[00:00:00] Speaker 01:
Our next case is Modern Font Applications versus PetSmart 2021, 1543.

[00:00:05] Speaker 01:
Mr. Clegg, good morning.

[00:00:08] Speaker 01:
Good morning, Your Honor.

[00:00:14] Speaker 01:
Please proceed.

[00:00:18] Speaker 04:
Hey, police in court.

[00:00:19] Speaker 04:
My name is Perry Clegg, and I represent Appellant Modern Font Application to the place in this case.

[00:00:25] Speaker 04:
During the hearing for simplicity, I may refer to the appellant as MFA.

[00:00:29] Speaker 04:
I believe your Honor's known there are MFA and two cases on appeal today and clearly the issue between the cases is similar so I'll try not to mix up the issues between these cases and I'll try to be clear on that.

[00:00:43] Speaker 04:
There are quite a few issues on appeal in this case and so

[00:00:47] Speaker 02:
Would it be fair to say that the differences between the two cases are direct infringement by employees, which in the second case appears to require an amendment to the complaint, and the other issue being the venue issue that exists in the second case.

[00:01:13] Speaker 02:
Those are the two differences.

[00:01:15] Speaker 04:
Well, I believe in both cases the issue addresses infringement by employees.

[00:01:22] Speaker 04:
There is, in the second case, an allegation regarding that the employees are using the software combined with the smart device.

[00:01:35] Speaker 04:
I understand this.

[00:01:37] Speaker 02:
All I'm asking is just so that I understand what's going on here.

[00:01:41] Speaker 02:
That the issues in the two cases are the same except for the direct infringement by the employees and the venue issue in the second case.

[00:01:51] Speaker 04:
No, Your Honor.

[00:01:52] Speaker 04:
I believe there's sanctions in the second case in addition to venue.

[00:01:59] Speaker 04:
And I believe that the

[00:02:03] Speaker 04:
infringement by the employees is an issue in both cases.

[00:02:09] Speaker 02:
Didn't you just agree with me?

[00:02:12] Speaker 03:
I may have.

[00:02:14] Speaker 03:
But just adding an issue in plain, I apologize, Your Honor.

[00:02:19] Speaker 02:
OK.

[00:02:23] Speaker 01:
Please continue.

[00:02:26] Speaker 04:
Yes, Your Honor.

[00:02:31] Speaker 04:
By way of background, Hetsmart filed four serial motions in this case to dismiss and contravention of Rule 12, Section 2 prohibition on bringing subsequent motions to dismiss based on objections that could have been brought in the original motion to dismiss.

[00:02:45] Speaker 04:
For example, the first motion to dismiss a file only included venue.

[00:02:50] Speaker 04:
The second motion to dismiss included venue, induced and contributory infringement, objections,

[00:02:58] Speaker 04:
Their third motion to dismiss brought the venue argument and added direct infringement.

[00:03:05] Speaker 04:
And they maintained and reduced the contributory infringement ones.

[00:03:10] Speaker 04:
And then their fourth motion to dismiss, they maintained direct and reduced infringement claims, but brought the contributory infringement claims because that was already dismissed with prejudice by the court.

[00:03:22] Speaker 04:
So regarding the first complaint, it was dismissed because the court claimed it had

[00:03:27] Speaker 04:
insufficient allegations to describe Pesmark's Utah activities.

[00:03:32] Speaker 04:
This appeared to be a venue dismissal because the activities in Utah are only related to the issue of venue, and the court did not identify even a single flaw in the infringement allegations at that time.

[00:03:48] Speaker 04:
Moreover, Pesmark had not challenged direct infringement, so the complaint could not have been dismissed entirely unless the grounds were for improper venue.

[00:03:57] Speaker 04:
When MFA challenged this first dismissal, the court said that it dismissed under Rule 12b-6.

[00:04:04] Speaker 04:
But as mentioned, PetSmart did not move to dismiss the direct infringement claims.

[00:04:08] Speaker 04:
So there's no reason for the court to dismiss the entire complaint under Rule 12b-6.

[00:04:13] Speaker 04:
And MFA wasn't required to allege each activity as competing direct infringement.

[00:04:19] Speaker 04:
So if the complaint was dismissed under 12b-6, it was a violation of due process because MFA was not given

[00:04:25] Speaker 04:
notice or an opportunity.

[00:04:29] Speaker 00:
You say there was a violation of due process.

[00:04:33] Speaker 00:
Did you have the opportunity to respond to those motions?

[00:04:39] Speaker 04:
Yes.

[00:04:40] Speaker 04:
The reason I'm saying is the violation of due process is because I'm referring specifically to that first motion is because in that motion induced infringement was not

[00:04:52] Speaker 04:
an allegation of the motion, and it was never briefed.

[00:04:56] Speaker 04:
So the court dismissed that entire complaint without the infringement allegations being addressed by the court.

[00:05:06] Speaker 00:
So you did get to respond?

[00:05:10] Speaker 04:
Not to that point, no.

[00:05:13] Speaker 04:
After that dismissal, then there was an amendment.

[00:05:18] Speaker 04:
But the amendment was based on an understanding that that was a dismissal

[00:05:22] Speaker 04:
for vending purposes because the court's order said that it wanted, that it was going to allow the plaintiff to amend, to identify Utah activities.

[00:05:36] Speaker 04:
So MFA added multiple paragraphs addressing the Utah activities.

[00:05:43] Speaker 04:
And the opening brief, I think on page 21 identifies at least 30 paragraphs that had allegations about these Utah activities.

[00:05:52] Speaker 04:
The first amended complaint, and so then afterwards, there was this first amended complaint.

[00:05:59] Speaker 04:
And that was just, in that one, contributory infringement allegation was dismissed as prejudice.

[00:06:06] Speaker 04:
The court had previously identified any deficiency in contributory infringement cleaning.

[00:06:11] Speaker 04:
So the need to amend should have been granted, but the court didn't really provide any reasoning

[00:06:21] Speaker 04:
at least didn't identify the deficiencies regarding contributory infringement.

[00:06:26] Speaker 02:
The court had merely said... What would you have added in an amended complaint?

[00:06:32] Speaker 04:
Well, so there's a couple of things.

[00:06:36] Speaker 04:
One, if the court had provided some understanding as to why the courts thought that it was deficient, then we could have had an understanding what the court was thinking was deficient.

[00:06:50] Speaker 04:
There's a number of things that could have been added regarding, you know, just more detail regarding... Why didn't you add that detail?

[00:07:01] Speaker 00:
I mean, the problem here is that your complaints did not allege actions, for example, infringement actions that are plausible.

[00:07:13] Speaker 00:
And now you're saying you withheld information that had you included them in the complaint, you would have been okay.

[00:07:21] Speaker 04:
Yeah, I don't know if there's a reason to withhold any intent to withhold information, but when you have a direct infringement, you have an induced infringement, a contributory infringement, and a lot of those allegations are related, right?

[00:07:37] Speaker 04:
So the underlying allegations regarding direct infringement support the contributory infringement, where you're talking about the smart software itself,

[00:07:50] Speaker 04:
has no substantial alternative.

[00:07:54] Speaker 04:
There's no non-infringing alternative uses for the software.

[00:08:01] Speaker 04:
So when that software is combined with a smartphone, then the smartphone is an infringing apparatus when combined with the software.

[00:08:10] Speaker 04:
So when you look at the allegations regarding direct infringement, that supports your contributory infringement.

[00:08:19] Speaker 04:
allegations, right?

[00:08:22] Speaker 04:
And then there was an allegation that regarding whether or not there were substantial God-entrancing alternatives, right?

[00:08:31] Speaker 04:
And there's allegations regarding combining those, knowledge.

[00:08:35] Speaker 04:
So there's plenty of allegations to address that.

[00:08:41] Speaker 04:
But moving on to the

[00:08:44] Speaker 04:
Second amending complaint, which was dismissed after Mr. Court stated he found completely convoluted.

[00:08:53] Speaker 04:
But I'd like to go to the, in a little bit more into the detail, the direct infringement claims.

[00:09:02] Speaker 04:
The complaint was very detailed regarding direct infringement.

[00:09:09] Speaker 04:
For example, if the,

[00:09:14] Speaker 04:
Specific elements of claims 1 and 11 were alleged at paragraphs 42 to 61, paragraphs 73 to 84 of the Second Amendment Complaint.

[00:09:33] Speaker 04:
These allegations identified file names, directories, subdirectories, and file types, including, for example, NIMP files, string files, TTF files,

[00:09:43] Speaker 04:
Screenshots of PetSmart software displaying characters using external fonts, always relating to infringing features within the PetSmart software.

[00:09:54] Speaker 04:
PetSmart's factual allegations regarding direct infringement also include screenshots of formatting information, allegations regarding LCD, display screens, identification of processor names, memory, RAM and NAND, communication components including Wi-Fi, cellular, and widgets,

[00:10:12] Speaker 04:
each of these addresses specific elements of the claims.

[00:10:16] Speaker 04:
So there's a lot of detail, and much more than would be required under Rule 8.

[00:10:23] Speaker 04:
And notably, this court has said that patent infringement doesn't have to be claimed element by element.

[00:10:34] Speaker 04:
And that was reaffirmed last summer in the Botkin 8 versus Stoneycourt case.

[00:10:43] Speaker 04:
And then, regarding the indirect or induced infringement, the MFA pledged that Petswarm was aware of the assertive patents and the allegations of infringement.

[00:10:59] Speaker 04:
MFA pledged that Petswarm would poise the customs many, well, MFA pledged numerous advertisements, and throughout the complaint,

[00:11:12] Speaker 04:
and the exhibits, there's numerous advertisements and emails and different things where PetSmart's encouraging customers to download the software.

[00:11:26] Speaker 04:
And then here where the complaint alleges that every download of the software constitutes an infringement by encouraging customers to download or encouraging them to infringe.

[00:11:41] Speaker 04:
So in other words, inducing downloading of the SMART software is inducing infringement, because each family constitutes infringement.

[00:11:56] Speaker 04:
It looks like I'm still going over my time, so I'm going to reserve the rest of the rebuttal.

[00:12:09] Speaker 01:
We will save it for you, Mr. Clegg.

[00:12:13] Speaker 01:
Mr. Swetnam Berlund.

[00:12:25] Speaker 01:
Good morning.

[00:12:26] Speaker 05:
Good morning.

[00:12:27] Speaker 05:
Thank you, Your Honor.

[00:12:28] Speaker 05:
May it please the court, and may I say how what a pleasure it is to be in court for the first time in a while.

[00:12:33] Speaker 05:
David Swetnam Berlund with Brandon Isaacson for PESMA.

[00:12:41] Speaker 05:
The key issue is a dispute in this.

[00:12:43] Speaker 02:
So why doesn't the customer infringe when it downloads the PetSmart app onto a cell phone?

[00:12:54] Speaker 05:
For a couple of different reasons, Your Honor.

[00:12:55] Speaker 05:
First, in a case that opposing counsel has not cited once, centillion, which was recently affirmed last October after our brief was filed in Acceleration Bay versus 2K Sports.

[00:13:08] Speaker 05:
A party cannot be liable for direct infringement of a system claim if all that it contributes is software for a third party to.

[00:13:15] Speaker 02:
No, no, no.

[00:13:15] Speaker 02:
That's not my question.

[00:13:16] Speaker 02:
My question was, does the customer infringe when it downloads the PetSmart, allegedly infringe, when it downloads the PetSmart app onto a smartphone?

[00:13:29] Speaker 05:
I would submit that.

[00:13:31] Speaker 05:
The complaint is deficient in allegations that would support that inference plausibly, Your Honor, because for a couple of different reasons.

[00:13:40] Speaker 05:
Primarily because the specific allegations drawn from the advertising materials cited by Modern Fund itself point to a number of uses of the PetSmart app, none of which relates to... No, no, no.

[00:13:55] Speaker 02:
You're not answering my question.

[00:13:56] Speaker 02:
I'm asking a simple question about the customer.

[00:14:00] Speaker 02:
Forget about PetSmart.

[00:14:02] Speaker 02:
does the customer infringe when it downloads the PetSmart app onto its cell phone?

[00:14:09] Speaker 02:
And if not, why not?

[00:14:11] Speaker 05:
I do not believe that that act by itself constitutes creating the claimed handheld device.

[00:14:19] Speaker 05:
Why?

[00:14:20] Speaker 05:
Because I do not believe that it's been plausibly pled that all of the elements of that claim are present on the device.

[00:14:27] Speaker 02:
What's missing?

[00:14:31] Speaker 05:
if I may, Your Honor.

[00:14:54] Speaker 05:
It's not clear to me from the allegations of the complaint that the requirements for the

[00:15:01] Speaker 05:
down for the computer executable instructions referencing a font package or the installation of an exposure module on the handheld device that had been met.

[00:15:11] Speaker 02:
Be that as it may, I do not think... I don't understand what you're saying or what... They say that the PetSmart app draws on these external fonts and that when combined with the smartphone, that the customer directly infringes.

[00:15:29] Speaker 02:
And I'm not understanding what's missing in the allegations of the complaint to establish direct infringement.

[00:15:36] Speaker 02:
By the customer?

[00:15:37] Speaker 02:
By the customer, just by the customer.

[00:15:40] Speaker 05:
Well, I guess I would say, Your Honor, that the allegations of the complaint are directed to PetSmart.

[00:15:45] Speaker 05:
I'm not answering my question.

[00:15:47] Speaker 02:
Even if it were the case that... Just, I'm only asking you for the moment about the customer.

[00:15:53] Speaker 02:
No, I... Does the customer directly infringe when it downloads the app onto a smartphone?

[00:15:59] Speaker 05:
As a factual matter, I do not believe so.

[00:16:03] Speaker 05:
It may be that that has been adequately pled in the complaint in terms of relating specific font.

[00:16:08] Speaker 05:
If the theme app operates as modern font has,

[00:16:13] Speaker 05:
asserted that that may be sufficient to state a claim against the consumer, which is not a claim at issue in this litigation.

[00:16:20] Speaker 02:
So let's assume then that the allegation of direct infringement as to the consumer is sufficient.

[00:16:26] Speaker 02:
Why is there not a sufficient allegation of inducement when the

[00:16:31] Speaker 02:
PetSmart employees or advertising encourage the customer to download the app.

[00:16:40] Speaker 05:
Because, Your Honor, this court's case law requires more than a generic advertisement of a software package that contains certain features.

[00:16:49] Speaker 05:
It requires a statement or action directed to promoting infringement of the specific feature or advertising or an instruction on how to engage in an infringing use.

[00:17:00] Speaker 05:
Not only do none of the advertising materials cited by modern font do so, and indeed many of the advertising materials they cite in fact demonstrate that there are substantial non-infringing uses of the software.

[00:17:15] Speaker 05:
Obtaining pet grooming appointments, getting coupons, ordering retail products, the kinds of things you'd expect from a consumer-facing smartphone app.

[00:17:24] Speaker 05:
There's no allegation from which this court or the district court could draw a plausible inference that PESMA was encouraging its consumers with specific intent to infringe this patent to allowing display of nonstandard fonts in a network document.

[00:17:44] Speaker 05:
That connection cannot be plausibly drawn from the allegations of this complaint.

[00:17:49] Speaker 01:
And is there a consumer joined as a defendant here?

[00:17:52] Speaker 05:
There is not, Your Honor.

[00:17:53] Speaker 05:
And there was never an attempt to do so, despite the multiple opportunities that the plaintiff had to amend the complaint.

[00:18:04] Speaker 05:
I'd like to address it.

[00:18:06] Speaker 01:
Is that necessary for an inducement claim?

[00:18:10] Speaker 05:
If they could plausibly show that PetSmart had encouraged infringement by a consumer through some kind of substantiation in their allegations, that would not be necessary.

[00:18:21] Speaker 05:
But what they've pled is not sufficient under the law of this court.

[00:18:26] Speaker 05:
With respect to the direct infringement claim, I do want to highlight the Centillion and Acceleration Bay cases, which opposing counsel and Modern Finance have not addressed.

[00:18:36] Speaker 02:
Direct infringement by the employees, you mean?

[00:18:39] Speaker 05:
Direct infringement by PESMART through the act of providing the software for download, which is

[00:18:45] Speaker 05:
the core of their allegation and the core of their argument to the district court, that Petsmart was infringing.

[00:18:52] Speaker 02:
I think the only allegation of direct infringement by Petsmart was that their employees were told to download the app onto their phones.

[00:19:02] Speaker 05:
Allegations to that effect were added later, but those don't suffice either to say the valid thing.

[00:19:08] Speaker 02:
No, I understand, but I didn't understand that PetSmart was being accused of direct infringement apart from the employee situation.

[00:19:16] Speaker 05:
I don't believe it's a valid theory, but ModernFont had articulated a theory that merely the act of making the software available for download by a third party was an act of completing the device, whether that was an employee or a consumer.

[00:19:30] Speaker 05:
I don't think it's a viable theory, but I do think it was argued below, and I did want to address it.

[00:19:35] Speaker 05:
With respect to the employees, I think it's important to point out a few factors

[00:19:50] Speaker 05:
First, the equipment used by the employees is clearly identified in paragraphs 70 and 71 of the second amended complaint as the employees own smartphones and devices.

[00:20:01] Speaker 05:
This is not a case in which PetSmart is accused of having infringing point of sale machines that employees use in the course of employment.

[00:20:09] Speaker 05:
The uses to which the app can be put, the ones I cited a moment ago, none of them relates to the asserted patent, and none of them relates to activities employees engage in in the course of their employment.

[00:20:22] Speaker 05:
Buying retail goods from your employer is not an act you take as an employee.

[00:20:29] Speaker 05:
Scheduling a pet grooming appointment, similarly.

[00:20:32] Speaker 05:
And finally,

[00:20:35] Speaker 05:
the only activity that employees are alleged to have engaged in is encouraging customers to download the app.

[00:20:40] Speaker 05:
And that's a further iteration of the advertising argument that goes to inducement and not direct infringement by PetSmart.

[00:20:49] Speaker 05:
And as I said, on the inducement front, there's simply no plausible inference of specific intent to encourage infringement that can be drawn from these pleadings.

[00:20:59] Speaker 05:
Finally, I would say,

[00:21:02] Speaker 05:
In response to counsel's arguments relating to the procedural history, counsel cannot point to a single instance in which Modern Fund was harmed by any decision of the district court.

[00:21:12] Speaker 05:
The district court had the authority, sui sponte, to dismiss the original complaint for failure to state a claim, if it so chose, as long as it provided leave to amend, which it did.

[00:21:23] Speaker 05:
And we've cited cases to that effect from the 10th Circuit, no response from opposing counsel.

[00:21:30] Speaker 05:
On the technical, procedural issues, it's Modern Fund's obligation to show that it suffered harm.

[00:21:36] Speaker 05:
And in no case was it denied the opportunity to respond to an argument, or to make an argument, or to make an amendment that it believed would have cured the deficiencies in its complaints.

[00:21:46] Speaker 05:
For that reason, after close to 100 docket entries, the district court was well within its discretion to order a dismissal with prejudice of all the remaining claims.

[00:21:58] Speaker 05:
I believe that our papers address the remaining issues that opposing counselors raised, but I'm happy to answer any questions from the panel.

[00:22:05] Speaker 01:
Thank you, counsel.

[00:22:06] Speaker 05:
Thank you.

[00:22:09] Speaker 01:
Mr. Clegg, we'll give you two minutes for a bottle.

[00:22:14] Speaker 04:
Thank you, Your Honor.

[00:22:16] Speaker 04:
Are you still hearing me?

[00:22:18] Speaker 01:
Yes.

[00:22:19] Speaker 04:
Thank you.

[00:22:20] Speaker 04:
So first, they argued that we didn't raise centelion

[00:22:26] Speaker 04:
in the briefs, that issue sort of doesn't matter.

[00:22:31] Speaker 04:
We didn't mention the case, but the issue comes combined.

[00:22:34] Speaker 04:
The court asked, will the customers infringe?

[00:22:42] Speaker 04:
The answer is yes when they download it.

[00:22:46] Speaker 04:
Definitely the complaint alleges that every download infringes.

[00:22:49] Speaker 04:
At paragraph 96, each download infringes.

[00:22:53] Speaker 04:
66 to 72 point out that smart employees download the app, paragraph 79 or 97 of the complaint says thousands of customers download.

[00:23:03] Speaker 04:
Regarding inducement, for example, paragraphs 85 through 94, there's multiple pleadings and exhibits, allegations regarding advertisements.

[00:23:13] Speaker 04:
The advertisement is the direction to download the app.

[00:23:17] Speaker 04:
That is the direction to infringe because each download infringes

[00:23:21] Speaker 04:
Paragraph 71 says employees download as part of their work duties.

[00:23:26] Speaker 04:
It does not refer to personal devices.

[00:23:29] Speaker 04:
We don't know whose devices those are.

[00:23:31] Speaker 04:
The arguments being made by opposing counsel are more arguments relating to, as if it were some re-judgment.

[00:23:40] Speaker 04:
Any inferences are supposed to go to the plaintiff in a matter like this.

[00:23:45] Speaker 04:
And so, you know, they're arguing essentially, they're not arguing in the proceedings, they're arguing

[00:23:51] Speaker 04:
somebody in judgment, basically.

[00:23:54] Speaker 04:
And regarding their arguments regarding labor.

[00:23:58] Speaker 01:
Counsel, looking at the transcript, it seems the district court was constantly asking you questions about what infringes and not getting an answer.

[00:24:12] Speaker 04:
Yes.

[00:24:14] Speaker 04:
The transcripts that were provided, I don't know if the court has the full transcript or not.

[00:24:18] Speaker 04:
I don't recall.

[00:24:20] Speaker 04:
But what happened is we walked through the complaint and walked through each of the elements of the complaints and what were done, the employees.

[00:24:31] Speaker 04:
As we tried to do that, the district court said, yes, but I want to know how you violate the patents.

[00:24:40] Speaker 04:
And so the court would ask questions,

[00:24:44] Speaker 04:
As we tried to redirect back to the claims and what was done and how those elements were infringed, the court didn't allow to address that in the hearing, because the questions the court wanted answered at that time.

[00:25:00] Speaker 04:
But if you look at the pleadings, it's clear that those allegations are there.

[00:25:06] Speaker 04:
And there were discussions during the hearing regarding

[00:25:11] Speaker 04:
the fact that the employees in the course of their work were downloading a unit, the software, and that that was an infringement.

[00:25:26] Speaker 00:
How many instances of downloading were there?

[00:25:29] Speaker 00:
I think you provided three different situations where an employee was observed.

[00:25:39] Speaker 00:
on a device with the PetSmart app.

[00:25:43] Speaker 00:
Is that correct?

[00:25:44] Speaker 03:
That is correct, Your Honor.

[00:25:49] Speaker 03:
Yes.

[00:25:49] Speaker 04:
And did I answer your question?

[00:25:52] Speaker 00:
Yes.

[00:25:54] Speaker 04:
OK.

[00:25:55] Speaker 04:
I believe I'm out of time.

[00:25:59] Speaker 01:
You essentially are.

[00:26:02] Speaker 01:
So thank you for your argument.

[00:26:04] Speaker 01:
And that case will be submitted.