1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7

NORTHERN DISTRICT OF CALIFORNIA

8

9

10 CALIFORNIA BEACH CO., LLC, 11 Plaintiff, No. C 20-01994 WHA

12 v.

13 EXQLINE, INC., et al., ORDER GRANTING MOTION

TO DISMISS AND DENYING

14 Defendants.

MOTION TO TRANSFER

15 16 INTRODUCTION 17 In this design-patent infringement suit, the accused direct infringer moves to transfer and 18 accused indirect infringer moves to dismiss. Because the complaint alleges no affirmative act 19 by the defendant e-commerce platform provider which induced the alleged direct infringement, 20 the claim of induced infringement is DISMISSED. But because transfer offers little benefit at 21 the cost of undue delay, the motion to transfer is DENIED. 22 STATEMENT 23 This case is about children’s playpens. The California Beach Co. markets the patented 24 POP N’ GO PLAYPEN as the premier compact, durable, and portable means of containing our 25 nation’s little rascals. United States Design Patent No. D862,913 depicts the playpen as 26 follows. 27 1 Gms AI 3 _ WAR NY 4 th ee || fe 5 Hl og FREESE Sigg (RELIES Soe | i oes 6 0. Ay YP oo YY 7 □□

FIG. 5

CARs, Vay - 9 ioe li We We OF 10 FIG. 6 pie. 4 FIG. 8 11 Patent Owner’s complaint accuses Exqline, Inc., of selling knockoff playpens on 12 Amazon, eBay, and its own websites www.exqline.com and www.thebestplaypen.com. These

13 accused playpens allegedly infringe both the ’913 patent and patent owner’s registered

trademarks.

15 The complaint also accuses Shopify Inc. of inducing Exqline’s patent infringement. QO 16 Shopify allegedly provides the e-commerce platform and resources which merchants, such as

17 Exqline, use to create online storefronts and, in Exqline’s case, sell infringing playpens.

18 Following Shopify’s initial motion to dismiss for lack of personal jurisdiction and for 19 failure to state a claim for induced infringement, patent owner filed an amended complaint 20 rather than oppose the motion (Dkt. No. 37). Shopify has dropped its personal jurisdiction 21 challenge, but again moves to dismiss, contending the amended complaint still fails to state a 22 claim for induced infringement (Dkt. No. 42). Exqline has answered both complaints, but now 23 moves to transfer this case to the Central District of California (Dkt. No. 48). This order 24 follows full briefing and oral argument (held telephonically due to COVID-19). 25 ANALYSIS 26 1. MOTION TO DISMISS. 27 A complaint must allege sufficient factual matter to state a facially plausible claim for 28 relief. Allegations merely consistent with liability don’t cut it; rather the allegations must

1 indicate or permit the reasonable inference, without speculation, of the defendants’ liability for 2 the conduct alleged. We take as true all factual allegations but legal conclusions merely styled 3 as fact may be disregarded. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. 4 Twombly, 550 U.S. 544, 555 (2007). 5 “Whoever actively induces infringement of a patent shall be liable as an infringer.” 35 6 U.S.C. § 271(b). “‘Actively inducing,’ like ‘facilitating,’” encompasses a “broad” range of 7 conduct, but nevertheless “requires an affirmative act” animated by specific intent. Not merely 8 “knowingly,” but “purposeful, intentional as distinguished from accidental or inadvertent.” 9 Plainly, induced infringement means the defendant knew of the patent, acted to induce another, 10 knew the conduct it induced constituted direct infringement, and intended that result. See 11 Tegal Corp. v. Tokyo Electron Co., 248 F.3d 1376, 1378–79 (Fed. Cir. 2001); In re Bill of 12 Lading Transmission, 681 F.3d 1323, 1339 (Fed. Cir. 2012).* 13 Inaction, absent control over the direct infringer or a duty to act, does not qualify as 14 inducement. See Tegal, 248 F.3d at 1379–80. Yet even action that, in a but-for sense, enables 15 infringement is not enough. As the Court of Appeals for the Federal Circuit has explained, 16 borrowing from copyright, “there is no indirect infringement ‘when a defendant merely sells a 17 commercial product suitable for some lawful use.’ Infringement only exists where there is 18 evidence that ‘goes beyond a product’s characteristics or the knowledge that it may be put to 19 infringing uses.’” Takeda Pharms. v. West-Ward Pharm., 785 F.3d 625, 630–631 (Fed. Cir. 20 2015) (quoting MGM Studios v. Grokster, Ltd., 545 U.S. 913, 936 (2005)). 21 So, for example with a brochure or label, “[t]he question is not just whether [product] 22 instructions describe the infringing mode, but whether the instructions teach an infringing use 23 of the device such that [a court may] infer from those instructions an affirmative intent to 24 infringe the patent.” This, because “[m]erely describ[ing],” does not qualify as 25 “recommend[ing],” “encourag[ing],” “promot[ing],” or “suggesting” infringement. Ibid. 26 (quotations and citations omitted). 27 1 Here, the complaint alleges that “Shopify offers . . . its online merchants . . . a 2 customizable e-commerce platform they [the merchants] can use to set up an online storefront 3 and to engage in online transactions with their [the merchants’] customers.” It offers 4 merchants “features such as data warehousing and analytics, automated secure payments, data 5 storage and security, and other features designed to ‘help our merchants own their brand, 6 develop a direct relationship with their buyers, and make their buyer[s’] experience memorable 7 and distinctive.” Shopify allegedly profits from its merchants’ use of the platform, taking a 8 percentage of payments processed through Shopify Payments and charging a flat fee per sale. 9 And, Shopify provides these services to Exqline (Amend. Compl. at ¶¶ 44–65). 10 In short, the complaint alleges no more than that Shopify, the landlord of a virtual strip- 11 mall, provided a virtual plot and support services to and collected rents from Exqline — as it 12 would any of its tenant merchants — and, therefore (we are to conclude), Shopify actively 13 induced Exqline’s infringement. That cannot be. The allegation that Exqline’s products 14 directly infringe the patent alone does not transform a defendants’ usual course of conduct into 15 inducement. And, no aspect of Shopify’s alleged ordinary provision of services to all comers 16 lets us plausibly infer that Shopify recommended, encouraged, promoted, or suggested 17 infringement. See Takeda, 785 F.3d at 630–31. Moreover, the allegations that Shopify had the 18 power to suspend or terminate merchants’ use of the platform, including for intellectual 19 property violations, did not, as it might in the case of a parent company or alter-ego, vest 20 Shopify with the authority or duty to police Exqline’s commercial conduct. See Tegal, 248 21 F.3d at 1379. 22 Patent owner contends that Shopify controlled the websites where Exqline sold the 23 allegedly infringing goods, but the complaint itself contradicts this claim. As the complaint 24 acknowledges, Exqline “owned and operated” the accused websites just as the other merchants 25 owned and “operat[ed] their online storefronts.” The complaint describes www.exqline.com 26 twice as “its [Exqline’s] website” and www.thebestplaypen.com as both “their website” and 27 “owned and operated by Exqline.” True, early on the complaint ambiguously alleges that the 1 allegations clarify that Shopify merely provides the “e-commerce platform,” data storage, 2 analytics, and payment support. Indeed, the complaint admits that Exqline characterized its 3 online storefront as “[o]ur store,” and that Shopify’s “e-commerce platform” simply “allows us 4 to sell our products and services to you.” In the complaint’s own words, Shopify did no more 5 than arm Exqline “with new and innovative ways to compete with larger, better-funded 6 competitors.” Shopify provided the virtual building resources for Exqline’s online store. What 7 Exqline decided to sell was Exqline’s business (id. at ¶ 5, 25, 26, 45, 53, 54, 60). 8 Contrary to patent owner’s characterization, the undersigned’s prior decision in 9 Alibaba.com v. P.S. Products does not counsel otherwise here. No. C 10-04457 WHA, 2012 10 WL 1668896 (N.D. Cal. May 11, 2012). To start, that decision focused on Alibaba’s willful 11 blindness to circumstances indicating the direct infringement and did not address Alibaba’s 12 affirmative conduct which might have induced that infringement. More fundamentally, 13 though, patent owner ignores the facts. The accused websites in Alibaba were Alibaba’s, 14 where it sold third-party goods on commission or posted listings to connect buyers and sellers. 15 Here, to reiterate, Exqline sold (allegedly) infringing goods from its own websites. Shopify 16 provided only the virtual resources — as it did to all of its merchants. 17 In sum, induced infringement does not turn merely on a defendant’s role in a product 18 chain, but requires the defendant’s affirmative action to recommend, encourage, promote, or 19 suggest infringement. The amended complaint alleges no more than Shopify’s ordinary course 20 of business toward all its merchants and hangs the conclusion of inducement on the allegation 21 that direct infringement had occurred. Direct infringement is already a precondition to induced 22 infringement. It cannot also fill in the later gaps. 23 The complaint failing to allege any affirmative act of inducement, this order does not 24 reach the allegations of Shopify’s knowledge of the patent, of the direct infringement, and its 25 specific intent for that result to occur. 26 2. MOTION TO TRANSFER. 27 A case may be transferred “[f]or the convenience of parties and witnesses [and] in the 1 an individualized, case-by-case consideration of convenience and fairness.” In this circuit, we 2 weigh several factors, including:

3 (1) [T]he location where the relevant agreements were negotiated and executed, (2) the state that is most familiar with the governing 4 law, (3) the plaintiff’s choice of forum, (4) the respective parties’ contacts with the forum, (5) the contacts relating to the plaintiff’s 5 cause of action in the chosen forum, (6) the differences in the costs of litigation in the two forums, (7) the availability of compulsory 6 process to compel attendance of unwilling non-party witnesses, and (8) the ease of access to sources of proof. 7 8 Jones v. GNC Franch., Inc., 211 F.3d 495, 498–99 (9th Cir. 2000) (quotation marks omitted). 9 Exqline seeks transfer to the Central District of California because patent owner resides there 10 (presumably along with its documents) and no party has ties to this district. This fails to 11 convince here. 12 Suit in the Central District offers no more convenience to our foreign defendants 13 (Exqline and company are from China, Shopify from Canada), no greater familiarity with the 14 applicable law, and (as Exqline admits in its opening brief) no greater power over third-party 15 witnesses who will either be foreign or California residents. Exqline’s argument distills to the 16 position that litigation in the Central District will be cheaper for patent owner. But that is, first, 17 patent owner’s argument to make and, more importantly, one which patent owner has waived 18 by filing here. 19 Exqline fairly notes that a plaintiff’s choice of forum away from home carries less 20 weight. Carolina Cas. Co. v. Data Broadcasting Corp., 158 F. Supp. 2d 1044, 1048 (N.D. 21 Cal. 2001) (Judge Vaughn R. Walker). But affording less deference to patent owner’s choice 22 does not require us to overrule it. The Central District offers no benefit that patent owner has 23 not waived or which would not be negated by the delay inherent in transfer. 24 CONCLUSION 25 For the foregoing reasons, the motion to dismiss is GRANTED. Patent owner’s claim for 26 induced infringement against Shopify is DISMISSED. Patent owner has already enjoyed its one 27 free amendment under the rules, and does not deserve yet another chance. Nevertheless, 1 NOVEMBER 20 AT NOON on the condition that it will pay all reasonable fees and expenses 2 incurred by Shopify in responded to yet another amended complaint. Any such motion must 3 include as an exhibit a redlined version of the proposed amendment that clearly identifies all 4 changes from the amended complaint. This order highlighted certain deficiencies in the 5 amended complaint, but it will not necessarily be enough to add sentences parroting each 6 missing item identified herein. If patent owner moves for leave to file yet another amended 7 complaint, it should be sure to plead its best case and take into account all criticisms made by 8 defendants, including those not reached by this order. 9 The motion to transfer is DENIED. 10 IT IS SO ORDERED. 11 12 Dated: November 7, 2020.

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WILLIAM ALSUP

IS UNITED STATES DISTRICT JUDGE

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