Surfacesupplied, Inc v. Kirby Morgan Dive Systems, Inc, No. 3:2013cv00575 - Document 49 (N.D. Cal. 2013)
Court Description: ORDER GRANTING DEFENDANT'S MOTION TO DISMISS COUNTER-DEFENDANT'S SECOND AND THIRD COUNTERCLAIMS AND TO STRIKE COUNTER-DEFENDANT'S AFFIRMATIVE DEFENSES. Signed by Judge Maxine M. Chesney on October 3, 2013. (mmclc2, COURT STAFF) (Filed on 10/3/2013)
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Surfacesupplied, Inc v. Kirby Morgan Dive Systems, Inc Doc. 49 1 2 3 4 5 6 7 IN THE UNITED STATES DISTRICT COURT 8 FOR THE NORTHERN DISTRICT OF CALIFORNIA 9 For the Northern District of California United States District Court 10 11 SURFACE SUPPLIED, INC., Plaintiff, 12 13 14 ORDER GRANTING DEFENDANT’S MOTION TO DISMISS COUNTERDEFENDANT’S SECOND AND THIRD COUNTERCLAIMS AND TO STRIKE COUNTER-DEFENDANT’S AFFIRMATIVE DEFENSES v. KIRBY MORGAN DIVE SYSTEMS, INC., Defendant. 15 16 No. C-13-0575 MMC AND RELATED COUNTERCLAIMS. / 17 18 Before the Court is defendant/counterclaimant Kirby Morgan Dive System, Inc.’s 19 (“Kirby Morgan”) “Motion to Dismiss Counter-Defendant’s Second and Third Counterclaims 20 . . . and Motion to Strike Counter-Defendant’s Affirmative Defenses,” filed August 16, 2013. 21 Plaintiff/counter-defendant Surface Supplied, Inc. (“SSI”) has filed opposition, to which 22 Kirby Morgan has replied. Having read and considered the papers filed in support of and in 23 opposition to the motion, the Court rules as follows.1 24 25 BACKGROUND Kirby Morgan is a California corporation that manufactures and markets “surface- 26 supplied commercial diving helmets and related diving equipment.” (See SSI First 27 Amended Answer and Affirmative Defenses and First Amended Counterclaim 28 1 By order filed September 17, 2013, the Court took the motion under submission. Dockets.Justia.com 1 (“FAA/FACC”), Countercls. ¶ 5.) It holds a number of registered trademarks. (See 2 Request for Judicial Notice in Support of Motion to Dismiss (“RJN”) Exs. 11–15 (notices 3 from United States Patent and Trademark Office regarding five trademarks).)2 SSI, also a 4 California corporation, is “a market entrant into the United States market for surface gas 5 controllers and analyzers” and “a potential entrant into the United States market for 6 commercial diving helmets[.]” (See id. ¶ 4.) 7 On January 22, 2013, Kirby Morgan dispatched to SSI a letter demanding that SSI 8 immediately cease and desist from using three images, including SSI’s logo, on the ground 9 that the images infringe Kirby Morgan’s trademarks. (See id. ¶ 12.) On February 8, 2013, 10 SSI filed a complaint for declaratory relief, which it amended on March 1, 2013. In its 11 amended complaint, SSI sought declarations that its use of the images do not infringe Kirby 12 Morgan’s trademarks and that said trademarks are unenforceable on the ground of 13 trademark misuse. (See First Amended Compl. (“FAC”), Prayer ¶¶ 1–3.) In its answer to 14 the FAC, filed July 12, 2013, Kirby Morgan responded by asserting, a series of 15 counterclaims for, inter alia, trademark infringement. (See Ans. ¶¶ 27–32.) 16 SSI thereafter filed the pleading here at issue, in which it asserts the following 17 twenty-one affirmative defenses to Kirby Morgan’s counterclaims: (1) “Failure to State a 18 Claim”; (2) Statute of Limitations”; (3) “Estoppel”; (4) “Unclean Hands”; (5) “Laches”; (6) 19 Acquiescence”; (7) “Fraud”; (8) “Abandonment”; (9) “Source Misrepresentation”; (10) 20 “Descriptive Fair Use”; (11) “Nominative Fair Use”; (12) “Freedom of Speech”; (13) 21 “Monopolization and Attempt to Monopolize”; (14) “Violation of Antitrust Laws”; (15) 22 “Functionality”; (16) “Genericness”; (17) “Descriptiveness”; (18) “No Damages”; (19) “No 23 Commerce”; (20) “Exhaustion of Remedies”; and (21) “Reservation of Defenses.” It also 24 asserts three counterclaims on its own behalf: “Cancellation of Trademark Registration”; 25 “Attempt to Monopolize”; and “Monopolization.” The latter two counterclaims both allege 26 that Kirby Morgan “engaged in . . . anticompetitive conduct” by “bringing a series of lawsuits 27 28 2 Kirby Morgan’s request for judicial notice is unopposed. (See Opp’n at 19–20.) 2 1 pursuant to a policy of starting legal proceedings without regard to the merits and for the 2 purpose of injuring a market rival.” (FAA/FACC, Countercls. ¶¶ 37, 39, 45, 46.) By the 3 instant motion, Kirby Morgan asks the Court to strike all twenty-one affirmative defenses, 4 some without leave to amend, and to dismiss SSI’s second and third counterclaims. 5 6 LEGAL STANDARD Dismissal under Rule 12(b)(6) of the Federal Rules of Civil Procedure can be based 7 on the lack of a cognizable legal theory or the absence of sufficient facts alleged under a 8 cognizable legal theory. See Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 9 1990). Rule 8(a)(2), however, “requires only ‘a short and plain statement of the claim 10 showing that the pleader is entitled to relief.’” See Bell Atl. Corp. v. Twombly, 550 U.S. 11 544, 555 (2007) (quoting Fed. R. Civ. P. 8(a)(2)). Consequently, “a complaint attacked by 12 a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations.” See id. 13 Nonetheless, “a plaintiff’s obligation to provide the grounds of his entitlement to relief 14 requires more than labels and conclusions, and a formulaic recitation of the elements of a 15 cause of action will not do.” See id. (internal quotation, citation, and alteration omitted). 16 In analyzing a motion to dismiss, a district court must accept as true all material 17 allegations in the complaint, and construe them in the light most favorable to the 18 nonmoving party. See NL Indus., Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir. 1986). “To 19 survive a motion to dismiss, a complaint must contain sufficient factual material, accepted 20 as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 21 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “Factual allegations must be enough 22 to raise a right to relief above the speculative level[.]” Twombly, 550 U.S. at 555. Courts 23 “are not bound to accept as true a legal conclusion couched as a factual allegation.” See 24 Iqbal, 556 U.S. at 678 (internal quotation and citation omitted). 25 Generally, a district court, in ruling on a Rule 12(b)(6) motion, may not consider any 26 material beyond the complaint. See Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 27 F.2d 1542, 1555 n. 19 (9th Cir. 1990). Documents whose contents are alleged in the 28 complaint, and whose authenticity no party questions, but which are not physically attached 3 1 to the pleading, however, may be considered. See Branch v. Tunnell, 14 F.3d 449, 454 2 (9th Cir. 1994). In addition, a district court may consider any document “the authenticity of 3 which is not contested, and upon which the plaintiff’s complaint necessarily relies,” 4 regardless of whether the document is referenced in the complaint. See Parrino v. FHP, 5 Inc., 146 F.3d 699, 706 (9th Cir. 1998). Finally, the Court may consider matters that are 6 subject to judicial notice. See Mack v. S. Bay Beer Distribs., Inc., 798 F.2d 1279, 1282 (9th 7 Cir. 1986). DISCUSSION 8 9 10 A. Affirmative Defenses The Court first turns to SSI’s affirmative defenses, which Kirby Morgan argues SSI 11 has inadequately pleaded. As Kirby Morgan points out, the answer includes no factual 12 allegations in support of any of the twenty-one “affirmative defenses,” but, rather, consists 13 entirely of legal conclusions. See Barnes v. AT&T Pension Benefit Plan-Nonbargained 14 Program, 718 F. Supp. 2d 1167, 1170 (N.D. Cal. 2010) (holding “defense is insufficiently 15 pled if it fails to give the plaintiff fair notice of the nature of the defense”); see also Ashcroft 16 v. Iqbal, 556 U.S. 662, 678 (2009) (holding, in context of challenge to adequacy of 17 complaint, “legal conclusions,” to comply with Rule 8, “must be supported by factual 18 allegations”). In its opposition, SSI “concede[s] that its affirmative defenses need to be 19 amended to conform to the requirements of Iqbal-Twombly” (Opp’n at 23) and requests 20 leave to amend. Kirby Morgan argues that SSI should be denied leave to amend its first, 21 fifth, twelfth, thirteenth, seventeenth, eighteenth, and twenty-first affirmative defenses 22 because amendment would be futile. 23 1. First, Eighteenth, and Twenty-First Affirmative Defenses 24 As Kirby Morgan correctly points out, several of SSI’s affirmative defenses are not, 25 in fact, affirmative in nature. “A defense which demonstrates that plaintiff has not met its 26 burden of proof is not an affirmative defense.” Zivkovic v. Southern California Edison Co., 27 302 F.3d 1080, 1088 (9th Cir. 2002); see Barnes, 718 F. Supp. 2d at 1173–74 (striking 28 “affirmative defenses” that “simply provide[d] a basis to negate an element of [plaintiff’s] 4 1 prima facie case for relief”; noting such “affirmative defenses” are “merely rebuttal against 2 the evidence presented by the plaintiff”). 3 SSI’s first affirmative defense alleges Kirby Morgan’s counterclaims “fail to state a 4 claim upon which relief may be granted.” (See FAA/FACC, Affirm. Defs. ¶ 1). “Failure to 5 state a claim is not a proper affirmative defense, but, rather, asserts a defect in [the] prima 6 facie case.” Barnes, 718 F. Supp. 2d at 1174. Accordingly, SSI’s first affirmative defense 7 will be stricken without leave to amend. 8 SSI’s eighteenth affirmative defense alleges Kirby Morgan “has suffered no 9 damages and/or has failed to mitigate its damages, if any.” (See FAA/FACC, Affirm. Defs. 10 ¶ 18). “[A]n assertion that the plaintiff suffered no damages is not an affirmative defense, 11 because it is essentially an allegation that the plaintiff cannot prove the elements of its 12 claims.” JPMorgan Chase Bank, N.A. v. Parkside Lending, LLC, 2013 U.S. Dist. LEXIS 13 16981 at *4 (N.D. Cal. Feb. 7, 2013). Accordingly, to the extent that SSI’s eighteenth 14 affirmative defense alleges that Kirby Morgan “suffered no damages,” it will be stricken 15 without leave to amend.3 16 In its twenty-first affirmative defense, SSI attempts to “reserve[] the right to assert 17 . . . additional defenses in the event that further discovery, investigation or analysis indicate 18 they are proper.” (FAA/FACC, Affirm. Defs. ¶ 21.) “An attempt to reserve affirmative 19 defenses for a future date is not a proper affirmative defense in itself. Instead, if at some 20 later date defendants seek to add affirmative defenses, they must comply with Rule 15 of 21 the Federal Rules of Civil Procedure.” Solis v. Zenith Capital, LLC, 2009 WL 1324051 at *7 22 (N.D. Cal. May 8, 2009) (internal citation omitted). Accordingly, SSI’s twenty-first 23 affirmative defense will be stricken without leave to amend. 24 25 2. Fifth Affirmative Defense 26 27 28 3 While Kirby Morgan argues that the entirety of the eighteenth affirmative defense should be stricken, it only argues that “the ‘no damages’ portion” of such defense “should be stricken without leave to amend.” (See Mot. at 23–24.) 5 1 Kirby Morgan argues that SSI’s “laches” affirmative defense should be stricken “as a 2 matter of law” because the statutes of limitations for Kirby Morgan’s claims have not run. 3 (See Mot. at 18.) Although “[l]aches, an equitable defense, is distinct from the statute of 4 limitations, a creature of law,” Jarrow Formulas, Inc. v. Nutrition Now, Inc., 304 F.3d 829, 5 835 (9th Cir. 2002), “[i]f a [Lanham Act] claim is filed within the analogous state limitations 6 period,4 the strong presumption is that laches is inapplicable,” id. at 837. Here, however, 7 SSI has pleaded no facts to show the nature of its laches defense and, consequently, the 8 Court is unable to determine whether the presumption, in this instance, could or could not 9 be rebutted. Accordingly, SSI’s fifth affirmative defense will be stricken with leave to 10 amend. 11 3. Twelfth Affirmative Defense 12 Kirby Morgan argues that SSI’s “Freedom of Speech” affirmative defense, which is 13 asserted in addition to SSI’s two “fair use” defenses, should be stricken without leave to 14 amend because speech that tends to mislead and confuse consumers is not protected 15 speech under the First Amendment. (See Mot. at 21.) “Limited to [their] core 16 purpose–avoiding confusion in the marketplace–a trademark owner's property rights play 17 well with the First Amendment.” Mattel, Inc. v. MCA Records, Inc., 296 F.3d 894, 900 (9th 18 Cir. 2002). Nevertheless, “[t]rademark rights do not entitle the owner to quash an 19 unauthorized use of the mark by another who is communicating ideas or expressing points 20 of view.” Id. In other words, “the trademark owner does not have the right to control public 21 discourse whenever the public imbues his mark with a meaning beyond its 22 source-identifying function.” . In this case, although SSI has pleaded no facts suggesting 23 its usage of Kirby Morgan’s marks has anything more than a “source-identifying function,” 24 there likewise are no facts suggesting it is unable to do so. Accordingly, SSI’s twelfth 25 affirmative defense will be stricken with leave to amend. 26 27 28 4 Because the Lanham Act contains no statute of limitations, the Ninth Circuit “‘borrow[s]’ the limitations period from the most closely analogous action under state law.” Jarrow Formulas, 304 F.3d at 836. 6 1 4. Thirteenth Affirmative Defense 2 Kirby Morgan argues that SSI’s “Monopolization and Attempt to Monopolize” 3 affirmative defense is duplicative of its fourth affirmative defense, “Unclean Hands.” (See 4 Mot. at 21.) As Kirby Morgan itself notes, however, SSI, in support of the latter, “fails to 5 identify any allegedly ‘unclean’ conduct by Kirby Morgan.” (Id. at 18.) Absent such 6 allegations, the Court cannot determine if SSI’s thirteenth defense is, in fact, duplicative of 7 its fourth. Accordingly, SSI’s thirteenth affirmative defense will be stricken with leave to 8 amend. 9 10 5. Seventeenth Affirmative Defense Kirby Morgan argues that “Descriptiveness” is not available to SSI as an affirmative 11 defense because Kirby Morgan’s marks have achieved incontestable status. (See RJN 12 Exs. 11–15 (Notices of Acceptance and Acknowledgment, by United States Patent and 13 Trademark Office, confirming that the “combined declaration of use and incontestability 14 filed in connection with the registration . . . meets the requirements of Sections 8 and 15 of 15 the Trademark Act, 15 U.S.C. § 1058 and 1065”).) 16 Under the Lanham Act: 17 To the extent that the right to use the registered mark has become incontestable under section 1065 . . . , the registration shall be conclusive evidence of the validity of the registered mark and of the registration of the mark, of the registrant’s ownership of the mark, and of the registrant’s right to use the registered mark in commerce. 18 19 20 15 U.S.C. § 1115(b). Although § 1115(b) lists nine “defenses or defects” to which such 21 registration “shall be subject,” see 15 U.S.C. § 1115(b)(1)–(9), the list does not include 22 “descriptiveness,” see id., and the Supreme Court has held that an infringement action 23 brought by the holder of an incontestable mark “may not be defended on the grounds that 24 the mark is merely descriptive,” Park ‘N Fly, Inc. v. Dollar Park and Fly, Inc., 469 U.S. 189, 25 205 (1985). Accordingly, SSI’s seventeenth affirmative defense will be stricken without 26 leave to amend. 27 28 6. Remaining Defenses 7 1 Ordinarily, leave to amend a pleading should be afforded unless amendment would 2 be futile. See Steckman v. Hart Brewing, Inc., 143 F. 3d 1293, 1298 (9th Cir. 1998) (citing 3 “general rule” that leave to amend following dismissal of pleading should be afforded unless 4 “any amendment would be an exercise in futility”). Here, Kirby Morgan has made no 5 argument that amendment of SSI’s remaining affirmative defenses would be futile, nor, on 6 the record before it, can the Court so find. Accordingly, the Court will afford SSI an 7 opportunity to amend those defenses to allege sufficient facts in support thereof. 8 B. Counterclaims 9 The Court next addresses the second and third counterclaims, “Attempt to 10 Monopolize” and “Monopolization,” both brought under § 2 of the Sherman Act, 15 U.S.C. 11 § 2, and § 4 of the Clayton Act, 15 U.S.C. § 15.5 Kirby Morgan argues each is insufficiently 12 pleaded and, further, is barred by the Noerr-Pennington doctrine. Kirby Morgan seeks an 13 order of dismissal without leave to amend, both on substantive, specifically futility, and 14 procedural grounds.6 15 1. Attempt to Monopolize 16 “[T]o state a claim for attempted monopolization, the plaintiff must allege facts that, if 17 true, will prove: (1) that the defendant has engaged in predatory or anticompetitive conduct 18 with (2) a specific intent to monopolize and (3) a dangerous probability of achieving 19 monopoly power.” Coalition for ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 20 506 (9th Cir. 2010) (internal quotation omitted). Kirby Morgan argues that SSI has 21 inadequately pleaded each element of its cause of action for attempted monopolization. 22 The Court agrees. 23 24 5 25 26 27 Section 2 of the Sherman Act provides that “[e]very person who shall monopolize any part of the trade or commerce . . . shall be deemed guilty of a felony.” 15 U.S.C. § 2. Section § 4 of the Clayton Act provides a private right of action and treble damages to “any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws,” including violation of the Sherman Act. 15 U.S.C. § 15(a). 6 28 The Court finds Kirby Morgan’s citation to procedural deficiencies unpersuasive and addresses the question of futility below. 8 1 As to the first element, predatory or anticompetitive conduct, SSI alleges that “Kirby 2 Morgan has engaged in a pattern or practice of bringing a series of lawsuits pursuant to a 3 policy of starting legal proceedings without regard to the merits and for the purpose of 4 injuring a market rival” and that “Kirby Morgan has been successful in intimidating small 5 rivals and discouraging them from entering” the relevant markets. (FAA/FACC, Countercls. 6 ¶ 37.) As discussed below, “sham litigation may constitute anticompetitive conduct.” See 7 Girafa.com, Inc. v. Alexa Internet, Inc., 2008 WL 4500858 at *2 (N.D. Cal. Oct. 6, 2008) 8 (borrowing sham litigation test from Noerr-Pennington doctrine to determine whether 9 litigation constituted anticompetitive behavior under § 2 of Sherman Act). 10 “Sham litigation is litigation that is ‘objectively baseless in the sense that no 11 reasonable litigant could realistically expect success on the merits,’ and that is subjectively 12 intended to harm a competitor’s business.” see id. (quoting Prof’l Real Estate Investors, 13 Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60–61 (1993)). If “the alleged 14 anticompetitive behavior consists of bringing a single sham lawsuit (or a small number of 15 such suits), the antitrust plaintiff must demonstrate that the lawsuit was (1) objectively 16 baseless, and (2) a concealed attempt to interfere with the plaintiff's business 17 relationships.” Kottle v. Nw. Kidney Centers, 146 F.3d 1056, 1060 (9th Cir. 1998) (citing 18 Prof’l Real Estate Investors, 508 U.S. at 60-61). If, on the other hand, “the alleged 19 anticompetitive behavior is the filing of a series of lawsuits,” the question becomes “not 20 whether any one of them has merit–some may turn out to, just as a matter of chance–but 21 whether they are brought pursuant to a policy of starting legal proceedings without regard 22 to the merits and for the purpose of injuring a market rival.” See Kottle, 146 F.3d at 1060 23 (internal quotation and citation omitted). 24 Here, SSI has alleged that “Kirby Morgan has engaged in a pattern and practice of 25 bringing a series of lawsuits pursuant to a policy of starting legal proceedings without 26 regard to the merits and for the purpose of injuring a market rival.” (See FAA/FACC, 27 28 9 1 Countercls. ¶ 37, 45.) SSI identifies, however, only two lawsuits7 (see FAA/FACC, 2 Countercls. ¶¶ 14–15), and its allegation that other, “small rivals” have been “intimidat[ed]” 3 and “discourag[ed]” from entering the market, if meant to substantiate its pleading of such a 4 “series,” is no more than conclusory (see FAA/FACC, Countercls. ¶¶ 37, 45). If SSI intends 5 to allege a “series of lawsuits,” it has failed to plead sufficient factual allegations showing 6 the existence of such a series. If, on the other hand, SSI intends to rest its claim of 7 anticompetitive behavior on the two lawsuits it expressly references, it has failed to plead 8 any facts showing those lawsuits to be “objectively baseless.” See Kottle, 146 F.3d at 9 1060. In sum, SSI fails to adequately plead the first element of a claim for attempt to 10 11 monopolize. With respect to the second element, specific intent to monopolize, SSI alleges that 12 “Kirby Morgan acts with the specific intent to destroy competition” and “to accomplish 13 monopolization of the Surface Gas Controllers and Analyzers Relevant Market.” 14 (FAA/FACC, Countercls. ¶¶ 38-39.) Although specific intent may be inferred from 15 anticompetitive conduct, see Hallmark Indus. v. Reynolds Metals Co., 489 F.2d 8, 12 (9th 16 Cir. 1973) (noting that “[o]rdinarily specific intent is difficult to prove and will be inferred from 17 such anticompetitive conduct”), where, as here, the anticompetitive conduct has not been 18 adequately alleged, an inference of specific intent is not warranted, see Rutman Wine Co. 19 v. E. & J. Gallo Winery, 829 F.2d 729, 735 (9th Cir.1987) (finding allegations of specific 20 intent “conclusory in the absence of anticompetitive conduct”). Consequently SSI fails to 21 adequately plead the second element of its claim. 22 23 In pleading the third element, dangerous probability of achieving monopoly power, SSI alleges only that Kirby Morgan has “market power in the highly concentrated United 24 7 25 26 27 28 Prior to filing its counterclaims in the above-titled action, Kirby Morgan filed in the Central District of California a complaint alleging four of the same claims. (See FAA/FACC, Countercls. ¶ 14.) On July 17, 2013, after this Court denied Kirby Morgan’s motion to dismiss the instant action in light of the Central District action, or, in the alternative, to transfer the present action to the Central District, Kirby Morgan voluntarily dismissed the Central District action. (See id.) SSI alleges, in conclusory fashion, that the above-titled action and the Central District action were filed “without regard to the merits and for the purpose of injuring a market rival.” (See ¶¶ 14–15.) 10 1 States market for surface gas controllers and analyzers” and that “there was a dangerous 2 probability that [Kirby Morgan] might succeed in monopolizing” that market. (FAA/FACC, 3 Countercls. ¶¶ 36, 40.) Such allegations are, in essence, nothing more than “labels and 4 conclusions,” and a “formulaic recitation of the elements of a cause of action,” and, as 5 such, “will not do.” See Twombly, 550 U.S. at 555; Rick-Mik Enterprises, 532 F.3d 963, 6 972 (9th Cir. 2008) (finding, where gasoline franchises constituted relevant product market, 7 allegation that defendant “rank[ed] number one in the industry in branded gasoline stations” 8 insufficient to allege market power, absent further factual allegations, such as “percentage 9 of [defendant’s] gasoline franchises . . . as compared to other franchises” in same market, 10 “percentage of gasoline retail sales . . . made through non-franchise outlets,” and “relative 11 difficulty of a franchisee to switch franchise brands”); see also Korea Kumho Petrochemical 12 v. Flexsys Am. LP, 2008 WL 686834 at *9 (N.D. Cal. Mar. 11, 2008) (finding “dangerous 13 probability” inadequately pleaded where plaintiff failed to “assert . . . facts in support of its 14 assertions of market power that suggest[ed] those assertions [were] plausible”) (emphasis 15 in original). SSI thus fails to adequately plead the third element. 16 Accordingly, SSI’s counterclaim for attempted monopolization will be dismissed with 17 leave to amend to plead sufficient “factual allegations . . . to raise a right to relief above the 18 speculative level.” Twombly, 550 U.S. at 555. 19 2. Monopolization 20 “[A] claim for monopolization of trade has two elements: the possession of monopoly 21 power in the relevant market and . . . the acquisition or perpetuation of this power by 22 illegitimate predatory practices.” Coalition for ICANN Transparency, 611 F.3d at 506 23 (internal quotation and citations omitted; alteration in original). Kirby Morgan argues that 24 SSI has inadequately pleaded each element of its second cause of action. The Court again 25 agrees. 26 SSI alleges that “Kirby Morgan has monopoly power in the United States market for 27 surface supplied commercial diving helmets”; has “engaged in a pattern and practice of 28 bringing a series of lawsuits pursuant to a policy of starting legal proceedings without 11 1 regard to the merits and for the purpose of injuring a market rival”; has “been successful in 2 intimidating small rivals and discouraging them from entering” the relevant market”; and has 3 “acted with the specific intent to acquire and maintain its monopoly power in the 4 Commercial Diving Helmet Relevant Market . . . and otherwise monopolize this relevant 5 market.” (FAA/FACC, Countercls. ¶¶ 44-47.) 6 As discussed above, SSI’s allegations as to predatory conduct are insufficient to 7 “‘state a claim to relief that is plausible on its face.’” See Iqbal, 556 U.S. at 678 (quoting 8 Twombly, 550 U.S. at 570). Moreover, its bare assertion that “Kirby Morgan has monopoly 9 power” in the relevant market, absent supporting factual allegations, is, in essence, a legal 10 conclusion, which the Court “is not bound to accept as true.” See Iqbal, 556 U.S. at 678; 11 see also, e.g. Cost Mgmt. Servs, Inc, v. Washington Natural Gas. Co., 99 F.3d 937, 12 950–51 (9th Cir. 1996) (noting, whereas “market share standing alone does not 13 automatically equate to monopoly power,” complaint was sufficient to withstand motion to 14 dismiss where plaintiff alleged defendant had ninety percent share of relevant market, was 15 able to charge off-tariff prices, and, by such pricing, had excluded competition from 16 market). 17 Accordingly, SSI’s counterclaim for monopolization will be dismissed with leave to 18 amend to plead sufficient “factual allegations . . . to raise a right to relief above the 19 speculative level.” Twombly, 550 U.S. at 555. 20 3. Causal Antitrust Injury 21 “Only those who meet the requirements for antitrust standing may pursue a claim 22 under the Clayton Act; and to acquire antitrust standing, a plaintiff must adequately allege 23 and eventually prove antitrust injury.” Glen Holly Entm’t, Inc. v. Tektronix Inc., 343 F.3d 24 1000, 1007, opinion amended on denial of reh’g, 352 F.3d 367 (9th Cir. 2003) (internal 25 quotations omitted) (emphasis in original). Antitrust injury consists of four elements: “(1) 26 unlawful conduct, (2) causing an injury to the plaintiff, (3) that flows from that which makes 27 the conduct unlawful, and (4) that is of the type the antitrust laws were intended to prevent.” 28 Id. at 1008. Additionally, the Ninth Circuit “impose[s] a fifth requirement, that the injured 12 1 party be a participant in the same market as the alleged malefactors.” Id. at 1008 (internal 2 quotation omitted). Kirby Morgan argues that SSI has not inadequately pleaded the 3 elements of antitrust injury. The Court agrees. 4 As to the first element, SSI, as discussed above, has failed to plead conduct 5 unlawful under the antitrust statutes. Consequently, SSI’s allegations as to the second 6 through fourth elements likewise fail, as each of those elements is dependant upon the 7 existence of the first. 8 9 As to the Ninth Circuit’s fifth requirement, Kirby Morgan argues SSI has “admitted that it is not in the same markets as Kirby Morgan,” and, consequently, that the two 10 contested counterclaims are subject to dismissal without leave to amend on the basis of 11 futility.8 (See Reply at 11–12.) The Court agrees that SSI has not adequately pleaded the 12 fifth requirement, but disagrees that leave to amend should be denied on grounds of futility. 13 Although a party alleging antitrust injury ordinarily must be a consumer or competitor in the 14 same market, see Glen Holly Entm’t, 343 F.3d at 1008, the Ninth Circuit has held that “a 15 potential new entrant into the market [who] allegedly has been foreclosed from entering the 16 market because of [defendants’] anticompetitive [conduct]” has standing to pursue an 17 antitrust claim. Solinger v. A&M Records, Inc., 586 F.2d 1304, 1311 (9th Cir. 1978). Here, 18 SSI has alleged it is a “market entrant into the United States market for surface gas 19 controllers and analyzers” and a “potential entrant into the United States market for 20 commercial diving helmets.” (FAA/FACC, Countercls. ¶ 4.) Nevertheless, without further 21 factual elaboration, such assertions are no more than legal conclusions. See Iqbal, 556 22 23 24 25 26 27 28 8 In support thereof, Kirby Morgan has filed with its reply brief selected pages from a deposition given by SSI principal Jason Van der Schyff, in which Van der Schyff testified there are “no overlapping products” with respect to what SSI and Kirby Morgan sell. (See Sandelands Decl. Ex. 1 at 28:9–12.) SSI has filed an objection thereto on the ground the testimony is taken out of context, and offers additional excerpts wherein Van der Schyff, in support of his description of SSI as a market entrant, discusses SSI’s prototype equipment and attendance at trade shows. (See Alioto Decl. Ex. A at 158:23–24, 162:12–17.) Citing Civil Local Rule 7-3(d), Kirby Morgan moves to strike the objection and accompanying evidence as untimely. Although Kirby Morgan is correct that SSI’s objection was filed two days late, the Court finds it preferable to consider the proffered testimony in context and, accordingly, the motion to strike is hereby DENIED. 13 1 U.S. at 678 (holding courts are “not bound to accept as true a legal conclusion couched as 2 a factual allegation”) (internal quotation and citation omitted). Moreover, SSI has not at any 3 point alleged that it has been foreclosed from entering the market. 4 Accordingly, as SSI has failed to plead the elements of causal antitrust injury, its 5 counterclaims for attempted monopolization and monopolization will be dismissed for such 6 additional reason, with leave to amend to cure the described deficiencies. 7 4. Noerr-Pennington Bar 8 Lastly, Kirby Morgan argues that SSI’s second and third counterclaims should be 9 dismissed without leave to amend because they are barred by the Noerr-Pennington 10 doctrine. The Noerr-Pennington doctrine provides immunity from antitrust liability to those 11 who “use the channels and procedures of state and federal agencies and courts to 12 advocate their causes and points of view respecting resolution of their business and 13 economic interests vis-a-vis their competitors.” California Motor Transp. Co. v. Trucking 14 Unlimited, 404 U.S. 508, 511 (1972). No such immunity is afforded, however, where such 15 use is “a mere sham to cover what is actually nothing more than an attempt to interfere 16 directly with the business relationships of a competitor.” Id. at 511. 17 To adequately plead that an antitrust defendant has engaged in “sham” litigation, 18 and thus avoid the Noerr-Pennington bar, an antitrust plaintiff, as discussed above, must 19 make one of two factual showings. In particular, where the alleged anticompetitive 20 behavior consists of “bringing a single sham lawsuit (or a small number of such suits),” the 21 antitrust plaintiff must demonstrate that the lawsuit was “objectively baseless, and . . . a 22 concealed attempt to interfere with the plaintiff's business relationships,” Kottle, 146 F.3d at 23 1060; where the alleged behavior is the “filing of a series of lawsuits,” the question is 24 “whether they are brought pursuant to a policy of starting legal proceedings without regard 25 to the merits and for the purpose of injuring a market rival,” id. 26 Here, SSI appears to rely on the second test, in that it alleges in both its second and 27 third counterclaims that “Kirby Morgan has engaged in a pattern and practice of bringing a 28 series of lawsuits pursuant to a policy of starting legal proceedings without regard to the 14 1 merits and for the purpose of injuring a market rival.” (FAA/FACC, Countercls. ¶¶ 37, 45.) 2 In support thereof, however, SSI, as noted, identifies only two such lawsuits: the present 3 action and Kirby Morgan’s earlier action in the Central District. (See id. ¶¶ 14–15.) 4 Consequently, to avoid the Noerr-Pennington bar, SSI must either plead facts that plausibly 5 show those two lawsuits to be both “objectively baseless” and “a concealed attempt to 6 interfere with [SSI’s] business relationships,” or identify more than “a small number of . . . 7 suits” and allege such additional facts as required to meet the second test. See Kottle, 146 8 F.3d at 1060 (9th Cir. 1998). 9 10 Accordingly, SSI’s second and third counterclaims will be dismissed for such additional reason, again with leave to amend to cure the additional deficiency. 11 CONCLUSION 12 For the reasons stated above, Kirby Morgan’s motion is hereby GRANTED, as 13 14 15 16 17 18 19 20 21 22 23 24 follows: 1. SSI’s first, twelfth, seventeenth, and twenty-first affirmative defenses are STRICKEN without leave to amend. 2. To the extent SSI’s eighteenth affirmative defense alleges Kirby Morgan suffered no damages, it is STRICKEN without leave to amend. 3. SSI’s remaining affirmative defenses are STRICKEN with leave to amend to satisfy the requirements of Rule 8. 4. SSI’s second and third counterclaims are hereby DISMISSED with leave to amend to cure the above-noted deficiencies. 5. SSI’s amended answer and counterclaims, if any, shall be filed no later than October 24, 2013. IT IS SO ORDERED. 25 26 Dated: October 3, 2013 MAXINE M. CHESNEY United States District Judge 27 28 15
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