Strategic Operations, Inc. v. Joseph
3:17-cv-01539
S.D. Cal.Aug 13, 2018Background
- StOps (plaintiff) holds U.S. Patent No. 8,840,403 covering wearable trauma-simulation devices (e.g., the “Cut Suit”) used for realistic medical training.
- Former StOps employees Brea Joseph and Kasey Erokhin left, formed KBZ FX and KBZ FX, Inc., and now market a Trauma Training Kit (TTK) that StOps alleges practices the ’403 patent.
- StOps previously settled a related suit with Joseph and Erokhin, who agreed not to use StOps’ confidential technology.
- StOps’ complaint pleads patent infringement (making/using/offering for sale), breach of nondisclosure, unfair competition, and alter-ego (piercing KBZ FX, Inc.’s corporate veil).
- Defendants moved to dismiss under Rule 12(b)(6); they submitted declarations denying sales/offers of an infringing product, which the court declined to consider on a motion to dismiss.
- The court granted the motion to dismiss the patent-infringement claim and the alter-ego allegations, but gave StOps leave to amend within 30 days.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether posting product images/text on KBZ website constituted an "offer for sale" infringing 35 U.S.C. § 271(a) | KBZ’s website marketed the TTK; StOps alleges KBZ made, used, sold, and offered for sale the TTK that practices the ’403 patent | Website materials are marketing/invitations; actual product lacks claimed patent elements; Defendants never offered an infringing product for sale | Court: website posting was an invitation to negotiate, not a contractual "offer for sale"; patent claim not plausibly pleaded -> Dismissed |
| Whether district court may consider defendants’ declarations in ruling on a Rule 12(b)(6) motion | N/A (Declarations submitted by defendants to show no infringing sales/offers) | Declarations show no sales/offers of infringing product | Court: may not consider extra-pleading declarations on 12(b)(6); doing so would convert to summary judgment -> declined to consider |
| Whether alter-ego (veil-piercing) allegations were sufficiently pleaded with particularity | Alleged commingling of funds, disregard of formalities, undercapitalization, use of corporate form for improper purposes (on information and belief) | Allegations are conclusory and lack supporting facts | Court: conclusory alter-ego allegations fail to plead the two required elements with supporting facts -> Dismissed the alter-ego claims |
| Whether leave to amend should be permitted | StOps sought to proceed; amendment would allow supplementation of factual allegations | Defendants opposed (implicit) | Court: granted leave to amend within 30 days |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (legal-conclusion vs. factual-pleading standard under Rule 8)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- 3D Sys., Inc. v. Aarotech Labs, Inc., 160 F.3d 1373 (offer to sell requires description plus price)
- Rotec Indus., Inc. v. Mitsubishi Corp., 215 F.3d 1246 (apply contract-law offer principles to § 271(a) offers)
- Group One, Ltd. v. Hallmark Cards, Inc., 254 F.3d 1041 (advertising vs. contractual offer; invitation for offers)
- Pfaff v. Wells Elecs., Inc., 525 U.S. 55 (context for offer-for-sale analysis)
- RRX Indus., Inc. v. Lab–Con, Inc., 772 F.2d 543 (two-element test for alter-ego liability)
- Sonora Diamond Corp. v. Superior Court, 83 Cal. App. 4th 523 (factors considered in piercing corporate veil)