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Strikeforce Technologies, Inc. v. Phonefactor, Inc., et al., C.A. No. 13-490-RGA-MPT, Report and Recommendation (Amended) (D. Del. Nov. 14, 2013)

Strikeforce Technologies, Inc. v. Phonefactor, Inc., et al., C.A. No. 13-490-RGA-MPT, Report and Recommendation (Amended) (D. Del. Nov. 14, 2013)

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IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF DELAWARE
 : :STRIKEFORCE TECHNOLOGIES, INC., : :Plaintiff, :v. :Civ. A. No. 13-490-RGA-MPT : PHONEFACTOR, INC., :and FIRST MIDWEST BANCORP, INC. : :Defendants, :
REPORT AND RECOMMENDATION (Amended)I. INTRODUCTION
On March 28, 2013, StrikeForce Technologies, Inc. (“StrikeForce”) brought thisaction against First Midwest Bancorp, Inc. (“FMBI”), and PhoneFactor, Inc.(“PhoneFactor”), alleging infringement of U.S. Patent No. 7,870,599, (the “‘599patent”).
1
 Following an initial motion to dismiss, StrikeForce filed an amended complainton June 25, 2013.
2
 Presently before the court is FMBI’s motion to dismiss the amendedcomplaint pursuant to F
ED
.
 
R.
 
C
IV
.
 
P.
 
12(b)(6) for failure to state a claim upon whichrelief can be granted.
3
 Because StrikeForce has sufficiently pled only one of its claims,FMBI’s motion to dismiss should be denied in part and granted in part.
II. BACKGROUND A.Factual Allegations
StrikeForce is a corporation incorporated in the state of Wyoming, with its
1
 D.I. 1. A third defendant was dismissed.
2
 D.I. 34.
3
 D.I. 31.
 
principal place of business located in Edison, New Jersey.
4
 FMBI is a corporationincorporated in the state of Delaware, with its principal place of business in Itasca,Illinois.
5
 FMBI has a subsidiary, First Midwest Bank, which operates in the state of Illinois.
6
 First Midwest Bank is not a party to this action.StrikeForce owns the ‘599 patent.
7
 This patent is directed to a multichannelsecurity system and method for authenticating a user seeking access to websites andvirtual private networks (VPNs), such as those used for conducting banking, socialnetworking, business activities, and other online services.
8
 This technology issometimes referred to as “out-of-band” authentication.
9
 In 2011, PhoneFactor submitted to the U.S. Patent and Trademark Office apatent application for out-of-band authentication.
10
 StrikeForce subsequently contactedPhoneFactor, giving notice of its ‘599 patent.
11
 Prior to PhoneFactor’s application, in August 2010, PhoneFactor and First Midwest Bank entered into a three yeaagreement, in which PhoneFactor would provide First Midwest Bank with its service.
12
 StrikeForce claims both PhoneFactor and FMBI infringe the ‘599 patent by making,using, offering for sale, or selling a system and method for out-of-band authentication.
13
 StrikeForce alleges a number of facts addressing the intermingling between First
4
 D.I. 34 at ¶ 1.
5
 
Id.
 at ¶ 3.
6
 
Id.
 at ¶¶ 16-17.
7
 
Id.
 at ¶ 10.
8
 
Id.
 at ¶ 10.
9
 
Id.
10
 
Id.
 at ¶¶ 12-14.
11
 
Id.
12
 
Id.
 at ¶¶ 23-24.
13
 
Id.
 at ¶ 26.2
 
Midwest Bank and FMBI. For example, First Midwest Bank and FMBI areheadquartered at the same location in Illinois.
14
 Nearly all of the value of FMBI’s $8.1billion in assets is attributable to First Midwest Bank.
15
 The official web page for FirstMidwest Bank contains “Investor Relations” pages referencing information related tocorporate governance, stock information, and how one can invest in the company, all of which relate to FMBI.
16
 First Midwest Bank has the same governance policies andprocedures adopted by FMBI.
17
 Finally, FMBI and First Midwest Bank have the sameChief Executive Officer, Chief Operating Officer, Chief Financial Officer, Treasurer,Corporate Secretary and Chief Risk Officer.
18
 
B.Position of the Parties
StrikeForce argues FMBI’s subsidiary, First Midwest Bank, infringes its patent.
19
 It contends FMBI is liable for that infringement under two similar theories: (1) FMBI andFirst Midwest Bank are alter egos of each another, and (2) First Midwest Bank infringedin its capacity as an agent of FMBI.
20
FMBI argues StrikeForce’s amended complaint does not satisfy the pleadingstandards of F
ED
.
 
R.
 
C
IV
.
 
P.
 
8(a) because it fails to allege facts sufficient to support aninfringement claim.
21
 Specifically, FMBI claims StrikeForce fails to touch the “fraud or injustice in use of the corporate form” element under both the alter ego theory and
14
 
Id.
 at ¶ 17.
15
 
Id.
16
 
Id.
 at ¶ 19.
17
 
Id.
 at ¶ 20.
18
 
Id.
 at ¶ 21.
19
 D.I. 36 at 3.
20
 D.I. 34 at ¶¶ 22-24.
21
 D.I. 39 at 2.3

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