1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA
9 Howard Holdings Incorporated, No. CV-23-00503-PHX-DJH
10 Plaintiff, ORDER
11 v.
12 Life Saver Pool Fence Systems Incorporated, et al., 13 Defendants. 14 15 This is a patent case concerning competitors within the same field. Before the Court 16 is a Motion to Dismiss filed by Life Saver Pool Fence Systems Incorporated (“Defendant 17 Life Saver”) and Eric Lupton (“Defendant Lupton”) (collectively “Defendants”). 18 (Doc. 27). Howard Holdings Incorporated (“Plaintiff”) has filed a Response and 19 Defendants have filed a Reply. (Docs. 29 and 33). For the reasons set forth below, the 20 Court partially grants and partially denies Defendants’ Motion. 21 I. Background 22 This case involves two competitors in the pool fencing market: one with a patent 23 and one without. Defendant Lupton is the President and Director of Defendant Life Saver. 24 (Doc. 18 at ¶ 12 (Plaintiff’s Amended Complaint)). Life Saver sells a three-layered pole 25 mesh fencing designed to keep children safe from the dangers of residential pools. (Id. ¶¶ 26 21, 26–30). Plaintiff alleges that Defendant Lupton started selling this fencing through 27 Life Saver when it was incorporated in 2010. (Id. ¶¶ 29, 32). Plaintiff also alleges that its 28 Principal, Mr. Jason Howard, worked as one of Life Saver’s distributors from 2006 through 1 2012 and that Mr. Howard ceased working with Life Saver in 2012 because Life Saver 2 failed to consistently secure supplies for its product. (Id. ¶¶ 34–35). 3 Plaintiff alleges that Defendant Lupton filed an application (Application No. 4 15/007,943 (“the ‘943 Application”)) to patent his triple-layered fence in 2016 and was 5 granted U.S. Patent No. 10,316,539 (“the ‘539 Patent”). (Id. ¶¶ 36, 43). Plaintiff alleges 6 that Defendant Life Saver is the exclusive licensee of the ‘539 Patent. (Doc. 18 at ¶ 44). 7 The ‘539 Patent pertains to a triple-layered mesh fence comprised of an outer hollow 8 aluminum pole, inner PVC pipe, and a solid aluminum core. (Id. ¶ 30). The triple-layered 9 pole is inserted into the ground with a mesh fencing connecting the poles. (Id. ¶ 31). 10 Plaintiff states that this fencing provides unique benefits of a mesh pool safety fence while 11 maintaining enclosure integrity when a pole is damaged. (Id. ¶ 78). Plaintiff also alleges 12 that other designs for mesh pool fence poles would require significant compromises in 13 safety or require additional costs in manufacturing that would make the product less 14 competitive in the marketplace. (Id.) 15 Plaintiff alleges that Mr. Lupton fraudulently obtained the ‘539 Patent as the ‘943 16 Application triggered the duty of candor to the United States Patent and Trademark Office 17 (“USPTO”) and Mr. Lupton did not disclose how long his invention had been on the 18 market. (Doc. 18 at ¶¶ 38, 40). Plaintiff alleges that Life Saver has been selling, offering 19 for sale, and publicly disclosing its invention since 2010—six years prior to Defendant 20 Lupton’s initial ‘943 Application. (Id. ¶ 37). Plaintiff also alleges that Mr. Lupton’s reissue 21 application, Application No. 17/945,588 (the “588 Application”), does not subsequently 22 attempt to cure this “deception.” (Id. ¶¶ 45–50). 23 Plaintiff alleges that Defendants have broadly expressed their intent to enforce their 24 patent rights to others within the relevant market. (Id. ¶¶ 51–56). Plaintiff also alleges that 25 Mr. Lupton has falsely told current and former Life Saver distributors that Plaintiff has 26 admitted to infringing upon the ‘539 Patent and has agreed to settle the infringement by 27 forfeiting portions of its inventory to Defendant Life Saver—all with the alleged aim of 28 discouraging others from purchasing products from Plaintiff. (Id. ¶ 53). Plaintiff further 1 alleges that Mr. Frank Sweet, the operator of a Life Saver distributor, has “repeatedly” 2 called Plaintiff’s customers to harass and intimidate them over Defendants planned patent 3 enforcement. (Doc. 18 at ¶ 55). 4 II. Discussion 5 Plaintiff’s Complaint asserts six separate claims against Defendants: (1) a 6 declaratory judgment for invalidity of the ‘539 Patent as well as (2) the ‘588 Application; 7 (3) a declaratory judgment of unenforceability for inequitable conduct of the ‘539 Patent 8 and (4) the ‘588 Application; (5) violation of Section 2 of the Sherman Act,15 U.S.C. § 2; 9 and (6) tortious interference with a contractual relationship or business expectancy. (Doc. 10 18 at ¶¶ 57–60, 61–63, 64–67, 68–70, 71–84, 85–95). Defendants argue that Plaintiff’s 11 declaratory judgment claims must be dismissed for lack of subject matter jurisdiction under 12 Federal Rule of Civil Procedure 12(b)(1) and that Plaintiff’s remaining claims should be 13 dismissed for failure to state a claim upon which relief can be granted under Rule 12(b)(6).1 14 The Court will address each argument in turn. 15 A. Subject Matter Jurisdiction 16 Defendants argue that the Court lacks subject matter jurisdiction over Plaintiff’s 17 declaratory judgment claims because there is no actual case or controversy regarding the 18 ‘539 Patent or the ‘588 Application. (Doc. 27 at 6–7). Defendants also argue that third- 19 party actions do not impute an actual case or controversy upon Defendants. (Doc. 27 at 9). 20 A motion to dismiss under Rule 12(b)(1) tests the subject matter jurisdiction of the 21 court. See Savage v. Glendale Union High Sch., 343 F.3d 1036, 1039–40 (9th Cir. 2003). 22 The plaintiff must show that the court in question has jurisdiction to hear their case. See 23 Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994). A court must dismiss 24 a plaintiff’s complaint if it fails to establish subject matter jurisdiction. Savage, 343 F.3d 25 at 1039 n.2. 26 Generally, subject matter jurisdiction “is a procedural question not unique to patent 27 law,” and is therefore governed by regional circuit law. Toxgon Corp. v. BNFL, Inc., 312
28 1 Unless otherwise noted, all references to a “Rule” herein are in reference to the Federal Rules of Civil Procedure. 1 F.3d 1379, 1380 (Fed. Cir. 2002). However, “[w]hether an actual case or controversy 2 exists so that a district court may entertain an action for declaratory judgment of non- 3 infringement and/or invalidity is governed by Federal Circuit law.” 3M Co. v. Avery 4 Dennison Corp., 673 F.3d 1372, 1377 (Fed. Cir. 2012). 5 Jurisdictional challenges can be either facial or factual. See Safe Air for Everyone 6 v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). Federal Circuit law on Rule 12(b)(1) facial 7 or factual attacks does not materially differ from that in the Ninth Circuit. See, e.g., 8 Cedars–Sinai Med. Ctr. v. Watkins, 11 F.3d 1573, 1583–84 (Fed. Cir. 1993). Defendants 9 make a factual challenge here. (See Doc. 27 at 6). Where the attack is factual, “the court 10 need not presume the truthfulness of the plaintiff’s allegations.” Safe Air for Everyone v. 11 Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). In resolving a factual dispute regarding 12 subject matter jurisdiction, a court may review extrinsic evidence beyond the complaint 13 without converting a motion to dismiss into one for summary judgment. See McCarthy v. 14 United States, 850 F.2d 558, 560 (9th Cir. 1988) (holding that a court “may review any 15 evidence, such as affidavits and testimony, to resolve factual disputes concerning the 16 existence of jurisdiction”). Where a factual motion to dismiss is made and only written 17 materials are submitted for the court’s consideration, a plaintiff need only establish a prima 18 facie case of jurisdiction. See Societe de Conditionnement en Aluminum v. Hunter Eng’g 19 Co., 655 F.2d 938, 942 (9th Cir. 1981). 20 “[W]hen ‘ruling on a jurisdictional motion involving factual issues which also go to 21 the merits, the trial court should employ the standard applicable to a motion for summary 22 judgment.’” Trentacosta v. Frontier Pac. Aircraft Indus., Inc., 813 F.2d 1553, 1558 (9th 23 Cir. 1987) (quoting Augustine v. United States, 704 F.2d 1074, 1077 (9th Cir. 1983)). 24 “Under this standard, the moving party should prevail only if the material jurisdictional 25 facts are not in dispute and the moving party is entitled to prevail as a matter of law.” Id. 26 (internal citations omitted). 27 As an initial matter, the Court must first address whether Plaintiff was required to 28 come forward with evidence outside of its pleadings to show that the Court has subject 1 matter jurisdiction, as Defendants argue. 2 1. Plaintiff Is Not Required to Come Forward with Outside Evidence to Establish Subject Matter Jurisdiction 3 4 Defendants argue that because they support their motion with outside evidence, 5 specifically, with Defendant Lupton’s affidavit, and Plaintiff does not, the Court must 6 convert this part of their motion to a motion for summary judgment and use summary 7 judgment standards to decide the motion. (Doc. 33 at 2). In its Response, Plaintiff does 8 not rely on an affidavit to support its motion but relies on the allegations in its Amended 9 Complaint. (See Doc. 29). Defendants further argue that this failure to come forward with 10 extrinsic evidence requires the Court to dismiss Plaintiff’s Declaratory Judgment claims 11 for lack of subject matter jurisdiction. (Doc. 33 at 2–3). 12 “If a defendant files a ‘speaking motion’[2] to dismiss for lack of subject matter 13 jurisdiction . . . the plaintiff ‘cannot rest on the mere assertion that factual issues can exist.’ 14 He must come forward with evidence outside his pleadings to support his jurisdictional 15 allegation.” Trentacosta, 813 F.2d at 1558 (internal citations omitted) (emphasis added). 16 Here, Plaintiff does not rest on a mere assertion that issues “can” exist; rather, Plaintiff 17 argues that Defendant Lupton has been telling others that Plaintiff is infringing upon his 18 patent—a fact that Defendants do not expressly contest. 19 In his affidavit, Defendant Lupton declares that Defendant Life Saver has not (1) 20 asserted its patent rights over Plaintiff; (2) engaged in a “whisper campaign;”3 (3) or 21 “directed” its distributors to inform anyone about its intent to sue Plaintiff. (Doc. 27 at 22 Ex. A). Importantly, as Plaintiff notes, Defendant Lupton does not aver whether he has 23 told Life Saver’s distributors that Plaintiff is infringing on his ‘539 patent or if he plans to
24 2 In the Ninth Circuit, a “speaking motion” is a motion accompanied by outside evidence, such as an affidavit. See Trentacosta, 813 F.2d at 1557 (noting that “defendants’ motion 25 to dismiss for lack of subject matter jurisdiction was filed as a ‘speaking motion’ because it was accompanied by two contracts and an affidavit.”). 26 3 Plaintiff alleges in its Amended Complaint that that “Defendants have engaged in a 27 ‘whisper campaign’ through the pool fence industry, including to manufacturers, distributors, and customers, that Plaintiff is allegedly infringing upon Defendant’s 28 fraudulently obtained patent in an effort to dissuade manufacturers, distributors, and customers from transacting business with Plaintiff.” (Doc. 18 at ¶ 54). 1 enforce his patent rights against Plaintiff. (See id.) Defendant Lupton fails to contest the 2 allegations central to Plaintiff’s Amended Complaint in his affidavit—namely, that 3 Defendant Lupton, doing business through Defendant Life Saver, has told current and 4 former Life Saver distributors that Plaintiff has infringed upon the ‘539 Patent and that this 5 has discouraged distributors from purchasing products from Plaintiff. Therefore, Plaintiff 6 is not required to come forward with evidence outside of his pleadings and the Court does 7 not need to convert Defendants’ motion to dismiss into a motion for summary judgment. 8 See City of Tombstone v. United States, 2012 WL 12841240, at *1 (D. Ariz. Sept. 21, 9 2012); Trentacosta, 813 F.2d at 1558–59. 10 Now that the Court has addressed this threshold matter, it will next address whether 11 it has subject matter jurisdiction over Plaintiff’s Declaratory Judgment claims. 12 2. Plaintiff’s Declaratory Judgment Act Claims 13 Defendants contend that the Court does not have jurisdiction over Plaintiff’s 14 Declaratory Judgment claims because there is no case or controversy. (Doc. 27 at 7). 15 Plaintiff seeks Declaratory Judgments as to the invalidity and unenforceability of 16 Defendant Lupton’s ‘539 Patent and ‘588 Application. The Declaratory Judgment Act 17 provides that, “[i]n a case of actual controversy within its jurisdiction . . . any court of the 18 United States, upon the filing of an appropriate pleading, may declare the rights and other 19 legal relations of any interested party seeking such a declaration, whether or not further 20 relief is or could be sought.” 28 U.S.C. § 2201(a). The Declaratory Judgment Act confers 21 “unique and substantial discretion” upon district courts “in deciding whether to declare the 22 rights of litigants.” Wilton v. Seven Falls Co., 515 U.S. 277, 286 (1995). 23 A court has subject matter jurisdiction in a declaratory judgment action when “the 24 facts alleged, under all the circumstances, show that there is a substantial controversy, 25 between parties having adverse legal interests, of sufficient immediacy and reality to 26 warrant the issuance of a declaratory judgment.” MedImmune, Inc. v. Genentech, Inc., 549 27 U.S. 118, 127 (2007). “A declaratory judgment plaintiff must demonstrate, by a totality of 28 the circumstances, the presence of an actual or imminent injury caused by the defendant 1 that can be redressed by judicial relief.” Ours Tech., Inc. v. Data Drive Thru, Inc., 645 F. 2 Supp. 2d 830, 836 (N.D. Cal. 2009) (citing Teva Pharms. USA, Inc. v. Novartis Pharms. 3 Corp., 482 F.3d 1330, 1338 (Fed. Cir. 2009)). 4 In the context of a patent case, declaratory judgment jurisdiction generally does not 5 arise “merely on the basis that a party learns of the existence of a patent owned by another 6 or even perceives such a patent to pose a risk of infringement, without some affirmative 7 act by the patentee.” SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed. 8 Cir. 2007). Instead, jurisdiction arises “where the patentee takes a position that puts the 9 declaratory judgment plaintiff in the position of either pursuing arguably illegal behavior 10 or abandoning that which he claims a right to do.” Id. Further, “where a patentee asserts 11 rights under a patent based on certain identified ongoing or planned activity of another 12 party,” and where that party “contends that it has the right to engage in the accused activity 13 without license, an Article III case or controversy will arise and the party need not risk a 14 suit for infringement by engaging in the identified activity before seeking a declaration of 15 its legal rights.” Id. In other words, competitors do not need to risk infringement liability 16 to seek a declaratory judgment for patent ineligibility. See id. 17 As well, an express charge of patent infringement is not necessary to establish an 18 actual controversy; it may be inferred from the conduct of the parties alone. Shell Oil Co. 19 v. Amoco Corp., 970 F.2d 885, 888 (Fed. Cir. 1992) (“When the defendant’s conduct, 20 including its statements, falls short of an express charge, one must consider the ‘totality of 21 the circumstances.’”) (internal citation omitted). Both implicit and explicit threats by a 22 patent owner can establish declaratory judgment jurisdiction. MedImmune, 549 U.S. at 23 128 (finding that the elimination of the imminent threat of prosecution does not eliminate 24 Article III jurisdiction). 25 Defendants argue that this Court lacks subject matter jurisdiction over the 26 Declaratory Judgment claims because no Defendant has taken an affirmative act to assert 27 its patent rights against Plaintiff. (Doc. 27 at 7). To sufficiently allege an “affirmative act” 28 more is required than “a communication from a patent owner to another party, merely 1 identifying its patent and the other’s product line.” 3M, 673 F.3d at 1378–79. However, 2 an explicit threat to sue for infringement is not necessary because “[t]he purpose of a 3 declaratory judgment action cannot be defeated simply by the stratagem of a 4 correspondence that avoids the magic words such as ‘litigation’ or ‘infringement.’” 5 Hewlett-Packard Co. v. Acceleron LLC, 587 F.3d 1358, 1362 (Fed. Cir. 2009). Declaratory 6 judgment jurisdiction may be satisfied when a patent holder “has made no indications that 7 it will file suit but has taken positions or made demands such that a declaratory judgment 8 plaintiff justifiably believes that the defendant patent holder might take such action in the 9 future.” Network Video Techs., Inc. v. Nitek Int’l, LLC, 2008 WL 4679541, at *5 (N.D. 10 Cal. Oct. 21, 2008). 11 Analyzing “all the circumstances,” the Court concludes that Plaintiff has sufficiently 12 alleged that Defendants have engaged in an affirmative act sufficient to confer jurisdiction 13 over Plaintiff’s declaratory judgment claims. MedImmune, Inc., 549 U.S. at 127. Plaintiff 14 alleges in its Amended Complaint that Defendant Lupton’s patent is invalid as a matter of 15 law due to the on-sale bar contained in 35 U.S.C. § 102.4 (Doc. 18 at ¶¶ 58, 65). Plaintiff 16 also alleges that Defendant Lupton has falsely told Defendant Life Saver’s current and 17 former distributors that Plaintiff is infringing upon its patent. (Id. ¶ 53). Plaintiff further 18 alleges that this has discouraged distributors from purchasing products from Plaintiff and 19 that this was a reasonably foreseeable outcome of Defendants’ conduct. (Id.) These 20 allegations, in the aggregate, paint a clear picture of a “substantial controversy” that is 21 “definite and concrete” enough to be addressed by this Court. See MedImmune, Inc., 549 22 U.S. at 127 (stating that an implicit threat by a patent owner can establish declaratory 23 judgment jurisdiction).5
24 4 The “on-sale bar” prevents an inventor from patenting an invention that was offered for sale more than one-year before a patent application for the invention was filed. 35 U.S.C. 25 § 102; see also Medicines Co. v. Hospira, Inc., 827 F.3d 1363, 1365 (Fed. Cir. 2016) (stating that “if an invention is ‘on sale’ more than one year before the filing of an 26 application for a patent on the governing claims, any issued patent is invalid and the right to exclude others from making, using, and selling the resulting product is lost.”). 27 5 Defendants also argue that alleged actions by third parties are not imputed to Defendant 28 LifeSaver to create an actual case or controversy. (Doc. 27 at 9). Because the Court finds that Plaintiff has sufficiently alleged a declaratory judgment claim related to Defendant 1 B. Failure to State a Claim 2 Defendants next argue that Plaintiff’s Sherman Act and Tortious Interference claims 3 are legally insufficient under Rule 12(b)(6). (Doc. 27 at 12). A motion to dismiss for 4 failure to state a claim, under Federal Rule of Civil Procedure 12(b)(6), requires that this 5 Court evaluate the legal sufficiency of Plaintiff’s claims. Cook v. Brewer, 637 F.3d 1002, 6 1004 (9th Cir. 2011). The test requires that the plaintiff present “enough facts to state a 7 claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 8 (2007). These facts must “allow[] the court to draw the reasonable inference that the 9 defendant is liable for the misconduct alleged” with “more than a sheer possibility that a 10 defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “Threadbare 11 recitals of the elements of a cause of action, supported by mere conclusory statements, do 12 not suffice.” Id. 13 A complaint “must contain sufficient factual matter, accepted as true, to state a claim 14 to relief that is plausible on its face.” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 15 544, 570 (2007)). A claim is plausible “when the plaintiff pleads factual content that allows 16 the court to draw the reasonable inference that the defendant is liable for the misconduct 17 alleged.” Id. (citing Twombly, 550 U.S. at 556). A complaint that provides “labels and 18 conclusions” or “a formulaic recitation of the elements of a cause of action will not do.” 19 Twombly, 550 U.S. at 555. Nor will a complaint suffice if it presents nothing more than 20 “naked assertions” without “further factual enhancement.” Id. at 557. The Court must 21 accept all well-pleaded factual allegations as true and interpret the facts in the light most 22 favorable to the plaintiff. Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). That 23 rule does not apply, however, to legal conclusions. Iqbal, 556 U.S. at 678. If the court 24 dismisses a complaint for failure to state a claim, it must then determine whether to grant 25 leave to amend. See Telesaurus VPC, LLC v. Power, 623 F.3d 998, 1003 (9th Cir. 2010). 26 1. Plaintiff’s Sherman Act Claim 27 Plaintiff’s Sherman Act claim alleges that Defendants are attempting to gain a 28 Lupton’s statements, the Court does not address Defendant’s third party liability argument. 1 monopoly over the “U.S. mesh pool fencing market” through their fraudulently acquired 2 patent in violation of the Sherman Act, 15 U.S.C. § 2. (Doc. 18 at ¶¶ 71–84). Section 2 of 3 the Sherman Act provides: “Every person who shall monopolize, or attempt to monopolize, 4 or combine or conspire with any other persons, to monopolize any part of the trade or 5 commerce . . . shall be deemed guilty of a felony . . .” 15 U.S.C. § 2. 6 A Sherman Act claim is an antitrust action. “In an antitrust action, the complaint 7 need only allege sufficient facts from which the court can discern the elements of an injury 8 resulting from an act forbidden by the antitrust laws.” Newman v. Universal Pictures, 813 9 F.2d 1519, 1522 (9th Cir. 1987). “The traditional claim for attempted monopolization 10 occurs when danger of monopolization is clear and present, but before a full-blown 11 monopolization has necessarily been accomplished.” Alaska Airlines, Inc. v. United 12 Airlines, Inc., 948 F.2d 536, 541-42 (9th Cir. 1991). However, patent holders generally 13 enjoy a limited immunity from antitrust claims. See Nobelpharma AB v. Implant 14 Innovations, Inc., 141 F.3d 1059, 1071 (Fed. Cir. 1998). 15 By its very nature, the granting of a patent to its inventor creates a monopoly over 16 the patented material and a patent-holder can generally enforce its rights under an 17 unexpired patent without fear of antitrust liability. See Simpson v. Union Oil Co., 377 U.S. 18 13, 24 (1964). On the other hand, when a patent owner “uses his patent rights not only as 19 a shield to protect his invention, but as a sword to eviscerate competition unfairly, that 20 owner may be . . . liable for antitrust violations when sufficient power in the relevant market 21 is present.” Atari Games Corp. v. Nintendo of Am., Inc., 897 F.2d 1572, 1576 (Fed. 22 Cir. 1990). In order to “‘achiev[e] a suitable accommodation in this area between the 23 differing policies of the patent and antitrust laws,’ a distinction must be maintained 24 between patents procured by ‘deliberate fraud’ and those rendered invalid or unenforceable 25 for other reasons.” Nobelpharma, 141 F.3d at 1069 (internal citations omitted). 26 In Walker Process, the Supreme Court clarified that a Sherman Act claim for 27 monopolization may be maintained if a plaintiff alleges that “the relevant patent is shown 28 to have been procured by knowing and willful fraud practiced by the defendant on the 1 Patent Office.” Walker Process Equip. v. Food Mach. & Chem. Corp., 382 U.S. 172, 179 2 (1965); see also Nobelpharma AB, 141 F.3d at 1071 (stating that Walker Process provides 3 the legal grounds on which a patentee may be “stripped of its immunity from the antitrust 4 laws.”). Because of this, Sherman Act antitrust claims are commonly referred to as 5 “Walker Process claims” when there is a patent involved. Merch. Techs., Inc. v. Telefonix, 6 Inc., 2007 WL 464710, at *11 (D. Or. Feb. 7, 2007) (internal citations omitted). Federal 7 Circuit law governs the patent-specific portions of a Walker Process claim while regional 8 circuit law governs the antitrust-specific portion of the claim. Cornucopia Products, LLC 9 v. Dyson, Inc., 881 F.Supp.2d 1086, 1098 (Fed. Cir. 2012). (D. Ariz. 2012) (citing 10 Nobelpharma AB, 141 F.3d at 1068). Walker Process essentially adds another element that 11 a plaintiff must sufficiently allege when the alleged antitrust defendant has a patent: 12 knowing and willful fraud upon the PTO. See id. 13 The “first barrier” for a plaintiff alleging a Walker Process claim to clear is the 14 “fraud upon the PTO” element. Dippin’ Dots, Inc. v. Mosey, 476 F.3d 1337, 1346 (Fed. 15 Cir. 2007) (citing Nobelpharma, 141 F.3d at 1068). Said plaintiff must also sufficiently 16 allege the basic elements of an antitrust violation as defined by the regional circuit’s law. 17 Id. at 1348. To plead a successful attempted monopolization claim in the Ninth Circuit, a 18 plaintiff must establish: “(1) specific intent to monopolize a relevant market; (2) predatory 19 or anticompetitive conduct; and (3) a dangerous probability of success.” Optronic Techs., 20 Inc. v. Ningbo Sunny Elec. Co., 20 F.4th 466, 481–82 (9th Cir. 2021). 21 Defendants argue that Plaintiff has not sufficiently alleged its attempted 22 monopolization claim because: (1) Plaintiff does not, and cannot, allege that Defendants 23 sought to enforce its patent rights against Plaintiff; and (2) Plaintiff has failed to define the 24 relevant market. (Doc. 27 at 13–14). Defendants specifically argue that a plaintiff must 25 allege that the patentee attempted to enforce their patent rights. (Id. at 13). Plaintiff argues 26 that it has defined the relevant market and that the existence of declaratory judgment 27 jurisdiction establishes that Defendants sought to enforce their patent rights. (Doc. 29 28 at 10). 1 Typically, a Walker Process claim is “raised as a counterclaim by a defendant in a 2 patent infringement suit.” Nobelpharma, 141 F.3d at 1067. Plaintiff brings its Walker 3 Process claim offensively here, however. Whether a plaintiff may bring a Walker Process 4 claim offensively is a matter of Federal Circuit law “because it overlaps with how a patent- 5 holder may enforce its patents.” Cornucopia Products, LLC, 881 F.Supp.2d at 1098. 6 “Under Federal Circuit law, the standards that the Federal Circuit ha[ve] developed for 7 determining jurisdiction in a Declaratory Judgment Action of patent invalidity also define 8 the minimum level of ‘enforcement’ necessary to expose the patentee to a Walker Process 9 claim.” SkyHawke Techs., LLC v. GolfzonDeca, Inc., 2020 WL 6115095, at *4 (C.D. Cal. 10 Aug. 3, 2020) (internal citations and quotations omitted). “[T]he same standards governing 11 the declaratory judgment claims for patent invalidity also set forth the minimum level of 12 ‘enforcement’ necessary to plead a Walker Process claim.” Id. 13 The Court concluded above that Plaintiff sufficiently alleged its declaratory 14 judgment claims, therefore, Plaintiff has also necessarily alleged sufficient facts to define 15 the minimum level of enforcement necessary to expose Defendant to a Walker Process 16 claim. See SkyHawke Techs., LLC, 2020 WL 6115095, at *4. 17 The Court also finds that Plaintiff has sufficiently defined the relevant market. 18 Plaintiff defines the relevant market as the U.S. mesh pool fencing market. (Doc. 18 at ¶ 19 78). “The consumers do not define the boundaries of the market; the products or producers 20 do.” Newcal Indus., Inc. v. Ikon Off. Sol., 513 F.3d 1038, 1045 (9th Cir. 2008). The 21 relevant market consists of all products that are “reasonably interchangeable by consumers 22 for the same purposes.” United States v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 23 395 (1956). “Reasonable interchangeability” may be determined by looking at price, use, 24 and qualities of the products. Id. at 404. While the general market contemplated must 25 include all economic substitutes, “it is legally permissible to premise antitrust allegations 26 on a submarket.” Newcal Indus., Inc., 513 F.3d at 1045. To establish a product submarket 27 the antitrust plaintiff “must be able to show (but need not necessarily establish in the 28 complaint) that the alleged submarket is economically distinct from the general product 1 market.” Id. “When considering the sufficiency of allegations related to the relevant 2 market, there is no requirement that these elements of the antitrust claim be pled with 3 specificity,” and a Walker Process claim “will survive Rule 12(b)(6) scrutiny unless it is 4 apparent from the face of the complaint that the alleged market suffers a fatal legal defect.” 5 Portney v. CIBA Vision Corp., 593 F. Supp. 2d 1120, 1126 (C.D. Cal. 2008). 6 Plaintiff defines the “relevant market” as the “U.S. mesh pool fence market.” (Doc. 7 18 at ¶ 78). Defendant argues that this definition is “facially unsustainable” because it fails 8 to include all economic substitutes. (Doc. 27 at 15). Indeed, “a complaint may be 9 dismissed under Rule 12(b)(6) if the complaint’s ‘relevant market’ definition is facially 10 unsustainable.” Newcal Indus., Inc., 513 F.3d at 1045 (internal citations omitted). But 11 Plaintiff’s market definition is not facially unsustainable. Plaintiff’s defined market is a 12 submarket of the pool fencing industry: the U.S. mesh pool fencing industry. Plaintiff has 13 alleged that this submarket is distinct and that these types of products are generally more 14 affordable, portable, and aesthetically pleasing than other fencing solutions. (Doc. 18 at 15 ¶ 26). Plaintiff also notes that the product at issue in this case is much more desirable to 16 consumers as it is more durable than other products. (Id. ¶¶ 28, 30). Plaintiff has alleged 17 that other designs for mesh pool fence poles would require “significant compromises in 18 safety, or require additional costs in manufacturing, that would make them less competitive 19 in the marketplace.” (Id. at ¶ 78). In other words, that there is a lack of reasonably 20 interchangeable products within this submarket. E. I. du Pont de Nemours & Co., 351 U.S. 21 at 395. From this, the Court finds that Plaintiff has sufficiently defined the relevant market. 22 Defendant’s critiques of the relevant product market “fail at this motion to dismiss stage 23 because they are factual critiques that do not show ‘that the alleged market suffers a fatal 24 legal defect.’” Portney, 593 F. Supp. 2d at 1126 (citing Newcal Indus., Inc., 513 F.3d at 25 1045). 26 Defendant also argues, in passing, that Plaintiff “cannot plausible allege” that 27 Defendant Life Saver will acquire a monopoly over the relevant market because there are 28 no allegations concerning Defendants’ market share or power. (Doc. 27 at 16). Not so. 1 This argument attacks Plaintiff’s burden to sufficiently allege that there is a dangerous 2 probability that Defendants will monopolize the relevant market. Optronic Techs., 3 Inc., 20 F.4th at 481–82. To this end, Plaintiff alleges that Defendants are “using their 4 fraudulently-obtained patent to induce distributors into entering exclusive franchise 5 agreements with [Defendant Life Saver], using their unlawfully obtained market power in 6 the mesh pool fence market to dominate the mesh pool fence market.” (Doc. 18 at ¶ 79). 7 Plaintiff further alleges that “[w]ithout its fraudulently-obtained patent, Defendants would 8 lack monopoly power to set prices in the mesh pool fence market.” (Id. at ¶ 81). 9 Monopolistic power is the “power to control prices or exclude competition.” United States 10 v. Grinnell Corp., 384 U.S. 563, 571 (1966). Plaintiff alleges that Defendant currently has 11 the power to set prices within the relevant market and that Defendants are using this power 12 to “induce” exclusivity agreements and “dominate” the market. (Doc. 18 at ¶¶ 79, 81). 13 From this, the Court finds that Plaintiff sufficiently alleges that there is a dangerous 14 probability that Defendants will monopolize the relevant market. 15 Thus, after reviewing Defendants’ arguments, the Court concludes that Plaintiff has 16 stated a claim for attempted monopolization under the Sherman Act that is plausible on its 17 face. See Twombly, 550 U.S. at 570; Iqbal, 556 U.S. at 678. 18 2. Plaintiff’s Tortious Interference Claim 19 Lastly, Defendants argue that Plaintiff has failed to state a claim for Tortious 20 Interference with a Contractual Relationship or Business Expectancy because federal 21 patent law preempts Plaintiff’s state law claim. (Doc. 27 at 16–17). Defendant also argues 22 that Plaintiff’s claim fails because it fails to identify the existence of a valid contractual 23 relationship or business expectancy. Id. 24 i. Preemption 25 Federal law does not preempt Plaintiff’s claim in this case. “[F]ederal patent law 26 preempts state-law tort liability for a patentholder’s good faith conduct in communications 27 asserting infringement of its patent and warning about potential litigation.” Globetrotter 28 Software, Inc. v. Elan Comput. Grp., Inc., 362 F.3d 1367, 1374 (Fed. Cir. 2004) (citation 1 omitted). Thus, “to avoid preemption, bad faith must be alleged and ultimately proven, 2 even if bad faith is not otherwise an element of the tort claim.” Id (internal quotation 3 marks omitted). 4 Here, Plaintiff alleges that “Defendants’ conduct []was fraudulent, intentional, and 5 malicious, and/or done so as motivated by spite, where Defendants used improper means 6 to seek revenge against Plaintiff’s successful business in stark contrast with Defendants’ 7 failures to run its own business.” (Doc. 18 at ¶ 95). Thus, the Court declines to dismiss 8 Plaintiff’s claim on preemption grounds at this juncture because Plaintiff has sufficiently 9 alleged that Defendants’ communications related to the ‘539 Patent were not in good faith. 10 Globetrotter Software, Inc., 362 F.3d at 1374. 11 ii. Existence of Valid Contractual Relationship or Business Expectancy 12 13 To sufficiently allege a claim for tortious interference with a contractual relationship 14 under Arizona law, a plaintiff must allege: “(1) the existence of a valid contractual 15 relationship; (2) [defendant’s] knowledge of the relationship; (3) [defendant’s] intentional 16 interference in inducing or causing the breach; (4) the impropriety of [defendant’s] 17 interference; and (5) resulting damages.” MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 18 F.3d 928, 955 (9th Cir. 2010) (internal citations omitted). Tortious interference with a 19 contract “requires, among other things, a contract between the plaintiff and a third party.” 20 Health Indus. Bus. Commc’ns Council Inc. v. Animal Health Inst., 481 F. Supp. 3d 941, 21 958 (D. Ariz. 2020). 22 Claims for tortious interference with contractual relationship are “virtually 23 identical” to claims for tortious interference with a business expectancy. Health Indus. 24 Bus. Commc’ns Council Inc., 481 F. Supp. 3d at 958. To state a prima facia case for 25 tortious interference with a business expectancy, a plaintiff must allege: (1) the existence 26 of a valid contractual relationship or business expectancy; (2) that the defendant knowledge 27 of the relationship or business expectancy; (3) intentional interference inducing or causing 28 a breach of the contract or termination of the relationship; and (4) that there was resultant 1 damage to the party whose relationship or expectancy has been disrupted. See MiCamp 2 Sols. LLC v. Nat’l Processing LLC, 2020 WL 3893570, at *3 (D. Ariz. July 10, 2020) 3 (citing Dube v. Likins, 167 P.3d 93, 97, 99 (Ariz. Ct. App. 2007)). “To state a claim for 4 tortious interference [with a business expectancy], the alleged facts must show that the 5 expectancy constitutes more than mere hope.” Id. (citation omitted). 6 Though the Court agrees with Defendants that Plaintiff has failed to identify the 7 existence of a specific contractual relationship with a third party, Plaintiff alleges that 8 Defendants knowingly made false allegations of patent infringement to Plaintiff’s 9 “potential and current customers, distributors, and manufacturer[s].” (Doc. 18 at ¶ 87). 10 Plaintiff also alleges that it had a valid business expectancy to sell its pool fences to “its 11 distributors and other pool fence distributors that were looking to purchase products from 12 Plaintiff.” (Id. ¶ 90). As a result of these alleged false statements, Plaintiff asserts that it 13 has suffered financially. (Id. ¶ 94). Unlike interference with a contractual relationship, 14 under Arizona state law, interference with the “opportunity to obtain customers is 15 sufficient, and interference with a single specific relationship is not required.” MiCamp 16 Sols. LLC, 2020 WL at *3 (citing Edwards v. Anaconda Co., 565 P.2d 190, 192-93 (Ariz. 17 Ct. App. 1977)). 18 The Court concludes that Plaintiff has stated a claim for tortious interference with a 19 business expectancy, but not interference with a contractual relationship. Therefore, the 20 Court will grant Defendants’ Motion to Dismiss Plaintiff’s Tortious Interference claim in 21 part and deny it in part. Further, because it is possible that Plaintiff could allege facts from 22 which the Court could plausibly infer that Defendants committed tortious interference with 23 a contractual relationship, the Court will grant Plaintiff leave to amend this count. See 24 Lopez v. Smith, 203 F.3d 1122, 1127–30 (9th Cir. 2000). 25 Accordingly, 26 IT IS ORDERED that Defendants’ Motion to Dismiss is granted in part and 27 denied in part. (Doc. 27). Plaintiff’s claim for tortious interference with a contractual 28 relationship (part of Count VI) is dismissed, without prejudice. Any proposed 1 || amendment to Count VI shall be made within fourteen (14) days of this Order. 2|| The remainder of Defendants’ Motion is denied. 3 Dated this 8th day of December, 2023. 4 5 ZL we □ 6 norable'Diang/4. Hurmetewa 7 United States District Fudge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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