IPtronics Inc. et al v. Avago Technologies U.S., Inc. et al, No. 5:2014cv05647 - Document 65 (N.D. Cal. 2015)
Court Description: ORDER DENYING 43 MOTION TO DISMISS. Signed by Hon. Beth Labson Freeman on 8/25/2015. (blflc2, COURT STAFF) (Filed on 8/25/2015)
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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 SAN JOSE DIVISION 6 7 IPTRONICS INC., et al., Case No. 14-cv-05647-BLF Plaintiffs, 8 v. ORDER DENYING MOTION TO DISMISS 9 AVAGO TECHNOLOGIES U.S., INC., et al., 11 United States District Court Northern District of California 10 Defendants. [Re: ECF 43] 12 This is an antitrust action based upon allegedly sham patent litigation. Before the Court is 13 14 the defendants’ Motion to Dismiss Complaint with Prejudice. Defs.’ Mot., ECF 43. The Court 15 heard oral argument on June 11, 2015 and thereafter took the matter under submission. For the 16 reasons stated herein, the Motion to Dismiss is DENIED. 17 I. BACKGROUND 18 On a motion to dismiss, a court may generally consider allegations contained in the 19 pleadings, exhibits attached to or incorporated by reference into the complaint, and matters 20 properly subject to judicial notice. 5B Wright & Miller Fed. Prac. & Proc. Civ. § 1357 (3d ed. 21 2004); see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). The 22 allegations in the instant complaint draw heavily from a prior proceeding before the United States 23 International Trade Commission (“ITC”). As such, both sides have filed Requests for Judicial 24 Notice (“RJN”) of documents from the record of the ITC proceeding in connection with the 25 briefing on the motion before the Court. See Defs.’ RJN, ECF 41-2; Pls.’ RJN, ECF 55-18. Both 26 RJNs are GRANTED, as the ITC documents are matters of public record and neither side disputes 27 the authenticity of the other’s documents. Fed. R. Evid. 201; Reyn’s Pasta Bella, LLC v. Visa 28 USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006). Of course, a number of the ITC documents 1 submitted by both sides are heavily redacted, and the parties have failed to agree to terms that 2 would allow the unredacted documents to be filed under seal with the Court. As such, many of the 3 documents are of dubious value to the Court’s consideration. The Court herein considers the factual allegations in the Complaint, as well as relevant 4 5 content from the judicially noticeable ITC documents, in ruling on the present motion. 6 A. 7 Plaintiffs are Mellanox Technologies Denmark ApS, formerly known as IPtronics A/S, and Factual Overview 8 its wholly-owned subsidiary IPtronics Inc. (collectively, “IPtronics”). Compl. ¶¶ 2-3, ECF 1.1 9 Both were acquired by Mellanox Technologies Ltd. in July 2013, and IPtronics was dissolved in December 2013. Id. ¶ 3. Defendants are Avago Technologies U.S. Inc., Avago Technologies 11 United States District Court Northern District of California 10 General IP (Singapore) Pte. Ltd., Avago Technologies Trading Ltd., and Avago Technologies 12 International Sales Pte. Ltd. (collectively, “Avago”).2 Since at least June 29, 2010, Avago and IPtronics have been embroiled in litigation over 13 14 Avago’s patents. On that date, Avago filed an action in this district alleging that IPtronics 15 infringes two Avago patents: U.S. Patent Nos. 5,359,447 (the “’447 Patent”) and 6,947,456 (the 16 “’456 Patent”). See Avago Techs. U.S., Inc., et al. v. IPtronics, Inc., et al., Case No. 5:10-CV- 17 02863-EJD (PSG), ECF 1 (filed June 29, 2010). That action was stayed in 2013 after Avago 18 petitioned the International Trade Commission (“ITC”) to institute an investigation against 19 IPtronics and other respondents. The ITC action is the genesis of this lawsuit. 20 i. The ITC Complaint On September 24, 2012, Avago filed a complaint in the ITC pursuant to 19 U.S.C. § 1337 21 22 asserting infringement of the ’456 Patent and U.S. Patent No. 5,596,595 (“’595 Patent”). See 23 Compl. ¶ 16; see also Decl. of Xavier M. Brandwajn, ECF 55-3, Exh. 2 (excerpt of ITC 24 complaint, hereinafter “ITC Compl.”). The named respondents were IPtronics A/S and IPtronics 25 26 1 27 2 28 Publicly available redacted version at ECF 33. Defendant Avago Technologies Fiber IP (Singapore) Pte. Ltd., named in the original complaint, was voluntarily dismissed on February 26, 2015. ECF 35. 2 1 Inc. (the plaintiffs in this action); FCI USA, LLC, FCI Deutschland GmbH, and FCI SA 2 (collectively, “FCI”); and Mellanox Technologies, Inc. and Mellanox Technologies Ltd. 3 (collectively, “Mellanox”3). IPtronics’ vertical cavity surface emitting laser (“VCSEL”) driver products were solely 4 accused of infringing the ’456 Patent, which is titled “Open-Loop Laser Driver having an 6 Integrated Digital Controller” and relates to “laser drivers for generating drive waveforms to drive 7 a single VCSEL or an array of VCSELs for use in an optical communications network.” Compl. ¶ 8 16; see also Decl. of Ary Chang, ECF 41-3, Exh. 2 (ALJ’s Initial Determination in underlying ITC 9 action, hereinafter “ALJ Order”) at 14 (list of accused IPtronics products). As IPtronics explains 10 in the Complaint in this action, “VCSELs and VCSEL drivers are components used in transceiver 11 United States District Court Northern District of California 5 (i.e., a transmitter and a receiver) modules and/or active optical cables (“AOC”) to facilitate high- 12 speed, optical communication of data.” Compl. ¶ 17 (emphasis added). IPtronics’ VCSEL drivers 13 “are capable of operation with a wide range of VCSELs,” which vary from manufacturer to 14 manufacturer. Id. ¶¶ 17, 19. Thus, in addition to accusing IPtronics’ VCSEL drivers of infringing 15 the ’456 Patent, Avago also accused certain Mellanox and FCI transceivers and AOCs that 16 incorporated the accused IPtronics drivers. ALJ Order at 14-16, 95. 17 In the same ITC proceeding, Avago also accused Mellanox and FCI transceivers and 18 AOCs of infringing Avago’s ’595 Patent, which is titled “Current and Heat Spreading Transparent 19 Lasers for Surface-Emitting Lasers” and “generally discloses and claims a design for a top- 20 emitting . . . VCSEL.” Id. at 9. The patent appears to pertain only to VCSELs, as opposed to 21 VCSEL drivers, and Avago did not accuse any IPtronics products of infringing this patent. 22 Instead, Avago alleged that Mellanox and FCI products “that incorporate VCSELs manufactured 23 by ULM Photonics” infringed the ’595 Patent. ITC Compl. ¶ 123.4 24 3 25 Not to be confused with plaintiff in this action, Mellanox Technologies Denmark ApS, which was known as “IPtronics A/S” until it was acquired by Mellanox Technologies Ltd. 26 4 27 28 It is possible that the same Mellanox and FCI transceivers and AOCs containing VCSELs accused of infringing the ’595 Patent also contained IPtronics’ VCSEL drivers accused of infringing the ’456 Patent. See ALJ Order at 14-16 (listing Mellanox and FCI products accused of infringing both the ’456 and ’595 Patents broken down by item number, with columns for “VCSEL” and “Driver”). Because Avago filed only a redacted version of the ALJ’s order, 3 1 By regulation, the ITC requires that a patentee plead its infringement theory with 2 specificity, including, when practicable, providing “a chart that applies each asserted independent 3 claim of each involved U.S. patent to a representative [accused product].” 19 C.F.R. § 4 210.12(a)(9)(viii). In support of its ’456 Patent infringement claims, Avago submitted with its 5 ITC complaint an infringement claim chart; a declaration from its expert witness, Dr. Dennis 6 Deppe; and IPtronics datasheets/product briefs and reference designs. Compl. ¶ 22. On the basis 7 of Avago’s complaint and supporting documents, the Commission instituted an investigation on 8 October 30, 2012. Id. ¶ 27. 9 ii. The Investigation and the Administrative Law Judge’s Initial Determination Each claim in the ’456 Patent has two distinct limitations “requiring that the drive 11 United States District Court Northern District of California 10 waveform contain ‘a negative peak portion’ and ‘at least one parameter for affecting the negative 12 peak portion of the drive waveform.’” Id. ¶ 16. Due to the manner in which VCSELs interact 13 with VCSEL drivers, and because VCSELs differ by manufacturer, IPtronics asserts that “it is not 14 possible to determine whether a driver itself infringes without, among other things, knowing the 15 precise VCSEL that is being driven.” Id. ¶ 20. According to IPtronics, Avago “should have 16 known this as part of its pre-filing investigation.” Id. 17 Avago’s ITC Complaint and its assertion that the IPtronics products infringed ’456 Patent 18 depended entirely on Dr. Deppe’s declaration, which relied upon an IPtronics product brief and an 19 IPtronics reference design document. Id. ¶ 23. Dr. Deppe did not test any IPtronics product; 20 instead, he declared that two optical eye-diagrams taken from the IPtronics reference design 21 document showed that the waveform limitations of the ’456 Patent can be found within the 22 IPtronics products. Id. ¶¶ 24-26. On March 19, 2013, Dr. Deppe was deposed as part of the ITC 23 investigation. During the deposition, he admitted that the optical eye diagrams “were not 24 sufficient to demonstrate the presence of a negative peak portion in the drive waveform of a 25 VCSEL driver.” Id. ¶ 28 (emphasis in original). 26 Avago then brought in Frederick Miller, a second technical expert to bolster its ’456 Patent 27 28 however, the Court is unable to confirm that hypothesis. 4 1 infringement case. Mr. Miller developed and conducted a series of physical tests on a small 2 number of accused IPtronics products and concluded that they infringed the ’456 Patent. Id. ¶¶ 3 30-31. This conclusion was challenged by IPtronics’ expert, Dr. Michael Lebby, who testified 4 that Mr. Miller’s testing was “insufficient to establish that the drive waveform output by the 5 IPtronics VCSEL drivers includes a negative peak portion.” Id. ¶ 32. 6 The Commission’s independent Investigative Staff of the Office of Unfair Import 7 Investigations (“Staff”) agreed with IPtronics and found Avago’s evidence of infringement 8 unpersuasive with respect to the ’456 Patent. Id. ¶ 33. The presiding Administrative Law Judge 9 (“ALJ”) likewise sided with IPtronics in his Initial Determination and found that Mr. Miller’s test results were “unreliable and entitled to no weight.” Id. ¶ 35; ALJ Order at 99. Indeed, the ALJ 11 United States District Court Northern District of California 10 went so far as to state that “Mr. Miller acknowledged that this testing was not recognized in the 12 industry, failed as many times as it succeeded, and Mr. Miller only presented selected data from 13 the tests that did ‘succeed.’” ALJ Order at 100. Further debunking Avago’s other evidence of 14 infringement, the ALJ noted that Avago relied upon drawings in IPtronics data sheets that were 15 “theoretical only” and that “even Avago’s expert admitted that they are mere cartoons that have 16 errors.” Id. at 103. Elsewhere in this report, the ALJ noted that “[b]oth Dr. Lebby and Avago’s 17 own corporate witness testified . . . that the datasheets alone are insufficient to establish whether or 18 not the claimed negative peak portion is present in the drive waveforms.” Id. at 196; accord 19 Compl. ¶¶ 35-36. The ALJ therefore determined that Avago had failed to demonstrate by a 20 preponderance of the evidence that the accused IPtronics products infringed the ’456 Patent and 21 concluded that no violation of the Tariff Act had occurred in connection with the importation of 22 IPtronics’ accused VCSEL driver products. ALJ Order at 216, 218. The ALJ did, however, side 23 with Avago in finding that the ’456 Patent was not invalid. Id. at 216. 24 In the same report, the ALJ found that Avago had sufficiently proven that the accused 25 Mellanox/FCI products infringed Avago’s ’595 Patent and that the ’595 Patent was not invalid. 26 Id. at 216, 218. The ALJ recommended a limited exclusion order against all Respondents’ 27 products that infringed the ’595 Patent, as well as a cease-and-desist order against the 28 Mellanox/FCI Respondents. Id. at 236; see also Chang Decl. Exh. 3. 5 iii. The Commission’s Final Order 1 2 Based on the ALJ’s recommendation, and after hearing objections from the parties, the 3 Commission issued its final order on April 23, 2014. With respect to the’456 Patent, the 4 Commission affirmed the ALJ’s “infringement and domestic industry (technical prong) 5 determinations with certain modifications in his rationale.” With respect to the ’595 Patent, the 6 Commission likewise affirmed the ALJ’s infringement determinations with some modification. 7 The Commission ordered relief consisting of: 8 (1) A limited exclusion order prohibiting the unlicensed entry of certain optoelectronic devices for fiber optic communications, components thereof, and products containing the same covered by one or more of claims 14 and 19 of U.S. Patent No. 5,596,595 and that are manufactured abroad by or on behalf of, or imported by or on behalf of, respondents IPtronics A/S; IPtronics Inc.; FCI SA; FCI Deutschland GmbH; FCI USA, LLC; Mellanox Technologies, Ltd.; and Mellanox Technologies, Inc.; and 9 10 United States District Court Northern District of California 11 12 (2) cease and desist orders prohibiting importing, selling, marketing, advertising, distributing, transferring (except for exportation), and soliciting U.S. agents or distributors for, optoelectronic devices for fiber optic communications, components thereof, and products containing the same covered by one or more of claims 14 and 19 of U.S. Patent No. 5,596,595 and that are manufactured abroad by or on behalf of, or imported by or on behalf of, respondents FCI USA, LLC and Mellanox Technologies, Inc. 13 14 15 16 17 18 19 See Chang Decl. Exh. 3. The parties have since returned to district court and are continuing to actively litigate the 20 patent infringement claims in Avago Techs. U.S., Inc., et al. v. IPtronics, Inc., et al., Case No. 21 5:10-CV-02863-EJD (PSG). IPtronics’ Allegations in this Lawsuit 22 B. 23 IPtronics contends that Avago’s ITC investigation against IPtronics in connection with the 24 ’456 Patent was a sham aimed at impeding competition and gaining monopoly power for Avago in 25 the market for 40Gb/s or higher band rate AOCs and Transceivers, or, in the alternative, the 26 market for the 56Gb/s InfiniBand FDR AOCs. Compl. ¶¶ 72-83. As such, IPtronics asserts a 27 singular claim against Avago for attempted monopolization in violation of Section 2 of the 28 Sherman Antitrust Act, 15 U.S.C. § 2. 6 Avago’s filing of an ITC complaint based upon IPtronics documents that were later 1 2 determined insufficient to show key limitations of the ’456 Patent demonstrates, in IPtronics’ 3 view, that Avago could not reasonably have expected success on the merits. Avago’s continuing 4 prosecution of the investigation and hiring of a new expert to conduct new (and ultimately 5 rejected) testing after Dr. Deppe admitted in deposition that the drawings couldn’t show 6 infringement is further evidence that Avago’s case was meritless from the outset, according to 7 IPtronics. See Compl. ¶¶ 20, 22-31, 35-36, 38-39. IPtronics alleges that Avago pursued the baseless ’456 Patent infringement theories in the 8 ITC with the subjective intent to harm competition and gain monopoly power. Id. ¶¶ 40, 75-78. 10 Avago’s conduct in the ITC moreover resembled that of a party seeking to prolong a case rather 11 United States District Court Northern District of California 9 than win it. IPtronics claims that Avago admitted as much during business meetings and 12 settlement negotiations among the parties in 2013. Id. ¶ 40-44. IPtronics also alleges that Avago 13 has engaged in a pattern of competition suppressing litigation, asserting patent infringement 14 against “every one of the entities with which they have not otherwise collaborated,” id. ¶ 49, 15 including Finisar Corporation, Emcore Corporation, STMicroelectronics Inc., and Cypress 16 Semiconductor Corporation, id. ¶¶ 50-54. 17 IPtronics asserts that Avago was ultimately successful in injuring IPtronics. After Avago 18 commenced its infringement lawsuit, companies refused to do business with IPtronics, at least in 19 part because of the ongoing litigation. Furthermore, IPtronics was purchased by Mellanox 20 Technologies, Ltd. “at a price much lower than that which it would have received absent the 21 Avago Defendants’ anticompetitive conduct.” Id. ¶¶ 80-81. 22 23 II. LEGAL STANDARD “A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a 24 claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation 25 Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d 26 729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts 27 as true all well-pleaded factual allegations and construes them in the light most favorable to the 28 plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the 7 1 Court need not “accept as true allegations that contradict matters properly subject to judicial 2 notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or 3 unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008) 4 (internal quotation marks and citations omitted). While a complaint need not contain detailed 5 factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to 6 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 7 Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the 8 court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. 9 “[A] well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and that a recovery is very remote and unlikely.” Twombly, 550 U.S. at 556 11 United States District Court Northern District of California 10 (internal quotation marks omitted). 12 III. 13 DISCUSSION Avago moves to dismiss the Complaint with prejudice on the ground that its actions in the 14 ITC are absolutely immune under the Noerr-Pennington doctrine, which takes its name from 15 Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961), and 16 Mine Workers v. Pennington, 381 U.S. 657 (1965). See Defs.’ Mot., ECF 43. As more recently 17 explained in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 18 U.S. 49 (1993) (“PRE”), the Noerr-Pennington immunity stands for the proposition that “[t]hose 19 who petition government for redress are generally immune from antitrust liability.” Id. at 56; see 20 also White v. Lee, 227 F.3d 1214, 1231 (9th Cir. 2000) (“Noerr-Pennington is a label for a form of 21 First Amendment protection; to say that one does not have Noerr-Pennington immunity is to 22 conclude that one’s petitioning activity is unprotected by the First Amendment.”). Excepted from 23 that immunity, however, are government petitions that are “a mere sham to cover . . . an attempt to 24 interfere directly with the business relationships of a competitor.” Noerr, 365 U.S. at 144. 25 The sham litigation exception to Noerr-Pennington immunity requires an antitrust plaintiff 26 to demonstrate two things: first, that the prior lawsuit upon which the antitrust case is based was 27 “objectively baseless in the sense that no reasonable litigant could realistically expect success on 28 the merits” and second, that the subjective motivation behind the prior lawsuit was to directly 8 1 interfere with a competitor’s business relationships. PRE, 508 U.S. at 60-61. “This two-tiered 2 process requires the plaintiff to disprove the challenged lawsuit’s legal viability before the court 3 will entertain evidence of the suit’s economic viability.” Id. at 61 (emphasis in original). In 4 addition to proving sham litigation, an antitrust plaintiff must of course still prove a substantive 5 antitrust violation. Id. 6 In the present motion, the parties’ narrow dispute centers on whether the allegations in the 7 Complaint can satisfy the objective prong of the PRE test for sham litigation. On this front, the 8 Court must address two preliminary issues in dispute: (1) whether the Court must consider the 9 entire ITC proceeding in determining the applicability of the Noerr-Pennington immunity, and (2) 10 United States District Court Northern District of California 11 whether Avago “prevailed” against IPtronics in the ITC proceeding. Avago submits that the Court should consider the entire ITC action in deciding whether the 12 prior lawsuit was objectively baseless. Defs.’ Mot. 11-13. Because Avago prevailed on its ’595 13 Patent infringement claims against Mellanox and FCI and successfully defended the ’456 Patent 14 against invalidity, Avago argues that the ITC action could not have been objectively baseless as a 15 matter of law. Id. at 13-15; 19. IPtronics, in turn, argues that the Court may consider only the 16 portion of the ITC action pertaining to the ’456 Patent because the ’595 Patent was never asserted 17 against IPtronics. Pls.’ Opp. 9-10, 12-18, ECF 55. If the Court looks only to the ’456 Patent, 18 IPtronics unquestionably prevailed against Avago’s infringement allegations, therefore rendering 19 it more likely that Avago’s complaint was a sham to cover anticompetitive conduct. See id. at 7-9. 20 Under the facts of this case, the case law does not clearly favor either side’s position. 21 Avago contends that PRE and subsequent courts applying PRE all confirm that “the entire lawsuit 22 must be objectively baseless” such that “even if the plaintiff prevailed only on one of several 23 claims it asserted, the litigation in question could not, as a matter of law, be deemed objectively 24 baseless.” Defs.’ Mot. 10; see id. at 10 n.7 (collecting cases). That a plaintiff who prevails on 25 some claims but not others in a single lawsuit can claim the Noerr-Pennington immunity is the 26 dominant view in this circuit and around the country. See, e.g., Dominant Semiconductors Sd. 27 Bhd. v. Osram GMBH, 524 F.3d 1254 (Fed. Cir. 2008); Breville Pty Ltd. v. Storebound LLC, No. 28 12-CV-01783-JST, 2013 WL 1758742, at *8 (N.D. Cal. Apr. 24, 2013); Meridian Project Sys., 9 1 Inc. v. Hardin Const. Co., LLC, 404 F. Supp. 2d 1214, 1222 (E.D. Cal. 2005). However, while 2 PRE states that “the lawsuit must be objectively baseless,” 508 U.S. at 60 (emphasis added), 3 neither it nor any of the cases that Avago cited provides clear guidance on how the “lawsuit” is to 4 be defined when a lawsuit involves multiple defendants. IPtronics contends that in a multi-party 5 ITC investigation wherein Avago accused different respondents’ products of infringing different 6 patents, the “lawsuit” between Avago and IPtronics concerned only the ’456 Patent—the only 7 patent that Avago asserted against IPtronics. As IPtronics aptly notes, none of the cases that 8 Avago cited in its papers precludes this parsing of the ITC action. See Pls.’ Opp. 12-16. Avago 9 offers nothing more compelling in its reply brief. The Court concludes that in determining the applicability of Noerr-Pennington immunity 10 United States District Court Northern District of California 11 in this action, the PRE analysis may be applied solely to the ’456 Patent infringement claims 12 against IPtronics, which constituted Avago’s “lawsuit” against IPtronics. Based upon the 13 unredacted information before the Court, it appears that the ’595 Patent infringement claims and 14 accused products in the ITC action were severable from the ’456 Patent infringement claims and 15 accused products. In other words, Avago could have filed a separate complaint against IPtronics 16 and Mellanox/FCI concerning the products that infringed only the ’456 Patent.5 Assuming as true 17 the assertion that Avago had no reasonable basis for accusing IPtronics, that Avago chose to join 18 its frivolous claims against IPtronics to an otherwise valid lawsuit against other defendants should 19 not preclude IPtronics from invoking the Sherman Act. As the Ninth Circuit has explained, 20 “[b]ecause the Noerr-Pennington doctrine grows out of the Petition Clause, its reach extends only 21 so far as necessary to steer the Sherman Act clear of violating the First Amendment.” Freeman v. 22 Lasky, Haas & Cohler, 410 F.3d 1180, 1184 (9th Cir. 2005). “Immunity thus applies only to what 23 may fairly be described as petitions, not to litigation conduct generally.” Id. Characterizing the 24 portion of Avago’s ITC complaint accusing IPtronics products of infringing the ’456 Patent as a 25 5 26 27 28 As already noted, the Court cannot tell whether the Mellanox/FCI products accused of infringing the ’456 Patent overlapped with the products accused of infringing the ’595 Patent. To the extent there was overlap, the rules of the ITC may preclude a separate complaint, though that issue is not before the Court. Moreover, it is probable that Avago’s primary concern in the ITC action was with excluding Mellanox/FCI transceivers and AOCs, and less with excluding IPtronics’ VCSEL drivers, which are only one component of the accused Mellanox/FCI products. 10 1 separate “petition” to the Commission does not “do violence to the concept,” as both Avago and 2 the Commission treated the ’456 Patent and ’595 Patent issues as separate and distinct. See id. To 3 hold otherwise would allow a patentee to engage in anticompetitive behavior by simply joining all 4 of its competitors in one lawsuit though it had meritorious claims against only one. 5 Regardless of how the ITC action is parsed, it is a basic premise of the Noerr-Pennington 6 doctrine that “[a] winning lawsuit is by definition a reasonable effort at petitioning for redress and 7 therefore not a sham.” PRE, 508 U.S. at 60 n.5. Here, Avago contends that it prevailed against 8 IPtronics in the ITC because the commission entered a limited exclusion order against IPtronics. 9 Defs.’ Reply 2-4, ECF 56. IPtronics urges the Court to look past the wording of the exclusion order, which it contends applies only to Mellanox and FCI, and to look at the ALJ’s determination, 11 United States District Court Northern District of California 10 affirmed by the Commission, that Avago failed to prove that IPtronics’ accused products infringed 12 the ’456 Patent. Pls.’ Opp. 10-12. The Commission’s final order is indeed clear in affirming the 13 ALJ’s initial determination, with some modification to the reasoning, that the accused IPtronics 14 products did not infringe the ’456 Patent. See Chang Decl. Exh. 3. Curiously enough, however, 15 the final order does include IPtronics in a limited exclusion order against: 16 17 18 19 certain optoelectronic devices for fiber optic communications, components thereof, and products containing the same covered by one or more of claims 14 and 19 of U.S. Patent No. 5,596,595 and that are manufactured abroad by or on behalf of, or imported by or on behalf of, respondents IPtronics A/S; IPtronics Inc.; FCI SA; FCI Deutschland GmbH; FCI USA, LLC; Mellanox Technologies, Ltd.; and Mellanox Technologies, Inc. 20 See id. It is not immediately apparent from the final order why IPtronics is listed as a respondent 21 in connection with the ’595 Patent because it is undisputed that Avago did not accused IPtronics 22 products of infringing the ’595 Patent. Nor is the Court able or inclined to probe the 23 Commission’s reasoning on a motion to dismiss. It is sufficient at this stage that the mere 24 inexplicable inclusion of IPtronics in the Commission’s exclusion order does not controvert the 25 allegations in the Complaint, nor the ALJ’s initial determination and the Commission’s final order 26 itself, all of which indicate that Avago did not successfully convince anyone that the accused 27 IPtronics products infringed the ’456 Patent. Thus, the Court cannot hold at this stage in the 28 proceeding that Avago prevailed against IPtronics or that the ITC action was not a sham by virtue 11 1 2 of such a victory. Having determined that the PRE test applies only to the ’456 Patent infringement “lawsuit” 3 between Avago and IPtronics and that Avago did not prevail against IPtronics in that suit, the 4 Court next turns to the allegations in the Complaint to determine whether IPtronics adequately 5 alleges that Avago’s ITC complaint against it was objectively baseless. A lawsuit is objectively 6 baseless if “no reasonable litigant could realistically expect success on the merits.” PRE, 508 U.S. 7 at 60. Put differently, “[t]he existence of probable cause to institute legal proceedings precludes a 8 finding that an antitrust defendant has engaged in sham litigation,” and “[p]robable cause to 9 institute civil proceedings requires no more than a ‘reasonabl[e] belie[f] that there is a chance that [a] claim may be held valid upon adjudication.’” Id. at 62-63 (alteration in original) (quoting 11 United States District Court Northern District of California 10 Hubbard v. Beatty & Hyde, Inc., 343 Mass. 258, 262 (1961)). 12 Avago argues that the allegations fail to demonstrate objective baselessness for four 13 principle reasons: (1) the ITC authorized an investigation based upon its complaint; (2) Avago 14 successfully defended the validity of the ’456 Patent; (3) Avago presented “substantial evidence” 15 of infringement to the ALJ; and (4) IPtronics did not seek summary adjudication on the ’456 16 Patent infringement claims. Defs.’ Mot. 15-22; Defs.’ Reply 5, 10-14. The Court finds all of 17 these arguments insufficient to defeat IPtronics’ well-pleaded allegations that, when taken as true, 18 establish that Avago’s suit lacked legal viability. 19 First, Avago has presented no controlling authority holding that the ITC’s decision to 20 institute an investigation is, by itself, sufficient to shield an ITC complainant from antitrust 21 liability. Indeed, at least one court has found that even an ALJ’s initial determination of 22 infringement, though evidence that the ITC action is not a sham, “does not conclusively establish 23 that the action is not a sham.” Mitsubishi Heavy Indus., Ltd. v. Gen. Co., 720 F. Supp. 2d 1061, 24 1066 (W.D. Ark. 2010) (citing Boulware v. State of Nevada, Dep’t of Human Res., 960 F.2d 793, 25 798 (9th Cir. 1992), for proposition that “initial success in a trial court is a factor to be considered 26 in determining whether litigation is sham but is not dispositive”). To be sure, the Commission 27 requires significantly more supporting information to be filed with an ITC complaint and reviews 28 complainants’ filings for compliance with its rules. See 19 C.F.R. § 210.10, 210.12. That the 12 1 Commission determined that Avago had complied with its filing requirements and voted to 2 institute an investigation, however, says nothing of the actual merits of the infringement theory 3 asserted against IPtronics.6 Moreover, the Court agrees with IPtronics that this argument elides 4 the gravamen of IPtronics’ baselessness allegations: that Avago argued a theory of infringement in 5 its complaint based upon evidence that it quickly had to abandon once its own expert admitted that 6 the evidence was insufficient to demonstrate infringement. See Pls.’ Opp. 20-21. The ITC’s 7 decision to institute an investigation based upon representations that Avago’s expert later retracted 8 can hardly serve to insulate Avago from antitrust liability. Second, and for similar reasons, Avago’s success in defending the ’456 Patent against 9 invalidity is also unavailing. IPtronics is not asserting that Avago’s ITC complaint was 11 United States District Court Northern District of California 10 objectively baseless because Avago’s patent was invalid. Were that the basis for IPtronics’ sham 12 litigation claim, the Commission’s conclusion that the ’456 Patent is not invalid would certainly 13 be relevant. See, e.g., Sandisk Corp. v. STMicroelectronics, Inc., No. C 04-4379JF(RS), 2008 WL 14 4615605, at *10 (N.D. Cal. Oct. 17, 2008). Because IPtronics’ claim for sham litigation here rests 15 on Avago’s lack of any probable cause to assert that IPtronics’ products infringed the ’456 Patent 16 in the first place—particularly with respect to the two waveform limitations of that patent— 17 Avago’s success on invalidity is irrelevant. 18 Third, this Court is ill-equipped on a motion to dismiss to evaluate the substantiality of 19 Avago’s evidence of infringement before the ITC. It is enough at this stage that IPtronics has 20 alleged that Avago filed a complaint based upon documents later admitted to be insufficient to 21 prove infringement and that it pressed those infringement claims using documents and new expert 22 evidence that the ALJ also found insufficient to show what Avago claimed. Those allegations are 23 not controverted by the judicially noticeable documents and are sufficient, when taken as true, to 24 establish that Avago could not reasonably have expected success on its patent infringement claims 25 against IPtronics. 26 27 28 6 The Commission’s published notice of institution of an investigation typically states that the Commission has made no decision on the merits. 13 1 Fourth, and finally, the fact that IPtronics did not pursue summary adjudication of 2 infringement is also not an appropriate issue to take up on a motion to dismiss. There may be any 3 number of reasons why a party chooses not to seek summary judgment on even baseless claims, 4 and the Court declines to hold that IPtronics’ litigation strategy should be used against it to shield 5 Avago from antitrust liability. In sum, the Court finds that IPtronics’ allegations of objective baselessness are sufficiently 6 7 well-pleaded to circumvent Avago’s claim to Noerr-Pennington immunity at this stage. This is 8 not to say that it is smooth sailing for IPtronics from this point forward, as the arguments by 9 Avago that this Court rejected on a motion to dismiss may gain more traction on a more fully developed record. At a minimum, Avago’s arguments demonstrate that there may be significant 11 United States District Court Northern District of California 10 challenges to IPtronics’ ability to prove objective baselessness down the road.7 Furthermore, to 12 this point, neither side has addressed the pending patent infringement lawsuit in this district, in 13 which Avago continues to accuse IPtronics of infringing the ’496 Patent. If Avago prevails on 14 infringement in that suit, IPtronics’ antitrust claims could be mooted.8 See PRE, 508 U.S. at 60 15 n.5. However weak Avago may believe IPtronics’ claims to be on the merits, the Complaint is 16 well-pleaded and IPtronics must be afforded an opportunity to test its allegations of objective 17 baselessness on the merits. Twombly, 550 U.S. at 556. 18 19 20 21 22 7 23 24 25 26 27 Avago has not challenged by way of this motion the sufficiency of IPtronics’ allegations of subjective intent and of attempted monopolization in violation of Section 2 of the Sherman Act. As such, the Court does not consider Avago’s subject intent to restrain competition through litigation, nor whether the IPtronics VCSEL driver products accused in the allegedly baseless ITC action fall within the relevant market, which IPtronics alleges to be “the market for 40Gb/s or higher band rate Quad (4-channel) Small Form-factor Pluggable (‘QSFP’) short-reach InfiniBand Active Optical Cables and Transceivers (‘AOC’ market)” or, in the alternative, “the market for the QSFP 56Gb/s short-reach InfiniBand FDR AOC segment of [the AOC] market (‘InfiniBand’ market).” Compl. ¶ 57. 8 28 The Court makes no determination at this point whether a verdict for Avago in the patent infringement case would have any impact on IPtronics’ antitrust claims in this action. 14 1 IV. ORDER 2 For the foregoing reasons, Avago’s Motion to Dismiss is DENIED. 3 IT IS SO ORDERED. 4 5 6 Dated: August 25, 2015 ______________________________________ BETH LABSON FREEMAN United States District Judge 7 8 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 15
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