CAFC Says District Court Erred in Dismissing AlexSam’s ‘Well-Pled’ Patent Infringement Claim

Today, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued a precedential opinion affirming-in-part, vacating-in-part, and remanding a district court’s dismissal of a patent infringement complaint filed by AlexSam, Inc. against Aetna, Inc. AlexSam’s complaint alleged that Aetna had marketed Mastercard and VISA products that directly and indirectly infringed upon its Patent No. 6,000,608 (“’608 patent”).

The patent, which expired in 2017, was licensed by AlexSam to Mastercard International Inc. in 2005 to “process and enable others to process Licensed Transactions.” Additionally, the agreement provided that “such Licensed Transaction includes the entire value chain and all parts of the transaction and may involve other parties including … third party marketing firms.”

Also in the agreement was a covenant not to sue, whereby AlexSam agreed it would not bring suit against Mastercard “for any claim or alleged liabilities … relating to Licensed Transactions” occurring before or during the term of the agreement. Thus, when the ‘608 patent expired, so too did the covenant not to sue.

AlexSam filed the complaint against Aetna in 2019, alleging direct and indirect patent infringement of the ‘608 patent by Aetna’s VISA and Mastercard products. Aetna responded by filing a motion to dismiss, asserting AlexSam’s claims were barred by the doctrine of prior license. To moot the motion, AlexSam amended its complaint to seek a declaratory judgment that the Mastercard Products were not licensed. At this point, the case was stayed, first pending a ruling on AlexSam’s request to consolidate with other proceedings, and second, in view of the then-ongoing COVID-19 pandemic.

The district court in September 2020 granted the motion to the dismiss, finding AlexSam could not prevail on its claims based on the Mastercard products because Aetna had an express license via the License Agreement to market those products. Moreover, any direct infringement was not at the hands of Aetna, but rather its third-party customers. AlexSam attempted to file another version of its complaint, but the district court rejected it, dismissing the claims with prejudice.

The Licensing Agreement

The first issue for the CAFC to decide was whether the Mastercard products were licensed, therefore not infringing upon the ‘608 patent. Aetna contended that by seeking leave to file a proposed Third Amended Complaint, AlexSam waived and abandoned its Mastercard products infringement claims. The CAFC disagreed, pointing out that the scope of the license was “much narrower than the district court seem[ed] to have understood”:

“We agree, instead, with AlexSam that the district court erred by resolving the Mastercard licensing issues ‘on the limited information provided’ in the Second Amended Complaint, its attachments, and the motion to dismiss briefing.”

The affirmative defense of having a license would hold up if the license extended to facets of the patent that had allegedly been infringed. However, the license granted to Aetna extended “only to transactions involving activation of, or adding value to, an account.” Even though the License Agreement included the “entire value chain and all parts of the transaction,” this did not eliminate the requirement that licensed “chain” of transactions must include an activation or adding value transaction.

Since AlexSam’s claims were not limited to transactions involving activation or adding value, the claims were broader than the scope of the license granted to Mastercard. Thus, the CAFC noted the plausibility that transactions involving Aetna’s Mastercard products were both within the scope of AlexSam’s claims and outside the scope of the license, enough to survive a motion to dismiss.

In remanding this issue, the CAFC noted that “the district court may find it necessary to resolve other issues it did not need to address given its now-vacated interpretation of the scope of the license,” suggesting that this issue may be far from resolved.

Standard of Review and Patent Infringement Claim

 The CAFC next looked at AlexSam’s claims of patent infringement, first noting that the court would be reviewing the district court’s determination de novo. The opinion explained:

“Whether a particular allegation in a complaint is well-pled and factual, and therefore accorded a presumption of truth, or is instead a legal conclusion or in other respects merely conclusory – and, hence, not credited at the motion to dismiss stage – can be a crucial issue. Yet we have not explicitly set out the standard of review applicable to a trial court’s categorization of a complaint’s allegations. That is, we have not said whether we accord deferential or non-deferential review to a trial court’s decision that an allegation is factual or legal, well-pled or merely conclusory. We hold today that our review of trial court determinations on these matters is de novo.”

To survive a motion to dismiss, AlexSam only needed to state a “plausible” claim, said the CAFC. The district court had concluded that the claim of direct infringement was not sufficient, but the CAFC disagreed.

AlexSam’s claim included claim charts, photographs, and an expert declaration to further illustrate how Aetna’s VISA products infringed on its patent. Specifically, the CAFC noted AlexSam’s claim that Aetna “provides, uses or contracts with third parties to provide or use a processing hub to receive the card data from a transaction processor.” Whereas the district court found this assertion conclusory, the CAFC again disagreed:

“…in the context of the relevant technology and the overall detail provided as to AlexSam’s theory of infringement, including in claim charts and elaborated on by the incorporated expert report, these allegations are sufficiently specific and factual to constitute well-pled allegations.”

AlexSam also alleged induced and contributory infringement by Aetna on its third-party customers. This claim failed for similar reasons in the district court, but once again, the CAFC noted that “AlexSam was not required to identify a specific customer.” Instead, it showed brochure and other promotional material “sufficient to support a plausible inference that at least one directly infringing customer exists.

The CAFC explained in a footnote that since AlexSam “challenges only the dismissal of the infringement claims based on making and using the VISA Products…we affirm the dismissal order to the extent it applies to the other alleged bases for direct infringement in connection with the VISA Products.” The opinion also affirmed other unchallenged aspects of the district court’s decision.