Version2 Technology, Inc. v. NeilMed Pharmaceuticals, Inc., No. 3:2016cv04720 - Document 29 (N.D. Cal. 2016)
Court Description: ORDER granting 10 Motion to Strike ; granting 14 Motion to Dismiss. The attached order grants both motions. NeilMed's state-court lawsuit constitutes First Amendment petitioning that falls within the compass of NoerrPennington immunity. Version2 has not plausibly alleged that the state-court suit is a "sham" within the meaning of the NoerrPennington doctrine. The court thus dismisses the present complaint with prejudice except that it grants Version2 leave to amend its co mplaint for the sole purpose of clarifying how Claims II and III "implicate" federal patent law in a way that allows them to avoid the California anti-SLAPP statute. The court thus denies without prejudice NeilMed's present anti-SLAPP motion Before setting a deadline for Version2's amended complaint, the court will hold a case-management conference, and now sets that conference for December 1, 2016 at 11:00 a.m. The parties must file a joint case-management statement by November 22, 2016, that addresses the parties' proposed next steps.(Beeler, Laurel) (Filed on 11/9/2016)
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Version2 Technology, Inc. v. NeilMed Pharmaceuticals, Inc. Doc. 29 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 NORTHERN DISTRICT OF CALIFORNIA 10 San Francisco Division United States District Court Northern District of California 11 12 Plaintiff, 13 14 15 16 ORDER ON MOTIONS TO DISMISS AND STRIKE v. NEILMED PHARMACEUTICALS, INC., Re: ECF No. 10, 14 Defendant. INTRODUCTION 17 18 Case No. 16-cv-04720-LB VERSION2 TECHNOLOGY, INC., This is an antitrust and unfair-competition suit between rival makers of nasal-irrigation 19 products. The plaintiff, Version2 Technology, Inc., claims that the defendant, NeilMed 20 Pharmaceuticals, Inc., engaged in illegally monopolistic behavior and unfair competition when 21 NeilMed sued Version2 in California state court. In that state-court lawsuit, which is still pending, 22 NeilMed (as plaintiff) alleges that Version2 helped a moonlighting NeilMed employee to develop 23 for Version2 a product prototype that rightly belonged to NeilMed. (An arbitrator has already 24 concluded that the employee thereby wrongfully breached duties to NeilMed. And that NeilMed 25 indeed owns the prototype.) According to Version2, NeilMed sued in state court to keep Version2 26 out of the relevant market. The underlying lawsuit, in other words, is the allegedly illegal antitrust 27 behavior and the act of unfair competition. NeilMed now moves to dismiss Version2’s complaint 28 — meaning, this federal complaint — under Rule 12(b)(6) and the Noerr–Pennington doctrine. ORDER — No. 16-cv-04720-LB Dockets.Justia.com 1 (ECF No. 14.)1 NeilMed argues that its California lawsuit is protected by the First Amendment so 2 that, under Noerr–Pennington, it is immune from this challenge. The court agrees. Because 3 Version2 has not plausibly shown that NeilMed’s state-court lawsuit is a “sham” under Noerr– 4 Pennington, the court grants NeilMed’s Rule 12(b)(6) motion and dismisses the present complaint 5 with prejudice. This dismissal has one exception. NeilMed has also moved to strike two of Version2’s claims 7 under California Code of Civil Procedure § 425.16, the state’s Strategic Lawsuits Against Public 8 Participation (“SLAPP”) law. (ECF No. 10.) To the extent that Version2’s claims challenge 9 NeilMed’s California state lawsuit, the anti-SLAPP statute bars them. Because federal procedure 10 governs this case, however, and permits liberal pleading amendments, the court grants Version2 11 United States District Court Northern District of California 6 leave to amend its complaint “to clarify” how its second and third claims “implicate” federal 12 patent law, thereby stating a claim that is not directed toward NeilMed’s California lawsuit, and 13 consequently is not subject to the anti-SLAPP bar. See, e.g., See Verizon Del., Inc. v. Covad 14 Commc’ns Co., 377 F.3d 1081, 1091 (9th Cir. 2004) (indicating that federal procedural law 15 requires granting to leave to amend before striking a claim under anti-SLAPP).2 16 STATEMENT3 17 18 1. A Moonlighting NeilMed Employee Develops a Product Prototype for Version2 Both NeilMed and Version2 make and sell nasal-irrigation products. In 2013, Sarveswara Rao 19 20 Basa was a NeilMed employee who had been with the company for roughly 12 years.4 Mr. Basa 21 was “one of [NeilMed’s] most-trusted employees and someone with unfettered access to 22 1 23 Record citations refer to material in the Electronic Case File (“ECF”); pinpoint citations are to the ECF-generated page numbers at the top of documents. 24 2 25 26 Both parties have consented to magistrate jurisdiction. (ECF Nos. 5, 16); see 28 U.S.C. § 636(c)(1). The court has determined that this motion can be decided without oral argument. See Civil L.R. 7-1(b). The court therefore vacates the hearing that is set for November 17, 2016 but sets a case-management conference for December 1, 2016, at 11:00 a.m. and directs the parties to file a joint case-management statement by November 22, 2016, with their proposed next steps. 3 27 This factual statement is drawn from both Version2’s complaint and the material that the court has judicially noticed. See infra, Analysis, Part 1. 28 4 2nd Am. Compl. – ECF No. 15-4 at 4 (¶¶ 11-12). ORDER — No. 16-cv-04720-LB 2 1 NeilMed’s confidential and trade secret information.”5 Whenever NeilMed “developed new 2 products,” Mr. Basa “was always kept abreast.”6 Mr. Basa resigned from NeilMed in 2013.7 Before resigning, though, Mr. Basa had begun 3 4 working with Version2 to jointly develop what would become Version2’s “ClearNasal” product. In 5 particular, Mr. Basa and Version2 developed a prototype nasal-irrigation device featuring an 6 “angular cap.”8 This product would “compete with NeilMed’s” own similar product.9 7 After resigning from NeilMed, Mr. Basa worked briefly for Version 2, and later left that job, as 8 well.10 9 10 2. The California State Lawsuit & the Arbitration Award NeilMed sued Mr. Basa and Version2 in California state court, claiming that, because Mr. Basa United States District Court Northern District of California 11 12 had developed the “angular cap prototype” while he was a NeilMed employee, the prototype 13 rightly belonged to NeilMed.11 NeilMed accused its former employee of breaching his contractual 14 and fiduciary duties to NeilMed, and engaging in unfair competition.12 NeilMed also alleged that 15 Version2 had wrongfully encouraged and helped Mr. Basa to develop the prototype while he still 16 worked at NeilMed, thus interfering with Mr. Basa’s employment contract with NeilMed, aiding 17 and abetting Mr. Basa’s misconduct, and unfairly competing with NeilMed.13 For relief, NeilMed 18 sought damages and an injunction that would require Version2 and Mr. Basa “to refrain from 19 20 22 23 24 Id. at 4 (¶ 12). 6 Id. 7 21 5 Id. at 7 (¶ 16). 8 For the previous two sentences, see id. at 7-9, 11-12 (¶¶ 19-20, 29-32). 9 Id. at 8 (¶ 20c). 10 See Compl. – ECF No. 1 at 3 (¶ 15). 11 25 26 Id. at 3-4 (¶¶ 15-16); see, e.g., 2nd Am. Compl. – ECF No. 15-4 at 15 (¶ 43) (“[Version 2] is using a product based on a prototype angular cap that belongs to NeilMed, which it unlawfully obtained from Rao Basa”). The current, operative complaint in the California state suit is the Second Amended Complaint, which appears on this court’s docket as ECF No. 15-4. The procedural history of the state suit before this complaint is unimportant to this analysis. 27 12 See Compl. – ECF No. 1 at 3-4 (¶¶ 15-16). 28 13 Compl. – ECF No. 1 at 4 (¶ 17); 2nd Am. Compl. – ECF No. 15-4 at 13-18 (¶¶ 36-60). ORDER — No. 16-cv-04720-LB 3 1 selling or offering to sell NeilMed’s prototype angular cap, or any product derived from that 2 prototype.”14 NeilMed and Mr. Basa arbitrated their dispute.15 The arbitrator found that, during his 3 4 tenure at NeilMed, Mr. Basa had indeed worked with Version2 to develop a nasal-irrigation 5 device. Specifically, the arbitrator found: In early 2012, Mr. Basa began working as a consultant for Version2 . . . in addition to his regular employment at NeilMed. 6 7 .... 8 The evidence established that at least as early as September 2012, [Version2] was working on a nasal[-]irrigation device. Mr. Basa denies being part of that project but there is documentary evidence to the contrary. 9 .... 11 United States District Court Northern District of California 10 [T]he evidence established that Mr. Basa was working on the ClearNasal project for [Version2] before he resigned from NeilMed, and thus he breached his duty of loyalty to NeilMed.16 12 13 14 15 The arbitrator held that Mr. Basa had breached both his fiduciary duty to NeilMed and an intellectual-property agreement that governed his employment.17 (The arbitrator also held that NeilMed had failed to prove that Mr. Basa had breached his confidentiality agreement or 16 misappropriated trade secrets.18) The arbitrator concluded that “the design for the angular cap 17 belongs to NeilMed because Mr. Basa developed that cap while employed at NeilMed.”19 18 19 20 Furthermore, “[t]he arbitrator specifically [found] that Mr. Basa cannot transfer title to [Version2] of that which he does not own. Therefore [Version2] does not now own the ‘angular cap prototype’ which is the subject of this arbitration. NeilMed owns it.”20 21 The award addressed both injunctive and monetary relief. As for the injunction, the arbitrator 22 23 14 2nd Am. Compl. – ECF No. 15-4 at 18-19. 24 15 Compl. – ECF No. 1 at 4 (¶ 18); see generally Arb. Award – ECF No. 15-2. 25 16 ECF No. 15-2 at 9, 36) (record citation omitted). 17 Id. at 42 (¶¶ 1, 3); see Compl. – ECF No. 1 at 4 (¶ 19). 18 ECF No. 15-2 at 42 (¶¶ 2, 4) 27 19 Id. at 37. 28 20 Id. at 28. 26 ORDER — No. 16-cv-04720-LB 4 1 held: “Mr. Basa is enjoined from acting in violation of NeilMed’s rights as owner of the ‘angled 2 cap prototype.’ He is to return all documentation and prototypes to NeilMed forthwith and is not to 3 transfer anything regarding the ‘angled cap prototype’ to [Version2] or any other third party.”21 The arbitrator declined to award damages. Discussing NeilMed’s contract claim, in particular, 4 5 he wrote that “there is monetary damage,” and that “there are at least nominal damages for the 6 value of NeilMed’s property which [Mr. Basa] took to [Version2],” but that the amount of damage 7 was “uncertain.”22 He similarly refused to award money reflecting a disgorgement of any gain that 8 Mr. Basa may have made from developing the prototype. On this head the arbitrator wrote: 9 Mr. Basa testified that he received $10,000 in compensation from [Version2]. NeilMed argues, “That compensation, in whole or at least in large part, was made in return for Mr. Basa’s contribution of the prototype cap for the ClearNasal product.” That may be true, but the record does not show what portion, if any, was for contribution of the prototype. To award any amount of monetary damages would be speculative. NeilMed’s request for monetary damages or disgorgement of profits is therefore denied. 10 United States District Court Northern District of California 11 12 13 14 (Id.) The California trial court confirmed the arbitration award.23 15 16 3. This Lawsuit Earlier this year, with the California state lawsuit against it still pending, Version2 filed this 17 18 federal lawsuit against NeilMed. This suit is — as this court reads the complaint — premised 19 wholly on, directed wholly at, NeilMed’s state-court lawsuit. In this suit, Version2 claims that 20 NeilMed’s state-court lawsuit is “objectively baseless” and “anticompetitive” — centrally because, 21 according to Version2, that suit seeks a remedy that NeilMed cannot lawfully have, that “would 22 foreclose a substantial amount of competition,” and that has already “impaired Version2’s ability 23 to enter into the relevant market.”24 Version2 brings three claims. It first claims that NeilMed has 24 unlawfully tried to restrain trade and monopolize the relevant market in violation of the Sherman 25 21 Id. at 42. 22 Id. at 36-37. 27 23 ECF No. 15-3. 28 24 Compl. – ECF No. 1 at 3 (¶ 14). 26 ORDER — No. 16-cv-04720-LB 5 1 Act (15 U.S.C. § 2) and the Clayton Act (15 U.S.C. § 4).25 Next, again pointing to the controversy 2 reflected in NeilMed’s “pending state[-]court proceedings,” and the injunction that NeilMed seeks 3 there, Version2 requests a declaration “of [the parties’] respective rights and obligations.”26 4 Finally, Version2 claims that NeilMed’s “state[-]court litigation” constitutes “unfair competition” 5 in violation of California’s Unfair Competition Law (Cal. Bus. & Profs. Code § 17200).27 As 6 relief, Version2 seeks (in sum) an injunction, a monetary award (as damages or restitution), and a 7 declaration that NeilMed cannot enjoin Version2 from developing a nasal-irrigation device based 8 on the disputed prototype.28 9 ANALYSIS 10 United States District Court Northern District of California 11 1. Rule 12(b)(6) & Request for Judicial Notice 12 1.1 Rule 12(b)(6) 13 A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a complaint. Navarro v. 14 Block, 250 F.3d 729, 732 (9th Cir. 2001). A claim will normally survive a motion to dismiss if it 15 offers a “short and plain statement . . . showing that the pleader is entitled to relief.” See Fed. R. 16 Civ. P. 8(a)(2). This statement “must contain sufficient factual matter, accepted as true, to ‘state a 17 claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting 18 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the 19 plaintiff pleads factual content that allows the court to draw the reasonable inference that the 20 defendant is liable for the misconduct alleged.” Id. “The plausibility standard is not akin to a 21 ‘probability requirement,’ but it asks for more than a mere possibility that a defendant has acted 22 unlawfully.” Id. (quoting Twombly, 550 U.S. at 556). When considering a Rule 12(b)(6) motion, the court accepts as true all factual allegations in 23 24 the complaint and all reasonable inferences that can be drawn from those allegations. LSO, Ltd. v. 25 25 Id. at 6-7 (¶¶ 30-37). 26 Id. at 7 (¶¶ 38-43). 27 27 Id. at 8 (¶¶ 44-49). 28 28 Id. at 8-9 (prayer clause). 26 ORDER — No. 16-cv-04720-LB 6 Stroh, 205 F.3d 1146, 1150 n. 2 (9th Cir. 2000). Such allegations must be construed in the light 2 most favorable to the nonmoving party. Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000). 3 Nevertheless — and in a facet of the rule that is salient here — the court “is not required to accept 4 legal conclusions cast in the form of factual allegations if those conclusions cannot reasonably be 5 drawn from the facts alleged.” Clegg v. Cult Awareness Network, 18 F.3d 752, 754–55 (9th Cir. 6 1994) (quoted in Rucker v. Trent, 2012 WL 4677741, *2 (N.D. Cal. Sept. 30, 2012)); accord, e.g., 7 Speck v. Shasta County Sheriff’s Dept., 2014 WL 576202, *2 (E.D. Cal. Feb. 11, 2014). 8 Furthermore, “when ‘a plaintiff seeks damages . . . for conduct which is prima facie protected by 9 the First Amendment, the danger that the mere pendency of the action will chill the exercise of 10 First Amendment rights requires more specific allegations than would otherwise be required.’” 11 United States District Court Northern District of California 1 Kottle v. Nw. Kidney Ctrs., 146 F.3d 1056, 1063 (9th Cir. 1998) (quoting Franchise Realty 12 Interstate Corp. v. San Francisco Local Joint Executive Bd. of Culinary Workers, 542 F.2d 1076, 13 1083 (9th Cir. 1976)); accord, e.g., McMillin v. Foster City, 2012 WL 2568207, *9 (N.D. Cal. July 14 2, 2012). 15 16 1.2 Request for Judicial Notice 17 NeilMed asks the court to judicially notice five documents: the initial and two amended 18 complaints in the state-court suit; the arbitration award; and the state-court order confirming that 19 award. (ECF Nos. 13, 15.) Judicially noticed material may be considered in deciding a Rule 20 12(b)(6) motion without converting that motion into one for summary judgment. E.g., Lee v. City 21 of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001). The documents here are “matters of public 22 record” — they are mostly elements of the state-court file — and so are proper objects of judicial 23 notice. E.g., id. at 689-90; Bonnel v. Best Buy Stores, L.P., 881 F. Supp. 2d 1164, 1168-69 (N.D. 24 Cal. 2012). (The arbitration award itself is perhaps less surely subject to judicial notice; but, here, 25 that award was attached to the state court’s confirmation order (see ECF No. 15-2 at 6-49), and so 26 is embodied in a document that can be noticed.) Furthermore, the state-court suit, the initial state- 27 court complaint, the arbitration, and the arbitration award are all referenced in, and integral to, the 28 present complaint. See (Compl. – ECF No. 1 at 3-5 [¶¶ 14-23]); Knievel v. ESPN, 393 F.3d 1068, ORDER — No. 16-cv-04720-LB 7 1 1076 (9th Cir. 2005) (explaining that such material may be considered on Rule 12(b)(6) motion). 2 Version2 has not opposed the request for judicial notice or questioned the authenticity of the 3 evidentiary material that NeilMed has filed. The court therefore takes judicial notice of all the 4 material contained in (ECF Nos. 13, 15). 5 6 2. The Noerr–Pennington Doctrine 7 2.1 The Doctrine & Basic Test 8 “The Noerr–Pennington doctrine derives from the First Amendment’s guarantee of ‘the right of the people . . . to petition the Government for a redress of grievances.’” Sosa v. DIRECTV, Inc., 10 437 F.3d 923, 929 (9th Cir. 2006) (quoting U.S. Const. amend. I).29 “Under the Noerr–Pennington 11 United States District Court Northern District of California 9 doctrine, those who petition any department of the government for redress are generally immune 12 from statutory liability for their petitioning conduct.” Sosa, 437 F.3d at 929. Though it originally 13 “arose in the antitrust context,” the Noerr–Pennington rule has been “extended” to cover matters 14 “outside the antitrust field.” Id. at 929-31 (discussing cases). Indeed, “the Noerr–Pennington 15 doctrine stands for a generic rule . . . applicable to any statutory interpretation that could implicate 16 the rights protected by the Petition Clause.” Id. at 931. And, as the Ninth Circuit has further 17 explained: “[R]ecognizing that ‘the right to petition extends to all departments of the government’ 18 and that ‘[t]he right of access to the courts is . . . but one aspect of the right of petition,’” the 19 Supreme Court has “extended Noerr–Pennington immunity to the use of ‘the channels and 20 procedures of state and federal . . . courts . . . .’” Id. at 929-30 (quoting Cal. Motor Transp. Co. v. 21 Tracking Unlimited, 404 U.S. 508, 510-11 (1972)) (emphasis removed). State-court litigation is 22 thus a mode of petitioning that Noerr–Pennington protects. See id. 23 How, then, is Noerr–Pennington applied? “Under the Noerr–Pennington doctrine, the filing of 24 a lawsuit is immune from the antitrust laws unless the suit is a ‘sham.’” Columbia Pictures Indus., 25 Inc. v. Prof’l Real Estate Inv’rs, Inc., 944 F.2d 1525, 1529 (9th Cir. 1991), aff’d, 508 U.S. 49 26 27 29 28 The doctrine’s eponymous source cases are E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) and United Mine Workers v. Pennington, 381 U.S. 657 (1965). ORDER — No. 16-cv-04720-LB 8 1 (1993) (quoting California Motor Transport, 404 U.S. at 510). “[A]n antitrust plaintiff must make 2 a two-part showing to support a finding of sham: (1) that the suit is baseless — a legal question; 3 and (2) that the suit was brought as part of an anticompetitive plan external to the underlying 4 litigation — a question of fact.” Columbia Pictures, 944 F.2d at 1532 (citation omitted) (emphasis 5 added). Furthermore: 6 7 8 9 When the antitrust plaintiff challenges one suit [as Version2 does here] and not a pattern, a finding of sham requires not only that the suit is baseless, but also that it has other characteristics of grave abuse, such as being coupled with actions or effects external to the suit that are themselves anti-competitive. Id. at 1530 (second emphasis added) (citing Rickards v. Canine Eye Registration Found., Inc., 783 F.2d 1329, 1334 (9th Cir. 1986) (quoting in turn Omni Resource Dev. Corp. v. Conoco, Inc., 739 11 United States District Court Northern District of California 10 F.2d 1412, 1414 (9th Cir. 1984)). 12 Version2 argues that whether something is a “sham” for Noerr–Pennington purposes is a 13 “question of fact” that “rarely” admits of Rule 12(b)(6) dismissal. (ECF No. 22 at 6 (citing Clipper 14 Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1253 (9th Cir. 1982) 15 (“fact”) and Sonus Networks, Inc. v. Inventergy, Inc., 2015 WL 4539814, *2 (N.D. Cal. July 27, 16 2015) (“rarely”)). That may be. And Version2’s cites to Clipper Exxpress and Sonus Networks on 17 this point are accurate. Given the Ninth Circuit’s later statement in Columbia Pictures, however, 18 the better view would seem to be that only the second, “anticompetitive plan” part of Noerr– 19 Pennington’s “sham” inquiry presents “a question of fact,” while the first criterion, 20 “baseless[ness],” raises “a legal question.” See Columbia Pictures, 944 F.2d at 1532. The court 21 need not resolve the point. It is clear in any case that, when the law and facts compel one 22 conclusion as a matter of law, as they do here, a case can be dismissed under Rule 12(b)(6) on 23 Noerr–Pennington grounds. See, e.g., Sosa, 437 F.3d at 927, 929-41 (affirming Rule 12(b)(6) 24 dismissal). 25 26 2.2 Version2 Has Not Shown That NeilMed’s California State Lawsuit Is Baseless — Applying Noerr–Pennington 27 There can be no dispute that NeilMed’s California lawsuit is a petition within the compass of 28 Noerr–Pennington protection. See Sosa, 437 F.3d at 929-30 (quoting California Motor Transport, ORDER — No. 16-cv-04720-LB 9 1 404 U.S. at 510-11) (state-court litigation is a mode of petitioning within Noerr–Pennington). The 2 decisive issue is thus whether, as Version2 alleges, that lawsuit is a “sham.” The court concludes 3 that it is not. More exactly, the court holds that Version2 has not plausibly shown that NeilMed’s 4 California suit is “objectively baseless.” That lawsuit is consequently immune under Noerr– 5 Pennington from Version2’s instant federal complaint. Or, more correctly, NeilMed is immune 6 from liability premised on its California suit. 7 To be a “sham” that is unprotected by Noerr–Pennington, a lawsuit 11 must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits. If an objective litigant could conclude that the suit is reasonably calculated to elicit a favorable outcome, the suit is immunized under Noerr[–Pennington], and an antitrust claim premised on the sham exception must fail. Only if challenged litigation is objectively meritless may a court examine the litigant's subjective motivation. 12 Prof’l Real Estate Inv’rs, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993) (footnote 13 omitted). 8 9 United States District Court Northern District of California 10 14 Version2’s allegations and arguments do not meet this test. They do not show (read: plausibly 15 allege) that NeilMed’s California state suit is “objectively baseless.” Version2’s entire “sham” 16 argument is directed toward the relief that NeilMed seeks in its California suit. In sum, Version2 17 argues that NeilMed could not have “realistically expect[ed]” to prevail on its prayer for either 18 damages or an injunction. See (ECF No. 22 at 3, 6-7.) 19 But Version2 is wrong on both heads. Given the express conclusions of the judicially 20 confirmed arbitration award, in fact, Version2 is incorrect as a matter of law. That award alone 21 gave NeilMed “reasonable” and “realistic” grounds to sue and to expect that it might succeed. 22 Conversely stated, the arbitration award’s express terms make it impossible to hold that NeilMed’s 23 California suit is “objectively meritless.” 24 Version2 first argues that NeilMed cannot prove that it incurred damages as a result of the lost 25 prototype. (ECF No. 22 at 3, 6-7.) This is incorrect. The lost prototype is itself injury sufficient to 26 ground a “realistic” claim. The arbitration award expressly found that NeilMed owned — which is 27 to say, had property rights in — the prototype. That award states: “The arbitrator specifically finds 28 that Mr. Basa cannot transfer title to [Version2] of that which he does not own. Therefore ORDER — No. 16-cv-04720-LB 10 1 [Version2] does not now own the ‘angular cap prototype’ which is the subject of this arbitration. 2 NeilMed owns it.” (ECF No. 15-2 at 28) (emphasis added). Elsewhere the award similarly states: 3 “Mr. Basa is enjoined from acting in violation of NeilMed’s rights as owner of the ‘angled cap 4 prototype’.” (Id. at 43) (emphasis added). With respect to the contract aspect of NeilMed’s lawsuit, 5 in particular, the arbitrator found that, “there is monetary damage,” and “there are at least nominal 6 damages for the value of NeilMed’s property which he took to [Version2].” (Id. at 42.) 7 Furthermore, as NeilMed points out in its separate motion to strike (ECF No. 23 at 4), Mr. 8 Basa claimed that the prototype cost him $1500 to build. See (ECF No. 9-14 at 2-3 [email; sealed 9 exhibit].) This suggests that, if nothing else, the prototype had at least that material value. Finally on this point, Version2 points out that the arbitrator “declined to award any monetary 11 United States District Court Northern District of California 10 damages to NeilMed.” (ECF No. 22 at 4; see ECF No. 15-2 at 43 [award].) That is true. But that 12 was because, again, the arbitrator found the damages “uncertain,” and moreover could not 13 determine what part of Mr. Basa’s compensation from Version2 could be attributed to his work on 14 the prototype. (ECF No. 15-2 at 36-37, 43.) The arbitrator thus could not find a non-“speculative” 15 measure by which to order Mr. Basa to “disgorge[]” what he had gained from developing the 16 prototype. (See id.) Even if we transpose this point to the lost profits that NeilMed might have 17 suffered from Version2’s conduct involving the prototype, and hypothesize that there, too, it would 18 be difficult for NeilMed to establish lost profits, this still does not mean that NeilMed’s suit is 19 “objectively baseless.” That NeilMed might struggle to prove one form of damage (lost profits) 20 does not mean that “no reasonable litigant” could have expected to successfully show some 21 damage. It does not show that NeilMed’s claims are “objectively meritless.” In broadest stroke, the 22 court agrees with NeilMed that it is reasonable and realistic, see Professional Real Estate 23 Investors, 508 U.S. at 60, to contend that the loss of a pharmaceutical-product prototype entails 24 some compensable harm. 25 The injunction that NeilMed seeks in California state court likewise does not render the state 26 lawsuit “objectively meritless.” A reasonable litigant could realistically expect to secure the 27 requested injunction — or one very much like it. In the underlying California suit, again, NeilMed 28 asks the state court to enjoin Version2 “from selling or offering to sell NeilMed’s prototype ORDER — No. 16-cv-04720-LB 11 1 angular cap, or any product derived from that prototype.” (ECF No. 15-4 at 18-19.) This is 2 consistent with the injunction that the arbitrator has already placed on Mr. Basa. In this respect, the 3 arbitration award provides: 4 5 6 Mr. Basa is enjoined from acting in violation of NeilMed’s rights as owner of the “angled cap prototype.” He is to return all documentation and prototypes to Neil Med forthwith and is not to transfer anything regarding the “angled cap prototype” to [Version2] or any other third party. 7 (ECF No. 15-2 at 43) (emphasis added). Contrary to Version2’s more sweeping characterization, 8 NeilMed’s request for an injunction does not “assert the right to stop development of a competing 9 product.” See (ECF No. 22 at 7.) 10 United States District Court Northern District of California 11 It is impossible to conclude on these facts that Version2 has plausibly alleged the “objectively meritless” character of NeilMed’s state-court lawsuit. 12 13 2.3 Version2 Has Not Alleged or Shown “Other Characteristics of Grave Abuse” 14 Version2’s complaint in this court is based entirely on NeilMed’s single California state-court 15 lawsuit. See generally (ECF No. 1.) Because Version2’s complaint is based on “one suit,” rather 16 than a “pattern” of allegedly wrongful conduct, it cannot avoid Noerr–Pennington immunity 17 unless it shows that NeilMed’s conduct displays some “other characteristics of grave abuse, such 18 as . . . actions or effects external to the [underlying] suit that are themselves anti-competitive.” See 19 Columbia Pictures, 944 F.2d at 1532. Version2 has not made this showing. It has not alleged any 20 such “abuse” outside the California suit. See (ECF No. 1), passim. Nothing that the court has seen 21 in the relevant material suggests any “abuse . . . external to” the state-court suit. For this reason, 22 too, as a matter of law, Version2 has not plausibly alleged that the state-court lawsuit is a sham. 23 See Columbia Pictures, 944 F.2d at 1532. * * * 24 25 Because the court has resolved this motion on the “baselessness” and “other grave abuse” 26 heads of the Noerr–Pennington inquiry, it does not reach the “anticompetitive plan” issue. See 27 Professional Real Estate Investors, 508 U.S. at 60 (“Only if challenged litigation is objectively 28 meritless may a court examine the litigant's subjective motivation.”). This decision expresses no ORDER — No. 16-cv-04720-LB 12 1 opinion on the ultimate merits of NeilMed’s state-court claims. The conclusion here is only that, 2 under Rule 12(b)(6), Version2 has not plausibly alleged that NeilMed’s state-court suit is a “sham” 3 that falls outside Noerr–Pennington immunity. 4 5 3. Anti-SLAPP — Leave to Amend The court has thoroughly reviewed the parties’ anti-SLAPP arguments. Given the posture of 6 7 this case, though, the court’s treatment of this matter will be brief. The court has difficulty seeing 8 how the present Claims II and III contain a patent claim, or otherwise “implicate” patent law, so as 9 to elude California’s anti-SLAPP statute. Especially where Version2 itself — outside its antiSLAPP defense — insists that the prototype in question carries no patent. See (ECF No. 1 at 5-6 11 United States District Court Northern District of California 10 [¶¶ 23, 27]; ECF No. 22 at 4, 7.)30 The underlying California state suit (which Version2’s federal 12 claims do target) makes no patent claim, depends in no way on a patent. See (ECF No. 13-1, 13 passim.)31 14 Were the pleadings to remain in their present form, the court therefore would likely grant 15 NeilMed’s anti-SLAPP motion. But federal amendment rules are liberal. See Fed. R. Civ. P. 15(a). 16 The court cannot say that Version2’s claims “could not possibly be cured by the allegation of other 17 facts.” E.g., Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001). The court thus grants 18 Version2 leave to amend its complaint “to clarify” (ECF No. 21 at 17) how its declaratory-relief 19 30 20 21 22 23 24 25 26 27 28 Version2’s opposition to the Rule 12(b)(6) motion argues that, after the arbitrator’s decision, “[NeilMed] could no longer claim any rights arising under state trade[-]secret law and could point to no applicable patent right . . . .” (ECF No. 22 at 4) (emphasis added). And that, “in the absence of a patent, violation of a trade[-]secret law or breach of a duty of confidence – none of which claims are asserted in the underlying state[-]court action – NeilMed . . . cannot . . . stop development of a competing product, especially where . . . the specifications for . . . the product components are . . . available on the worldwide web.” (ECF No. 22 at 4, 7) (emphasis added). The instant complaint makes similar “no patent” statements. (ECF No. 1 at 5, 6 [¶¶ 23, 27] [“[O]wnership of the angled cap prototype, without trade[-]secret or patent protection, . . . provides no rights over any allegedly derivative product . . . .”] [emphasis added].) 31 The California complaint mentions “patent” twice. First, in alleging that a Version2 webpage touts its product thus: “ClearNasal™ Custom CAP (Patent Pending) combines the advantage of traditional netipot and squeeze bottle’s positive pressure.” (ECF No. 13-1 at 14 [¶ 35].) Second, in alleging that Mr. Basa “purported to assign his patent application for the design of the ClearNasal product” to the consultancy that he owns. (ECF No. 13-1 at 10-11 [¶ 21]; see id. at 4 [¶ 6].) It is unclear how either of these items, by being somehow “implicated” in Version2’s federal claims, brings the latter within the exclusive patent jurisdiction of the federal courts. ORDER — No. 16-cv-04720-LB 13 1 and California UCL claims involve federal patent law and, to that extent, fall outside California’s 2 anti-SLAPP statute. See Verizon Del., Inc. v. Covad Commc’ns Co., 377 F.3d 1081, 1091 (9th Cir. 3 2004) (“[G]ranting a defendant’s anti-SLAPP motion . . . without granting the plaintiff leave to 4 amend would directly collide with Fed. R. Civ. P. 15(a)’s policy favoring liberal amendment.”); 5 Rogers v. Home Shopping Network, Inc., 57 F. Supp. 2d 973, 980-84 (C.D. Cal. 1999). The court 6 consequently denies NeilMed’s anti-SLAPP motion. This denial does not prejudice NeilMed’s 7 right to renew its anti-SLAPP motion, or to raise a new one, depending on the content of 8 Version2’s amended complaint. See, e.g., Art of Living Found. v. Does 1-10, 2012 WL 1565281, 9 *14-26 (N.D. Cal. May 1, 2012) (analyzing second anti-SLAPP motion in context of amended 10 claims). United States District Court Northern District of California 11 Before setting a deadline for Version2’s amended complaint, the court will hold a case- 12 management conference, and now sets that conference for December 1, 2016 at 11:00 a.m. The 13 parties must file a joint case-management statement by November 22, 2016, that addresses the 14 parties’ proposed next steps. 15 16 CONCLUSION 17 NeilMed’s state-court lawsuit constitutes First Amendment petitioning that falls within the 18 compass of Noerr–Pennington immunity. Version2 has not plausibly alleged that the state-court 19 suit is a “sham” within the meaning of the Noerr–Pennington doctrine. The court thus dismisses 20 the present complaint with prejudice. The anti-SLAPP issue complicates matters. The court grants 21 Version2 leave to amend its complaint for the sole purpose of clarifying how Claims II and III 22 “implicate” federal patent law in a way that allows them to avoid the California anti-SLAPP 23 statute. The court thus denies without prejudice NeilMed’s present anti-SLAPP motion.32 24 25 26 27 28 32 A final word. The court does not see why the parties cannot resolve their substantive differences entirely inside the California state lawsuit. The parties are there before the excellent and respected Judge Haakenson. This court is always ready to help the parties work through their disagreement. Barring some true patent claim that attracts exclusive federal jurisdiction, though, it is hard to see what benefit lies in proliferating the parties’ dispute into this forum. ORDER — No. 16-cv-04720-LB 14
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