Dolby Laboratories Licensing Corporation v. Roku, Inc.

Background

Dolby Laboratories Licensing Corporation and Dolby International AB sued Roku, Inc. Dolby alleged breach of contract, copyright infringement, patent infringement, negligent misrepresentation, and fraudulent concealment. The claims arose from two software-license agreements.

The 2015 Interoperability License Agreement gave Roku limited rights to use Dolby intellectual property for testing in Roku’s operating-system software. The 2016 System License Agreement allowed Roku to design, develop, manufacture, and sell products containing specified Dolby technology. That agreement required quarterly sales reports, royalty payments, and allowed Dolby to audit Roku’s records.

Dolby alleged that Roku included Dolby technology in Roku OS and updates distributed to end users without authorization. Dolby also alleged that Roku denied distributing Dolby technology in Roku OS, resisted an audit, and later provided information that led Dolby to discover the alleged conduct. Roku moved to dismiss the amended complaint under Rule 12(b)(6), which tests whether a complaint states a legally sufficient and plausible claim.

Contract claims

The court rejected Roku’s argument that Counts One through Three were barred by California’s four-year statute of limitations. Applying the discovery rule, the court held that the claims accrued on February 18, 2022, when Dolby allegedly learned of the breach, rather than when the alleged conduct began. The court therefore held that Counts One through Three were not time-barred.

The court nevertheless dismissed Count Two, which alleged breach of a representation and warranty in the System License Agreement. Dolby did not plead facts plausibly showing that Roku’s primary purpose in distributing the alleged unauthorized copies was to violate intellectual-property rights. The dismissal of Count Two was without prejudice and with leave to amend.

The court also dismissed Count Three, which alleged breach of an implied promise not to exceed the license grant. The court found that the written agreements already contained express provisions addressing that subject, making the implied claim duplicative. The dismissal of Count Three was without prejudice and with leave to amend.

The court denied dismissal of Count Four, concerning Roku’s alleged failure to comply with audit obligations. The court found the relevant audit provision ambiguous as to whether it covered Roku OS, and concluded that resolving that issue required contract interpretation on a more developed record.

Copyright claims

Counts Five and Six included claims concerning ten works that were registered eight days after Dolby filed its original complaint but before Dolby filed its amended complaint. The court held that Dolby could amend the existing lawsuit to add infringement claims for those works because the copyrights had been registered before the amended complaint asserted those claims. The court therefore denied Roku’s motion to dismiss Counts Five and Six as to those works.

Patent claim

Count Seven asserted direct, induced, and contributory infringement of U.S. Patent No. 6,339,757, as well as willful infringement. The court granted Roku’s motion to dismiss the induced, contributory, and willful-infringement claims.

For induced infringement, the court found that Dolby had not plausibly alleged that Roku specifically intended users to infringe or knew that users’ conduct would infringe. The court also found the allegations insufficient to establish the knowledge required for contributory infringement. For willful infringement, the court found that Dolby had not adequately alleged that Roku specifically intended to infringe or knew that its conduct infringed the patent.

The order’s conclusion states that the patent-infringement claims for induced, contributory, and willful infringement were dismissed. Because the motion was otherwise denied, the order did not dismiss the direct-infringement claim.

Negligent misrepresentation and fraudulent concealment

The court granted dismissal of Counts Eight and Nine. It applied the economic-loss rule, which generally prevents tort recovery for purely financial harm arising from a contract breach unless the plaintiff alleges an independent duty and a separate type of harm. The court found that Dolby’s alleged delayed royalty payments, audit expenses, and unspecified “other issues” did not show harm beyond the economic loss associated with the alleged contractual breaches.

Disposition

Judge Edward J. Davila granted in part and denied in part Roku’s motion to dismiss. The court dismissed Count Two, Count Three, the induced, contributory, and willful patent-infringement claims in Count Seven, and Counts Eight and Nine. All dismissals were without prejudice and with leave to amend. Dolby had 21 days from the order to file a second amended complaint. Roku’s motion was otherwise denied.