Opinion
No. CV 03-0029-PHX-JAT
October 24, 2003
ORDER
Pending before the Court is Plaintiffs Motion to Dismiss Fourth Counterclaim of Defendants Alcon Laboratories, Inc., Summit Autonomous Inc., and Southwestern Eye Center, Ltd. ("Motion to Dismiss") (Doc. # 34). Defendants Alcon Laboratories, Inc., Summit Autonomous, Inc., and Southwestern Eye Center, Ltd. ("Defendants") filed an Opposition to Plaintiff's Motion to Dismiss Fourth Counterclaim ("Opposition") (Doc. #36) and Plaintiff filed a Reply in Support of Motion to Dismiss ("Reply") (Doc. #37). The Court struck the Opposition for failure to comply with Local Rule l.9(c) (Doc. #39) and allowed Defendants to re-file a response that "that conforms in all aspects with Local Rules l.9 and 1.10(e)." Defendants filed a revised Opposition to Plaintiffs Motion to Dismiss Fourth Counterclaim ("Response") (Doc. # 40).
Despite the Court's order, the Response does not fully comply with Local Rule l.10(e) which provides that responses "including its supporting memorandum . . . shall not exceed seventeen (17) pages. . . ." (See Response (failing to include caption page for purposes of page limits).) In the interests of reaching the merits of the issue, however, the Court declines to strike Defendants filing a second time. The parties are warned that the Court takes its orders and the Local Rules seriously and expects counsel to do the same.
On October 10, 2003, the Court heard oral argument by the parties. After considering the submissions on file, the parties' oral arguments, and the applicable law, the Court has concluded that the Motion to Dismiss should be granted.
I.BACKGROUND
Plaintiff obtained Patent Number 5,658,303 (the "303 Patent") which relates to a type of surgery, commonly referred to as LASIK surgery, to correct vision abnormalities. (Response at l.) On January 8, 2003, Plaintiff filed suit in this Court alleging direct and contributory patent infringement and inducement of patent infringement by Defendants. (Complaint (Doc. #1) at 4-6.) On March 19, 2003, Defendants filed an Answer and Counterclaims in which they denied Plaintiff's allegations and asserted four counterclaims against Plaintiff. (Answer and Counterclaim (Doc. #30).)
In their Fourth Counterclaim, Defendants allege that Plaintiff has engaged in "an unlawful attempt to monopolize the market for performing LASIK procedures in the United States in violation of, among other things, Section 2 of the Sherman Antitrust Act, 15 U.S.C. § l et seq." (Answer and Counterclaim at ¶ 46.) In support of this counterclaim, Defendants allege, in pertinent part, the following:
26. The "303 patent is unenforceable due to inequitable conduct and fraud on the United States Patent and Trademark Office in violation of, among other things, 37 C.F.R. § 1.56, in the procurement of the patent, and/pr related patents. . . . Such representations and omissions were material to the patentability of the claimed invention as it is asserted in the Complaint, and upon information and belief were made with the intention of misrepresenting the sate of the art and misleading the Patent and Trademark Office into granting a patent covering the claimed invention when no such patent should have issued.
27. The '303 patent is unenforceable due to patent misuse and unclear hands. . . . Plaintiff's conduct in accusing the Alcon Defendants of infringing a patent that was obtained by inequitable conduct and fraud on the United States Patent and Trademark Office and that was, at a minimum, known to be invalid as asserted, constitutes patent misuse and renders the '303 patent unenforceable against, at a minimum the Alcon Defendants.
47. Counterdefendant has engaged in anti-competitive and exclusionary conduct with the specific intent to destroy competition and attempt to acquire a monopoly in the market for LASIK procedures in the United States. On information and belief, Counterdefendant has been and is attempting to control prices or exclude competition in the market for the accused LASIK procedures.
48. Counterdefendant has aserted patent infringement claims against Counterclaimants and against defendants Bausch Lomb Incorporated and Swagel-Wootton Eye Center, Ltd, and upon information and belief has threatened to sue other companies (such as VISX, Incorporated) on similar grounds, even though Counterdefendant could not believe in good faith that it has an enforceable claim against these parties for infringement of any valid claim of any of the '303 patent as properly construed and interpreted in view of the prior art, the prosecution history, or otherwise.
50. Counterdefendant's attempts to enforce the '303 patent, knowing it to be invalid and unenforceable, and knowing that it does not cover the accused LASIK procedures, are in bad faith, constitute sham litigation, and violate federal antitrust laws against unfair competition. The claims asserted by Counterdefendant are both objectively and subjectively baseless, and conceal and are a pretex for Counterdefendant's attempt to interfere directly with the business relationships of Counterclaimants. Counterdefendant brought the present bad faith and sham lawsuit after its unsuccessful attempt to extort a license to its invalid and unenforceable patent from Alcon, Summitt, and others.
51. Because of the substantial cost and disruption of patent infringement litigation, there is a dangerous probability that Counterdefendant will as a practical matter succeed in its attempt to monopolize the market for LASIK procedures and related products in the United States through its attempted improper enforcement of its invalid and unenforceable patent, as companies become willing to pay or otherwise succumb to Counterdefendant rather than incur the substantial costs and disruption of patent litigation.
52. As a direct and proximate result of the unlawful actions of Counterdefendant, competition in the sale of LASIK procedures and related products in the United States has been and will be injured.
53. Counterdefendant has made public statements, including without limitation, the present lawsuit, that are likely to deceive Counterclaimants' customers as to the merits of Counterdefendant's claims. Counterdefendant is aware that customers are sensitive to disruption of their business, and upon information and belief Counterdefendant intended and intends its public statements, including without limitation the present lawsuit, to affect the relationships between Counterclaimants and their customers or potential customers.
54. Counterclaimants are participants in the market for LASIK procedures and related products in the United States and have been and will be damaged as a direct and proximate result of Counterdefendant's attempted monopolization and the anticompetitive effect of Counterdefendant's behavior through, among other factors, the loss of sales, injury to reputation, and costs of defending patent infringement litigation.
(Answer and Counterclaim at ¶¶ 26-27, 47-48, 50-54.)
In their Motion to Dismiss, Plaintiff asserts that Defendants' Fourth Counterclaim fails to state a claim for attempted monopolization because Defendants do not allege the relevant market or that there is a "dangerous probability" that Plaintiff's attempted monopolization will be successful. (Motion to Dismiss at 10-12.) In response, Defendants assert that they have properly alleged all of the necessary elements of a claim of attempted monopolization. (Response at 8-17.) Alternatively, Defendants request leave to amend their Answer and Counterclaim "to address any issues the Court might raise." ( Id. at 17.)
At oral argument, counsel for Plaintiff indicated that Defendants have sufficiently delineated the relevant market. Accordingly, this Order only addresses Plaintiff's argument that Defendants' have failed to allege a "dangerous probability" of success.
II. STANDARD FOR MOTION TO DISMISS
Motions to dismiss for failure to state a claim are viewed with disfavor. Broam v. Bogan, 320 F.3d 1023, 1028 (9th Cir. 2003). Generally, for purposes of a motion to dismiss under Fed.R.Civ.P. 12(b)(6), "[r]eview is limited to the complaint," Cervantes v. City of San Diego, 5 F.3d 1273, 1274 (9th Cir. 1993), and the complaint "must satisfy only the minimal notice pleading requirements of Rule 8(a)(2)." Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003). The "federal rules require only a 'short and plain statement of the claim showing that the pleader is entitled to relief.'" Gilligan v. Jamco. Dev. Corp., 108 F.3d 246, 248-49 (9th Cir. 1997) (quoting Fed.R.Civ.P. 8(a)).
When analyzing a complaint for failure to state a claim, "material allegations . . . as well as reasonable inferences to be drawn from them" are taken as true, Broam, 320 F.3d at 1028, and should be "construed in the light most favorable to the non-moving party." Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir. 1996). In addition, the district court must assume that all general allegations "embrace whatever specific facts might be necessary to support them." Peloza v. Capistrano Unified Sch. Dist., 37 F.3d 517, 521 (9th Cir. 1994).
A court may not dismiss a complaint for failure to state a claim "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief." Barnett v. Centoni, 31 F.3d 813, 816 (9th Cir. 1994) (internal citation omitted). However, legal conclusions couched as factual allegations are not given a presumption of truthfulness and "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss." Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998).
III. DISCUSSION
In order to evaluate whether Defendants have stated a claim for attempted monopolization, it is necessary to first determine the elements of that claim.
A. Elements of Attempted Monopolization: It is an "offense for any person to 'monopolize or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States. . . ."' Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 448 (1993) (quoting 15 U.S.C. § 2 ("Section 2")). "Section 2 does not define the elements of the offense of attempted monopolization." Spectrum Sports, 506 U.S. at 454. Allegations of unfair or predatory conduct, however, are insufficient, standing alone, to state a claim: "the notion that proof of unfair or predatory conduct alone is sufficient to make out the offense of attempted monopolization is contrary to the purpose and policy of the Sherman Act," Id. at 457. "[I]t is generally required that to demonstrate attempted monopolization a plaintiff must prove (1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power." Id. at 456.
A defendant "may not be liable for attempted monopolization . . . absent proof of a dangerous probability that they would monopolize a particular market and specific intent to monopolize." Id. at 459. Thus, "demonstrating dangerous probability of monopolization . . . requires inquiry into the relevant product and geographic market and the defendant's economic power in that market." Id.
Moreover, where, as in this case, a claim of attempted monopolization is based on alleged misuse of an allegedly invalid patent, it is "necessary to appraise the exclusionary power of the illegal patent claim in terms of the relevant market for the product involved. Without a definition of that market there is no way to measure [the defendant's] ability to lessen or destroy competition. . . ." Walker Process Equipment. Inc. v. Food Machinery and Chemical Corporation, 382 U.S. 172, 178 (1965). The claimant in Walker Process failed to properly allege the market but, because of the then-novelty of the claim, the Supreme Court allowed the claimant the "opportunity to make its § 2 claims more specific, to prove the alleged fraud, and to establish the necessary elements of the asserted § 2 violation." Id.
A Section 2 attempt to monopolize claim can also be based on "sham litigation," but only where (1) the patentholder prosecutes a patent infringement action in bad faith; (2) with a specific intent to monopolize the relevant market; and (3) there is a dangerous probability of success. Handguards, Inc. v. Ethicon, Inc., 601 F.2d 986, 994-96 (9th Cir. 1979) (" Handgards I"); see also Hangards, Inc. v. Ethicon, Inc., 743 F.2d 1282, 1288 (9th Cir. 1984) (" Handgards II"). Thus, under either Walker Process or Hangards I, a plaintiff must specifically allege the relevant market and a dangerous probability that the attempt to monopolize will be successful. However, the existence of a patent, standing alone, is insufficient to establish a dangerous probability of success:
A patent does not of itself establish a presumption of market power in the antitrust sense. The commercial advantage gained by new technology and its statutory protection by patent do not convert the possessor thereof into a prohibited monopolist. The patents right must be coupled with violations of 2, and the elements of violation of 15 U.S.C. § 2 must be met.
Determination of whether the patentee meets the Sherman Act elements of monopolization or attempt to monopolize is governed by the rules of application of the antitrust laws to market participants with due consideration to the exclusivity that inheres in the patent grant. . . .
The Sixth Circuit has rejected any absolute presumption of market power for copyright or patented product. Absent a presumption of market power, Brennan alleged insufficient facts to satisfy the elements of an antitrust violation. Allegations of legal conclusions are insufficient to withstand a motion to dismiss.Abbott Laboratories v. Brennan, 952 F.2d 1346, 1354-55 (Fed. Cir. 1991) (internal citations and quotation marks omitted); see also Spectrum Sports, 506 U.S. at 453 n. 5 (citing favorably Abbott Laboratories for this proposition); Walker Process, 382 U.S. at 178 ("It may be that the device — knee action swing diffusers — used in sewage treatment systems does not comprise a relevant market. There may be effective substitutes for the device which do not infringe the patent").
B. Have Defendants Alleged That There is a Dangerous Probability That Plaintiff's Attempt to Monopolize Will Be Successful: As quoted above, Defendants allegations regarding probability of success are as follows:
Because of the substantial cost and disruption of patent infringement litigation, there is a dangerous probability that Counterdefendant will as a practical matter succeed in its attempt to monopolize the market for LASIK procedures and related products in the United States through its attempted improper enforcement of its invalid and unenforceable patent, as companies become willing to pay or otherwise succumb to Counterdefendant rather than incur the substantial costs and disruption of patent litigation.
(Complaint at ¶ 51.)
While Defendants have certainly alleged that "there is a dangerous probability" of success, they have not alleged facts to support that conclusory statement. Instead, and as counsel for Defendant stated during oral argument, Defendants assert that the exclusionary power of a patent and the concomitant cost and disruption of infringement litigation are sufficient to establish a dangerous likelihood that Plaintiff's alleged attempt to monopolize will succeed. While it is true that a patent presents significant "commercial advantages" for the patentholder, "[a] patent itself does not establish a presumption of market power in the antitrust sense." Abbott Laboratories, 952 F.2d at 1354; also cf. Pareto, 139 F.3d at 699 (stating that "conclusory allegations of law and unwarranted inferences are not sufficient to defeat a motion to dismiss").
Defendants attempt to distinguish Abbott Laboratories by asserting that Abbott Laboratories did not involve a Walker Process claim. (Response at 11 n. 2.) If Defendants' assertion is true, this fact escaped the notice of the Federal Circuit Court of Appeals which specifically addressed the plaintiff's arguments that he had alleged a Walker Process, Section 2 attempted monopolization claim. Abbott Laboratories, 952 F.2d at 1354. The Abbott Laboratories court analyzed the requirements for a Walker Process claim and determined that the plaintiff had failed to state a claim. Id. at 1355. Thus, the Abbott Laboratories court's discussion and application of Walker Process, and its description of the elements of an attempt to monopolize claim are directly applicable to Defendants claim of attempted monopolization under Section 2. The fact that Abbott Laboratories arose from a patent interference, rather than a patent infringement, proceeding does not alter the fact that the underlying claim was one for attempted monopolization under Section 2 and Walker Process.
Moreover, the district court cases cited by Defendants do not support their contention that they have alleged facts to support a dangerous probability of success. Defendants cite to Rolite, Inc. v. Wheelabrator Environmental Systems, Inc., 958 F. Supp. 992, 1000 (E.D.Pa. 1997), and Moccio v. Cablevision Systems Corp., 208 F. Supp.2d 361, 376 (E.D.N.Y. 2002), for the proposition that "market share is not needed to sufficiently plead [sic] such [Walker Process and Hanguards] claims." (Response at 10-11.)
Defendants also cite to Kistler Instrumente, A. G. v. PCB Piezotronics, Inc., 202 U.S.P.Q. 631, 638-39 (W.D.N.Y. 1983). Because Kistler Instrumente predates Spectrum Sports, the Court does not find it to be particularly persuasive.
Defendants reliance on Moccio is completely misplaced. Defendants quoted language from that opinion relates to an actual monopolization claim. In the paragraph immediately following, the Moccio court set forth a different standard for an attempted monopolization claim. Moccio, 208 F. Supp.2d at 376. Moreover, the court applied the attempted monopolization standard and dismissed a Section 2 attempted monopolization claim, stating that to "allege a dangerous probability of achieving monopoly power, plaintiffs must plead that defendants possess a sufficient share of the relevant market." Id.
Similarly, Defendants quote PPG Industries, Inc. v. Pilkington PLC, 825 F. Supp. 1465 (D. Ariz. 1993), to support their assertion that dismissal is not appropriate. However, the sentence immediately following the portion of the opinion quoted by Defendants, states that the "Court, of course, does not question that an allegation of a 20% market share in a relevant market would fail to state a claim under Rule 12(b)(6)." 825 F. Supp. at 1471-72. While the Court does not believe that Defendants intentionally mischaracterized PPG Industries or Moccio, they should be aware that, in the mind of the Court, such errors tend to invoke the Latin maxim, falsus in uno, falsus in omnibus.
In Rolite, although the plaintiff actually alleged that defendant had a "large aggregate market share," 958 F. Supp. at 1000, the court noted that the plaintiff need not allege market share. The court's statement, however, was made in the context of explaining that market power is not the exclusive means of alleging a dangerous probability of success:
"Although the size of a defendant's market share is a significant determinant of whether a defendant has a dangerous probability of successfully monopolizing the relevant market, it is not exclusive. Other facts to be considered include the strength of competition, probable development of the industry, the barriers to entry, the nature of the anti-competitive conduct, and the elasticity of consumer demand."Rolite, 958 F. Supp. at 1000 (quoting Pastore v. Bell Telephone Co., 24 F.3d 508, 513 (3d Cir. 1994).
Thus, Rolite stands for the proposition that market share is not absolutely required to allege a dangerous probability of success, but does not stand for the proposition that no factual allegations are necessary. Accordingly, Defendants are required to allege some facts other than market share that, if proved, will support a finding that there is a dangerous probability that Plaintiff's attempt to monopolize will succeed. Defendants cannot rely on the exclusivity of the patent to meet this burden, but must also allege facts that, in the patent context, could demonstrate a dangerous probability of success. Under Abbott Laboratories, a plaintiff pursuing a Section 2 claim based on a patent must, at a minimum, allege that there are no effective substitutes to the patented process or item and that, through the patentholder's actions in attempting to enforce the challenged patent, the patentholder will be dangerously likely to succeed in its efforts to monopolize the relevant market. Defendants' allegations fall short of that required level of pleading.
Accordingly.
IT IS ORDERED granting, without prejudice, Plaintiff's Motion to Dismiss (Doc. #34); and
IT IS FURTHER ORDERED that Defendant's request for leave to amend is denied, without prejudice.
Because Defendants request for leave to amend does not address the factors under Fed.R.Civ.P. 15(a), and Western Shoshone Nat. Council v. Molini, 951 F.2d 200, 204 (9th Cir. 1991), the Court will deny the request without prejudice. Defendants may file an appropriate motion seeking leave to amend. Plaintiff, of course, will have the opportunity to file an appropriate response.