SATA GmbH & Co. KG v. Central Purchasing, LLC,, No. 2:2020cv02131 - Document 54 (C.D. Cal. 2021)
Court Description: ORDER DENYING DEFENDANT'S MOTION TO DISMISS, 23 , 30 by Judge Dean D. Pregerson: Harbor Freights Motion to Dismiss is DENIED. See order for further details. (shb)
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SATA GmbH & Co. KG v. Central Purchasing, LLC, Doc. 54 1 2 O 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 CENTRAL DISTRICT OF CALIFORNIA 10 11 SATA Gmbh & CO. KG, 12 Plaintiff, 13 14 v. CENTRAL PURCHASING LLC, 15 Defendants. ) ) ) ) ) ) ) ) ) ) Case No. CV 20-02131 DDP (JPRx) ORDER DENYING DEFENDANT’S MOTION TO DISMISS [23, 30] 16 Presently before the court is Defendant Central Purchasing, 17 LLC (“Harbor Freight”)’s Motion to Dismiss. Having considered the 18 positions of the parties and heard oral argument, the court denies 19 the motion and adopts the following Order. 20 I. Background 21 Plaintiff SATA GmbH & Co. KG (“SATA”) manufactures, among 22 other things, paint spray guns. (Complaint ¶ 8.) SATA also owns a 23 design patent, U.S. D552,213 (“the Patent”) in an ornamental design 24 for a paint spray gun. (Id. ¶ 25.) Harbor Freight also sells 25 paint spray guns. (Id. ¶¶ 14, 16.) 26 In 1999, SATA brought suit against Harbor Freight, alleging 27 trade dress infringement and associated claims related to Harbor 28 Freight’s sale of paint spray guns. (Id. ¶ 14.) In 2000, the Dockets.Justia.com 1 parties settled all claims and entered into a Settlement Agreement 2 (“the Agreement”). 3 agreed “that it shall make no reference to SATA, SATA trademarks, 4 or SATA products, in any advertisements, product descriptions, or 5 any other materials generated in connections with the sale or 6 promotion of [Harbor Freight] paint spray guns or parts therefore.” 7 (Compl., Ex. A ¶ 14 (“Paragraph 14”).) 8 Harbor Freight’s advertisements mention SATA by name, in some cases 9 alongside images of SATA paint spray guns and in comparison to (Id.) Under the Agreement, Harbor Freight Nevertheless, SATA alleges, 10 Harbor Freight products. 11 alleges that Harbor Freight’s “Black Widow” paint spray guns 12 infringe upon the Patent. 13 (Compl. ¶ 16, Ex. B.) SATA further Harbor Freight now moves to dismiss the two causes of action 14 in the Complaint: breach of contract and design patent 15 infringement. 16 II. 17 Legal Standard A complaint will survive a motion to dismiss when it 18 “contain[s] sufficient factual matter, accepted as true, to state a 19 claim to relief that is plausible on its face.” 20 556 U.S. 662, 678 (2009)(quoting Bell Atl. Corp. v. Twombly, 550 21 U.S. 544, 570 (2007)). When considering a Rule 12(b)(6) motion, a 22 court must “accept as true all allegations of material fact and 23 must construe those facts in the light most favorable to the 24 plaintiff.” 25 Although a complaint need not include “detailed factual 26 allegations,” it must offer “more than an unadorned, 27 the-defendant-unlawfully-harmed-me accusation.” Iqbal,556 U.S. at 28 678. Ashcroft v. Iqbal, Resnick v. Hayes, 213 F.3d 443, 447 (9th Cir. 2000). Conclusory allegations or allegations that are no more than a 2 1 statement of a legal conclusion “are not entitled to the assumption 2 of truth.” Id. at 679. In other words, a pleading that merely 3 offers “labels and conclusions,” a “formulaic recitation of the 4 elements,” or “naked assertions” will not be sufficient to state a 5 claim upon which relief can be granted. Id. at 678 (citations and 6 internal quotation marks omitted). 7 “When there are well-pleaded factual allegations, a court 8 should assume their veracity and then determine whether they 9 plausibly give rise to an entitlement of relief.” Id. at 1950. 10 Plaintiffs must allege “plausible grounds to infer” that their 11 claims rise “above the speculative level.” Twombly, 550 U.S. at 12 555-56. 13 for relief” is “a context-specific task that requires the reviewing 14 court to draw on its judicial experience and common sense.” Iqbal, 15 556 U.S. at 679. 16 III. Discussion “Determining whether a complaint states a plausible claim 17 A. 18 Harbor Freight does not dispute that some of its Breach of Contract 19 advertisements contain side-by-side comparisons of Harbor Freight 20 products and competitors’ products, including SATA’s spray guns. 21 (Motion at 3:5-11.) 22 provision in the Agreement barring such advertising is 23 unenforceable as contrary to public policy. 24 Harbor Freight contends, however, that any (Mot. at 7:25-26.) In California, a contract is unlawful and unenforceable if it 25 is “[c]ontrary to an express provision of law; [c]ontrary to the 26 policy of express law, though not expressly prohibited; or 27 [o]therwise contrary to good morals.” 28 Enter. Co., 118 Cal. App. 4th 531, 541 (2004) (quoting Cal. Civil 3 Kashani v. Tsann Kuen China 1 Code § 1667). 2 to argue that Paragraph 14 is contrary to the policy of express 3 law, particularly the Sherman Antitrust Act, 15 U.S.C. § 1, and the 4 FTC Act, 15 U.S.C. § 45(a)(1). 5 Although not entirely clear, Harbor Freight appears Section 1 of the Sherman Antitrust Act prohibits contracts, 6 combinations, and conspiracies that unreasonably restrain trade.1 7 15 U.S.C. § 1; Brantley v. NBC Universal, Inc., 675 F.3d 1192, 1197 8 (9th Cir. 2012). 9 between competitors, are unreasonable per se. Some restraints, typically horizontal agreements Ohio v. Am. Express 10 Co., 138 S. Ct. 2274, 2284 (2018). 11 analyzed under the “rule of reason.” 12 1197. 13 plaintiff must allege (1) an agreement, conspiracy, or combination 14 between two or more entities that (2) the entities intend to harm 15 or restrain trade and (3) actually injures competition with (4) 16 resulting “antitrust injury” to the plaintiff. 17 at 1197.; Auto. Sound Inc. v. Audiovox Elec. Corp., No. 12-762, 18 2012 WL 12892938, at *3 (C.D. Cal. Dec. 3, 2012). 19 All other restraints must be Id.; Brantley, 675 F.3d at To state a Section 1 claim under the rule of reason, a Brantley, 675 F.3d Here, Harbor Freight’s opening brief does no more than assert 20 that Paragraph 14 violates antitrust law, with no citation to 21 authority or explanation how a voluntary agreement not to refer to 22 a competitor’s trademarks in advertising constitutes an illegal 23 restraint of trade, whether under the rule of reason or per se. 24 (Opp. at 8: 10-13.) In its reply, Harbor Freight asserts that 25 26 27 28 1 Federal cases interpreting the Sherman Act are also applicable to claims under California’s Cartwright Act. See, e.g. Pecover v. Elecs. Arts Inc., 633 F. Supp. 2d 976, 984 (N.D. Cal. 2009); Marin Cty. Bd. of Realtors, Inc. v. Palsson, 16 Cal. 3d 920, 925 (1976). 4 1 Paragraph 14 constitutes a per se unreasonable restraint of trade, 2 but cites no authority concerning an agreement not to conduct 3 comparative advertising. 4 several out-of-context quotations from Sherman Act cases that are 5 simply inapt. 6 States, 435 U.S. 679 (1978) (discussing professional association’s 7 ban on competitive bidding); Blackburn v. Sweeney, 53 F.3d 825, 828 8 (7th Cir. 1995) (discussing illegal agreement to allocate markets 9 through reciprocal bans on all advertising within certain Instead, Harbor Freight relies upon See, e.g., Nat’l Soc. of Prof’l Engineers v. United 10 geographic areas). 11 show that Paragraph 14 constitutes an unreasonable restraint of 12 trade under the rule of reason. 13 demonstrated that Paragraph 14 violates the Sherman Act. 14 Nor does Harbor Freight so much as attempt to Harbor Freight has not, therefore, With respect to the FTC Act, Harbor Freight relies upon the 15 FTC’s decision in In the Matter of 1-800 Contacts, Inc., Trade Reg. 16 Rep. P 80586. 17 effort to prevent one party’s advertisements from appearing in 18 response to a user’s search for a competitor, required sellers of 19 contact lenses to refrain from using competitors’ trademarks as 20 online advertising keywords. 21 lengthy decision following extensive factfinding, that the 22 advertising restrictions in the settlement agreement made it more 23 difficult for consumers to compare competing online sellers of 24 contact lenses, and constituted unfair competition for purposes of 25 the FTC Act.2 There, various settlement agreements, as part of an The Commission concluded, in a 26 27 2 28 Further, as Harbor Freight acknowledges, the FTC’s decision in 1-800 Contacts is presently on appeal to the Second Circuit. 5 1 FTC decisions, although not binding upon this Court, are 2 entitled to great weight, as “the Commission has accumulated 3 extensive experience and is therefore generally in a better 4 position than the courts to determine when a practice is deceptive 5 within the meaning of the FTCA.”3 6 579 F.2d 1137, 1145 (9th Cir. 1978). 7 of proceedings, and without the extensive expert testimony and 8 other evidence of the sort presented to the Commission in 1-800 9 Contacts, there is no basis upon which this Court could determine Simeon Mgmt. Corp. v. F. T. C., Here, however, at this stage 10 that Paragraph 14 has anticompetitive effects similar to those 11 present in 1-800 Contacts.4 12 The court acknowledges that the FTC has encouraged the use of 13 some types of comparative advertising and recognized such 14 advertising as “a source of important information to consumers 15 [that] assists them in making rational purchase decisions.” 16 C.F.R. § 14.15(c). 17 18 19 20 21 16 The regulation, in its entirety, states: (a) Introduction. The Commission’s staff has conducted an investigation of industry trade associations and the advertising media regarding their comparative advertising policies. In the course of this investigation, numerous industry codes, statements of policy, interpretations and standards were examined. Many of the industry codes and standards contain language that could be interpreted as discouraging the use of comparative advertising. This Policy Statement enunciates the Commission’s position that 22 3 23 24 The Simeon Management court made this observation in the context of a direct appeal of an FTC order. Simeon Mgmt. Corp., 579 F.2d at 1140; see also 15 U.S.C. § 45(c), (d). 4 25 26 27 28 Indeed, at this stage of proceedings, the agreements at issue in 1-800 Contacts seem distinguishable from the Agreement here. Although the latter limits the content of certain Harbor Freight ads, the former appear, to some extent, to have operated to keep the very existence of 1-800 Contacts’ competitors hidden from consumers, almost as if those competitors had been barred from listing their services in the relevant section of a phone directory’s yellow pages. 6 1 2 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 industry self-regulation should not restrain the use by advertisers of truthful comparative advertising. (b) Policy Statement. The Federal Trade Commission has determined that it would be of benefit to advertisers, advertising agencies, broadcasters, and self-regulation entities to restate its current policy concerning comparative advertising. Commission policy in the area of comparative advertising encourages the naming of, or reference to competitors, but requires clarity, and, if necessary, disclosure to avoid deception of the consumer. Additionally, the use of truthful comparative advertising should not be restrained by broadcasters or self-regulation entities. (c) The Commission has supported the use of brand comparisons where the bases of comparison are clearly identified. Comparative advertising, when truthful and nondeceptive, is a source of important information to consumers and assists them in making rational purchase decisions. Comparative advertising encourages product improvement and innovation, and can lead to lower prices in the marketplace. For these reasons, the Commission will continue to scrutinize carefully restraints upon its use. (1) Disparagement. Some industry codes which prohibit practices such as “disparagement,” “disparagement of competitors,” “improper disparagement,” “unfairly attaching,” “discrediting,” may operate as a restriction on comparative advertising. The Commission has previously held that disparaging advertising is permissible so long as it is truthful and not deceptive. In Carter Products, Inc., 60 F.T.C. 782, modified, 323 F.2d 523 (5th Cir. 1963), the Commission narrowed an order recommended by the hearing examiner which would have prohibited respondents from disparaging competing products through the use of false or misleading pictures, depictions, or demonstrations, “or otherwise” disparaging such products. In explaining why it eliminated “or otherwise” from the final order, the Commission observed that the phrase would have prevented: respondents from making truthful and non-deceptive statements that a product has certain desirable properties or qualities which a competing product or products do not possess. Such a comparison may have the effect of disparaging the competing product, but we know of no rule of law which prevents a seller from honestly informing the public of the advantages of its products as opposed to those of competing products. 60 F.T.C. at 796. Industry codes which restrain comparative advertising in this manner are subject to challenge by the Federal Trade Commission. (2) Substantiation. On occasion, a higher standard of substantiation by advertisers using comparative advertising has been required by self-regulation entities. The Commission evaluates comparative advertising in the same manner as it evaluates all other advertising techniques. The ultimate question is whether or not the advertising has a tendency or capacity to be false or deceptive. This is a 7 1 2 3 factual issue to be determined on a case-by-case basis. However, industry codes and interpretations that impose a higher standard of substantiation for comparative claims than for unilateral claims are inappropriate and should be revised. 4 16 C.F.R. § 14.15 5 Notably, the regulation does not preclude prohibitions on 6 comparative advertising, or even suggest that all comparative 7 advertising is pro-competitive. Rather, the regulation emphasizes 8 the value of truthful, non-deceptive comparative advertising. 9 Where, however, a party engages in other types of comparative 10 advertising, or other allegedly wrongful or misleading conduct, 11 voluntary restrictions on subsequent advertising might be 12 beneficial, or at least innocuous. Furthermore, the regulation’s 13 careful scrutinization of restraints on the use of comparative 14 advertising focuses not on specific agreements between direct 15 competitors, but rather on broadcasters and self-regulatory 16 entities. In other words, the regulation’s emphasis on broad, 17 industry-wide codes of silence has little bearing on particularized 18 agreements between two competitors, such as the Agreement here. 19 For these reasons, and in the absence of any authority 20 supporting Harbor Freight’s argument, this court cannot conclude 21 that, as a matter of law, Paragraph 14 violates the FTC Act, or any 22 public policy favoring comparative advertising. 23 B. Patent Infringement 24 “[A]” design patent, unlike a utility patent, limits 25 protection to the ornamental design of the article.” Richardson v. 26 Stanley Works, Inc., 597 F.3d 1288, 1293 (Fed. Cir. 2010) In 27 determining whether an accused product infringes a patented design, 28 8 1 courts apply the “ordinary observer” test, which asks whether “in 2 the eye of the ordinary observer, giving such attention as a 3 purchaser usually gives, two designs are substantially the same . . 4 ., inducing him to purchase one supposing it to be the other . . 5 ..” 6 Cir. 2013) (citing Gorham Co. v. White, 81 U.S. (14 Wall.) 511, 528 7 (1871)). 8 as a whole, not on any ‘points of novelty.’” Id. 9 Goddess, Inc. v. Swisa, Inc., 543 F.3d 665 (Fed. Cir. 2008) (en Hall v. Bed Bath & Beyond, Inc., 705 F.3d 1357, 1362 (Fed. “[I]nfringement of a design patent is based on the design (citing Egyptian 10 banc)). 11 claimed design as a whole, and not in the context of separate 12 elements in isolation.” 13 Inc., 796 F.3d 1312, 1335 (Fed. Cir. 2015) (citing Richardson, 597 14 F.3d at 1295). Differences must be “evaluated in the context of the Ethicon Endo-Surgery, Inc. v. Covidien, 15 Generally, a patent plaintiff need only plead, in addition to 16 basic information such as the name of the defendant and the patent 17 owned by the plaintiff, “the means by which the defendant allegedly 18 infringes” and “the sections of the patent law invoked.” 19 F.3d at 1362. 20 Lighting, Inc. v. Lamps Plus, Inc., 295 F.3d 1277, 1287 (Fed. Cir. 21 2002); see also Richardson, 597 F.3d at 1295; OddzOn Products, Inc. 22 v. Just Toys, Inc., 122 F.3d 1396, 1405 (Fed. Cir. 1997). 23 Nevertheless, “[i]n some instances, the claimed design and the 24 accused design will be sufficiently distinct that it will be clear 25 without more that the patentee has not met its burden of proving 26 the two designs would appear ‘substantially the same’ to the 27 ordinary observer.” 28 the pleading stage, dismissal for lack of infringement is only Infringement itself is a question of fact. Hall, 705 Egyptian Goddess, 543 F.3d at 678. 9 Catalina Thus, at 1 appropriate if “the claimed design and accused product are so 2 plainly dissimilar that it is implausible that an ordinary observer 3 would confuse them.” 4 SACV18839JVSKESX, 2018 WL 4859947, at *3 (C.D. Cal. Aug. 13, 2018) 5 (collecting cases). 6 Enerlites, Inc. v. Century Prod. Inc., No. Harbor Freight relies heavily upon Egyptian Goddess to argue 7 that the claimed and accused designs here are not substantially 8 similar. 9 test for infringement is applied “through the eyes of an observer Harbor Freight’s argument focuses on the fact that the 10 familiar with the prior art.” 11 Indeed, an “ordinary observer” analysis “will benefit from a 12 comparison of the claimed and accused designs with the prior art . 13 . .” 14 and applicable “[i]n [] instances[] when the claimed and accused 15 designs are not plainly dissimilar.” 16 other words, “the ‘ordinary observer’ test involves a two tiered 17 approach. 18 prior art, the claimed and accused designs are sufficiently 19 similar[.] [][I]f so, the next level entail[s] a comparison to the 20 prior art.” 21 16CV629-GPC(RBB), 2016 WL 3552063, at *2 (S.D. Cal. June 29, 2016). 22 Here, Harbor Freight conflates these two tiers, arguing that a 23 comparison of the claimed design to the prior art reveals that the 24 claimed and accused designs are dissimilar. 25 analysis. Id. at 678. Egyptian Goddess, 543 F.3d at 677. Such a comparison, however, is only necessary Id. (emphasis added). In The threshold question is whether, without review of the Performance Designed Prod. LLC v. Mad Catz, Inc., No. This is not the proper See Ethicon, 796 F.3d at 1337 (“C]omparing the claimed 26 27 28 10 1 and accused designs with the prior art is beneficial only when the 2 claimed and accused designs are not plainly dissimilar.”).5 3 Looking solely at the accused and claimed designs, this Court 4 cannot conclude, nor does Harbor Freight argue, that the two 5 designs are plainly dissimilar. 6 is, therefore, not appropriate.6 7 IV. 8 9 Dismissal at the pleading stage Conclusion For the reasons stated above, Harbor Freight’s Motion to Dismiss is DENIED. 10 11 12 13 14 IT IS SO ORDERED. 15 16 17 Dated: March 12,2021 DEAN D. PREGERSON United States District Judge 18 19 20 5 21 22 The Ethicon court, like the district court, found a lack of substantial similarity on summary judgment, after claim construction. Ethicon, 796 F.3d at 1335. 6 23 24 25 26 27 28 Although the Performance Digital Products court did dismiss at the pleading stage, it (1) recognized that such dismissal was “not necessarily common,” and (2) only conducted a comparative prior art analysis in the alternative, after having already concluded that the two designs at issue were plainly dissimilar. Performance Designed Prod., 2016 WL 3552063, at *5-7 (quoting MSA Products, Inc. v. Nifty Home Products, Inc., No. 11cv5261 (WJM), 2012 WL 2132464, *3-4 (D.N.J. June 12, 2012)). The latter determination clearly supported dismissal at the pleading stage. Egyptian Goddess, 543 F.3d at 678; Enerlites, 2018 WL 4859947, at *3. 11
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