IP Law Daily Patent infringement claims brought by gaming machine developer transferred
Tuesday, August 13, 2019

Patent infringement claims brought by gaming machine developer transferred

By Jeffrey H. Brochin, J.D.

Under TC Heartland, New Jersey was not a proper venue for patent claims asserted by High 5 Games.

The federal district court in Newark granted a motion to dismiss the non-patent infringement claims asserted by gaming machine developer High 5 Games (H5G) against two related Australian companies (abbreviated here as ATA and ALL), because the court lacked specific personal jurisdiction, however, H5G alleged sufficient facts to warrant limited jurisdictional discovery as to PM’s contacts with New Jersey. As for the patent infringement claims asserted by H5G against ATA, ALL, and another defendant, Marks Studios, the District of New Jersey was an improper venue for the patent infringement claims pursuant to § 1400(b), and these defendants did not waive or forfeit their right to assert an improper venue defense. The court found it proper to sever and transfer the patent infringement claims, and it transferred the patent infringement claims as to (1) PM to the District of Delaware; (2) Marks Studios to the Northern District of Georgia; and (3) ATI to the District of Nevada (High 5 Games, LLC v. Marks, August 9, 2019, Vazquez, J.).

High 5 Games, LLC (H5G) is a business involved in the gaming market, including the slot machine industry. Super Symbols and Super Stacks, two of H5G’s gaming methodologies and inventions for slots, have been the subject of protracted litigation between the company and several of its former employees and various H5G competitors. H5G alleged that it created the Super Stacks method in approximately the summer of 2009, and that the method was included in their March 28, 2012 patent application and the resulting issued U.S. Patent. It also alleged that it conceived of Super Symbols in the latter part of 2009 and filed a provisional patent application that included the Super Symbols invention on August 16, 2011, and that a resulting US Patent was issued for that as well. H5G considered both inventions to be trade secrets.

H5G claimed that three of its former employees, and the company formed by one of them, misappropriated confidential information including casino game software—despite having signed an Employee Proprietary Information Agreement—and then proceeded to help a competitor, ATI, an Australian-based company along with its affiliated entities, to develop two new game features, Mega Symbols and Mega Stacks based on the software. Pending before the court were the motions to dismiss the non-patent infringement claims, filed by three related Australian companies, and its California-based subsidiary.

Non patent infringement claims. H5G asserted two theories of personal jurisdiction over the companies: alter-ego/piercing the corporate veil, and an agency relationship. The court began its analysis by reciting the common law precedent that generally, a parent corporation is not liable for the acts of its subsidiaries, merely because of its ownership of the subsidiary, unless piercing the corporate veil is applicable only if (1) the subsidiary was an alter ego or the parent so dominated the subsidiary that it had no separate existence but was merely a conduit for the parent, and (2) the parent has abused the privilege of incorporation by using the subsidiary to perpetrate a fraud or injustice, or otherwise to circumvent the law.

At the motion to dismiss stage, H5G was required to plead specific facts with respect to how the affiliated entities and individuals allegedly controlled or dominated the subsidiaries, however, the court ruled that H5G failed to do so. They pointed to no authority that recognizes a piercing of the corporate veil based the facts it alleged, and the court concluded that H5G fell far short of what was necessary to allege that any of the entities were alter egos of ATI, or that ATI dominated ATA, ALL or PM such that there was in essence no separate existence among the entities.

The affiliated companies also argued that 35 U.S.C. § 293 did not convey specific personal jurisdiction over the non-patent claims asserted against ATA, in light of the fact that ATA was the assignee of the wrongful patent applications and patents. The court agreed, noting that § 293 only conveys personal jurisdiction over a foreign entity with respect to proceedings affecting the patent or rights thereunder, however, the mere fact that the Australian companies were nonresident patent owners did not authorize the court to assert personal jurisdiction over them under Section 293 for all matters. Accordingly, the court ruled that it lacked specific personal jurisdiction over ALL and ATA, and their motion to dismiss was granted on those grounds and the non-patent infringement claims asserted against ALL and ATA were dismissed. Limited jurisdictional discovery was granted as to defendant PM.

Patent infringement claims. The patent venue statute provides that venue is only proper "in the judicial district where the defendant resides, or where the defendant has committed acts of infringement and has a regular and established place of business." 28 U.S.C. § 1400(b). The Supreme Court recently overruled Federal Circuit precedent and determined that "a domestic corporation ‘resides’ only in its State of incorporation for purposes of the patent venue statute." TC Heartland LLC v. Kraft Foods Grp. Brands LLC, 137 S. Ct. 1514, 1517 (2017). Marks Studios, ATI, and PM are not incorporated in, nor do they have a "regular and established place of business" in New Jersey. Accordingly, pursuant to § 1400(b), New Jersey is an improper venue for the patent claims asserted against these defendants, the court ruled.

PM, ATI, and Marks Studios did not waive or forfeit their right to assert an improper venue defense, the court determined. In reaching this conclusion, the court noted that it was not condoning Marks Studios and ATI’s strategic decision to not seek to transfer this matter in light of TC Heartland at an earlier point in this litigation. These defendants conceivably could have filed a motion at a significantly earlier date and were not required to wait until they sought to dismiss the third amended complaint.

This case is No. 2:13-cv-07161-JMV-MF.

Attorneys: Arla D. Cahill (Mandelbaum Salsburg P.C.) for High 5 Games, LLC. Barry G. Felder (Foley & Lardner LLP) for Daniel Marks.

Companies: High 5 Games, LLC

MainStory: TopStory Patent NewJerseyNews

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