also launched a closing auction process, which was allegedly "'designed based on extensive reviewof' Nasdaq's patented process." (Id. ¶ 10.) IEX has also allegedly stated "that the information to be disseminated to the market during IEX closing auctions is 'substantially similar' to the 'Nasdaq Net Imbalance Order Indicator,' a key feature of certain of the patents asserted here." (Id.) IEX never obtained or sought a license to make, use, sell, or offer to sell Nasdaq's patented inventions. (Id. ¶ 11.)
As such, on March 1, 2018, Nasdaq filed this infringement action as to all Patents-in Suit "to stop, and obtain fair compensation for, IEX's unauthorized reliance on Nasdaq's technology." (Id. ¶ 11.) Nasdaq also seeks "enhanced damages for willful infringement" because "at least one former Nasdaq employee involved in building IEX's trading system likely knew about the asserted patents or underlying applications, and because IEX has publicly acknowledged its reliance on Nasdaq technologies." (Id. ¶ 12.) On May 30, 2018, IEX filed a Motion to Dismiss the Complaint, alleging: (1) the '609 Patent is "directed to the patent-ineligible abstract idea of comparing first and second data sets for the purpose of updating the first data set using nothing but conventional computers"; (2) that the Complaint fails to plead IEX infringed on the Patents-in-Suit; and (3) that Nasdaq fails to allege facts supporting its induced infringement claims and willful infringement. (ECF No. 23-1 at 3-4.) Nasdaq opposed the Motion on July 10, 2018. (ECF No. 27.) On November 30, 2018, IEX filed a supplemental brief. (ECF No. 42.) As such, the Court provided Nasdaq with an opportunity to respond. Nasdaq responded on December 5, 2018. (ECF No. 44.)
In deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a district court is "required to accept as true all factual allegations in the complaint and draw all inferences in the facts alleged in the light most favorable to the [plaintiff]." Phillips, 515 F.3d at 228. "[A] complaint attacked by a . . . motion to dismiss does not need detailed factual allegations."Bell Atl. v. Twombly, 550 U.S. 544, 555 (2007). However, the plaintiff's "obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). A court is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan, 478 U.S. at 286. Instead, assuming the factual allegations in the complaint are true, those "[f]actual allegations must be enough to raise a right to relief above the speculative level." Twombly, 550 U.S. at 555.
"To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim for relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 570). "A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for misconduct alleged." Id. This "plausibility standard" requires the complaint allege "more than a sheer possibility that a defendant has acted unlawfully," but it "is not akin to a 'probability requirement.'" Id. (citing Twombly, 550 U.S. at 556). "Detailed factual allegations" are not required, but "more than an unadorned, the defendant-harmed-me accusation" must be pled; it must include "factual enhancements" and not just conclusory statements or a recitation of the elements of a cause of action. Id. (citing Twombly, 550 U.S. at 555, 557).
"Determining whether a complaint states a plausible claim for relief [is] . . . a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not 'show[n]'—'that the pleader is entitled to relief.'" Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).
While as a general rule, a court many not consider anything beyond the four corners of the complaint on a motion to dismiss pursuant to 12(b)(6), the Third Circuit has held "a court may consider certain narrowly defined types of material without converting the motion to dismiss [to one for summary judgment pursuant under Rule 56]." In re Rockefeller Ctr. Props. Sec. Litig., 184 F.3d 280, 287 (3d Cir. 1999). Specifically, courts may consider any "'document integral to or explicitly relied upon in the complaint." In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426.
IEX argues Nasdaq's '609 Patent claims are unpatentable abstract ideas and are therefore invalid under 35 U.S.C. § 101. (ECF No. 23-1 at 5.) Nasdaq argues the asserted claims of the '609 Patent are patent eligible because they are directed to resolve a technological problem and focus on the specific means or methods to improve technology instead of being directed at a result. (See ECF No. 27 at 5-23.)
Section 101 of the Patent Act defines the subject matter eligible for patent protection. "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." 35 U.S.C. § 101. However, § 101 is limited by three judicially created exceptions: "Laws of nature, natural phenomena, and abstract ideas are not patentable." Alice Corp. Pty. v. CLS Bank Int'l, 134 S. Ct. 2347, 2354 (2014). "Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work." Gottschalk v. Benson, 409 U.S. 63, 67 (1972). Nevertheless, courts should "tread carefully in construing this exclusionaryprinciple." Alice Corp. Pty., 134 S. Ct. at 2354. "[T]oo broad an interpretation of this exclusionary principle could eviscerate patent law." Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. 66, 71 (2012). "For all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas." Id. Therefore, an invention cannot be rendered ineligible for patent just because it involves an abstract concept. See Diamond v. Diehr, 450 U.S. 175, 187 (1981). "[A] process is not unpatentable simply because it contains a law of nature or a mathematical algorithm." Id. (citation omitted).
The Supreme Court has established a two-step "framework for...
To continue reading
Request your trial