DCT

3:14-cv-04850

Shortridge v. Foundation Construction Payroll Service LLC

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Key Events
Amended Complaint

I. Executive Summary and Procedural Information

  • Parties & Counsel:
  • Case Identification: 3:14-cv-04850, N.D. Cal., 12/16/2014
  • Venue Allegations: Plaintiff alleges venue is proper because Defendants purposefully offer and provide an infringing service product in the Northern District of California and have committed acts of patent infringement there.
  • Core Dispute: Plaintiff alleges that Defendants' outsourced payroll services for construction contractors infringe a patent for a system and method of processing and reporting payroll for government-funded public works projects.
  • Technical Context: The technology addresses the complex, jurisdiction-specific compliance and reporting requirements for payroll on "public works" construction projects, which often differ significantly from standard payroll processing.
  • Key Procedural History: The complaint alleges that the president of Defendant Payroll4Construction.com contacted the inventor in March 2012 regarding the then-pending patent application, a fact used to support the allegation of willful infringement.

Case Timeline

Date Event
2008-03-18 Priority Date for ’933 Patent
2012-03-02 Alleged pre-suit contact from Defendant's President to Plaintiff regarding the pending patent application
2014-06-03 ’933 Patent Issue Date
2014-06-03 Alleged start date of infringing activity by Defendants
2014-12-16 First Amended Complaint Filing Date

II. Technology and Patent(s)-in-Suit Analysis

U.S. Patent No. 8,744,933 - "Payroll Processing, Certification, Reporting and Project Management System and Method" (issued June 3, 2014)

The Invention Explained

  • Problem Addressed: The patent describes the significant compliance challenges faced by construction contractors working on government-funded "public works" projects ( Compl. ¶10; ’933 Patent, col. 1:31-36). These projects require the submission of Certified Payroll Records (CPRs), but the format, content, and underlying rules for these CPRs vary widely and inconsistently across different government jurisdictions (e.g., federal, state, municipal), creating a "lack of specificity" and no "gold standard" for compliance (’933 Patent, col. 2:23-28, col. 2:58-63). General-purpose payroll systems are described as inadequate to handle this complexity, particularly for contractors operating across multiple jurisdictions or on a mix of public and private projects concurrently (’933 Patent, col. 4:28-48).
  • The Patented Solution: The invention is a computer-implemented system and method designed to augment a standard ("core") payroll processing engine (’933 Patent, col. 10:4-8). It uses a relational database structure to store not only contractor and employee data, but also project-specific data, including the unique payroll rules, reporting formats, and labor ratio requirements (e.g., apprentice-to-journeyman) for different public works jurisdictions (’933 Patent, Abstract; col. 10:11-20). The system is designed to distinguish between public and private projects, generate jurisdiction-compliant CPRs, and produce management reports that help contractors proactively monitor compliance vulnerabilities (’933 Patent, col. 9:40-53).
  • Technical Importance: The technology provides a specialized solution to a niche but complex data processing and regulatory compliance problem that was not adequately addressed by generic or existing payroll software at the time (’933 Patent, col. 5:15-24).

Key Claims at a Glance

  • The complaint asserts "one or more of the Claims of the '933 Patent" but does not identify specific claims (Compl. ¶25). Independent claim 1 is representative of the asserted method.
  • Independent Claim 1 recites a method of payroll processing comprising the key steps of:
    • Processing payroll data with a "core payroll calculation and processing engine."
    • Sharing input data, stored in a relational database, between "conjoined computer processor components."
    • "Distinguishing" between public works and private sector projects based on input data.
    • "Verifying" input data compliance with the requirements of both the core engine and the CPR.
    • Producing "calculated core payroll data" via the core engine.
    • Sharing the calculated data and "non-calculated payroll related data" between components.
    • "Producing the CPR... only if the input data identifies the project as a public works project."
    • "Producing public works contractor management supporting reports... only if the input data identifies the project as a public works project."

III. The Accused Instrumentality

Product Identification

The accused instrumentality is the outsourced payroll processing service offered by Defendants P4C and Foundation, identified as being "powered by" Foundation construction accounting software (Compl. ¶¶ 13, 16, 22).

Functionality and Market Context

The complaint alleges this service is specifically marketed to construction contractors performing work on "public works" or "prevailing wage projects" across the United States (Compl. ¶¶ 16, 17). The service is alleged to process payroll and create "project-specific payroll records and management reports" that comply with the rules of various jurisdictions (Compl. ¶25). Defendant Associated Builders and Contractors, Inc. (ABC), a trade association, allegedly offers this service to its members through a "Strategic Partner Program," with P4C being the "sole 'Strategic Partner' for outsourced payroll services" (Compl. ¶¶ 19, 20, 22). No probative visual evidence provided in complaint.

IV. Analysis of Infringement Allegations

’933 Patent Infringement Allegations

Claim Element (from Independent Claim 1) Alleged Infringing Functionality Complaint Citation Patent Citation
A method of public works construction payroll processing for a contractor... Defendants jointly developed and implemented a payroll processing system and method for outsourced payroll services for construction contractors performing on "public works" projects. ¶16 col. 17:26-28
...distinguishing between public works projects and private sector projects based on the input data and identifying the project as a public works project... The accused service is for a clientele that includes contractors performing on "public works" projects and creates project-specific records in accordance with jurisdictional rules. ¶¶16, 25 col. 18:37-43
...processing the verified input data to produce calculated core payroll data... The service is an "outsourced payroll processing service entity" that processes payroll for contractors. ¶¶13, 16 col. 18:19-24
...producing the CPR based on the calculated core payroll data and the non-calculated payroll related data only if the input data identifies the project as a public works project... The accused service "creates project-specific payroll records and management reports, at least some of which are in accordance with the rules of the various projects jurisdictions." ¶25 col. 18:59-65
...producing public works contractor management supporting reports using the input data only if the input data identifies the project as a public works project... The accused service "creates project-specific payroll records and management reports," which are alleged to be covered by the patent. ¶25 col. 18:66 - col. 19:3

Identified Points of Contention

  • Evidentiary Questions: The complaint makes conclusory allegations without providing specific factual support detailing how the accused service operates. A central question for the court will be what evidence demonstrates that the accused service performs the specific conditional logic required by the claim (e.g., "producing the CPR... only if the project is identified as public works").
  • Technical Questions: Does the accused service's generation of "project-specific payroll records" (Compl. ¶25) meet the specific limitations of a "CPR" as defined by the patent, which is produced from a combination of "calculated core payroll data" and "non-calculated payroll related data"? The complaint does not provide sufficient detail for analysis of this technical correspondence.
  • Scope Questions: The patent claims a method involving "conjoined computer processor components" and a "core payroll... engine" that is augmented by the invention (’933 Patent, col. 18:29-32). A potential dispute is whether the architecture of the accused service, which is described as a service "powered by" software (Compl. ¶13), maps onto this specific claimed structure.

V. Key Claim Terms for Construction

"core payroll calculation and processing engine"

  • Context and Importance: This term appears in the preamble and body of claim 1 and defines the baseline system that the invention augments. The construction of this term is critical for determining the boundary between the prior art and the claimed invention, which will be central to both infringement and validity analyses.
  • Intrinsic Evidence for a Broader Interpretation: The specification refers to this engine as potentially being a "Payroll Service Bureau core payroll processing engine (PSB) or Stand Alone core payroll processing engine (SA)," which could encompass a wide range of commercially available payroll systems (’933 Patent, col. 13:22-25).
  • Intrinsic Evidence for a Narrower Interpretation: The patent repeatedly distinguishes "core" processing—which handles standard elements like wages and basic deductions—from the specialized functions required for public works compliance (’933 Patent, col. 1:45-54). This suggests "core" may be limited to systems lacking the specific, jurisdiction-aware CPR generation capabilities that are the focus of the invention.

"non-calculated payroll related data"

  • Context and Importance: This data is a required input, alongside "calculated core payroll data," for producing the claimed CPR. The scope of this term is essential for defining what information must be shared between system components and used in the final CPR generation step to prove infringement.
  • Intrinsic Evidence for a Broader Interpretation: The term itself is broad and could be argued to cover any information required for a CPR that is not a direct mathematical output of a wage calculation, such as employee names, project identifiers, or work classifications.
  • Intrinsic Evidence for a Narrower Interpretation: The specification suggests this data is used for "production of the CPR" and is distinguished from standard payroll data (’933 Patent, col. 18:52-55). A defendant might argue the term is limited to the specialized, jurisdiction-specific information that is the focus of the patent, such as prevailing wage rates, fringe benefit statements, or government hiring preferences (’933 Patent, col. 14:56-65), rather than more generic data fields.

VI. Other Allegations

Indirect Infringement

The complaint does not allege indirect infringement; all counts allege direct infringement under 35 U.S.C. §271 (Compl. ¶¶ 25, 26, 32).

Willful Infringement

The complaint alleges willful infringement against Defendants P4C and Foundation (Compl. ¶30; Compl. ¶33(b), (d)). The allegation is based on pre-suit knowledge, asserting that P4C and Foundation were "cognizant of the pending application of the '933 Patent since at least March 2, 2012" based on an email from P4C's president to the plaintiff, and that they reviewed the public file of the application to develop their infringing system (Compl. ¶¶ 23, 30).

VII. Analyst’s Conclusion: Key Questions for the Case

  1. A central issue will be one of evidentiary sufficiency: The complaint’s infringement allegations are highly conclusory. Can the plaintiff produce technical evidence—such as source code, system documentation, or expert testimony—to demonstrate that the accused service actually performs each discrete step of the asserted method claim, especially the conditional processing logic (e.g., "producing... only if") and data-sharing requirements?
  2. The case will likely involve a key question of architectural scope: The patent claims a system of "conjoined" components that "augment" a "core payroll... engine." The court will have to determine if the accused service, described as being "powered by" Foundation's software, embodies this specific multi-component architecture or if it operates as a monolithic system that falls outside the literal scope of the claims.
  3. A significant legal hurdle will be proving joint infringement. The complaint alleges Defendants P4C and Foundation act "jointly and in concert." A critical question for the court will be whether the plaintiff can establish that one defendant directs or controls the other's performance of claimed method steps, or that they form a joint enterprise sufficient to attribute the actions of both to a single entity for infringement purposes.