Church & Dwight Co., Inc. v. Mayer Laboratories, Inc., No. 3:2010cv04429 - Document 105 (N.D. Cal. 2011)

Court Description: ORDER Granting in Part and Denying in Part 71 Plaintiff's Motion to Dismiss Defendant's Second Amended Counterclaims. Signed by Judge Edward M. Chen on 4/1/2011. (emcsec, COURT STAFF) (Filed on 4/1/2011)

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Church & Dwight Co., Inc. v. Mayer Laboratories, Inc. Doc. 105 1 2 3 4 5 UNITED STATES DISTRICT COURT 6 NORTHERN DISTRICT OF CALIFORNIA 7 8 CHURCH & DWIGHT CO., INC., 9 Plaintiff, v. 11 For the Northern District of California United States District Court 10 No. C-10-4429 EMC MAYER LABORATORIES, INC., 12 Defendant. ___________________________________/ ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S MOTION TO DISMISS DEFENDANT’S SECOND AMENDED COUNTERCLAIMS (Docket No. 71) 13 14 15 16 I. FACTUAL AND PROCEDURAL BACKGROUND Counterclaimant Mayer Laboratories, Inc. is a closely held corporation located in Berkeley, 17 California which markets, distributes and sells latex male condoms. Second Amended Counterclaim 18 (“SAC”) (Docket No. 68) ¶¶ 15, 19. Mayer’s business involves the marketing and sale of, inter alia, 19 its Kimono brand of ultra-thin latex condoms. ¶ 15. Mayer was allegedly “instrumental in 20 establishing the ultra-thin condom segment in the United States market,” which now “comprises 21 approximately 22% of the overall retail market.” ¶¶ 22, 35. According to Mayer, Kimono condoms 22 have a retail market share in the United States of less than 1%. ¶ 19. In California, however, they 23 have a market share of about 5%; roughly 50% of all sales of Kimono condoms occurs in California. 24 Id. Mayer touts that it pioneered the ultra-thin condoms in the United States by introducing 25 “Kimono” and “Kimono MicroThin” made by Sagami Rubber Industries, a Japanese manufacturer. 26 ¶¶ 21, 147. Mayer began using the term “MicroThin” for its Japanese-made, ultra-thin latex condom 27 products in 1992. ¶¶ 144, 146. In June 2009, Mayer registered the mark “MICROTHIN” for 28 condoms with the U.S. Patent and Trade Office, receiving registration number 3,641,977 (the “‘977 Dockets.Justia.com 1 registration”). ¶ 162. Mayer also asserts that it contracted with Sagami for the right to be its 2 exclusive North America agent and distributor. ¶¶ 23, 121. 3 Counterdefendant Church & Dwight (“Church” or “C&D”) is a publicly traded company, 4 headquartered in New Jersey. ¶ 16. It manufactures and distributes, inter alia, Trojan and other 5 brand-name condoms. Id. Mayer claims that C&D branded condoms account for over 75% of all 6 retail condom sales in the United States, such that it holds a monopoly position in the nationwide 7 condom market as well as in California.1 ¶¶ 2, 16. The vast majority of condoms are sold in drug 8 stores, grocery stores, and mass merchandisers. ¶¶ 31-34. Notably, Mayer claims there is an 9 “extreme concentration of ownership of nationwide drug store chains: the three largest chains – Walgreens, Rite-Aid, and CVS – account for approximately 86% of all condom sales at drugstores. 11 For the Northern District of California United States District Court 10 ¶ 32. Mayer also claims that there are considerable barriers to entry in the condom market, 12 including costs of FDA and state regulatory approval and compliance, production minimums, and 13 retailer program participation fees. ¶ 36. 14 Most formidable among the barriers to entry is the “difficulty in acquiring display in major 15 retailers’ condom retailing sections.” Mayer claims this problem is exacerbated by the concentration 16 of ownership of large chains, which decide what products to carry on a chain-wide basis. ¶¶ 36, 39. 17 According to both parties, condoms are a unique product that rely heavily on point of sale 18 advertising because they have minimal television and print advertising. ¶ 38. In that respect, 19 condoms are generally displayed on, and sold from, pegboards and shelves in one area of a store 20 where consumers can quickly glance at them at once. ¶ 37. Because of how condoms are displayed 21 in retail stores, the competition for selling condoms depends heavily on acquiring space in retailers’ 22 display sections. ¶¶ 38, 148. Display is of critical importance in marketing because of the private 23 nature of the transaction and the speed by which buying decisions are made. See ¶¶ 37-38, 148. 24 25 1 26 27 28 According to Mayer, Trojan is the largest selling brand of condom in the United States. SAC ¶ 27. C&D’s condoms account for over 75% of all retail condom sales. Id. The next most popular brand is Durex, marketed by SSL Americas, Inc., with approximately 15.3% of sales, and the third is Lifestyle, marketed by Ansell Healthcare, with approximately 7.7%. Id. ¶¶ 28-29. Together, condoms sold by these three companies account for over 98% of the nationwide market. Id. at 30. 2 1 In this context, Mayer alleges that C&D engages in several distinct but related 2 anticompetitive activities that have the combined effect of “greatly diminishing and in some cases 3 eliminating competition in the relevant markets.” ¶¶ 5-11; see also Mayer’s Opp’n Br. (henceforth 4 “Opp’n”) at 19-20 (describing five types of anticompetitive conduct alleged in the counterclaim). 5 First, Mayer alleges that C&D offers “Condom Planogram Agreements”2 to large chain 6 retailers, which together account for nearly 100% of condom sales nationwide.3 ¶¶ 5-6, 52-53. Such 7 agreements give the chain the opportunity to receive a substantial kickback or rebate on its 8 purchases of C&D condoms. Rebates are given if the retailer accepts and follows a planogram 9 designed by C&D and guarantees that C&D’s condoms occupy a specified minimum percentage of the available facings on its in-store display. Id. C&D “inherited” this “Planogram Program” in 11 For the Northern District of California United States District Court 10 2001 by acquiring the Trojan brand. ¶ 73. At the time, the Program had three “tiers” – a 55% tier 12 (awarding a 4.0% rebate for 55% or more of a retail chain’s display space), a 65% tier (awarding a 13 7% rebate for 65% or more of the display space), and a 70% tier (awarding a 7.5% rebate for 70% or 14 more of the display space). ¶¶ 59-60. In 2006, and again in 2008, C&D “ratcheted up” its 15 Planogram Program, introducing 75% and 80% tiers (providing 8.0% and 8.5% rebates, 16 respectively) and eliminating the 55% and 65% tiers. ¶¶ 62-63. According to Mayer, “not a single 17 major retail chain chose to forego the rebates.” Id. Mayer avers that C&D’s conduct has caused 18 retail chains to devote increasing percentages of their condom displays to C&D products (id. ¶ 7), 19 and as a result, C&D’s dominant market share has grown substantially over the years, from 20 approximately 64% in 2001 to over 75% in 2010. ¶ 65. While C&D’s market share grew, there was 21 a drop in the share of the Kimono brand from 0.5% in 2003 to 0.4% in 2008. ¶¶ 81,86. Mayer 22 alleges its share in the ultra-thin condom market segment has been reduced substantially. ¶ 48. As a 23 specific example of harm to competition, Mayer claims that in 2006 both Safeway Stores and Target 24 Stores reduced the number of condom brands they carry from three to two. ¶ 83. Mayer also 25 26 27 2 A planogram is “essentially a diagram showing where specific products are to be positioned in the space allotted by a retail store for a particular category of products.” SAC ¶ 6. 3 28 Mayer also alleges that C&D does not offer Planogram Agreements to small independent retailers or small retail chains. ¶ 66. 3 1 complains that Longs Drug Stores (“Longs”) removed Mayer’s products from store displays “to 2 make room for [C&D’s] condoms. . . . despite specific [] data showing that the discontinued Mayer 3 Labs condoms were better selling, and more profitable on a per unit basis, than many of the Trojan 4 brand condoms that were continued in the Longs planogram.” ¶ 84. Thus, the reallocation of 5 display space to C&D was not based on the merits (e.g., relative sales volume) but rather was the 6 consequence of C&D’s program. Mayer also alleges that C&D has succeeded in raising prices for 7 its products. ¶ 85 (describing an average increase of 18% (or $1.57) in Safeway’s prices for a box of 8 twelve Trojan condoms between 2006 and 2008, when C&D occupied 81.8% of Safeway’s condom 9 display space). Second, according to Mayer, C&D entrenched and strengthened its market dominance via its 11 For the Northern District of California United States District Court 10 role as a “category captain” for most large retail chains. ¶¶ 8-10, 41, 67. Retailers allegedly have 12 agreed to give C&D the “ability to decide and influence which brands of condoms are included in a 13 chain’s stores, where individual condom [products] are placed in the store displays, which condom 14 [products] are discontinued, and which new condom [products] are added.” ¶¶ 68-71. C&D 15 purportedly uses this position “to obtain preferential display locations for its products, to 16 recommend replacement of competing brands with [C&D] products, and to reduce visibility for (or 17 exclude altogether) competing brands, including Mayer Labs’ products.” ¶ 70. 18 19 20 Third, Mayer alleges that C&D has exclusive dealing arrangements with some retail chains, including 7-Eleven, obligating them to sell only C&D condoms. ¶¶ 11, 57. Fourth, Mayer asserts that in 2006, C&D began targeting the Japanese-made, ultra-thin 21 condom market segment. ¶ 151. Initially C&D distributed “Trojan Ultrathin” condoms. Id. Mayer 22 asserts C&D began using the term “ultra-thin” which had previously associated with Mayer’s 23 products. C&D allegedly began using the term “microthin” for its Trojan brand Ultrathin condoms 24 in 2007, and for its Thintensity condoms in 2008. ¶¶ 123, 151-153. As a result, Mayer alleges that 25 its sales of Kimono Microthin condoms declined 33% (from $1,167,000 in 2006 to $1,120,000 in 26 2007 due to C&D’s anticompetitive conduct. ¶ 154; see also ¶ 150 (stating that sales of Kimono 27 Microthin condoms rose from $860,000 in 2004 to approximately $1,480,000 in 2005). Mayer also 28 4 1 claims that in 2007, C&D tortiously induced Sagami to begin supplying it with condoms in violation 2 of an exclusive contract Mayer had with Sagami. ¶ 123. 3 On November 21, 2008, C&D filed a declaratory action in the District of New Jersey seeking that complaint, C&D seeks a declaratory judgment as to the conduct that Mayer alleged in a draft 6 complaint conveyed by Mayer’s counsel to C&D in October 2008. See Original Compl. ¶¶ 81-86. 7 On February 17, 2009, Mayer filed an Answer together with Counterclaims. Mayer amended its 8 counterclaims on March 9, 2009. As it stands, the SAC includes claims for violations of the 9 Sherman Act, 15 U.S.C. §§ 1 and 2 (Claims I & II); California’s prohibition against trusts (Claim 10 III), Cal Bus. & Prof. Code §§ 16700, et. seq.; California’s prohibition against exclusive dealing 11 For the Northern District of California a judicial determination that C&D’s conduct was legal under applicable federal and state laws. In 5 United States District Court 4 (Claim IV), Cal. Bus. & Prof. Code §§16727, et. seq.; California’s prohibition against secret rebates 12 (Claim V), Cal. Bus. & Prof. Code § 17045, tortious interference with contractual relations (Claim 13 VI), tortious interference with prospective economic advantage (Claim VII), and unfair competition 14 under common law (Claims VIII & XII). The SAC also asserts claims for infringement under 15 California common law (Claim XI) as well as the Lanham Act, 15 U.S.C. § 1114(a) (Claim X), and 16 a claim for false designation of origin under the Lanham Act, 15 U.S.C. § 1125(a) (Claim IX). 17 In terms of relief, the counterclaim requests (1) a declaratory judgment that C&D’s Condom 18 Planogram Agreements are unenforceable, (2) a comprehensive permanent injunction, (3) punitive 19 and treble damages, (4) restitution and disgorgement of profits with interest, and (5) attorneys’ fees 20 and costs. SAC ¶¶ 102-106. 21 C&D filed a motion to dismiss the SAC. (Docket No. 71). The district court for the District 22 of New Jersey transferred the case, including C&D’s pending motion to dismiss Mayer’s 23 counterclaims, to this Court. See Docket No. 76 (Order transferring case). On February 2, 2011, the 24 Court held a hearing on C&D’s motion to dismiss and invited the parties to provide supplemental 25 briefs, which were filed on February 9, 2011.4 26 27 4 28 After the supplemental briefs were filed, C&D filed a further supplemental letter brief without leave of court. Such a filing is out of order and stricken. 5 1 2 II. PLEADING STANDARD “Federal Rule of Civil Procedure 8(a)(2) requires only a ‘short and plain statement of the 3 claim showing that the pleader is entitled to relief,’ in order to ‘give the defendant fair notice of what 4 the claim is and the grounds upon which it rests.’”5 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 5 554 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). A motion to dismiss tests the sufficiency of a 6 complaint or counterclaim, facilitating dismissal to the extent the pleading fails to state a claim upon 7 which relief can be granted. Fed. R. Civ. P. 12(b)(6). The pleading is construed in the light most 8 favorable to the non-moving party and all material allegations in it are taken to be true. Sanders v. 9 Kennedy, 794 F.2d 478, 481 (9th Cir.1986). However, even under the liberal pleading standard of Rule 8(a)(2), “a plaintiff’s obligation to provide the grounds of his entitlement to relief requires 11 For the Northern District of California United States District Court 10 more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will 12 not do.” Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986) (internal 13 brackets and quotation marks omitted)). Hence, the Court need not assume unstated facts, nor will it 14 draw unwarranted inferences. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009) (“Determining 15 whether a complaint states a plausible claim for relief . . . [is] a context-specific task that requires the 16 reviewing court to draw on its judicial experience and common sense.”); Cousins v. Lockyer, 568 17 F.3d 1063, 1067 (9th Cir. 2009); Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 18 2001) (“Nor is the court required to accept as true allegations that are merely conclusory, 19 unwarranted deductions of fact, or unreasonable inferences.”). 20 Under Twombly, a plaintiff (or counterclaimant) must not merely allege conduct that is 21 conceivable but must instead allege “enough facts to state a claim to relief that is plausible on its 22 face.” Id. at 570. “A claim has facial plausibility when the plaintiff pleads factual content that 23 allows the court to draw the reasonable inference that the defendant is liable for the misconduct 24 alleged.” Iqbal, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556). “The plausibility standard is 25 26 27 28 5 There is no requirement that the elements of an antitrust claim be pled with special specificity. See Newcal Indus., Inc. v. Ikon Office Solution, 513 F.2d 1038 (9th Cir. 2008). “An antitrust complaint therefore survives a Rule 12(b)(6) motion unless it is apparent from the face of the complaint that the alleged market suffers a fatal legal defect.” Id. 6 1 not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant 2 has acted unlawfully. . . . When a complaint pleads facts that are merely consistent with a 3 defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to 4 relief.” Id. (quoting Twombly, 550 U.S. at 556-57) (internal quotation marks omitted). In sum, if the 5 facts alleged raise a reasonable inference of liability – stronger than a mere possibility – the claim 6 survives; if they do not, the claim should be dismissed. See Iqbal, 129 S. Ct. at 1949-50. 7 8 9 A. FEDERAL ANTITRUST CLAIMS The Sherman Antitrust Act Mayer’s first two counterclaims (Claims I & II) allege violations of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2 (“The Sherman Act” or “the Act”). 11 For the Northern District of California United States District Court 10 III. 1. 12 Section 1 of the Sherman Act prohibits, in broad terms, contracts or agreements that 13 unreasonably restrain trade or commerce. It provides: “Every contract, combination in the form of 14 trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with 15 foreign nations, is hereby declared to be illegal.” 15 U.S.C. § 1. See Advanced Health-Care Servs. 16 v. Radford Community Hosp., 910 F.2d 139, 144 (4th Cir. 1990). To state a claim under § 1, a party 17 must allege (1) an agreement, conspiracy, or combination between two or more entities,6 (2) an 18 unreasonable restraint of trade, (3) anticompetitive effects within the relevant market, and (4) a 19 resulting antitrust injury suffered by the claimant. See generally Queen City Pizza v. Domino’s 20 Pizza, 124 F.3d 430, 442 (3d Cir. 1997). Sherman Act § 1 21 Vertical restraints on trade, including those alleged by Mayer, are subject to analysis under 22 the “rule of reason.”7 See Continental T.V. v. GTE Sylvania, 433 U.S. 36 (1977) (concerted action 23 6 24 25 26 Sherman Act § 1 does not reach unilateral conduct. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767-68 (1984). It covers only “concerted action” between “at least two separate persons or entities.” United States v. Trenton Potteries Co., 273 U.S. 392 (1927). Concerted action may take the form of “an ‘understanding’ or ‘agreement’ to take joint action.” Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752 (1984). 7 27 28 It bears noting that Mayer alleges unlawful combinations or agreements only between C&D and its retailers. See SAC ¶¶ 88-93. Mayer does not allege that C&D has entered into an agreement with an input supplier, or with Sagami, in violation of Sherman Act § 1. Nor does Mayer allege that C&D is vertically integrated such that it exerts control over the supply or price of inputs to the 7 effect on competition in the relevant market); Bus. Electr. Corp. v. Sharp Electr. Corp., 485 U.S. 3 717, 723-36 (1988) (holding that a vertical restraint of trade is not per se illegal under § 1 of the 4 Sherman Act unless it includes some agreement on price or price levels). The key question in this 5 analysis is whether the agreement is one that promotes or suppresses competition. National Soc’y of 6 Prof. Engineers v. United States, 435 U.S. 679, 691 (1978). “The legality of an agreement . . . 7 cannot be determined by so simple a test as whether it restrains competition. . . . The true test of 8 legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes 9 competition or whether it is such as may suppress or even destroy competition. . . . the court must 10 ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition 11 For the Northern District of California on non-price restrictions is subject to rule of reason analysis, requiring a showing of an adverse 2 United States District Court 1 before and after the restraint was imposed; the nature of the restraint and its effect, actual or 12 probable.” Board of Trade v. United States, 246 U.S. 231, 238 (1918). Whether a vertical restraint 13 constitutes an “unreasonable restraint” on trade and suppresses competition within the relevant 14 market often turns on whether the restraint forecloses competition in a substantial share of the line of 15 commerce affected. See Allied Orthopedic Appliances, Inc. v. Tyco Healthcare Group LP, 592 F.3d 16 991 (9th Cir. 2010) (“Under the antitrust rule of reason, an exclusive dealing arrangement violates 17 Section 1 only if its effect is to foreclose competition in a substantial share of the line of commerce 18 affected.”) (internal quotation marks and citation omitted); Omega Envtl., Inc. v. Gilbarco, Inc., 127 19 F.3d 1157, 1162 (9th Cir. 1997) (explaining that an exclusive dealing arrangement violates § 1 only 20 if its effect is to “foreclose competition in a substantial share of the line of commerce affected.”). 21 The antitrust plaintiff “carr[ies] the initial burden of showing that the challenged conduct has 22 an actual adverse effect on competition as a whole in the relevant market.” R.J. Reynolds Tobacco 23 Co. v. Philip Morris, 199 F. Supp. 2d 362, 380 (M.D.N.C. 2002) (internal quotation marks and 24 citation omitted). If the plaintiff succeeds, the burden shifts to the defendant “to establish the 25 pro-competitive redeeming virtues of the action.” Id. If the defendant sustains that burden, the 26 claimant “can still prevail by showing that the same pro-competitive effect could be achieved 27 28 detriment of its competitors. 8 1 through an alternative means that is less restrictive of competition.” Id. (quotation marks and 2 citation omitted). power in the relevant market. Id. (explaining that firms lacking market power cannot rationally 5 adopt restraints that have anticompetitive effects if they wish to survive). Thus, Mayer must 6 establish that C&D’s conduct has adversely affected competition. As noted above, in a vertical 7 restraint case such as this, claimants may establish a § 1 violation by demonstrating that the conduct 8 “substantially forecloses” competition in the relevant market. See, e.g., Concord Boat Corp. v. 9 Brunswick Corp., 207 F.3d 1039, 1059 (8th Cir. 2000) (applying substantial foreclosure test to 10 manufacturer’s discount programs tied to volume purchases). Relevant to this case, substantial 11 For the Northern District of California There is no dispute that the counterclaim adequately alleges that C&D possesses market 4 United States District Court 3 foreclosure is a test commonly applied to claims challenging advertising programs alleged to restrain 12 trade. See, e.g., Louisa Coca-Cola Bottling Co. v. Pepsi-Cola Metro. Bottling Co., 94 F. Supp. 2d 13 804, 816 (E.D. Ky. 1999) (applying the substantial foreclosure analysis to retailer’s agreement to 14 advertise only defendant’s brands); Beverage Mgmt., Inc. v. Coca-Cola Bottling Corp., 653 F. Supp. 15 1144, 1153-54 (S.D. Ohio 1986) (applying substantial foreclosure test to a supermarket’s agreement 16 to run only defendant’s advertisements). 17 Under this test, “the competition foreclosed by the contract must be found to constitute a 18 substantial share of the relevant market.” Tampa Elec., 365 U.S. at 328. “Thus, the [claimant] 19 ‘must show that competing manufacturers are excluded from a substantial share of the relevant 20 market because that portion of the market is controlled by’ the vertical restraint at issue.” R.J. 21 Reynold’s, 199 F. Supp.2d at 389 (quoting Chuck’s Feed & Seed Co., Inc. v. Ralston Purina Co., 22 810 F.2d 1289, 1293 (4th Cir. 1987). “The share of the market foreclosed is important because, for 23 the contract to have an adverse effect upon competition, ‘the opportunities for other traders to enter 24 into or remain in that market must be significantly limited.’” United States v. Microsoft Corp., 253 25 F.3d 34, 69 (D.C. Cir. 2001) (quoting Tampa Elec., 365 U.S. at 328). There is no hard-and-fast rule 26 for determining the point at which market foreclosure becomes “substantial.” See United States v. 27 Microsoft Corp., 253 F.3d 34, 70 (D.C. Cir. 2001) (“[A] monopolist’s use of exclusive contracts, in 28 certain circumstances, may give rise to a § 2 violation even though the contracts foreclose less than 9 1 the roughly 40% or 50% share usually required in order to establish a § 1 violation.”); compare, e.g., 2 Twin City Sportservice, Inc. v. Charles O. Finley & Co., Inc., 676 F.2d 1291, 1301, 1304 (9th Cir. 3 1982) (24% foreclosure unlawful where contracts were long-term), with Sewell Plastics, Inc. v. 4 Coca-Cola Co., 720 F. Supp. 1196, 1213, 1218-20 (W.D.N.C. 1989) (40% foreclosure lawful where 5 no anticompetitive harm shown). “Substantial foreclosure depends on many factors – the parties’ 6 market strength, the degree of exclusivity, business justifications for the agreement, duration of the 7 agreement, barriers to entry in the market, etc.” Novell, Inc. v. Microsoft Corp. (In re Microsoft 8 Corp. Antitrust Litig.), 699 F. Supp. 2d 730, 755 (D. Md. 2010) (citing Tampa Elec., 365 U.S. at 9 328-29, 334-35); see also R.J. Reynolds, 199 F. Supp. 2d at 389 (noting that, in addition to foreclosure percentage, courts “consider factors such as the duration of the agreement, barriers to 11 For the Northern District of California United States District Court 10 entry, the ability of consumers to comparison shop, and their propensity to switch products”); United 12 States v. Dentsply Int’l, Inc., 399 F.3d 181, 191 (3d Cir. 2005) (“The test is not total foreclosure, but 13 whether the challenged practices bar a substantial number of rivals or severely restrict the market’s 14 ambit.”). 15 2. 16 Sherman Act § 2 Section 2 of the Sherman Act makes it unlawful to “monopolize, or attempt to monopolize, 17 or combine or conspire with any other person or persons, to monopolize any part of the trade or 18 commerce among the several states, or with foreign nations.” 15 U.S.C. § 2. In its Third 19 Counterclaim, Mayer alleges three theories of liability under § 2: monopolization, attempted 20 monopolization, and conspiracy to monopolize. To prevail on its § 2 monopolization claim, Mayer 21 must prove: (1) C&D’s possession of monopoly power in the relevant market, (2) C&D’s willful 22 acquisition or maintenance of that power (as opposed to success resulting from “a superior product, 23 business acumen, or historic accident”), and (3) a resulting antitrust injury. See Linkline, 129 S. Ct. 24 at 1118 (citation omitted). 25 To prove an unlawful monopolization conspiracy under § 2, Mayer must show: (1) the 26 existence of a combination or conspiracy to monopolize; (2) an overt act in furtherance of the 27 conspiracy; (3) a specific intent to monopolize; and (4) causal antitrust injury. Paladin Assocs. v. 28 Montana Power Co., 328 F.3d 1145, 1158 (9th Cir. 2003). A private party seeking damages under 10 1 an attempted monopolization theory must demonstrate “(1) specific intent to control prices or 2 destroy competition; (2) predatory or anticompetitive conduct directed at accomplishing that 3 purpose; (3) a dangerous probability of achieving monopoly power; and (4) causal antitrust injury.” 4 McGlinchy v. Shell Chem. Co., 845 F.2d 802, 811 (9th Cir. 1988); see also Spectrum Sports, Inc. v. 5 McQuillan, 506 U.S. 447, 456 (1993); Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1433 (9th 6 Cir. 1995) (noting that a private party seeking damages for antitrust violations “must prove that his 7 loss flows from an anticompetitive aspect or effect of the defendant’s behavior”). 8 Each claim is similar, “differing primarily in the requisite intent and the necessary level of 9 monopoly power.” Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997) (on remand). The key question under § 2 in the context of C&D’s motion to dismiss is 11 For the Northern District of California United States District Court 10 whether Mayer has adequately alleged exclusionary conduct or anticompetitive acts. See R.J. 12 Reynolds, 199 F. Supp. 2d at 394-395. 13 In the case at bar, Mayer alleges the same anticompetitive conduct (described above) as a 14 basis for each of its Sherman Act claims. Such an overlap between § 1 and § 2 claims is not 15 unusual. See Williams v. I.B. Fischer Nevada, 999 F.2d 445, 448 (9th Cir. 1993) (“[A] § 1 claim 16 insufficient to withstand summary judgment cannot be used as the sole basis for a § 2 claim.”); see 17 also United States v. Socony-Vacuum Oil Co., 210 U.S. 150, 224 n.59 (“The two sections overlap in 18 the sense that a monopoly under § 2 is a species of restraint under § 1.”). 19 3. 20 To assert a claim under the federal antitrust laws, including both § 1 and § 2 of the Sherman 21 Act, a plaintiff must have suffered an “antitrust injury,” meaning an “injury of the type the antitrust 22 laws were intended to prevent and that flows from that which makes the defendant’s acts unlawful.” 23 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). See In re Lorzepam and 24 Clorazepate Antitrust Litig., 295 F. Supp. 2d at 38 (a plaintiff must show a “direct relationship 25 between the claimed injury and the alleged anticompetitive conduct. . . . The injury should reflect 26 the anticompetitive effect either of the violation or of anticompetitive acts made possible by the 27 violation.”). Here, Mayer must allege an injury to the market or to competition in general, not 28 merely to itself. Id. (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 Antitrust Injury 11 1 (1977) (“The antitrust laws were enacted for the protection of competition, not competitors.”)). 2 However, “convergence of injury to a market competitor and injury to competition is possible when 3 the relevant market is both narrow and discrete and the market participants are few.” Les Schockley 4 Racing, Inc. v. Nat’l Hot Rod Ass’n, 884 F.2d 504, 508-09 (9th Cir. 1989). Injury can be shown by 5 anticompetitive acts resulting in reduced output or raised prices. Continental Airlines, Inc. v. United 6 Airlines, Inc., 277 F.3d 499, 516 (4th Cir. 2002) (internal quotation marks and citation omitted). 7 The key question is whether Mayer suffered losses as a result of the defendant’s anticompetitive 8 acts, as opposed to other market forces. See Safeway Inc. v. Abbott Labs., 2011 U.S. Dist. LEXIS 9 4985, (N.D. Cal. Jan. 14, 2011) (“To show antitrust injury, a plaintiff must prove that his loss flows from an anticompetitive aspect or effect of the defendant’s behavior.”) (citation omitted). 11 For the Northern District of California United States District Court 10 B. 12 Price-Based v. Non-Price Based Claims Under the Sherman Act In its motion to dismiss, C&D’s primary argument is that Mayer’s Sherman Act claims fail 13 because Mayer did not allege that C&D priced its products below its costs. Mot. at 11-12. C&D 14 asserts that Mayer has not alleged any cognizable antitrust injury or anticompetitive conduct and has 15 therefore failed to state a claim under the Sherman Act.8 Mot. at 13. Relying on Pacific Bell 16 Telephone Co. v. Linkline Commc’ns., Inc., 129 S. Ct. 1109 (2009) and Doe v. Abbott Labs., 571 17 F.3d 930, 935 (9th Cir. 2009), C&D argues that “when an essential part of an antitrust claim 18 involves cutting prices (whether a rebate, discount, or straight price cut) . . . the price cut does not 19 harm competition9 (regardless of the effect on the competitor) unless the plaintiff can demonstrate 20 8 21 22 23 24 25 26 27 28 C&D clarified that its argument applies to negate anticompetitive injury as well as the unreasonable restraint of trade and anticompetitive conduct. 9 C&D couches Linkline as a ruling on the antitrust injury element of a federal antitrust claim, such that it is applicable to both sections of the Sherman Act sub judice. Mot. at 12. (“The Ninth Circuit confirmed this interpretation of Linkline when it relied entirely on Linkline to hold that below-cost pricing is the first prong of the test for a Section 2 ‘price-based claim’” in Doe v. Abbott Labs., 571 F.3d 930, 935 (9th Cir. 2009)). In fact, neither Linkline nor Abbott Labs discusses the requirement in terms of an antitrust injury. See Abbott Labs, 571 F.3d 930, 935 (9th Cir. 2009) (reading Linkline’s below-cost pricing requirement into the exclusionary conduct element of a § 2 price-based claim and declining to reach the issue of antitrust injury). However, Brooke Group v. Brown & Williamson Tobacco Corp., upon which Linkline’s predatory pricing holding was based, discusses the below-cost requirement both in terms of assessing the likelihood of monopolization and as a component of actual injury. 509 U.S. 209, 226 (U.S. 1993) (“these prerequisites to recovery . . . are essential components of real market injury.”). For present purposes, the Court need not determine which statutory element is the most appropriate home for the below-cost 12 1 that: 1) the prices are below an appropriate measure of cost; and 2) [] the defendant can recoup its 2 investment in the below cost prices.” Linkline, 129 S. Ct. at 1120. According to C&D, any claim 3 involving a rebate must be analyzed through the predatory pricing framework established by Brooke 4 Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993), wherein the Supreme 5 Court prescribed the below-cost and probable recoupment requirements for predatory pricing claims 6 observed in Linkline. See Southeast Missouri Hosp. v. C.R. Bard, Inc., No. 09-3325, 2010 WL 7 3220600, *2-3 (8th Cir. Aug. 17, 2010) vacated for rehr’g, No. 09-3325, Order (Oct. 19, 2010).10 8 9 In Brooke Group, the plaintiff, Liggett, claimed that a rival cigarette manufacturer, Brown & Williamson, “cut prices on generic cigarettes below cost and offered discriminatory volume rebates to wholesalers to force Liggett to raise its own generic cigarette prices . . . .” 509 U.S. at 212. 11 For the Northern District of California United States District Court 10 Liggett brought a price discrimination claim under the Robinson-Patman Act, pointing to its losses 12 and arguing that Brown & Williamson was part of an oligopoly of six manufacturers whose prices 13 “increased in lockstep” and who “reaped the benefits of prices above a competitive level.” Id. at 14 213. A majority of the Supreme Court held that Liggett had failed to demonstrate that the alleged 15 scheme “was likely to result in oligopolistic price coordination and sustained supracompetitive 16 pricing in the generic segment of the national cigarette market. Without this, Brown & Williamson 17 had no reasonable prospect of recouping its predatory losses and could not inflict the injury to 18 competition the antitrust laws prohibit.” Id. 19 In Linkline, the defendant, AT&T, was vertically integrated, in that it sold inputs (transport 20 service from the network into customers’ homes/businesses) at wholesale and finished goods or 21 services (DSL service) at retail. Id. at 1115. The plaintiffs were independent internet service 22 providers (“ISPs”) that competed with AT&T in the retail DSL market and also leased DSL 23 24 25 26 27 28 pricing/probable recoupment test. At the hearing, C&D acknowledged its below-cost pricing argument goes to both antitrust injury as well as anticompetitive conduct. 10 In Southeast Missouri Hosp. v. C.R. Bard, Inc., 2010 WL 3220600, *2-3 (8th Cir. Aug. 17, 2010), a panel of the U.S. Court of Appeals for the Eight Circuit upheld a district court’s grant of summary judgment in favor of a defendant on a “bundled discount” claim, citing Brooke Group, based on the plaintiff’s failure to show below-cost pricing. The month after C&D filed its reply brief, however, the Eighth Circuit panel vacated its opinion and scheduled the case for rehearing. See id., Case No. 09-3325 (Order, Oct. 19, 2010). It therefore carries no weight. 13 1 transport service from AT&T at the wholesale level. The ISPs argued that AT&T subjected them to 2 a “price squeeze” in violation of § 2 of the Sherman Act, whereby AT&T set high prices in the 3 wholesale transport market while keeping retail prices for its own DSL service low. Id. at 1114-15, 4 1118-19. The Court analyzed each market separately. At the input or wholesale level, the Court 5 expressed skepticism as to whether AT&T had an “antitrust duty” to provide competitors with 6 access to its allegedly essential transport infrastructure since “such a duty requires a showing of 7 monopoly power” in the “quite competitive” market for high speed internet service. Id. at 1118. 8 The Court reasoned that, “if a firm has no antitrust duty to deal with its competitors at wholesale, it 9 certainly has no duty to deal under terms and conditions that the rivals find commercially advantageous.” 129 S. Ct. at 1119 (finding Trinko, 540 U.S. at 407 to be controlling). On the retail 11 For the Northern District of California United States District Court 10 end of the claim, the Court concluded that a price-squeeze should not be recognized where the 12 defendant’s price remains above cost, lest firms might be encouraged to raise retail prices to avoid 13 potential antitrust liability. Id. at 1120. In sum, the Court held that price squeeze claims are not 14 viable where (1) there is no duty to deal at the wholesale level, and (2) there is no predatory pricing 15 at the retail level. Linkline at 1120; Doe v. Abbott Labs., 571 F.3d 930, 934-35 (9th Cir. 2009) (“In 16 short, there is no independently cognizable harm to competition when the wholesale price and the 17 retail price are independently lawful.” ). 18 Plaintiffs in Doe raised a claim “functional[ly] equivalent” to the “price-squeeze” theory 19 rejected in Linkline. Doe v. Abbott Labs, 571 F.3d at 934-35. They alleged that Abbott held a 20 monopoly in the market for Norvir, a protease inhibitor, and used it to boost its sales of Kaletra, a 21 product consisting of Norvir paired with another protease inhibitor, for which Norvir acted as a 22 “booster.” Id. at 932-33. The plaintiffs’ argued for liability based on a “monopoly leveraging” 23 theory, i.e., that Abbott raised the price for Norvir so that it could force its competitors to charge 24 more, while holding the price of Kaletra steady. A panel of the Ninth Circuit found Linkline to be 25 controlling, reasoning that there is no substantial difference between the plaintiffs’ “monopoly 26 leveraging” theory and a “price squeeze.” Id. at 934-35. The court therefore concluded that the 27 plaintiffs’ “allegations of monopoly leveraging through pricing conduct in two markets” did not 28 14 1 state a claim under § 2 “absent an antitrust refusal to deal (or some other exclusionary practice) in 2 the monopoly market or below-cost pricing in the second market[.]” Id. at 931 (emphasis added). 3 Each of the above authorities on which C&D relies involved some form of predatory pricing 4 – pricing of goods or services at a level with which competitors cannot compete – such that pricing 5 itself operates as an exclusionary tool. See also Cascade Health Solutions v. PeaceHealth, 515 F.3d 6 883, 906 (9th Cir. 2008) (where a product or service is bundled, courts apply “discount attribution 7 standard” wherein the full amount of discount on the bundle is applied to the competitive product at 8 issue to determine if the discounted price is below the defendant’s incremental cost of production); 9 NicSand, Inc. v. 3M Co., 507 F.3d 442, 451-54 (6th Cir. 2007) (en banc) (holding upfront payments for multi-year exclusivity lawful where conceded not to amount to predatory pricing and where 11 For the Northern District of California United States District Court 10 plaintiff failed to compete for the business); Southeast Missouri Hosp. v. C.R. Bard, Inc., No. 09- 12 3325, 2010 WL 3220600, *2-3 (8th Cir. Aug. 17, 2010), vacated pending rehr’g by No. 09-3325 13 (Order, Oct. 19, 2010) (applying Brooke Group and upholding district court’s grant of summary 14 judgment in favor of the defendant on a “bundled discount” claim based on the failure to show 15 below-cost pricing). But see LePages v. 3M, 324 F.3d 141, 157-58 (3d Cir. 2003) (where products 16 are bundled, rebates held unlawful where jury found exclusionary conduct cut plaintiff off from key 17 retail pipelines necessary to permit it to compete profitably; noting that “[Brooke Group] does not 18 discuss, much less adopt, the position that a monopolist does not violate § 2 unless it sells below 19 cost”). Cf. Safeway v. Abbott Labs., No. 07-5470, 2010 U.S. Dist. LEXIS 2145 at *21 (rejecting the 20 argument that Doe overruled Cascade Health and holding that “liability under Section 2 can arise 21 when a defendant voluntarily alters a course of dealing and ‘anticompetitive malice’ motivates the 22 defendant’s conduct.”)11 Safeway, 2010 U.S. Dist. LEXIS 2145, *12-13 (N.D. Cal. Jan. 12, 2010); 23 JBDL Corp. v. Wyeth-Ayerst Labs., Inc. (rejecting the defendant’s “somewhat simplistic argument 24 that its lack of predatory pricing mandates dismissal of the Section 2 claims.”). 25 26 27 28 11 The Court went on to conclude that “[p]roof of a short-term sacrifice [in profits] is not an element of a Section 2 claim, but rather a means to show anticompetitive motives.” Safeway v. Abbott Labs., No. 07-5470, 2010 U.S. Dist. LEXIS 2145, *22 (N.D. Cal. Jan. 12, 2010) (citing MetroNet Svcs. v. Qwest Corp., 383 F.3d 1124, 1131-32 (9th Cir. 2004). 15 pricing claim. Instead, Mayer asserts an entirely different species of Sherman Act violations. As the 3 Supreme Court noted in Trinko, the means of illicit exclusion that fall under the ambit of the 4 Sherman Act are “myriad.” 540 U.S. at 414. Courts have long recognized many forms of 5 exclusionary conduct that do not involve below-cost pricing. These include tying of 6 products/services (e.g., United States v. Microsoft Corp., 253 F.3d 34, 69 (D.C. Cir. 2001)); refusal 7 to deal (e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601-2 (1985), Otter 8 Tail Power Co. v. United States, 410 U.S. 366 (1973) (refusal to deal/denial of access to “essential” 9 facilities or resources), Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992) 10 (tying and refusal to deal)); exclusive dealing agreements (Tampa Elec., 365 U.S. at 327, Omega 11 For the Northern District of California However, this line of cases is inapposite here because Mayer’s claim is not a predatory 2 United States District Court 1 Envtl., Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997), Allied Orthopedic Appliances, 12 Inc. v. Tyco Healthcare Group LP, 592 F.3d 991 (9th Cir. 2010), Dentsply Int’l, 399 F.3d 181, 190 13 (3d Cir. 2005)); and other tortious conduct targeting competitors (e.g., Conwood Co., L.P. v. U.S. 14 Tobacco Co., 290 F.3d 768 (6th Cir. 2002)). 15 The pivotal question here is whether Mayer’s Sherman Act claims allege a “price-based 16 claim” of predatory pricing. The Court finds they do not. The gravamen of the claims here is not 17 that the wholesale prices charged by C&D (net of the planogram rebates) are so low that Mayer 18 can’t compete. Rather than a “price-based claim,” the complaint is “about the conditions that 19 Church & Dwight imposes in exchange for the rebates – namely, the exclusion of competitors (all 20 competitors, not just Mayer) from the vast majority of crucial display space in crucial retailers’ 21 stores.” Opp’n at 31. The claims focus on the tactics used by C&D to monopolize the display space 22 that the parties agree constitutes virtually the sole means by which condoms are marketed. While 23 money is involved (the amount of money may be relevant in determining the coercive effect and 24 efficacy of C&D’s Planogram Program in minimizing the proportion of display space devoted to 25 competitors), Mayer does not claim that the rebates (the closest element here akin to pricing) 26 themselves exclude competition. Rather, it is the exclusive display space that C&D “buys” through 27 the rebates, as well as the exploitation of the category captain positions and exclusive dealing 28 arrangements, that harms competition. The alleged anticompetitive conduct amounts to a vertical 16 1 restraint which does not involve predatory pricing. It asserts the same kind of harm that occurs in 2 exclusive dealing cases – the foreclosure of a substantial share of competition – via the variety of 3 means described above. 4 Indeed, Mayer’s claims are more akin to those in Conwood than to the price-based claims in 5 Brooke Group or Linkline, as the defendant’s conduct in Conwood, like C&D’s conduct alleged 6 here, targeted its competitor’s display space. In Conwood, U.S. Tobacco (“UST”) and Conwood 7 competed in the “moist snuff” market, with UST being the largest seller. UST not only engaged in 8 exclusive agreements with retailers, but its employees removed Conwood’s package racks from 9 stores without permission of store managers, destroyed or discarded the racks, buried Conwood products in UST’s racks where they were less visible, trained sales representatives to deceive store 11 For the Northern District of California United States District Court 10 clerks so the Conwood displays could be moved or destroyed, and provided misleading or erroneous 12 sales information for moist snuff products to encourage retailers to stock more of its snuff and less of 13 its competitors products. The Sixth Circuit found this constituted willful anticompetitive conduct 14 sufficient to submit to the jury. The Sherman Act claims did not involve below-cost pricing, and the 15 court employed no such analysis. 16 Although no such overtly tortious means are alleged here, the alleged effect in the instant 17 case is the same: control of an increasing share of display to increase sales and monopolize the 18 market at the expense of competitors. As in Conwood, no below-cost pricing is alleged. 19 Perhaps even more on point, courts that have examined Sherman Act claims challenging 20 attempts to monopolize retail display space through vertical agreements have not analyzed them 21 under a predatory pricing framework and have not scrutinized whether prices were set below cost. 22 Rather, the focus has been on whether competition was substantially foreclosed. See, e.g., El Aguila 23 Food Prods. Inc. v. Gruma Corp., 301 F. Supp. 2d 612, 628-632 (S.D. Tex. 2003) aff’d 131 F. 24 App’x 450 (5th Cir. 2005); R.J. Reynolds Tobacco Co. v. Phillip Morris USA, 199 F. Supp. 2d 362, 25 387 (M.D.N.C. 2002) aff’d 67 F. App’x 810, 811-812 (4th Cir. 2003); Bayou Bottling Inc. v. Dr 26 Pepper Co., 725 F.2d 300, 304 (5th Cir. 1984); Louisa Coca-Cola Bottling Co. v. Pepsi-Cola Metro. 27 Bottling Co., 94 F. Supp. 2d 804 (E.D. Ky. 1999); Frito-Lay, Inc. v. Bachman Co., 659 F. Supp. 28 1129, 1134 (S.D.N.Y. 1986); (separately addressing § 1 and § 2 claims regarding shelf space 17 1 program and Robinson-Patman Act claims which did focus on pricing practices). Cf. Beverage 2 Mgmt., Inc. v. Coca-Cola Bottling Corp., 653 F. Supp. 1144 (S.D. Ohio 1986) (applying substantial 3 foreclosure analysis to agreement to run only defendants’ advertisements). 4 C. 5 Anticompetitive Conduct/Unreasonable Restraint of Trade Having concluded that Mayer’s Sherman Act claims are not precluded for their failure to 6 allege predatory below-cost pricing, the Court examines whether the allegations of anticompetitive 7 conduct and unreasonable restraint of trade are sufficient under Twombly and Iqbal to state claims 8 under § 1 and § 2 of the Sherman Act. As noted above, given the nature of the claims, the critical 9 question is whether C&D’s alleged conduct substantially foreclosed competition in the relevant market. Here, the Court finds the cases specifically addressing alleged monopolization of display 11 For the Northern District of California United States District Court 10 space persuasive. 12 In El Aguila Food Prods., 301 F. Supp. 2d at 615, the plaintiff (“El Aguila”) and defendant 13 (“Gruma”) were rivals in the retail market for tortillas. El Aguila brought § 1 and § 2 claims against 14 Gruma, alleging that it used customer marketing agreements (“CMAs”) and its influence as a 15 “category captain” to obtain greater shelf space in grocery stores in exchange for “slotting fees.” Id. 16 at 628. According to El Aguila, Gruma made payments to retailers pursuant to the CMAs in 17 exchange for control over the retail placement of competing products. Id. at 615-616. The evidence 18 indicated that Gruma’s ratio of slotting fees for shelf space “ranged from one (1) percent to five (5) 19 percent of gross sales.” Plaintiffs couched Gruma’s practice as a conspiracy in restraint of trade as 20 well as exclusive dealing. El Aguila claimed that Gruma monopolized, or attempted to monopolize, 21 tortilla sales in violation of Sherman Act § 2 via the CMAs and its role as “category captain in 22 preparing, providing or influencing the schematics or diagrams” governing placement on shelves of 23 El Agulia’s and Gruma’s brands of tortillas as well as those of their competitors. Id. at 615-616. 24 The court granted summary judgment in favor of Gruma. It noted that “[i]t is well known that the 25 retailers and manufacturers engage in negotiations that result in the payment of slotting 26 promotionals, co-op advertising, and other allowances or discounts that favor the retailers” (id. at 27 620) and found that “the evidence fails to quantify the extent of any exclusivity that Gruma allegedly 28 has in the marketplace.” (Id. at 621). It also found there was no evidence that Gruma uniquely 18 1 benefitted from the CMAs as compared with its competitors’ similar agreements or that the CMAs 2 proximately caused El Aguila to lose shelf space. Id. There was no evidence that Gruma was the 3 recipient of shelf space lost by plaintiffs, or that Gruma’s shelf space was disproportionate to its 4 sales. Id. at 630. The court also found that Gruma had little or no control over the price of tortillas 5 (id. at 628) and that the retailers set the price of tortillas. Id. at 631. Moreover, (1) competition had 6 in fact intensified in the preceding decade (based, in part, on the fact that new tortilla manufacturers 7 had entered the market during that period), (2) the price of tortillas had remained flat, (3) shelf space 8 for tortillas had increased, (4) plaintiff’s tortillas remained on the shelves even in stores accepting 9 slotting fees, and (5) plaintiffs admitted that shelf space for exposure is negotiable. Id. at 629-630. Thus, not only did El Aguila fail to prove it was victimized by anticompetitive conduct (e.g., 11 For the Northern District of California United States District Court 10 Gruma’s shelf space was proportionate to its sale and El Aguila lost no shelf space to Gruma), it 12 failed to demonstrate injury to competition. 13 In Bayou Bottling, Inc. v. Dr. Pepper Co., 725 F.2d 300, 304 (5th Cir. La. 1984) the plaintiff 14 claimed Sherman Act violations based in part on alleged exclusionary conduct with respect to 15 vending machines and shelf space. The court rejected the plaintiff’s argument that its exclusion 16 from a portion of shelf space constitutes an antitrust injury. The court explained that “[s]tores allot 17 shelf space to the bottlers in proportion to market activity. A bottler with a popular product is given 18 a greater portion of available shelf space than a bottler with a product which has less sales appeal.” 19 Id. The court found that the defendant “has only that portion consistent with its total share of the 20 soft drink market.” Id. 21 In Louisa Coca-Cola Bottling Co., the Louisa Coca-Cola Bottling Co. (“Louisa”) sued its 22 competitor Pepsi-Cola Metropolitan Bottling Co. (“Pepsi Metro”) alleging, inter alia, 23 monopolization and contracts in restraint of trade in violation of § 1 of the Sherman Act. Id. at 809. 24 Louisa sought an injunction prohibiting Pepsi Metro from engaging in Calendar Marketing 25 Agreements (“CMAs”) and “dealer loaders,” which are sales incentive contests that reward retailers 26 for meeting certain performance goals. Id. at 806, 808-809. At the time of suit, “Pepsi-Metro [had] 27 an 80% share of the soft drink market in Louisa Coke’s territory.” Id. at 809. The court concluded 28 that Louisa failed to demonstrate an antitrust injury. Id. at 817. Pepsi Metro did not control 19 1 retailers’ decision making; retailers were free to terminate CMA agreements whenever they wished. 2 Id. at 815. The CMAs were of “short duration and easy termination,” and this “negate[d] their 3 potential for foreclosing competition.” Id. at 816. Most importantly, Louisa failed to claim or offer 4 evidence that Pepsi Metro’s allotted shelf space was “inconsistent with its market share.” Id. at 815. 5 Nor was there any evidence that it or any other competitor “received less retail shelf space than other 6 market demand or their service history justified.” Id. 7 In Frito-Lay, plaintiff challenged defendant’s incentive plan, which granted a 10% trade 8 allowance to retailers who already had a ratio of shelf space allocated to Frito-Lay products 9 proportionate to its share of that retailer’s sales volume. The second part of the plan provided a profit guarantee to retailers who had underspaced Frito-Lay in exchange for a specified amount of 11 For the Northern District of California United States District Court 10 additional shelf space. Id. at 1132. In rejecting the § 1 claim, the court noted that “a number of 12 essential allegations are missing from defendant’s counterclaims . . . . [including a] failure to allege 13 that plaintiff obtained a greater share of shelf space than that equivalent to its share of the market or, 14 conversely, that defendant’s percentage of shelf space fell below its market share as a result of 15 plaintiff’s profit guarantee.” Id. at 1133-34. The court refused to dismiss the § 2 claim which 16 asserted that the profit guarantees were given to retailers where Frito-Lay faced its most effective 17 competition, based partly on plaintiff’s argument that by subsidizing the exclusion of competitors, 18 defendant injured competition without increasing efficiency. Id. at 1136. 19 In R.J. Reynolds Tobacco Co. v. Phillip Morris Inc., the plaintiff (“RJ Reynolds”) brought 20 suit against its competitor (“PM”) under Sherman Act § 1 and § 2, challenging PM’s “Retail Leaders 21 Program,” which provided higher promotional payments to retailers who agree to provide higher 22 percentages of shelf space to PM’s products. 199 F. Supp. 2d 362 (M.D.N.C. 2002), aff’d per 23 curiam, 67 F. App’x 810 (4th Cir. 2003). Notably, the program tied display space requirements to 24 local market share, and where PM’s local market share exceeded 55%, the program required that the 25 retailer dedicate a percentage of shelf-space to PM calculated as 90% of PM’s local market share 26 (i.e., if PM’s local share was 75%, the retailer would provide at least 67.5% – 90% of 75 – of the 27 product space to PM). PM did not demand a higher percentage of available product space than its 28 market share, but under its contracts, restrictions were placed on competitive signage in stores; 20 1 however, competitors had several options to promote their products in these stores. Id. at 372. The 2 district court granted summary judgment to PM, concluding that RJ Reynolds had failed to provide 3 evidence that could establish (1) PM possessed market power in the relevant market, (2) the Retail 4 Leaders program foreclosed competition in a substantial share of the market, or (3) antitrust injury. 5 Specifically, the court found that the challenged agreements did not control the display of competing 6 products and did not provide defendant “with more than its market share of product space.” Id. at 7 387. Retailers were free to carry as many competing brands as they chose. Id. at 388. Furthermore, 8 plaintiff had ample opportunity to promote their product in stores. Plaintiff’s market share increased 9 during certain periods. Id. at 391. Measuring plaintiff’s foreclosure claims “against the full range of selling and advertising opportunities available,” the court found plaintiff had other non-retail 11 For the Northern District of California United States District Court 10 marketing opportunities to reach consumers. Id. at 393. The court found there was healthy 12 competition in the retail cigarette market, as evidenced by the presence of new entrants and the 13 continuing presence of competitor’s products on the shelves of retailers. See id. at 390-91. 14 The allegations in Mayer’s counterclaims stand in contrast to the facts in El Aguila Food 15 Products, Bayou Bottling, Louisa Coca-Cola Bottling, Frito-Lay and R.J. Reynolds. In those cases, 16 display space was based on the merits of competition: the display space allocated to defendants was 17 either proportionate to or less than given defendant’s market share of sales. Moreover, the 18 challenged agreements did not necessarily limit display space devoted to the plaintiff. Nor were 19 alternative means of marketing significantly curtailed. Furthermore, defendants were found in most 20 of those cases to lack market or monopoly power to substantially foreclose competition and control 21 prices. 22 In the instant case, as noted above, Mayer has alleged with great specificity: (1) the market 23 and monopoly power of C&D (whose sales account for over 75% of retail condom sales in the 24 United States); (2) the uniquely important role in marketing played by in-store displays for condoms 25 (and the relative lack of other non-retail means of reaching the consumer); (3) the concentration of 26 ownership at the retail level and the high degree of penetration obtained by C&D through its 27 28 21 1 Planogram Program; (4) the fact that under the Planogram Program,12 there are hierarchies of rebates 2 that incentivize retailers to award display space to C&D disproportionate to its market share; (5) the 3 fact that under the Planogram Program, because it stipulates a minimum percentage of display space 4 be devoted to C&D (as opposed to e.g., minimum lineal footage of display), the residual space 5 available to competitors is limited – retailers under the program cannot add space for Mayer without 6 increasing C&D’s space by a multitude, and thus the likelihood of displacement is greater; (6) in 7 fact, Mayer’s products have actually been displaced under the Planogram Program by C&D products 8 even where relative sales did not warrant it; (7) the fact that C&D has successfully ratcheted up its 9 Planogram Program, raising the percentage of display space guaranteed for its products; (8) that there are significant barriers to entry into this market; (9) that C&D has successfully raised prices for 11 For the Northern District of California United States District Court 10 the products;13 and (10) that while C&D’s market share has gone up, Mayer’s market share has 12 declined. 13 These allegations are specific enough under Twombly and Iqbal to state plausible claims 14 under § 1 and § 2 of the Sherman Act. Taken as true, and drawing reasonable inferences in Mayer’s 15 favor, the extensive allegations establish anticompetitive conduct and the foreclosure of competition 16 in a substantial share of the condom market and resulting antitrust injury. While there may be a 17 number of factors that may ultimately inform the question of substantial foreclosure (see, e.g. 18 Novell, Inc. v. Microsoft Corp., supra, 699 F. Supp. 2d at 755; R.J. Reynolds, supra, F. Supp. 2d at 19 389), Mayer has pled enough to survive C&D’s motion to dismiss. 20 21 22 23 24 25 26 27 28 12 In its supplemental brief, C&D contends that the Planogram Agreements may be terminated without penalty with thirty days notice. The Court disregards C&D’s contention, as it is irrelevant to the analysis at this stage, where the Court, with limited exceptions, looks only to the four corners of the pleadings. 13 C&D contends that Mayer’s example based on 2006-2008 data from Safeway Stores, “[i]n the absence of further context,” is an insufficient allegation of “competition generally in the nationwide market.” Reply at 12-13; SAC ¶ 85. In fact, ¶ 85 of the counterclaim alleges “higher prices to consumers” and clearly states that the data collected from Safeway is “an example.” Moreover, C&D’s argument is premature; at this stage, the Court takes all plausible allegations in Mayer’s counterclaim as true, and merely considers whether it adequately states a claim for relief. Discovery is the mechanism for obtaining the “further context” that C&D refers to. The Court accordingly finds no material shortcoming in Mayer’s allegations of antitrust injury. Cf. Doctor’s Hospital of Jefferson, Inc. v. Southeast Medical Alliance, Inc., 123 F.3d 301 (5th Cir. 1997) (holding that the plaintiff’s alleged injury from being shut out of the market as a “direct competitor” fell “easily within the conceptual bounds of antitrust injury.”). 22 1 Moreover, the allegations regarding the Planogram Program are bolstered by the additional 2 anticompetitive conduct alleged. As noted above, Mayer also alleges that C&D entered into 3 “category management” agreements with large chain retailers (¶¶ 8, 41), giving C&D the ability to 4 obtain preferential display locations for its products (¶ 70). Mayer also alleges, “The combination of 5 [C&D’s Planogram Agreements] and its role as a condom category captain, together with its 6 monopoly power, has enabled Church & Dwight to increase its market share by nearly 10% over the 7 last seven years, to over 75% of the relevant markets, and has allowed Church & Dwight to increase 8 its prices and profits substantially.”) (¶ 73). Additionally, C&D has entered into exclusive dealing 9 contracts with some retailers, including 7-Eleven. To be sure, viewed separately, each of Mayer’s additional claims as alleged (other than the 11 For the Northern District of California United States District Court 10 Planogram Program claim) is problematic. Mayer’s allegations regarding the category captain 12 arrangements are not specific enough to establish an unreasonable restraint of trade or 13 anticompetitive/exclusionary conduct. Such category management arrangements are evidently 14 commonplace among retailers of a wide variety of products. See El Aguila Food Prods., 301 F. 15 Supp. 2d at 628-632; Conwood, 290 F.3d 768, 775-76. Mayer does not allege with any degree of 16 specificity how pervasive C&D’s category captain agreements are, how they are coercive to 17 retailers, or how C&D uses the position to eliminate competition in the absence of any allegation 18 that these agreements are long term. Cf. R.J. Reynolds, 199 F. Supp. 2d at 391-92 (agreements of 19 short duration less likely to foreclose competitors). 20 Mayer’s allegations of exclusive dealing agreement appear to pertain solely to 7-Eleven. 21 Without allegations as to the portion of the relevant market foreclosed by the exclusive agreement, 22 the length of the agreements, etc., this claim standing alone does not adequately state a plausible 23 exclusive dealing claim under the Sherman Act. See Concord Boat, 207 F.3d at 1059 (rejecting § 1 24 claim that discount program was exclusive when program did not require purchasers to commit to 25 manufacturer for any specified period of time) (citing Tampa Elec. Co., 365 U.S. at 327); Paddock 26 Publ’ns, Inc. v. Chicago Tribune Co., 103 F.3d 42, 47 (7th Cir. 1996) (holding that the duration of 27 exclusive dealing contract is relevant to whether contract is illegal); Masimo, 2006 U.S. Dist. LEXIS 28 29977, 2006 WL 1236666 at 5 (“[E]xclusive dealing contracts . . . that are terminable on short notice 23 1 are not anticompetitive because foreclosure is very unlikely.”); see also Jefferson Parish Hosp. Dist. 2 No. 2 v. Hyde, 466 U.S. 2, 45 (1984) (O’Connor, J., concurring) (reasonableness of the restraint on 3 trade in exclusive dealing cases depends upon whether a “significant fraction of buyers or sellers are 4 frozen out of a market”). 5 The tortious interference claim pertaining to Mayer’s alleged exclusive supply contract with 6 Sagami does not substantially support its Sherman Act claim that Mayer is being shut out of the 7 retail market. Mayer does not contend that it cannot obtain supplies of its product from Sagami. 8 Mayer’s trademark infringement allegations, standing alone, are insufficient to establish 9 substantial foreclosure from competition, even if the alleged infringement were established and found to be motivated by anticompetitive purposes. Not every trademark violation by a competitor 11 For the Northern District of California United States District Court 10 constitutes an antitrust violation. Cf. Santana Prods., Inc. v. Bobrick Washroom Equip., Inc., 249 F. 12 Supp. 2d 463, 513-15 (M.D. Pa. 2003) (holding that merely “join[ing] together with others to 13 criticize [the plaintiff’s] products falsely” did not constitute an unreasonable restraint of trade under 14 the Sherman Act); Fair Isaac Corp. v. Experian Info. Solutions, Inc., 645 F. Supp. 2d 734, 752 (D. 15 Minn. 2009) (rejecting antitrust claim based on the defendant’s use of misinformation and false 16 statements). 17 On the other hand, C&D’s argument that each of Mayer’s allegations must be analyzed 18 separately is incorrect. In assessing C&D’s potential antitrust liability, the Court considers the 19 effects of its conduct in the aggregate, including, as appropriate, cumulative or synergistic effects. 20 See Masimo Corp. v. Tyco Health Care Group, L.P., No. 02-4770, 1004 U.S. Dist. LEXIS 26916, 21 *19 (considering the combined effect of all of the defendant’s allegedly exclusionary contracts, 22 including, inter alia, sole source contracts and “market share volume/loyalty discounts in 23 compliance-based contracts”); Twin City Sportservice, Inc. v. Finley & Co., Inc., 676 F.2d 1291, 24 1302 (9th Cir. 1982) (upholding the district court’s analysis, looking to the “overall effects of a 25 defendant’s conduct in the relevant market”); City of Anaheim v. S. Cal. Edison Co., 955 F.2d 1373, 26 1376 (9th Cir. 1992) (“it would not be proper to focus on specific individual acts of an accused 27 monopolist while refusing to consider their overall combined effect”). Cf. Conwood, 290 F.3d 768 28 (court examines a range of tortious conduct by defendant). Linkline is not to the contrary. Although 24 1 the Court characterized the price squeeze claim as an “amalgamation of a meritless claim at the retail 2 level and a meritless claim at the wholesale level,” 129 S. Ct. at 1120, its analysis of predatory 3 pricing at the retail level took into account the pricing at the wholesale level – the retail pricing was 4 not below the elevated whole price. So viewed, the question is whether the Planogram Program, 5 together with C&D’s other conduct, constitutes an unreasonable restraint on trade and 6 anticompetitive conduct. As the Court has found the allegations regarding the Planogram Program 7 sufficiently state Sherman Act claims in satisfaction of the pleading requirements of Twombly and 8 Iqbal, it follows perforce that the cumulative claims do as well,14 even if the additional claims 9 viewed separately were insufficient to state independent Sherman Act violations.15 11 For the Northern District of California United States District Court 10 12 IV. A. CARTWRIGHT ACT CLAIMS Claims III & IV: Cartwright Act §§ 16700, et. seq. “California Business and Professions Code sections 16720 and 16726 outlaw, inter alia, 13 conduct that ‘prevent[s] competition in manufacturing, making, transportation, sale or purchase of 14 merchandise, produce or any commodity.’” Tele Atlas N.V. v. NAVTEQ Corp., 397 F. Supp. 2d 15 1184, 1189 (N.D. Cal. 2005). “‘[S]ections 16720 and 16726 . . . were patterned after the Sherman 16 Act,’” and thus the requirements for stating a claim under both federal and California antitrust 17 statutes are similar. Id. (quoting Suburban Mobile Homes, Inc. v. Amfac Communities, Inc., 101 Cal. 18 App. 3d 532, 540-43, 161 Cal. Rptr. 811 (1980)). “In order for a private plaintiff to have standing to 19 sue under the Cartwright Act, the plaintiff must prove antitrust injury, ‘which is to say injury of the 20 21 22 23 24 25 26 27 28 14 In reaching this conclusion, the Court is mindful that “[m]istaken inferences and the resulting false condemnations are especially costly, because they chill the very conduct the antitrust laws are designed to protect.” Verizon Communications v. Law Offices of Curtis Trinko, LLP, 540 U.S. 398, 407, 414 (2004) (internal citations omitted); Linkline, 129 S. Ct. at 1122-23 (describing the interaction between wholesale and retail prices as a “moving target”). Indeed, Sherman Act violations should be identified in a reasonably clear manner that preserves appropriate incentives without creating perverse ones. Where, as here, alleged price increases purportedly result from vertical restraints created by an unintegrated monopolist, the analysis should be no more complex than cases involving, e.g., a price-squeeze, which would require analysis of a monopolized input. See generally Steven C. Salop, Refusals to Deal and Price Squeezes by an Unregulated, Vertically Integrated Monopolist, 76 Antitrust L.J. 709-740 (2010) (suggesting a method for evaluating vertical restraints under the rule of reason and consistent with Linkline). 15 To the extent Mayer seeks in its Second Amended Counterclaim to assert the additional claims as independent violations of the Sherman Act, they are dismissed without prejudice. 25 1 type the antitrust laws were intended to prevent and that flows from that which makes defendants 2 acts unlawful.’” Lorenzo v. Qualcomm Inc., 603 F. Supp. 2d 1291, 1302 (S.D. Cal. 2009) (citation 3 omitted). 4 Mayer alleges that C&D’s Planogram Agreements constitute unlawful trusts under the 5 Cartwright Act. SAC ¶ 107. Mayer also alleges that they “substantially lessen competition.” SAC 6 ¶ 110. C&D simply argues that these claims “should be dismissed for the same reason its Sherman 7 Act claims should be dismissed.” Mot. at 30. Having found C&D’s argument unpersuasive with 8 respect to Mayer’s First Counterclaim, the Court rejects it here as well.16 because the Act “does not address unilateral conduct” as Sherman Act § 2 does. Mot. at 32 (quoting 11 For the Northern District of California C&D argues that monopolization claims are not cognizable under the Cartwright Act, 10 United States District Court 9 Dimidowich v. Bell & Howell, 803 F.2d 1517 (9th Cir. 1987). Mayer’s opposition confirms that it 12 alleges only “combinations or conspiracies” in restraint of trade, and does not allege Cartwright Act 13 violations based solely on unilateral activity. 14 B. Claim V: Cartwright Act § 17045 15 Mayer claims that C&D violated § 17045 of the Cartwright Act by offering its Planogram 16 Agreements only to certain retailers, principally major retail chains, and not to small independent 17 retailers. SAC ¶¶ 66,115-118; Opp’n at 52-3. To prevail on this claim, Mayer must show three 18 essential elements: (1) a “secret” allowance of an “unearned” discount, (2) “injury” to a competitor, 19 and (3) the allowance must tend to destroy competition. Diesel Electric Sales & Service, Inc. v. 20 Marco Marine San Diego, Inc., 16 Cal. App. 4th 202 (1993). With respect to its injury, Mayer must 21 allege a “loss that flows from an anticompetitive aspect or effect of the defendant’s behavior.” See 22 Lorenzo v. Qualcomm Inc., 603 F. Supp. 2d 1291, 1302-03 (S.D. Cal. 2009) (“Plaintiff must allege 23 24 25 26 27 28 16 C&D asks the Court to disregard Mayer’s allegation that California is a relevant geographic market. Mot. at 32. Even assuming C&D is correct, this would not a basis to dismiss Mayer’s antitrust claims unless a regional market is implausible (or precluded as a matter of law), since generally the determination of a relevant market is a factual matter. See Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008). Moreover, there is nothing in the counterclaim to suggest C&D’s market power is materially different in California than it is nationally. 26 1 an injury that is not ‘secondary, consequential, or remote’ in order to have standing under the 2 Cartwright Act.”). 3 C&D argues that Mayer fails to allege actual injury. The basis of Mayer’s claim appears to argues that the harm alleged by Mayer – loss of market share – would not flow from C&D’s 6 selectively offered rebate . Mot. at 33; Reply at 40-41. Indeed, Mayer should suffer less harm to the 7 extent retailers are not offered rebates, as those retailers should have more undedicated display space 8 open to Mayer’s products. Thus, Mayer has not alleged that it suffers an injury resulting from the 9 alleged discriminatory pricing to retailers. See ABC Internat. Traders, Inc. v. Matsushita Electric 10 Corp., 14 Cal. 4th 1247 (1997) (noting legislative intent to protect smaller, independent retailers, 11 For the Northern District of California be C&D’s selective offer of Planogram Agreements to only certain retailers. (SAC ¶ 66). C&D 5 United States District Court 4 e.g., grocers, against unfair competitive practices of the large chain stores). Mayer therefore lacks 12 standing and injury cognizable under this claim. 13 Moreover, in light of the allegedly widespread and notorious nature of C&D’s conduct, the 14 Court finds that Mayer has failed to adequately allege the “secret” nature of the alleged discounts. 15 See Kunert v. Mission Financial Services Corp., 110 Cal. App. 4th 242, 261 (Cal. App. 2d Dist. 16 2003); Harris v. Capitol Records Distributing Corp. (1966) 64 Cal 2d 454, 460 (holding § 17045 17 inapplicable because “the allowance was not secret.”). Mayer’s conclusory allegations are 18 insufficient especially in the context of the widespread nature of C&D’s Planogram Program. 19 Twombly, 550 U.S. at 555 (holding that a threadbare assertion of an unlawful agreement is a “legal 20 conclusion” not entitled to an assumption of truth); In re: Netflix Antitrust Litig., 506 F. Supp. 2d 21 308, 320 (N.D. Cal. 2007) (dismissing Cartwright Act claims where allegations were conclusory). 22 Cf. Frey v. Novartis Pharm. Corp., 642 F. Supp. 2d 787, 795 (S.D. Ohio 2009) (dismissing claim 23 where the complaint contained a formulaic recitation of elements rather than alleging facts 24 supporting an inference that an alleged defect was the proximate cause of the plaintiff’s injuries). 25 The Court accordingly dismisses Mayer’s Fifth Counterclaim with leave to amend although the 26 Court has serious doubts as to the viability of this claim. 27 /// 28 /// 27 1 V. UNFAIR COMPETITION UNDER CALIFORNIA COMMON LAW: VIII & XII 2 Mayer asserts two claims for unfair competition under California common law (VIII & XII). 3 C&D raises the same argument against Claim VIII as it has for each antitrust claim, i.e., that Mayer 4 has failed to alleged a likelihood of unfair competition because it has not alleged below-cost pricing. 5 Mot. at 37. In response, Mayer does not dispute that there is no common law claim for “monopoly,” 6 but argues that California common law has recognized tort actions for conspiracies in restraint of 7 trade, which it alleges at SAC ¶ 137. Opp’n at 57 (citing Speegle v. Board of Fire Underwriters, 29 8 Cal. 2d 34, 44 (1946)). In Speegle, the California Supreme Court explained that the Cartwright Act 9 “merely articulates in greater detail a public policy against restraint of trade that has long been recognized at common law.” Significantly, the Court approved the concurrent application of both 11 For the Northern District of California United States District Court 10 the Cartwright Act and common law, noting that both “must be relied upon for the protection of the 12 public against combinations in restraint” of trade. Id. at 45. See also Oakland-Alameda County 13 Builders’ Exchange v. F. P. Lathrop Constr. Co., 4 Cal. 3d 354, 363 (Cal. 1971) (favorably quoting 14 Speegle); Quelimane Co. v. Stewart Title Guaranty Co., 19 Cal. 4th 26 (Cal. 1998) (acknowledging 15 common purpose of common law tort for restraint of trade and Cartwright Act). Mayer’s Eighth 16 Counterclaim is adequately stated, just as its Third Counterclaim is. The motion to dismiss the 17 Eighth Counterclaim is denied. 18 Mayer’s Twelfth Counterclaim alleges that C&D’s infringement of the term “microthin” 19 constitutes “deliberate and willful unfair competition under [California] common law.” SAC ¶ 177. 20 C&D challenges this claim, arguing that Mayer has failed to adequately allege a likelihood of 21 consumer confusion. Mot. at 43-47. C&D also argues that the doctrine of laches should preclude 22 any equitable relief on the claim. Mot. at 46-47. As discussed below, Mayer has sufficiently alleged 23 likelihood of consumer confusion. Because resolution of laches requires consideration of facts 24 outside the four corners of the counterclaim, this defense does not warrant dismissal under Rule 12 25 of Mayer’s pleading at this juncture. The motion to dismiss the Twelfth Counterclaim is denied. 26 27 28 VI. TORTIOUS INTERFERENCE WITH ECONOMIC RELATIONS Mayer’s Seventh Counterclaim is for tortious interference with its economic relations with retailers. The elements of this tort are: (1) an economic relationship between the plaintiff and a 28 1 third party with a likelihood of future economic benefit to the plaintiff, (2) the defendant’s 2 knowledge of such a relationship, (3) intentional act designed to disrupt the relationship, (4) actual 3 disruption of the relationship, and (5) resulting economic harm. Korea Supply Co. v. Lockheed 4 Martin Corp., 29 Cal. 4th 1134, 1153 (2003). 5 Citing E Z Sockets, Inc. v. Brighton-Best Socket Screw Mfg., Inc., 704 A.2d 1364 (N.J. Super. 6 Ct. 1996), C&D argues that the counterclaim fails to allege the requisite wrongful acts by C&D. 7 Mot. at 37. Mayer responds that its allegations regarding anticompetitive conduct and agreements in 8 restraint of trade operated to disrupt its actual and prospective economic relationships with retailers. 9 Mayer further points to its allegation that C&D acted “wilfully and maliciously.” SAC ¶ 134. In E Z Sockets, the court had already dismissed the plaintiff’s antitrust allegations, such that 11 For the Northern District of California United States District Court 10 no allegations of wrongful conduct remained other than the alleged interference itself. Id. at 1370. 12 Here, by contrast, the Court has not dismissed the antitrust claims. C&D has not cited any 13 controlling authority that (1) C&D’s anticompetitive conduct and agreements alleged by Mayer 14 cannot constitute an independently unlawful “intentional act” or (2) the resulting loss of market 15 share or exclusion from certain retailers cannot constitute “disruption” for purposes of the tort. 16 Accordingly, the Court denies C&D’s motion with respect to Mayer’s counterclaim for tortious 17 interference with economic relations. 18 19 VII. TORTIOUS INTERFERENCE WITH CONTRACT The elements of a tortious interference with contract claim are: (1) a valid contract between 20 plaintiff and a third party, (2) defendant’s knowledge of this contract, (3) defendant’s intentional acts 21 designed to induce a breach or disruption of the contractual relationship, (3) actual breach or 22 disruption of the contractual relationship, and (5) resulting damage. Pac. Gas & Elec. Co. v. Bear 23 Stearns & Co., 50 Cal. 3d 1118, 1126 (1990) (citing Seaman’s Direct Buying Service, Inc. v. 24 Standard Oil Co. 36 Cal. 3d 752, 765-766 (1984). 25 In its Sixth Counterclaim, Mayer contends that it had a distribution agreement with Sagami 26 to be its exclusive North American distributor of latex condoms, and that C&D induced Sagami to 27 breach the agreement by obtaining concurrent distribution rights despite C&D’s knowledge of the 28 exclusive contract. SAC ¶¶ 121-123. C&D argues that Mayer fails to allege the existence of a valid 29 1 contract. Mot. at 42. The Court disagrees. Mayer has adequately alleged the existence of such a 2 contract. See SAC ¶¶ 23-24, 121. Twombly and Iqbal do not require the specifics of the contract be 3 pled at this stage. Here, the gist of the alleged contract is plausible. See Phillips v. County of 4 Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (concluding that, taken as true, the allegations provide 5 “enough factual matter . . . to suggest the required element” of a contract) (quoting Twombly, 550 6 U.S. at 556). The Court therefore denies C&D’s motion to dismiss this claim. 7 8 VIII. A. FALSE DESIGNATION AND TRADEMARK INFRINGEMENT CLAIMS Likelihood of Consumer Confusion infringement17 in violation of 15 U.S.C. § 1114(a) and false designation of origin18 in violation of 15 11 For the Northern District of California Mayer brings its Eighth and Ninth Counterclaims under the Lanham Act, alleging trademark 10 United States District Court 9 U.S.C. § 1125(a). Mayer also brings, in its Tenth Counterclaim, a claim for common law 12 infringement. The Court need not evaluate each claim separately because C&D raises the same 13 argument with respect to each one (Mot. at 43-47) – that there is no likelihood of consumer 14 confusion as to who made the product(s). See M2 Software, Inc. v. Madacy Entm’t Corp., 421 F.3d 15 1073, 1080 n.5 (9th Cir. 2005) (noting that “[t]he test of trademark infringement under state, federal, 16 and common law is whether there will be a likelihood of confusion” and that, “for [the plaintiff] to 17 succeed on each of its other federal, state, and common-law based claims [e.g., false designation and 18 19 20 21 22 23 24 25 26 27 28 17 To prevail on a claim for trademark infringement, a holder of a registered service mark must show that another person is using: (1) any reproduction, counterfeit, copy or colorable imitation of a mark; (2) without the registrant’s consent; (3) in commerce; (4) in connection with the sale, offering for sale, distribution or advertising of any goods; (5) where such use is likely to cause confusion, or to cause a mistake or to deceive. 15 U.S.C. § 1114(1)(a); Century 21 Real Estate Corp. v. Sandlin, 846 F.2d 1175, 1178 (9th Cir. 1988). A “trademark” is any combination of words or symbols used in commerce to identify and distinguish one’s goods from those manufactured or sold by others and to indicate the source of the goods. 15 U.S.C. § 1127. “The first to use a mark is deemed the ‘senior’ user and has the right to enjoin ‘junior’ users from using confusingly similar marks in the same industry and market or within the senior user’s natural zone of expansion.” Brookfield Communs., Inc. v. West Coast Entertainment Corp., 174 F.3d 1036, 1047 (9th Cir. 1999). 18 To prevail in an action for false designation of origin, a plaintiff must show that: (1) the terms or logos in question are valid and protectable trademarks; (2) the plaintiff owns these marks as trademarks; (3) the plaintiff used these marks in commerce; and (4) the defendant “used terms or designs similar to plaintiff’s marks without the consent of the plaintiff in a manner that is likely to cause confusion among ordinary purchasers as to the source of the goods.” Chimney Safety Inst. Of Am. v. Chimney King, 2004 U.S. Dist. LEXIS 11985, 2004 WL 1465699, *2 (N.D. Cal. May 27, 2004) (citing Brookfield Commc’ns, Inc. v. West Coast Entm’t Corp., 174 F.3d 1036, 1046-47 n.8 (9th Cir. 1999)). 30 1 description of origin, federal and state trademark dilution, and unfair competition], it must establish 2 a likelihood of confusion”). See also A&H Sportswear, Inc. v. Victoria’s Secret Stores, Inc., 237 3 F.3d 198, 210 (3d Cir. 2000) (noting that a trademark infringement claim under 15 U.S.C. § 4 1114(1)(a) and a false designation of origin claim under 15 U.S.C. § 1125(a)(1)(A) are measured by 5 identical standards under the Lanham Act); Jada Toys, Inc. v. Mattel, Inc., 518 F.3d 628, 632 (9th 6 Cir. 2008) (noting that the critical determination is “whether an alleged trademark infringer’s use of 7 a mark creates a likelihood that the consuming public will be confused as to who made that 8 product.”) (quoting Brother Records, Inc. v. Jardine, 318 F.3d 900, 908 (9th Cir. 2003)); E. & J. 9 Gallo Winery v. Gallo Cattle Co., 967 F.2d 1280, 1290 (9th Cir. 1992) (“The core element of trademark infringement is the likelihood of confusion, i.e., whether the similarity of the marks is 11 For the Northern District of California United States District Court 10 likely to confuse customers about the source of the products.”). Neither intent nor actual confusion 12 are necessary to establish a likelihood of confusion. Century 21 Real Estate Corp. v. Sandlin, 846 13 F.2d 1175, 1178 (9th Cir. 1988). In this Circuit, the likelihood of confusion is analyzed using an 14 eight-factor test (“the Sleekcraft factors”): 15 16 17 (1) strength of the mark; (2) proximity of the goods; (3) similarity of the marks; (4) evidence of actual confusion; (5) marketing channels used; (6) type of goods and the degree of care likely to be exercised by the purchaser; (7) defendant’s intent in selecting the mark; and (8) likelihood of expansion of the product lines. 18 Surfvivor Media Inc. v. Survivor Productions, 406 F.3d 625, 630 (9th Cir. 2005). 19 Mayer claims that, from 1992 to 2005 or 2006, it was the sole user of the term “microthin” in 20 the condom industry. SAC ¶ 146. Mayer alleges that, in 2006, C&D began using the term 21 “microthin” as well as “Made in Japan” on one if its products, and continued using it on its other 22 products thereafter. ¶¶ 151-154. According to Mayer, this falsely suggests an affiliation with Mayer 23 Labs that deceived or is likely to deceive or confuse customers as to the origin of C&D’s Trojan 24 Ultrathin and ThinTensity products. ¶¶ 155-157. C&D argues that Mayer fails to state any plausible 25 likelihood of customer confusion. The Court disagrees. Mayer describes its use of the term 26 “MicroThin” beginning in 1992 (¶¶ 22, 143-145); its exclusive use of that term in the condom 27 industry from 1992 to approximately 2006 (¶¶ 145-146); its investment in that term and consumers’ 28 association of it with the Kimono brand (¶¶ 146-149). The Court accordingly finds that the term 31 1 “microthin” is plausibly alleged to be a protectable mark associated with Mayer. Consumer 2 confusion is generally a factual determination turning on an array of factors that cannot be made at 3 this stage. See AMF, Inc. v. Sleekcraft Boats, 599 F.2d 341, 353 (9th Cir. 1979) (setting forth non- 4 exclusive eight factor test for assessing the likelihood of confusion); Thane Int’l, Inc. v. Trek Bicycle 5 Corp., 305 F.3d 894, 901-02 (9th Cir. 2002) (reiterating the Ninth Circuit’s admonition that district 6 courts should grant summary judgment motions “regarding the likelihood of confusion sparingly, as 7 careful assessment of the pertinent factors that go into determining likelihood of confusion usually 8 requires a full record.”); Stanislaus Custodial Deputy Sheriffs’ Ass’n v. Deputy Sheriff’s Ass’n, 2010 9 U.S. Dist. LEXIS 59177, 29-30 (E.D. Cal. June 1, 2010) (faced with a motion to dismiss at in a trademark infringment case, the Court concluded that it “cannot make the factual conclusion at this 11 For the Northern District of California United States District Court 10 stage of the proceedings that there was not a likelihood of confusion.”); Visual Changes Skin Care 12 Int’l, Inc. v. Neways, Inc., 2008 U.S. Dist. LEXIS 111554 (E.D. Cal. Oct. 24, 2008) (rejecting the 13 defendant’s argument that there is no likelihood of confusion despite conceding that “weighing 14 evidence is inappropriate in a motion to dismiss” and stating that the defendant “oversteps a 15 F.R.Civ.P. 12(b)(6) challenge by seeking consideration of improper extrinsic evidence as to but one 16 factor to address likelihood of confusion.”). The Court finds that Mayer has adequately alleged a 17 likelihood of confusion and infringement with respect to Counterclaims VIII, IX, and X. 18 B. Laches 19 C&D further argues that Mayer’s infringement claims should be barred by the doctrine of 20 laches because Mayer “sat on its hands for almost three years and took no action to protect its 21 alleged trademarks until this [] case was initiated in 2009.” Reply at 49 (citing SAC ¶¶ 151-155). 22 The equitable defense of laches “embodies the principle that a plaintiff cannot sit on the knowledge 23 that another company is using its trademark, and then later come forward and seek to enforce its 24 rights. Internet Specialties West, Inc. v. Milon-Digiorgio Enters., 559 F.3d 985, 989-993 (9th Cir. 25 2009). The laches analysis consists of two questions: (1) Was the plaintiff’s delay in bringing suit 26 unreasonable? and (2) Was the defendant prejudiced by the delay? Id. See also Jarrow Formulas, 27 Inc. v. Nutrition Now, Inc., 304 F.3d 829, 838 (9th Cir. 2002); Tillamook Country Smoker, Inc. v. 28 Tillamook County Creamery Association, 465 F.3d 1102, 1108 (9th Cir. 2006). 32 1 “[A] laches determination is made with reference to the limitations period for the analogous 2 action at law.” Jarrow, 304 F.3d at 835. If the suit was filed within the applicable limitations 3 period, a presumption against laches applies. See id. at 835-36 (“If the Plaintiff filed suit within the 4 analogous limitations period, the strong presumption is that laches is inapplicable. However, if suit 5 is filed outside of the analogous limitations period, courts often have presumed that laches is 6 applicable.”). In Lanham Act claims, which have no federal limitations period, the court looks at the 7 most analogous state statute of limitations. The analogous period is either that governing fraud, 8 which is subject to a three-year limitations period in California, Cal. Code Civ. P. § 338(d) (see 9 Jarrow, 304 F.3d at 838), or that governing California trademark or common law infringement claims, which are subject to a four-year statute of limitations. Miller v. Glenn Miller Prods., Inc., 11 For the Northern District of California United States District Court 10 454 F.3d 975, 997 (9th Cir. 2006). C&D does not claim Mayer’s counterclaim was not brought 12 within the limitations period. C&D has not shown at this stage anything to overcome the 13 presumption against laches. In any event, a laches determination depends on facts outside the 14 pleadings, and, as such, is not cognizable in the context of the pending motion. See Fed. R. Civ. P. 15 12(d) (converting motion to dismiss to motion for summary judgment). 16 The Court accordingly denies C&D’s motion with respect to Counterclaims VIII, IX, and X. 17 /// 18 /// 19 /// 20 /// 21 /// 22 /// 23 /// 24 /// 25 /// 26 /// 27 /// 28 /// 33 1 2 IX. CONCLUSION For the reasons stated above, the Court hereby GRANTS Plaintiff’s motion with respect to 3 Defendant’s Fifth Counterclaim. The Court DENIES Plaintiff’s motion with respect to each of 4 Defendant’s remaining Counterclaims. Defendant’s Fifth Counterclaim is dismissed without 5 prejudice. Defendant is given leave to amend within 30 days. 6 This order disposes of Docket No. 71. 7 8 IT IS SO ORDERED. 9 11 For the Northern District of California United States District Court 10 Dated: April 1, 2011 _________________________ EDWARD M. CHEN United States Magistrate Judge 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 34

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