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MGT Gaming, Inc. v. WMS Gaming, Inc.

United States District Court, S.D. Mississippi, Jackson Division

October 23, 2013

MGT GAMING, INC., PLAINTIFF
v.
WMS GAMING, INC., CAESARS ENTERTAINMENT CORPORATION, MGM RESORTS INTERNATIONAL, INC., ARUZE GAMING AMERICA, INC., and PENN NATIONAL GAMING, INC., DEFENDANTS

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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For MGT Gaming, Inc., Plaintiff: David W. Clark, LEAD ATTORNEY, Erin D. Saltaformaggio, BRADLEY ARANT BOULT CUMMINGS LLP - Jackson, Jackson, MS; Chris Comuntzis - PHV, Joseph S. Presta - PHV, Michael E. Crawford - PHV, Robert A. Rowan - PHV, PRO HAC VICE, NIXON & VANDERHYE, PC, Arlington, VA.

For WMS Gaming, Inc., Caesars Entertainment Corporation, MGM Resorts International, Inc., Defendants: Andrea La'Verne Edney, LEAD ATTORNEY, BAKER, DONELSON, BEARMAN, CALDWELL & BERKOWITZ, PC - Jackson, Jackson, MS; Michael J. Harris - PHV, Timothy C. Meece - PHV, V. Bryan Medlock - PHV, Jr., PRO HAC VICE, BANNER & WITCOFF, LTD., Chicago, IL; W. Scott Welch, III, BAKER, DONELSON, BEARMAN, CALDWELL & BERKOWITZ, PC, Jackson, MS.

For Aruze Gaming America, Inc., Penn National Gaming, Inc., Defendants: Michael D. Rounds - PHV, LEAD ATTORNEY, PRO HAC VICE, WATSON ROUNDS, Reno, NV; Andrew S. Harris, JONES WALKER, LLP - Jackson, Jackson, MS; W. Whitaker Rayner, JONES WALKER WAECHTER POITEVENT CARRERE & DENEGRE-Jackson, Jackson, MS.

OPINION

Carlton W. Reeves, UNITED STATES DISTRICT JUDGE.

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MEMORANDUM OPINION AND ORDER

Before the Court is a patent infringement action filed by MGT Gaming, Inc. (" MGT" ) against the following defendants: WMS Gaming, Inc. (" WMS" ) and its affiliated casino operators, Caesars Entertainment Corporation (" Caesars" ) and MGM Resorts International, Inc. (" MGM" ) (collectively the " WMS Defendants" ); along with Aruze Gaming America, Inc. (" Aruze" ) and its affiliated casino operator Penn National Gaming, Inc. (" Penn" ) (collectively, the " Aruze Defendants" ). The WMS Defendants have filed the following motions: 1) Motion to Dismiss; 2) Motion to Sever the Plaintiff's Claims Against All Defendants; 3) Motion to Stay Proceedings Against the Casino Defendants; and 4) Motion to Change Venue. [Docket No. 22] The Aruze Defendants have filed a Motion to Dismiss [Docket No. 28] and a Motion to Change Venue [Docket No. 36]. The motions have been fully briefed and are ripe for review. For the reasons stated below, 1) the Motion to Dismiss is GRANTED IN PART with respect to the contributory and induced infringement claims and DENIED with respect to the direct infringement claim; 2) the Motion to Sever the Plaintiff's Claims Against All Defendants is GRANTED IN PART as to WMS, Caesars and MGM and DENIED as to Aruze and Penn; 3) the Motion to

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Stay Proceedings against MGM, Caesars and Penn is GRANTED; and 4) that the Motions to Change Venue are DENIED.

I. FACTUAL AND PROCEDURAL BACKGROUND

On December 17, 2012, MGT filed its First Amended Complaint against the WMS Defendants and the Aruze Defendants alleging that they infringed United States Patent 7,892,088 (" the '088 patent" ). The '088 patent is " directed to a gaming system in which a second game played on an interactive sign is triggered once a specific event occurs in a first game, e.g., a slot machine." Docket No. 19 (" MGT Complaint" ), at ¶ 7. Plaintiff alleges that the " defendants either manufacture and sell gaming systems in violation of plaintiff's patent rights or operate casinos that offer such gaming systems." Id. More specifically, MGT asserts that the named defendants " have infringed and continue to infringe at least claims 1-3 and 6 of the '088 patent, either literally or under the doctrine of equivalents." Id. at ¶ 17.

The case involves MGT, the owner of the patent at issue; two manufacturers of casino gaming machines, WMS and Aruze; and three casino operators, Caesars, MGM, and Penn. MGT is a Delaware corporation with its principal place of business in New York. WMS states that it is a Delaware corporation with its corporate headquarters in Waukegan, Illinois. WMS designs and develops games at its technology campus in Chicago, Illinois. Aruze is a Nevada corporation with its principal place of business in Las Vegas, Nevada. MGT alleges that WMS and Aruze infringe the '088 patent by making or selling certain gaming machines which utilize the invention covered under that patent.

Caesars, MGM and Penn (or their subsidiaries) (collectively, the " Casino Defendants" ) operate casino properties throughout the United States, including in Mississippi. Caesars and MGM are both Delaware corporations with their principal headquarters in Las Vegas, Nevada. Penn is a Pennsylvania corporation with its principal place of business in Wyomissing, Pennsylvania. WMS has a business relationship with Caesars and MGM, and Aruze has a business relationship with Penn. MGT alleges that these Casino Defendants infringe the '088 patent by using the accused gaming machines provided by WMS and Aruze.

While no Defendant is chartered or headquartered in Mississippi, Plaintiff alleges that all of the Defendants have registered agents for service of process and are registered to do business in Mississippi. It is undisputed that they have also filed corporate annual reports with the Mississippi Secretary of State as recently as April 2012. WMS has a registered agent for service of process in Jackson, Mississippi, and a sales and distribution office in Gulfport, Mississippi. Aruze has a registered agent for service of process in Flowood, Mississippi. According to MGT, WMS's and Aruze's games are played in casinos throughout Mississippi, and both Defendants exhibited their games at the Southern Gaming Summit in Biloxi, Mississippi, in May 2012. [1] As for the Casino Defendants, Caesars and MGM have a

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registered agent for service of process in Jackson. They also own various casinos in Biloxi and Tunica, Mississippi, where MGT alleges that multiple infringing games are played. MGT also states that Penn has a registered agent in Flowood, Mississippi and owns at least two casinos in Biloxi where MGT alleges that at least one infringing game is played.

The Court will address each motion separately. Because there are common issues between WMS and Aruze, the Court addresses the common issues in relation to WMS's motion and separately addresses issues unique to each defendant.

II. MOTION TO DISMISS

A. Legal Standard

" The question whether a Rule 12(b)(6) motion was properly granted is a purely procedural question not pertaining to patent law, to which this court applies the rule of the regional circuit." CoreBrace LLC v. Star Seismic LLC, 566 F.3d 1069, 1072 (Fed. Cir. 2009) (quoting Gen. Mills, Inc. v. Kraft Foods Global, Inc., 487 F.3d 1368, 1373 (Fed. Cir. 2007)) (alterations omitted).

When considering a motion to dismiss, courts look only to the allegations in the complaint to determine whether they are sufficient to survive dismissal. See Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 910, 166 L.Ed.2d 798 (2007). The Supreme Court has held that a complaint does not need detailed factual allegations to survive a Rule 12(b)(6) motion to dismiss, but the pleader's obligation to state the grounds of entitlement to relief requires " more than labels and conclusions." Bell A. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). The Supreme Court has additionally pronounced two guiding principles in determining whether a complaint can survive a motion to dismiss: 1) " [t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice" ; and 2) a complaint must state a plausible claim in order to survive a motion to dismiss. Ashcroft v. Iqbal, 556 U.S. 662, 678-79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

In patent infringement cases, a plaintiff may bring three types of claims: direct infringement under 35 U.S.C. § 271(a), induced infringement under Section 271(b), and contributory infringement under Section 271(c). Induced and contributory infringement are considered forms of indirect infringement. In a complaint for direct infringement, Form 18 of the Federal Rules of Civil Procedure provides the pleading standard. In re Bill of Lading Transmission & Processing Sys. Patent Litig. (R L Carriers, Inc. v. DriverTech LLC ), 681 F.3d 1323, 1334 (Fed. Cir. 2012). Where a complaint also alleges induced and contributory infringement, the pleading requirements set forth in Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), apply to such claims. Id. Form 18 does not determine the sufficiency of pleading for claims of indirect infringement. R L Carriers, 681 F.3d at 1336.

B. Analysis

1. Direct Infringement

35 U.S.C. § 271(a) provides liability for direct infringement. In relevant part, it

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states: " [W]hoever without authority makes, uses, offers to sell, or sells any patented invention, within the United States . . . any patented invention during the term of the patent therefor, infringes the patent." Defendants move to dismiss MGT's First Amended Complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). WMS argues that the Plaintiff's complaint fails to " allege sufficient facts showing which products are at issue for each Defendant." Docket No. 23, WMS Motion, at 25. As a result, the direct infringement allegation fails to satisfy the pleading standard of Twombly and Iqbal . Thus, the Defendants state that they did not have sufficient notice of their alleged infringements.

Form 18 provides the pleading standard for claims of direct infringement, not Twombly and Iqbal . R L Carriers, 681 F.3d at 1336. To survive a motion to dismiss on a claim of direct infringement, Form 18 requires " (1) an allegation of jurisdiction; (2) a statement that the plaintiff owns the patent; (3) a statement that defendant has been infringing the patent 'by making, selling, and using [the device] embodying the patent'; (4) a statement that the plaintiff has given the defendant notice of its infringement; and (5) a demand for an injunction and damages." Id. (quoting McZeal v. Sprint Nextel Corp., 501 F.3d 1354, 1357 (Fed. Cir. 2007)). The Supreme Court's decisions in Twombly and Iqbal have not affected the adequacy of complying with Form 18. To hold otherwise would render Rule 84 and Form 18 invalid, which cannot be done by judicial action. See Twombly, 550 U.S. at 569 n.14 (acknowledging that altering the Federal Rules of Civil Procedure cannot be accomplished by judicial interpretation); McZeal, 501 F.3d at 1360 (Dyk, J., concurring-in-part and dissenting-in-part) (" I agree that under Rule 84 of the Federal Rules of Civil Procedure, we would be required to find that a bare allegation of literal infringement in accordance with Form 16 would be sufficient under Rule 8 to state a claim." ) [2]

Thus, a patent complaint that complies with Form 18 will suffice to state a claim that is plausible on its face. See Fed.R.Civ.P. 84; Realtime Data, LLC v. Stanley, 721 F.Supp.2d 538, 542 (E.D. Tex. 2010). Twombly does not " drastically change the pleading requirements of Rule 8(a) in patent infringement cases." Intravisual, Inc. v. Fujitsu Microelectronics Am., Inc., No. 2:10-cv-90, 2011 WL 1004873, at *2 (E.D. Tex. Mar. 18, 2011) (citing McZeal, 501 F.3d at 1357). The Federal Circuit has observed, post- Twombly, that a complaint for patent infringement is sufficient if it includes the elements in Form 18's sample pleading for patent infringement. See McZeal, 501 F.3d at 1356-57. In order to state a claim for patent infringement, " a patentee need only plead facts sufficient to place the alleged infringer on notice as to what he must defend." Id. at 1357.

MGT Gaming's First Amended Complaint has met the Form 18 pleading standards. The complaint (1) alleges jurisdiction, MGT Complaint, at 2-3; (2)

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states that MGT owns the '088 Patent, id. at 2; (3) states that WMS and, " on information and belief" Aruze, directly infringe the '088 Patent by manufacturing, selling and offering for sale " the products described and claimed in the '088 patent," which include various casino gaming systems, and that MGM, Caesars, and " on information and belief," Penn, directly infringe the patent by using the invention and offering it to their customers, id. at 5; (4) gave WMS and Aruze notice of their infringement; [3] and (5) includes a prayer for relief requesting an injunction and damages. MGT's First Amended Complaint also lists the specific games that allegedly include the infringed patent. [4]

WMS argues that it did not have sufficient notice of the games at issue because MGT's First Amended Complaint " lumps all the Defendants and accused gaming machines together" and because it mentioned gaming machines elsewhere in its complaint but not in the same paragraph with the other infringement allegations. [5] This argument is not well-taken because WMS indicates in its answer that it recognized games mentioned earlier in the First Amended Complaint but not listed later as ones that MGT identified as " accused gaming machine[s]." Docket No. 23, WMS Motion, at 26. WMS had notice that these games are at issue. The First Amended Complaint has provided clear allegations of infringement. In fact, the Plaintiff's pleadings have exceeded the Form 18 standard because it has identified specific products rather than a generalized description. See Realtime Data, 721 F.Supp.2d at 539 (" The Court examines the description of the accused systems or devices in context to determine whether the description is sufficient, but has not required that individual products be identified." ). The mere difference in where the accused products are mentioned in the complaint does not warrant dismissal of the claim.

WMS and Aruze also contend that MGT's First Amended Complaint fails to allege sufficient facts showing what gaming machines are at issue because " it identifies other gaming machines as allegedly infringing 'on information and belief.'" WMS Motion, at 25-26 (quoting MGT Complaint, at ¶ 17); Docket No. 29, at 8 (" Aruze MTD" ) (arguing that " there is no direct factual allegation against Aruze" because MGT First Amended Complaint relies on phrase 'on information and belief'" ). To the extent that the Defendants argue that the phrase " on information and belief" suggests that MGT does not have sufficient information or factual certainty to support its allegations, the Fifth Circuit held that " 'information and belief' pleadings are generally deemed permissible under

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the Federal Rules, especially in cases in which the information is more accessible to the defendant." Johnson v. Johnson, 385 F.3d 503, 531 (5th Cir. 2004) (citing Charles Allan Wright & Arthur R. Miller, Federal Practice and Procedure § 1224 (2d ed. 1990)); Petersen Indus., Inc. v. Hol-Mac Corp., No. 4:10-CV-152-CWR-FKB, 2011 WL 577377, at *3 (S.D.Miss. Feb. 9, 2011) (pleadings " upon information and belief . . . provide[] sufficient notice to identify the class of machines that are accused of infringement" where the plaintiff's complaint generally complies with Form 18 and the allegations are more than conclusory).

MGT has met the standard for pleading direct infringement. Aruze's arguments are misplaced as they fail to consider the Form 18 standard when evaluating MGT's claim of direct infringement; instead, they apply the standard in Twombly and Iqbal, which applies to claims of indirect infringement. MGT has met the requirement of " plead[ing] facts sufficient to place the alleged infringer on notice as to what he must defend." See McZeal, 501 F.3d 1354, 1357 (Fed. Cir. 2007). Thus, dismissal of MGT's direct infringement claim is unwarranted.

2. Indirect Infringement

Claims of indirect infringement may allege induced and contributory infringement. Under 35 U.S.C. § 271(b), which provides a cause of action for induced infringement, " [w]hoever actively induces infringement of a patent shall be liable as an infringer." Section 271(c) provides a cause of action for contributory infringement:

Whoever offers to sell or sells within the United States or imports into the United States a component of a patented machine, manufacture, combination or composition, or a material or apparatus for use in practicing a patented process, constituting a material part of the invention, knowing the same to be especially made or especially adapted for use in an infringement of such patent, and not a staple article or commodity of commerce suitable for substantial noninfringing use, shall be liable as a contributory infringer.

In its reply, Plaintiff admits that it " did not specifically plead WMS' knowledge of the patent in suit and its specific intent to induce infringement of it, as required for indirect infringement under 35 U.S.C. § 271(b)." [6] Docket No. 38, MGT Resp. to WMS, at 22. MGT also acknowledged on

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rebuttal that it did not have the necessary facts to establish a claim for contributory infringement under 35 U.S.C. § 271(c) and agreed to remove that allegation from its pleadings until discovery produced facts that would allow it to make this claim. Id. Given these concessions, the claims for induced and contributory infringement are dismissed without prejudice.

III. JOINDER

The Defendants have moved to sever the claims against them for improper joinder. For the reasons below, the motion is granted in part and denied in part.

A. Legal Standards

Joinder is normally governed by Federal Rule of Civil Procedure 20. However, in actions involving patents, the Leahy-Smith America Invents Act (AIA), 35 U.S.C. § 299, governs joinder. It sets a higher standard for joinder and prohibits joinder unless the claimed infringement by each defendant arises out of the same transactions relating to infringement of the patent-in-suit by the same accused product. Mednovus, Inc. v. QinetiQ Grp. PLC, No. 2:12-CV-03487-ODW, 2012 WL 4513539, at *2 (C.D. Cal. Oct. 1, 2012).

In relevant part, Section 299 reads:

(a) Joinder of Accused Infringers.--With respect to any civil action arising under any Act of Congress relating to patents . . . parties that are accused infringers may be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial . . . only if--
(1) any right to relief is asserted against the parties jointly, severally, or in the alternative with respect to or arising out of the same transaction, occurrence, or series of transactions or occurrences relating to the making, using, importing into the United States, offering for sale, or selling of the same accused product or process; and
(2) questions of fact common to all defendants or counterclaim defendants will arise in the action.
(b) Allegations Insufficient for Joinder.--For purposes of this subsection, accused infringers may not be joined in one action as defendants or counterclaim defendants, or have their actions consolidated for trial, based solely on ...

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