Soilworks LLC v Midwest Industrial Supply Inc, No. 2:2006cv02141 - Document 13 (D. Ariz. 2007)
Court Description: ORDER denying 8 Motion to Dismiss Case. Signed by Judge David G Campbell on 3/5/07.(NVJ)
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Soilworks LLC v Midwest Industrial Supply Inc 1 Doc. 13 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 ) ) ) ) Plaintiff, ) ) vs. ) Midwest Industrial Supply, Inc., an Ohio ) corporation authorized to do business in ) ) Arizona, ) ) Defendant. ) Soilworks, LLC, an Arizona Limited Liability Company, No. 06-2141-PHX-DGC ORDER 16 17 Pending before the Court is Defendant Midwest Industrial Supply, Inc.’s motion to 18 dismiss all claims asserted by Plaintiff Soilworks, LLC. Dkt. #8. For the reasons stated 19 below, the Court will deny Defendant’s motion.1 20 I. Factual Background. 21 Plaintiff distributes environmentally-safe dust and erosion control agents throughout 22 the United States, including a dust control product named Durasoil. Dkt. #11 at 2-3. 23 Defendant also provides dust and erosion control products, for several of which it recently 24 was issued U.S. Patents numbered 7,074,266 and 7,081,270. Dkt. #8 at 3. Upon receipt of 25 these patents, Defendant sent Plaintiff two letters informing it of the patents, expressing 26 27 28 1 The request for oral argument is denied because the parties have thoroughly discussed the law and evidence and oral argument will not aid the Court’s decisional process. See Mahon v. Credit Bur. of Placer County, Inc., 171 F.3d 1197, 1200 (9th Cir. 1999). Dockets.Justia.com 1 concern that Durasoil infringes the patents, and seeking more information about Durasoil 2 upon which to base a decision of infringement or non-infringement. Id. at 4-6. Defendant 3 also sent a letter to one of Plaintiff’s customers, Polar Supply Company, Inc., regarding the 4 patents, Plaintiff’s possible infringement, and Defendant’s ability to pursue anyone who 5 makes, sells, or uses an infringing product. Dkt. #11, Ex. 1. Finally, Defendant published 6 marketing materials describing its new patents, its ability to pursue infringers, and Plaintiff’s 7 position as an imitator of Defendant’s products. Id., Ex. 4. 8 In response, Plaintiff filed a complaint on September 7, 2006 seeking an injunction 9 and damages under the Declaratory Judgment Act, the Lanham Act, and state law. Dkt. #1. 10 Plaintiff seeks a declaration that it is not infringing Defendant’s patents and an end to 11 Defendant’s accusations of infringement. Id. at 4-6. Defendant moves to dismiss all counts 12 for lack of jurisdiction and failure to state a claim upon which relief can be granted. Dkt. #8. 13 II. Count II: Declaratory Judgment. 14 A. 15 The Declaratory Judgment Act authorizes the Court to “declare the rights and other 16 legal relations of any interested party seeking such declaration” when there is an “actual 17 controversy.” 28 U.S.C. § 2201(a). In patent cases, declaratory judgment is usually sought 18 by a party who, rather than waiting to be sued for patent infringement, seeks a legally binding 19 affirmation that it is not infringing on another party’s patent. BP Chems. Ltd. v. Union 20 Carbide Corp., 4 F.3d 975 (Fed. Cir. 1993). Federal Circuit law controls such actions. Shell 21 Oil Co. v. Amoco Corp., 970 F.2d 885, 888 (Fed. Cir. 1984); Goodyear Tire & Rubber Co. 22 v. Releasomers, Inc., 824 F.2d 953, 955 (Fed. Cir. 1987). Legal Standard 23 “Whether an actual controversy exists is a question of law” for the Court to decide. 24 Dainippon Screen Mfg. Co. v. CFMT, Inc., 142 F.3d 1266, 1273 (Fed. Cir. 1998). The 25 Federal Circuit has developed a two-part test to guide the Court’s analysis: 26 27 There must be both (1) an explicit threat or other action by the patentee, which creates a reasonable apprehension on the part of the declaratory plaintiff that it will face an infringement suit, and (2) present activity which could constitute infringement or concrete steps taken with the intent to conduct such activity. 28 -2- 1 Sierra Applied Sciences, Inc. v. Advanced Energy Indus., Inc., 363 F.3d 1361, 1373 (Fed. 2 Cir. 2004); see Societe de Conditionnement en Aluminum v. Hunter Eng’g Co., 655 F.2d 938, 3 944 (9th Cir. 1981). “The first prong looks to the patentholder’s conduct, and the second 4 prong looks to the potential infringer’s conduct. The burden is on the . . . plaintiff 5 ‘to establish that jurisdiction over its declaratory judgment action existed at, and has 6 continued since, the time the complaint was filed.’” Sierra Applied Sciences, 363 F.3d at 7 1373 (citations omitted). 8 “Even if there is an actual controversy, the district court is not required to exercise 9 declaratory judgment jurisdiction, but has discretion to decline that jurisdiction” if doing so 10 would better serve the policy behind the Declaratory Judgment Act, which is to afford relief 11 from uncertainty with respect to rights, status, and other legal relations. EMC Corp. v. 12 Norand Corp., 89 F.3d 807, 810 (Fed. Cir. 1996) (citing Public Serv. Comm’n v. Wycoff, Co., 13 344 U.S. 237, 241 (1952)). 14 B. 15 Defendant’s accusations of infringement satisfy the first prong of the Federal Circuit 16 test. “If the defendant has expressly charged a current activity of the plaintiff as an 17 infringement,” reasonable apprehension is established. Arrowhead Indus. Water, Inc. v. 18 Ecolochem, Inc., 846 F.2d 731, 736 (Fed. Cir. 1988). Defendant’s letters to Plaintiff appear 19 to have been carefully drafted to avoid a direct accusation of infringement, but Defendant’s 20 letter to Polar Supply Company was more direct, setting forth Defendant’s claimed rights 21 under the patents and then referring to Plaintiff as “someone . . . accused of infringement.” 22 Dkt. #11, Ex. 1. Analysis. 23 Plaintiff’s marketing and selling of its Durasoil product, in light of Defendant’s letter 24 regarding possible infringement by that product, satisfies the second prong of the Federal 25 Circuit test. Neither party appears to dispute that Plaintiff’s present activity could constitute 26 infringement. 27 /// 28 -3- 1 Defendant argues that the instant claim is premature and that allowing it to proceed 2 would discourage patent holders from communicating with potential infringers. Dkt. #8 at 3 16. Communications can occur, however, without accusations. Defendant elected to accuse 4 Plaintiff of patent infringement in the communications with Plaintiff’s customer, Polar 5 Supply. Such accusations create an actual controversy and enable the accused infringer to 6 seek relief under the Declaratory Judgment Act. The Court finds that retaining jurisdiction 7 would best serve the purpose of the Act.2 8 III. 9 Count I: False Representation under Lanham Act, § 43(A). A. Legal Standard for Dismissal Under Rule 12(b)(6). 10 A district court may not dismiss a complaint for failure to state a claim “unless it 11 appears beyond doubt that the plaintiff can prove no set of facts in support of his claims 12 which would entitle him to relief.” Barnett v. Centoni, 31 F.3d 813, 816 (9th Cir. 1994). 13 When analyzing a complaint for failure to state a claim, “[a]ll allegations of material fact are 14 taken as true and construed in the light most favorable to the non-moving party.” Smith v. 15 Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). In addition, the Court must assume that all 16 general allegations “embrace whatever specific facts might be necessary to support them.” 17 Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994). Defendant has 18 provided no controlling authority to support its argument that claims under the Lanham Act 19 require the heightened pleading of Rule 9(b). The Court accordingly will apply traditional 20 pleading standards. 21 B. 22 To state a claim for false advertising under the Lanham Act, a plaintiff must allege the 23 24 25 Analysis. following: 1) defendant made false or misleading statements about his own [or another’s] product; 2) those advertisements actually deceived or have the tendency to deceive a substantial segment of their audience; 3) such deception is material, 26 2 27 28 Defendant may divest the court of jurisdiction over this claim by covenanting not to sue Plaintiff or its customers for infringement. Super Sack Mfg. Corp. v. Chase Packaging Corp., 57 F.3d 1054, 1058 (Fed. Cir. 1995). -4- 1 3 in that it is likely to influence the purchasing decision; 4) . . . falsely advertised goods [were caused] to enter interstate commerce; and 5) plaintiff has been or is likely to be injured as the result of the foregoing either by direct diversion of sales form itself to defendant, or by lessening of the good will which its products enjoy with the buying public. 4 Cook, Perkiss and Leihe, Inc. v. Northern California Collection Service Inc., 911 F.2d 242, 5 244 (9th Cir. 1990). The Court has reviewed Plaintiff’s complaint and finds that it 6 sufficiently pleads each of these elements. 2 7 Citing Zenith Electronics Corp. v. Exzec, Inc., 182 F.3d 1340, 1354 (Fed. Cir. 1999), 8 Defendant argues that the complaint must be dismissed because it fails to plead bad faith. 9 Zenith establishes a bad faith requirement when the Lanham Act claim arises from 10 “marketplace statements regarding patent infringement” and patent scope. Id. Count I of 11 Plaintiff’s complaint, however, does not mention patent infringement allegations. Dkt. #1 12 at 4. Moreover, Zenith is a decision of the Federal Circuit and Ninth Circuit law controls this 13 Lanham Act claim. See 28 U.S.C. § 1295. 14 IV. Count III: Misappropriation of Goodwill. 15 Defendant argues that misappropriation of goodwill is only a claim under Lanham Act 16 § 43(a), and that because Plaintiff neither specified that it brings the claim under the Lanham 17 Act nor adequately pled a claim under the Lanham Act, Count III should be dismissed. In 18 response, Plaintiff clarifies that it does indeed bring the misappropriation of goodwill claim 19 under the Lanham Act. Rather than dismissing the count with leave to amend, the Court will 20 construe the misappropriation of goodwill claim as part of Plaintiff’s § 43(a) claim. 21 V. Counts IV and VI: State Law Claims. 22 Plaintiff alleges state law claims of tortious interference and unfair competition. 23 Dkt. #1 at 5-6. These claims are closely related to the federal law claims and form part of 24 the same controversy. The Court will exercise supplemental jurisdiction over the state law 25 claims in the interest of efficiency. See 28 U.S.C. § 1367. 26 27 28 -5- 1 IT IS ORDERED that Defendant’s motion to dismiss all claims ( Dkt. #8) is denied. 2 DATED this 5th day of March, 2007. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 -6-
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