Allergan, Inc v. Photomedex, Inc, et al

Opposition In Opposition re: MOTION to Dismiss Athena Cosmetics, Inc.'s Third, Fourth, Fifth, Sixth, and Seventh Counterclaims 339

C.D. Cal.August 31, 2009

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS GRAVES LAW OFFICE, P.C. Philip J. Graves (SBN 153441) pgraves@graveslawpc.com John Walton (SBN 130666) jwalton@graveslawpc.com Pablo Arredondo (SBN 241142) parredondo@graveslawpc.com James Ahn (SBN 243335) jahn@graveslawpc.com Monique Cho (SBN 251949) mcho@graveslawpc.com Fredricka Ung (SBN 253794) fung@graveslawpc.com Shen Li Khong (SBN 261326) skhong@graveslawpc.com 12121 Wilshire Blvd., Ste. 775 Los Angeles, California 90025 Telephone: (310) 295-6500 Facsimile: (310) 295-6501 Attorneys for Defendants ATHENA COSMETICS, INC. and PHARMA TECH INTERNATIONAL, INC. IN THE UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA ALLERGAN, INC., a Delaware corporation, MURRAY A. JOHNSTONE, M.D., an individual; and DUKE UNIVERSITY Plaintiffs, v. ATHENA COSMETICS, INC., a Nevada corporation; ATHENA BIOSCIENCE, LLC, a limited liability company; COSMETIC ALCHEMY, LLC, a limited liability company; GLOBAL MDRx, a Nevada corporation; COSMETIC TECHNOLOGIES, INC., a California corporation; PHARMA TECH INTERNATIONAL, INC., a New Jersey corporation; and DMI, a New Jersey corporation Defendants. Lead Case: CASE NO. SACV07-1316 JVS (RNBx) Consolidated with: CASE NO. SACV09-0328 JVS (RNBx) ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 1 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 GRAVES LAW OFFICE, P.C. Philip J. Graves, Esq. (SBN 153441) pgraves@graveslawpc.com John R. IN THE UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 2 of 38 i 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF CONTENTS Page I. INTRODUCTION……………........................................................................1 II. LEGAL STANDARDS……………………………........................................2 III. ARGUMENT……………...............................................................................2 A. Athena’s Antitrust Counterclaims Are Adequately Pleaded…………………………………………...…………………....2 1. Athena’s has Adequately Alleged Anticompetitive Conduct……...…………………….............................................3 a. Athena Has Pleaded Sham Litigation…………….……...4 i. The Facts Pleaded Demonstrate the Suit Was Objectively Baseless……..……………………….4 ii. Allergan’s Assertion of the ‘105 Patent is Made in Bad Faith……..…………………………………...4 iii. Allergan’s Assertion of the ‘404 Patent Was Made in Bad Faith…………...…………………………..5 b. Allergan’s False and Disparaging Statements Are Anticompetitive Conduct..………..……………………...8 2. Athena Alleged “Monopoly Power” and “Dangerous Probability of Success”……...……………………......................................11 a. Athena’s Single-Market Allegations.………….……….13 i. Athena Has Adequately Alleged Via Circumstantial Evidence That Allergan Has Monopoly Power in the PGEEP Market………………………………13 ii. Athena Has Adequately Alleged Via Direct Evidence of Supracompetitive Pricing That Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 3 of 38 ii 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Allergan Has Monopoly Power in the PGEEP Market…………………………………………...15 b. Athena’s Dual-Market Allegations…..…..……………..16 3. Athena’s Adequately Alleged Antitrust Injury…..………….20 B. Athena Has Stated a Claim for Unfair Competition Under the Lanham Act…..………………………………………………………22 1. Rule 9(b) Does Not Apply to Athena’s Unfair Competition Claim..……………...…………….............................................22 2. The Unfair Competition Claim Meets Rule 9’s Pleading Standard……………………………………………..22 3. Athena Should be Granted Leave to Amend………………….25 IV. CONCLUSION………………………………………….………………….25 Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 4 of 38 iii 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Cases Atl. Ritchfield Co. v. USA Petroleum, Co., 495 U.S. 328, 344 (1990)………………………………………………………….21 Amgen, Inc. v. F. Hoffman-La Roche, Ltd., 480 F. Supp. 2d 462, 468-69 (D. Mass. 2007)…………………………………….22 Am. Academic Supplier, Inc. v. Beckley-Cardy, Inc., 922 F.2d 1317, 1319 (7th Cir. 1991).………………………………………….15, 16 Am. Prof’l Testing Serv., Inc. v. Harcourt Brace Jovanovich Legal & Prof’l Publ’ns., Inc., 108 F.3d 1147, 1151 (9th Cir. 1997).…………………………………….8, 9, 10, 11 Atlas Powder Co. v. IRECO Inc., 190 F.3d 1342 (Fed. Dir. 1999)……………………………………………………6 Alternative Electrodes, LLC v. Empi, Inc., 597 F.Supp.2d 322, 332 (E.D.N.Y. 2009)………………………………………….8 Apotex USA, Inc. v. Merck & Co., Inc., 254, F.3d 1031, 1035 (Fed. Cir. 2001)…………………………………………….7 Bell Atl. Corp. v. Twombly, 550 U.S. 544, [ ] (2007)…………………………………………………………….2 Bly-Magee v. California, 236 F.3d 1014, 1016 (9th Cir. 2001)………………………………………………25 Bristol-Myers Squibb, Co. v. Ben Venue Labs., 246 F.3d 1368, 1376 (Fed. Cir. 2001)……………………………………………..6 Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297 (3d Cir. 2007)………..………………………………………….17, 18 Brosnan v. Tradeline Solutions, Inc., 2009 U.S. Dist. LEXIS 48262……………………………………………………..23 Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 5 of 38 iv 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962)…………..……………………………………………...13 Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)……..…………………………………………………...21 Catch Curve, Inc. v. Venali, Inc., 519 F. Supp. 2d 1028, 1037 (C.D. Cal. 2007)……………………………………....2 Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1253 (9th Cir.1982)………………………………………………...3 Coalition for ICAAN Transparency, Inc. v. Verisign, Inc., 567 F.3d 1084, 1093 (9th Cir. 2009).…………………………………….…………8 Conceptual Eng’g Assocs., Inc. v. Aelectronic Bonding, Inc., 714 F.Supp. 1262, 1269 (D.R.I. 1989)…………………………………….………10 In re Cruciferous Sprout Litig., 301 F.ed 1343 (Fed. Cir. 2002)…………………………………………….……….6 Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1051 (7th Cir. 1998)………………………………………………23 Cost Mgmt. Svcs. v. Washington Natural Gas Co., 99 F.3d 937, 950 (9th Cir. 1996)…………………………………………………2, 3 C.R. Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1368 (Fed.Cir.1998)……………………………………….……….3 CVD, Inc. v. Raytheon Co., 769 F.2d 842, 858 (1st Cir. 1985)………………………………………………….22 Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH., 524 F.3d 1254, 1262 (Fed. Cir. 2008)….………………………………….………..5 Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005)………………………………………………….………..2 Earnest W. Hahn, Inc. v. Codding, 615 F.2d 830, 835 (9th Cir. 1995)….……………………………………….……….8 Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 6 of 38 v 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 E. Portland Imaging Ctr., P.C. v. Providence Health Sys.-Or., 2008 U.S. App. LEXIS 10984 (9th Cir. May 20, 2008)…………………………...18 Erickson v. Pardus, 551 U.S. 89, 93 (2007)….…………………………………………………………2 FilmTec Corp. v. Hydranautics, 67 F.3d 931, 938 (Fed. Cir. 1995)………………………………………………..4, 5 Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 924-25 (9th Cir. 1980)……………………………………………...13 IGT v. Alliance Gaming Corp., 2007 WL 911773…………………...……………………………………………...14 Illinois Tool Works v. Independent Ink, Inc., 547 U.S. 28, 42-43 (2006)………….……………………………………………...19 Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997)..………………………………………...12, 14 Intel Corp. v. VIA Technologies., No. C 99-03062, 2001 WL 777085………………………………………………4, 5 Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003)…………………………………………….…….2 In re Keegan Mgmt. Co. Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996)…...………………………………………….……5 Kottle v. N.W. Kidney Centers, 146 F.3d 1056, 1060 (9th Cir.1998)…………………………………………..…….3 Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000)……………………………………………2, 25 Mercy-Peninsula Ambulance, Inc. v. County of San Mateo, 791 F.2d 755 (9th Cir. 1986).………………………………………………….18, 19 MGA Entertainment, Inc., Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 7 of 38 vi 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2005 WL 5894689…………………...……………………………………….……..9 Nat’l Ass’n of Pharm. Mfrs., Inc. v. Ayerst Labs Div. of/and Am. Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282, 1296-1297 (9th Cir. 1984)………………………………………...22 Home Prods. Corp., 850 F.2d 904, 916 (2d Cir. 1998)…………………………………………………...9 Netflix, Inc. v. Blockbuster, Inc., 2006 WL 2458717………………...……………………………………………….13 Newcal. Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008).……………………………………………...12 New Idea Farm Equip. Corp. v. Sperry Corp., 916 F.2d, 1561, 1566 (Fed. Cir. 1990)……………………………………….……..7 In re Omeprazole, 483 F.3d 1364 (Fed. Cir. 2007)……………………………………………….…….6 Ostrofe v. H.S. Crocker Co., Inc., 740 F.2d 739, 751 (9th Cir. 1984)…………………………………………………22 PAE Gov’t Services, Inc. v. MPRI, Inc., 514 F.3d 856, 858 (9th Cir. 2007)…………………………………………….…….2 Pom Wonderful, LLC v. Ocean Spray Cranberries, Inc., 2009 U.S. Dist. LEXIS 64108……………………………………………………..22 Portney v. CIBA Vision Corp., 593 F. Supp. 2d 1120 (C.D. Cal. 2008).……………………………………….…..19 Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993)………………………………………………………...3, 5, 7 Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1434 (9th Cir. 1995)..………………………………………12, 14, 15 Schering Corp. v. Geneva Pharms., Inc., 339 F.3d 1373 (Fed. Cir. 2003)………………………………………………….….6 Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 8 of 38 vii 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 113 F.3d 405 (3d Cir. 1997)…..…………………………………………………...20 In re Wellbutrin SR Antitrust Litigation, Civil Action No. 04-5525, 2006 Dist. LEXIS 9687 (E.D. Pa. Mar. 9, 2006)………5 Transcription Communs. Corp v. John Muir Health, 2009 U.S. Dist. LEXIS 25151……………………………………………………..23 TYR Sports Inc. v. Warnaco Swimwear Inc., 2009 WL 1769444………………...…………………………………………...10, 11 Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1308 (9th Cir. 1982)………………………………………….…….3 Ultronics, Inc. v. Cox Cable of San Diego, Inc., 1991 WL 1302931…………………...……………………………………….…9, 10 United States v. Chapman Univ., 2006 U.S. Dist. LEXIS 53686……………………………………………………..24 United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956)……………….………………………………………………16 United States v. Grinnell Corp., 284 U.S. 563, 570-71 (1966)………………………………………………..3, 11, 15 United States v. Microsoft, 253 F.3d 34, 51 (D.C. Cir. 2001)…..………………………………………………14 Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1108 (9th Cir. 2003)…………………………………………..24, 25 Walgreen Co. v. AstraZeneca Pharm. L.P., 534 F.Supp. 2d 146 (D.D.C. 2008)...………………………………………………10 Wastelands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993)……………………………………………………2 In re Warfarin Sodium Antitrust Litig. 1998 WL 883469…………………..…………………………………………..10, 15 Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 9 of 38 viii 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Statutes Clayton Act § 4, 15 U.S.C. § 15……………….………………………………….20 Lanham Act, 15 U.S.C. § 1125……………………………………………………22 Sherman Act § 2 , 15 U.S.C. § 2 …………………………………….2, 3, 14, 16, 19 35 U.S.C. § 102(b)……………………………………………………...…………...6 35 U.S.C. § 102(g)………………………………………………………...………...7 35 U.S.C. § 103….…………………………………………………………..……...6 Rules Fed. R. Civ. P. 8(a)(2).……………………………………………………….……..2 Fed. R. Civ. P. 9(b).….…………………………………………...…2, 22, 23, 24, 25 Fed. R. Civ. P. 12(b)……………………………………………….………………..2 Fed. R. Civ. P. 12(b)(6)...………………………………………….………………..2 Other Authorities Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 307 at 122 (3d ed. 2007)……………………………………………………………………………….12 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 501 at 111 (3d ed. 2007)……………………………………………………………………………….15 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 391a at 320 (3d ed. 2007)……………………………………………………………………………….21 United States Department of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property § 4.1.1 (1995)……………...20 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1298 (3d ed. 2004)………………………………………………23 Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 10 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 11 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 1 I. INTRODUCTION Allergan’s motion to dismiss Athena’s antitrust counterclaims is an attempted sleight of hand designed to avoid litigating this case on the merits. What is most compelling is what Allergan omits and disguises. Allergan promises to show how Athena has failed to plead “anticompetitive conduct,” “monopoly power” and “antitrust injury.” Yet upon inspection, its motion actually admits each element is properly pleaded. For instance, under Allergan’s own proffered claim construction, Allergan does not contend that Athena’s RevitaLash product infringes the ‘105 Patent. Nevertheless, for some two years Allergan has sued Athena under a patent it knows Athena does not infringe. Allergan does not dispute these facts. Allergan also does not dispute that it knew of the invalidating prior art to the ‘404 Patent cited by Athena, and that this prior art is invalidating. Nor does Allergan dispute that either the ‘404 or ‘029 Patent is invalid over the other, yet is nonetheless asserted against Athena. The consequence of Allergan’s silence on these points is clear: Allergan has admitted that Athena adequately pleaded Allergan’s anticompetitive conduct. Allergan’s omissions on monopoly power and antitrust injury are similarly telling. Despite making much noise about pricing in its monopoly power and antitrust injury arguments, Allergan makes no challenge to Athena’s (a) definition of a relevant market, (b) allegations concerning Allergan’s dominant market share of that market, or (c) allegations regarding entry barriers - including Allergan’s sham litigation campaign to protect that market - allowing Allergan to convert its dominant market share into exercised monopoly power. As such, the motion actually does not challenge the legal sufficiency of the monopoly power allegations. The same is true of Allergan’s antitrust injury arguments, which again focus solely on pricing and omit any challenge to the fact that Athena has alleged injuries in lost revenue and litigation costs stemming from the same conduct by Allergan that has destroyed competition and reduced output market-wide. Athena’s litigation costs qualify as a barrier to entry, which is itself cognizable as antitrust injury, as Allergan admits. Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 12 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 2 With respect to Athena’s Lanham Act unfair competition claim, Allergan’s sole argument is that the heightened pleading standard of Rule 9(b) applies and that Athena’s allegations somehow fall short. It does not deny that a cause of action is stated, only that allegations are not yet sufficiently specific. Athena easily demonstrates that they are. II. LEGAL STANDARDS Rule 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). “Ordinary pleading rules are not meant to impose a great burden upon the plaintiff.” Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347 (2005). “Specific facts are not necessary; the statement need only ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.’” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, [ ] (2007)). The Court must accept as true all factual allegations in the complaint and must draw all reasonable inferences from those allegations, construing the complaint in the light most favorable to the plaintiff. Wastelands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir. 1993). “[T]he Federal Rules of Civil Procedure do not authorize a district court to adjudicate claims on the merits [on a Fed. R. Civ. P. 12(b) motion]; the court may only review claims for legal sufficiency.” PAE Gov’t Services, Inc. v. MPRI, Inc., 514 F.3d 856, 858 (9th Cir. 2007). Dismissal without leave to amend is appropriate only when the Court is satisfied that the deficiencies of the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir. 2003) (citation omitted); Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000). III. ARGUMENT A. Athena’s Antitrust Counterclaims Are Adequately Pleaded “In order to survive a motion to dismiss under Rule 12(b)(6), an antitrust complaint ‘need only allege sufficient facts from which the court can discern the elements of an injury resulting from an act forbidden by the antitrust laws.’” See Cost Mgmt. Svcs. v. Washington Natural Gas Co., 99 F.3d 937, 950 (9th Cir. 1996) (citation omitted). To state a claim for monopolization under Section 2 of the Sherman Act, a claimant must Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 13 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 3 allege: (1) possession of monopoly power in the relevant market(s); (2) willful acquisition or maintenance of that power; and (3) causal antitrust injury. United States v. Grinnell Corp., 284 U.S. 563, 570-71 (1966); Cost Mgmt. Svcs., 99 F.3d at 949. To state a claim for attempted monopolization under that same section, a claimant must allege: (1) specific intent to control prices or destroy competition; (2) predatory of anticompetitive conduct; (3) dangerous probability of success; and (4) causal antitrust injury. See Cost Mgmt. Svcs., 99 F.3d at 949-50. The elements of an attempted monopolization claim are frequently interdependent “so that proof of one may provide circumstantial evidence or permissible inferences of the other elements.” Twin City Sportservice, Inc. v. Charles O. Finley & Co., 676 F.2d 1291, 1308 (9th Cir. 1982). 1. Athena has Adequately Alleged Anticompetitive Conduct “Conduct prohibited under antitrust law includes bringing suit to enforce a patent with knowledge that the patent is invalid or not infringed, and the litigation is conducted for anti-competitive purposes. In such events the antitrust immunity of Noerr-Pennington ... does not apply to those who seek redress through judicial process.” C.R. Bard, Inc. v. M3 Systems, Inc., 157 F.3d 1340, 1368 (Fed.Cir.1998) (internal citations omitted). Where the alleged anti-competitive behavior consists of bringing a single sham lawsuit, the two findings necessary are that: “(1) the lawsuit must be objectively meritless such that ‘no reasonable litigant could expect success on the merits and (2) it must be found that ‘the baseless lawsuit conceals an attempt to interfere directly with the business relationships of a competitor.’“ Id. (quoting Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993) (“PRE”)); see also Kottle v. N.W. Kidney Centers, 146 F.3d 1056, 1060 (9th Cir.1998). Moreover, the Ninth Circuit has stated that “[w]hether something is a genuine effort to influence governmental action, or a mere sham, is a question of fact.” Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240, 1253 (9th Cir.1982). Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 14 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 4 a. Athena Has Pleaded Sham Litigation i. The Facts Pleaded Demonstrate the Suit Was Objectively Baseless Athena sufficiently pleaded the requisite elements of sham litigation with factual allegations in its SAC. The allegations, accepted as true in the motion, demonstrate that the patent infringement suits against at least Athena are both objectively baseless and subjectively brought in bad faith within the meaning of PRE. ii. Allergan’s Assertion of the ‘105 Patent is Made in Bad Faith The facts alleged in the SAC demonstrate that Allergan’s claim for patent infringement of the ‘105 Patent against Athena is objectively meritless. No reasonable litigant could realistically expect success on the merits of the claim because Allergan itself admits “the claims in the ‘105 patent . . . if properly construed, do not cover prostamides.” (SAC, ¶28; Docket No. 147 at 10). The SAC further alleges that “the ‘105 Patent is not and has never been infringed by Athena’s RevitaLash and Hair by RevitaLash products.” (SAC, ¶28) (emphasis added). Accordingly, the SAC does plead that Allergan lacked even a scintilla of probable cause to assert infringement of the ‘105 Patent against Athena. Allergan’s argument that the litigation is not a sham because it is (also) asserting the ‘404 Patent and ‘105 Patent against Athena “in the alternative” is too little too late: The original Complaint filed on November 7, 2007 asserted only the ‘105 Patent against Athena. Irrespective of Allergan’s current “alternative patent” theory, during the first six months of the litigation, there was no “alternative” to the ‘105 Patent. (Allergan, Inc. v. Cayman Chem. Co., Case No. CV07-1316, (“Allergan I”) Complaint ¶¶21-24). Having no answer to this reality, Allergan ignores it and instead hopes that the assertion of the ‘404 Patent retroactively immunizes the litigation under Noerr-Pennington. (Pl. Br. at 9- 10). It does not. The court must determine “the reasonableness of the antitrust defendant’s litigation when filed.” FilmTec Corp. v. Hydranautics, 67 F.3d 931, 938 (Fed. Cir. 1995). Thus, Allergan cannot avoid the fact it instituted a sham legal proceeding against Athena based on an objectively baseless claim for infringement of the ‘105 Patent. See Intel Corp. v. VIA Technologies., No. C 99-03062, 2001 WL 777085, at Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 15 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 5 *5 (N.D. Cal. Mar. 20, 2001) (plaintiff who adds baseless claim to an otherwise bona fide suit, probably to obtain an additional strategic advantage, should not be immunized as that would effectively “eviscerate most of the sham litigation exception.”). Indeed, In re Wellbutrin SR Antitrust Litigation, Civil Action No. 04-5525, 2006 Dist. LEXIS 9687 (E.D. Pa. Mar. 9, 2006) emphasized that PRE makes clear that the “objectively baseless” determination depends on the reasonable expectations of the party bringing the alleged sham suit--the analysis should focus on “what the litigant knew or reasonably could have known at the time the suits were filed, not the results of the suits.” Id. at *33-34 (emphasis added) (citing PRE, 508 U.S. at 61 n. 5). Thus, the analysis “must be prospective not retrospective, and therefore should be limited to the law and facts as they existed when decision to file was made.” Id. at *34 (citing PRE, 508 U.S. at 67). Here, Athena has alleged that at the time Allergan initiated this proceeding, Allergan knew that the ‘105 Patent was not and had never been infringed by the Athena products.1 (SAC, ¶28). iii. Allergan’s Assertion of the ‘404 Patent Was in Bad Faith Athena has alleged that the ‘404 Patent is invalid, and that Allergan’s assertion of the ‘404 Patent against Athena is a sham. (SAC, ¶¶27-30). These allegations hold that Allergan’s assertion of the ‘404 Patent is objectively baseless because no reasonable litigant could realistically expect success on the merits of validity in light of the prior art. See PRE, 508 U.S. at 60; Filmtec Corp. v. Hydranautics, 67 F.3d 931, 936 (Fed. Cir. 1995) (“The validity of the patent, including the manner in which the patent application 1 Allergan’s argument that the Court already rejected such allegations when it considered a motion for Rule 11 sanctions made by other defendants is a red herring. First, Allergan conflates the standard for Rule 11 sanctions and the standard for pleading sham litigation. A lawsuit is frivolous under Rule 11 only if it is “both baseless and made without a reasonable competent inquiry.” In re Keegan Mgmt. Co. Sec. Litig., 78 F.3d 431, 435 (9th Cir. 1996); see also Dominant Semiconductors Sdn. Bhd. v. OSRAM GmbH, 524 F.3d 1254, 1262 (Fed. Cir. 2008) (“we have never stated that the Rule 11 standard is the same as the standard applied in the line of cases following Professional Real Estate.”). In its Rule 11 motion, Photomedex ignored the first Rule 11 element and argued only that sanctions were appropriate because Allergan and its counsel had failed to adequately investigate a claim of patent infringement before asserting the ‘105 on the parties. (Docket Nos. 141 at 5-6 & 154 at 2-4). The adequacy of Allergan’s pre-filing investigation is not relevant here. Second, Photomedex’s Rule 11 motion was filed after Allergan asserted the ‘404 Patent against Photomedex and other Defendants. Accordingly, this Court has only found Allergan’s “alternative” argument not improper where both the ‘105 and ‘404 Patents had been asserted against a party. (Docket No. 163). As discussed above, however, there was no “alternative” to the ‘105 Patent during the first six months of the litigation. Allergan initiated and continues to prosecution a sham infringement suit asserting the ‘105 Patent. Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 16 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 6 was prosecuted, will bear directly on the question of whether the patentee’s suit is a sham under the relevant legal test.”). Athena has specifically identified invalidating prior art such as JP H10-287532 (JP ‘532 Publication), U.S. Patent Nos. 6,160,129 (‘129 Patent), and 5,688,819 (‘819 Patent). (SAC, ¶30). A reasonable litigant would have understood that the JP ‘532 Publication and the ‘129 Patent are invalidating prior art to the ‘404 Patent under 35 U.S.C. §§102(b) and 103, and that these references expressly disclose each element of each asserted claim, i.e. the application of prostaglandin PGF amides to mammalian skin to stimulate hair growth. (Ex. A, JP ‘532 Publication, ¶¶ 7, 16, 22, 27; Ex. B, ‘129 Patent, 39:1-3, 20-25, 40:44 - 42:30). A reasonable litigant would also have understood that the ‘819 Patent discloses the application of prostaglandin PGF amides to the eye and inherently to the skin, and that practicing this prior art method would invariably stimulate hair growth. (Ex. C, ‘819 Patent, 3:9-8:7). Thus, the ‘819 Patent inherently anticipates all asserted claims of the ‘404 Patent. See Bristol-Myers Squibb, Co. v. Ben Venue Labs., 246 F.3d 1368, 1376 (Fed. Cir. 2001); In re Omeprazole, 483 F.3d 1364 (Fed. Cir. 2007) (new realization that a prior art process created a separating layer did not render the prior art patentable); Schering Corp. v. Geneva Pharms., Inc., 339 F.3d 1373 (Fed. Cir. 2003) (“[I]nherent anticipation does not require that a person of ordinary skill in the art at the time would have recognized the inherent disclosure.”); In re Cruciferous Sprout Litig., 301 F.3d 1343 (Fed. Cir. 2002); Atlas Powder Co. v. IRECO Inc., 190 F.3d 1342 (Fed. Cir. 1999). Therefore, no reasonable litigant realistically could have expected success on the merits of validity of the ‘404 Patent, and Athena’s allegations in this regard clearly raise questions of fact which must be resolved via discovery and trial. Athena has also alleged, and it can be reasonably inferred, that Allergan asserts the ‘404 Patent in bad faith to interfere directly with the business relationships of Athena through this sham lawsuit, knowing that the ‘404 Patent is invalidated by the prior art. (SAC, ¶¶27-30). Athena has alleged that Allergan was aware of each invalidating prior art at the time of its assertion of the ‘404 Patent. (SAC, ¶30). Taken as true, these Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 17 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 7 allegations are sufficient to satisfy the subjective prong of the sham litigation standard articulated in PRE. See PRE, 508 U.S. at 60. Furthermore, Athena has alleged that Allergan has initiated suits against Athena claiming infringement of both the ‘404 and the ‘029 Patents despite its knowledge that one of these patents is invalid as a matter of law. Athena alleges that both the ‘404 and ‘029 Patents claim overlapping subject matter. (SAC, ¶29). Indeed, Allergan concedes this fact through its assertion that the compound in Athena’s products infringes both patents. (Allergan I Fourth Amended Complaint ¶¶38-42; Allergan, Inc. v. Athena Cosmetics, Inc., Case No. CV09-0328, Complaint ¶¶54-58). Thus, under 35 U.S.C. § 102(g), either the ‘404 Patent or the ‘029 Patent must be invalid as a matter of law. As explained by the Federal Circuit, “[35 U.S.C. § 102(g)] operates to ensure that a patent is awarded only to the ‘first’ inventor in law.” Apotex USA, Inc. v. Merck & Co., Inc., 254 F.3d 1031, 1035 (Fed. Cir. 2001). “[I]f a patentee’s invention has been made by another, prior inventor who has not abandoned, suppressed, or concealed the invention, § 102(g) will invalidate that patent.” Id. (citing New Idea Farm Equip. Corp. v. Sperry Corp., 916 F.2d 1561, 1566 (Fed. Cir. 1990)). Therefore, no reasonable litigant could realistically expect success on the merits of validity on both patents. Allergan’s claim that the litigation is not a sham because one of these patents is valid is inapposite. The allegations in Athena’s SAC are sufficient to demonstrate that even if one of these patents is in fact valid, Allergan’s assertion of the patent with the later invention date against Athena renders the litigation a sham. When Allergan entered into the license agreement with Duke University regarding the ‘029 Patent on December 17, 2007, Allergan knew whether the ‘404 Patent or the ‘029 Patent has priority over the other based on an earlier invention date. Therefore, Allergan filed a bad faith claim of infringement against Athena as to either the ‘404 Patent or the ‘029 Patent. Athena cannot allege at this early stage of the litigation which of the two patents is asserted in bad faith because the evidence relating to the patents’ invention dates lies with Allergan until Athena can take discovery. See Catch Curve, Inc. v. Venali, Inc., 519 F. Supp. 2d 1028, 1037 (C.D. Cal. 2007) (explaining the Ninth Circuit’s “‘policy disfavoring the pre-trial Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 18 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 8 dismissal of antitrust actions because the proof lies largely in the hands of the defendants.’”) (citing Earnest W. Hahn, Inc. v. Codding, 615 F.2d 830, 835 (9th Cir. 1995)). Thus, Athena has adequately alleged that Allergan’s patent litigation is a sham.2 b. Allergan’s False and Disparaging Statements Are Anticompetitive Conduct Allergan’s false and disparaging statements constitute anticompetitive conduct in violation of the Sherman Act. The Ninth Circuit has stated that to demonstrate exclusionary conduct via disparagement, a party must make a “preliminary showing of significant and more-than-temporary harmful effects on competition.” Am. Prof’l Testing Serv., Inc. v. Harcourt Brace Jovanovich Legal & Prof’l Publ’ns., Inc., 108 F.3d 1147, 1151 (9th Cir. 1997) (emphasis omitted). Athena has adequately alleged all six elements required to show that Allergan’s false and disparaging statements have had more than a de minimis effect on competition, by pleading that the representations were “[1] clearly false, [2] clearly material, [3] clearly likely to induce reasonable reliance, [4] made to buyers without knowledge of the subject matter, [5] continued for prolonged periods, and [6] not readily susceptible of neutralization or other offset by rivals.” Am. Prof’l Testing Serv., 108 F.3d at 1152 (citation omitted). Athena has adequately alleged that the disparaging statements made by Allergan’s representatives were clearly false. For example, Athena alleged that Allergan’s representatives made statements that RevitaLash “would imminently be seized by the FDA.” (SAC, ¶31). Allergan has no evidence that RevitaLash is in danger of being seized by the FDA, let alone imminently. Allergan’s argument in defense of its disparaging statements is that it is “entirely possible” that the events described in the statements could occur in the future. (Pl. Br. at 13). Regardless of this possibility, as Athena alleged in SAC, ¶31, the disparaging statements were false when they were made. See Alternative Electrodes, LLC v. Empi, Inc., 597 F.Supp.2d 322, 332 (E.D.N.Y. 2009) 2 The foregoing argument responds only to Allergan’s litigation-related anticompetitive conduct. However, Athena has also alleged non-litigation related anticompetitive conduct. (SAC, ¶¶31, 34-35). The presumption of Noerr-Pennington immunity does not even attach to this conduct in the first instance. See, e.g., Coalition for ICAAN Transparency, Inc. v. Verisign, Inc., 567 F.3d 1084, 1093 (9th Cir. 2009). Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 19 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 9 (citing Nat’l Ass'n of Pharm. Mfrs., Inc. v. Ayerst Labs. Div. of/and Am. Home Prods. Corp., 850 F.2d 904, 916 (2d Cir. 1988)) (allegation that representation was “false and misleading in certain respects” was sufficient at motion to dismiss stage). Allergan also defends another of its false statements by alleging that Athena itself has stated that it is being “put out of business by Allergan and Latisse,” citing Athena’s SAC, ¶59. This is a clear mischaracterization of SAC, ¶59, which in fact asserts only that if Allergan’s illegal conduct is not enjoined, Athena and every other participant will be excluded from the PGEEP Market. (SAC, ¶59) (emphasis added). Athena has adequately alleged that Allergan’s false and disparaging statements were material and likely to induce reasonable reliance. Without specifically addressing any of the false and disparaging statements it made, Allergan’s only argument on this point is that in general, consumers are by definition skeptical of claims made by one competitor about another. (Pl. Br. at 13). In support of this argument, Allergan cites to Am. Prof’l Testing Serv. However, in Am. Prof’l Testing Serv. the customers were students signing up for a one-time bar review course. The present situation is readily distinguishable from Am. Prof’l Testing Serv., in that many of Athena’s customers are medi-spas that purchase RevitaLash in large quantities for ongoing resale to individual customers. Allergan’s false and disparaging statements such as that Athena will have to “pay royalties to Allergan to use their ingredient,” that Athena is being put out of business by Allergan, and that Athena’s products would be imminently seized by the FDA, are especially likely to be relied upon by medi-spas due to their concern that they will be unable to resell their inventory of RevitaLash if the events alleged in Allergan’s statements were true. See e.g., MGA Entertainment, Inc., 2005 WL 5894689, at *2, 8 (Defendant’s motion to strike denied where Plaintiff alleged Defendant “falsely told a United Kingdom retailer that [Plaintiff] was discontinuing one of its lines, in order to make such line less attractive to buyers and thereby attempt to increase sales of the competitive [Defendant] product and improve its own sales, at [Plaintiff's] expense.”); see also Ultronics, Inc. v. Cox Cable of San Diego, Inc., 1991 WL 1302931, at *5-6 (S.D. Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 20 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 10 Cal. 1991) (Defendant’s comment that Plaintiff is a “fly by night and they won’t be here tomorrow” supported showing of anticompetitive conduct in violation of Sherman Act); see also Conceptual Eng’g Assocs., Inc. v. Aelectronic Bonding, Inc., 714 F. Supp. 1262, 1269 (D. RI. 1989). In addition, Athena has adequately alleged that Allergan’s false and disparaging statements were made to buyers without knowledge of the subject matter. Whether a buyer has “knowledge of the subject matter” involves an analysis of whether the buyer would have any way of knowing that the claims made in the statements were false. See TYR Sport Inc. v. Warnaco Swimwear Inc., 2009 WL 1769444, at *7 (C.D. Cal. 2009) (athletes to whom the disparaging statements were made constituted buyers “without knowledge of the subject matter” because they “had no way of knowing that [spokesperson for competitor’s products] claims of a ‘2% advantage’ were false”). Allergan’s argument that Latisse is only available by prescription from physicians who “by definition have ‘knowledge of the subject matter,’” (Pl. Br. at 13), is incorrect because Allergan’s false and disparaging statements concern issues such as patent infringement, regulatory enforcement and Athena’s market longevity, (SAC, ¶51)- subject matter of which physicians would have no knowledge. Walgreen Co. v. AstraZeneca Pharm. L.P., 534 F. Supp. 2d 146 (D.D.C. 2008), cited by Allergan in support of its proposition that medical professionals are persons “knowledgeable of the subject matter,” is inapposite. Unlike the instant case, Walgreen involved disparaging comments regarding the effectiveness and advantages of similar drugs-a subject matter of which medical professionals would naturally be knowledgeable. 534 F. Supp. 2d 146 at 152. Moreover, Allergan’s false and disparaging statements were made not only to Latisse buyers but also to RevitaLash buyers, (SAC, ¶ 31), including medi-spas and the general public, who would have just as little knowledge as physicians of the subject matter of Allergan’s disparaging statements. Athena also adequately alleged that Allergan’s false and disparaging statements have continued for prolonged periods of time. Am. Prof’l Testing Serv., the primary case Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 21 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 11 cited by Allergan in defense of its conduct, “caution[s] . . . against attaching much weight to isolated examples of disparagement.” 108 F.3d at 1152 (emphasis added). Unlike Am. Prof’l Testing Serv., where the disparaging statements were made on a small number of fliers during a two-month period, Athena alleged that Allergan’s representatives began making such disparaging statements at least from the time of the instigation of the first lawsuit against Athena in 2007, and the frequency of these statements has only increased since. (SAC, ¶31). This clearly satisfies the “prolonged period of time” element. See, e.g., TYR Sport Inc. at *7 (“prolonged period of time” element satisfied when disparaging statements had continued for seven months or more). Finally, Athena has adequately alleged that Allergan’s false and disparaging statements are not readily susceptible of neutralization or other offset by Athena. Athena has alleged that Allergan’s disparagement has reached geographically disparate locations in multiple states through its use of a sales representative force many times larger than Athena’s. (SAC, ¶32). It is therefore not possible for Athena to keep abreast of and neutralize this pervasive an attack on Athena and its products. See, e.g., In re Warfarin Sodium Antitrust Litig., 1998 WL 883469 at *11 (D.Del. 1998), rev’d in part, 214 F.3d 395 (3d Cir. 2000) (Plaintiff’s allegations that defendant made false representations in an “extensive publicity campaign” meant that defendant was not entitled, in a motion to dismiss, to an inference that defendant’s statements were readily susceptible to neutralization). Allergan’s conclusory statement that its false and disparaging statements are readily susceptible of neutralization is unsupported and makes no attempt to address or rebut the points raised by Athena in Athena’s SAC, ¶32. 2. Athena Alleged “Monopoly Power” and “Dangerous Probability of Success” The offense of monopolization under §2 of the Sherman Act consists of two elements: “(1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.” United States v. Grinnell Corp., 284 U.S. 563, 570-71 (1966). When Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 22 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 12 considering the sufficiency of allegations related to the relevant market and power in the market, “[t]here is no requirement that these elements of the antitrust claim be plead with specificity.” Newcal Indus., Inc. v. Ikon Office Solution, 513 F.3d 1038, 1045 (9th Cir. 2008). Monopoly power can be shown either by direct or circumstantial evidence. Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1434 (9th Cir. 1995). Proof of “restricted output and supracompetitive prices” is direct evidence of the injurious exercise of monopoly power. Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir.1997) (citation omitted); Rebel Oil Co., 51 F.3d at 1434. Monopoly power can also be proven with circumstantial evidence. To prove monopoly power with circumstantial evidence, a plaintiff must: (1) define the relevant market, (2) show that the defendant owns a dominant share of that market, and (3) show that there are significant barriers to entry and that existing competitors lack the capacity to increase their output in the short run. Rebel Oil Co., 51 F.3d at 1434. In this case, Allergan does not dispute that Athena has adequately alleged the relevant market or the existence of barriers to entry for each of its antitrust counterclaims. Indeed, Allergan’s arguments on monopoly power allegations can be distilled to just three points: (1) that with respect to Athena’s single-market allegations, Athena has not adequately alleged “supracompetitive prices” because Athena has not alleged that Allergan has affected the prices of other firms operating within the PGEEP Market; (2) that with respect to Athena’s dual-market allegations, Athena has not alleged that Allergan possesses market share within the target market, the Retail Eyelash Enhancement Product Market (“REEPM”); and (3) that because Allergan is “prohibited” by regulation from operating in the REEPM, it cannot be liable for monopolizing it. Each of Allergan’s arguments is incorrect and inadequate to support a determination that Athena’s monopoly power allegations are inadequate for purposes of Allergan’s motion.3 3 Many of Allergan‘s arguments on this point are factual in nature. (Pl. Br. at 15) (arguing that Athena “admits” that it does not know Allergan’s precise market share, and discussing the relative life spans of Latisse and RevitaLash). Though Athena has alleged more than adequate facts on this point, it was not required to do so to defeat Allergan’s instant motion. See Areeda & Hovenkamp, ANTITRUST LAW, ¶307 at 122 (3d ed. 2007) (“[A] plaintiff need not plead all of its evidence on the market power question. Indeed, the question of . . . market power is typically left to economic experts, and their reports are rarely made until after a complaint has been filed.”) (citation omitted). Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 23 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 13 a. Athena’s Single-Market Allegations In its SAC, Athena properly alleges Allergan’s market power both through circumstantial and direct means. Nonetheless, in its moving brief, Allergan entirely ignores this fact, instead focusing the whole of its argument on purported deficiencies in Athena’s allegations of direct proof of market power-specifically the “supracompetitive prices” element. (Pl. Br. at 15-18). As such, even if Allergan were correct-which it is not-that Athena had not adequately alleged market power using direct evidence, there is no dispute Athena has nonetheless adequately alleged market power based on Allergan’s dominant market share and the presence of significant entry barriers that allow Allergan to exercise its power without fear of competitive discipline. i. Athena Has Adequately Alleged Via Circumstantial Evidence That Allergan Has Monopoly Power in the PGEEP market First, Athena has adequately alleged the relevant market, which Allergan concedes. The single market defined in Athena’s allegations-the PGEEP-consists of all eyelash enhancement products containing prostaglandins or prostaglandin analogs. (SAC, ¶10). This market captures Allergan’s Latisse product as well as all economic substitutes, as defined by reasonable interchangeability of use for the purpose of enhancing the appearance of eyelashes. (SAC, ¶¶11-13); Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962). Second, Athena has adequately pleaded Allergan’s dominant share of the PGEEP Market. Indeed, Athena alleged that, at the close of the first financial quarter of 2009, Allergan’s sales of Latisse in the United States totaled $8.24 million. (SAC, ¶15). Taken together with Athena’s market share allegations as to the other firms participating in the PGEEP Market, Allergan’s alleged share during the first quarter of 2009 is between 65% and 66%. (Id.). This is an adequate allegation of dominance under Section 2 for either monopoly maintenance or attempted monopolization. See, e.g., Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 924-25 (9th Cir. 1980), cert. denied, 450 U.S. 921 (1981) (65% market share may adequately plead monopoly power for monopoly maintenance claim); Netflix, Inc. v. Blockbuster, Inc., 2006 WL 2458717, at *6 (N.D. Cal. Aug. 22, 2006) (antitrust claimant sufficiently alleged power for monopoly maintenance Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 24 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 14 purposes with allegation that patent infringement plaintiff possessed 65% of market for Internet DVD rentals); Rebel Oil, 51 F.3d at 1438 (44% market share sufficient as a matter of law). It is also clear that Allergan’s share of the PGEEP Market is still growing. (Ex. D, attached 10-Q). And, as with Athena’s relevant market allegations, Allergan does not dispute the adequacy of Athena’s allegations as to Allergan’s dominant market share. Third, Athena has adequately alleged both significant barriers to entry and existing competitors’ inability to increase production in the short run. Athena alleged that a firm contemplating entry into the PGEEP Market would encounter “large sunk costs, the ‘lock in’ effect, high set-up and switching costs, the difficulties and high costs associated with procuring the constituent chemical compounds, and the promise of incurring the high litigation costs necessary to defend against sham patent infringement litigation filed by Allergan.” (SAC, ¶26). Athena also specifically alleged that commercially-available prostaglandin analog in the United States has become increasingly scarce as the result of Allergan’s sham patent infringement suits. (Id.). Thus, Athena alleged that existing competitors cannot easily obtain the only essential input to production of prostaglandin or prostaglandin analog eyelash products-prostaglandin molecules-and potential entrants are dissuaded by the promise of exorbitant legal fees from sham litigation. (Id.). Athena also alleged that Allergan has forced competitors within the PGEEP Market to agree to leave the market as a condition to settling Allergan’s patent infringement claims. (SAC, ¶27). These allegations are more than adequate to state plausibly the existence of barriers to market entry. See, e.g., Image Technical Services, Inc., 125 F.3d at 1207-08 (listing common entry barriers as including patents or other legal licenses, control of essential or superior resources, entrenched buyer preferences, high entry costs and economies of scale) (citation omitted); see also, IGT v. Alliance Gaming Corp., 2007 WL911773 at *9 (D. Nev. 2007) (antitrust defendant’s sham patent infringement suits excluded existing market competitors and stalled entry of new ones). Thus, because Athena has alleged that Allergan “possess[es] [ ] a dominant share of the relevant market that is protected by entry barriers,” United States v. Microsoft, 253 F.3d 34, 51 (D.C. Cir. 2001) (en banc), Athena has adequately pleaded the monopoly power element of its §2 monopolization counterclaims, and Allergan’s argument regarding the monopoly power element fails. Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 25 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 15 Allergan does not (and cannot) dispute that Athena’s allegations regarding dangerous probability of success or monopoly power through circumstantial evidence are in the single market are adequate. ii. Athena Has Adequately Alleged Via Direct Evidence of Supracompetitive Pricing That Allergan Has Monopoly Power in the PGEEP Market In addition to ignoring Athena’s allegations of market power describing Allergan’s dominant share backed with substantial entry barriers, Allergan distorts the law in a bid to avoid adjudication based upon evidence. By alleging that Allergan continues to charge roughly five times as much for its Latisse product as Athena and other firms do for reasonably interchangeable products, Athena has identified precisely the sort of conduct that is the hallmark of the monopolist-the ability to charge supracompetitive prices for a sustained period of time without regard for competitive pressure. (SAC, ¶16). See, e.g., Am. Academic Suppliers, Inc. v. Beckley-Cardy, Inc., 922 F.2d 1317, 1319 (7th Cir.1991) (monopoly power is “the power to charge a price higher than the competitive price without inducing so rapid and great an expansion of output from competing firms as to make the supracompetitive price untenable[ ]”); see also, In re Warfarin Sodium Antitrust Litig., 391 F.3d 516, 528 (3d Cir.2004) (monopoly would permit Dupont to “charge supracompetitive prices for Coumadin”); Areeda & Hovenkamp, ANTITRUST LAW, ¶501 at 111 (3d ed. 2007) (“For antitrust purposes, [ ] market power is the ability (1) to price substantially above the competitive level and (2) to persist in doing so a significant period without erosion by new entry or expansion.”) (emphasis in original). Not one of Allergan’s cited cases concerns proof of market power through direct evidence of the power to control prices. Rather, all involve proof of market power through circumstantial evidence - i.e., via dominant share and substantial barriers to entry. See United States v. Grinnell Corp., 384 U.S. 563, 571 (1966) (inferring monopoly power from 87% market share); Rebel Oil, 51 F.3d at 1434 (noting that Rebel submitted circumstantial evidence of market power, and analyzing the sufficiency of that circumstantial evidence). While Allergan cites a correct definition of monopoly power- Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 26 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 16 “the power to control prices or exclude competition”-its application of it includes a fundamental error. (Pl. Br. at 16-17). Allergan implies that Athena must show that Allergan’s conduct has raised the prices of the products of other firms in the PGEEP Market for Athena to properly allege the monopoly power element of its §2 claims. (Id. at 17). This is false. To the contrary, the essence of monopoly power is a firm’s ability to set a price for its own goods substantially above the competitive level regardless of competitive pressure. See, e.g., Am. Academic Suppliers, Inc., 922 F.2d at 1319. Allergan’s reliance on United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956), is misplaced. The issue in du Pont was market definition. Specifically, du Pont had argued and the district court had determined that the “’relevant market for determining the extent of du Pont’s market control is the market for flexible packing materials.’” Id. at 380. Nowhere in du Pont did the Court pass on or did either party even argue direct evidence of other firms’ supracompetitive pricing. Moreover, du Pont is simply inapposite because the key findings in that case-low market share and the absence of any proof of du Pont’s ability to exclude competitors-clearly distinguish it from the allegations made by Athena in its SAC. b. Athena’s Dual-Market Allegations If consumers have sufficient information regarding the equivalent utility of Latisse and the non-drug prostaglandin analog eyelash products for purposes of enhancing the appearance of eyelashes, then the products are in the same market for antitrust purposes. This is the essence of Athena’s single-market allegations. (SAC, ¶¶10-17). If, however, consumers do not yet understand the functional interchangeability of the products for cosmetic purposes, then Latisse and the non-drug prostaglandin or prostaglandin analog eyelash products exist in separate, though adjacent, markets. This is the essence of Athena’s dual-market allegations. (SAC, ¶¶18-24). Athena alleged that Allergan launched sham patent litigation against firms competing in the adjacent REEPM for the purpose of destroying competition there as a strategy for maintaining its monopoly position with Latisse. (SAC, ¶¶21-23). It argues Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 27 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 17 that because Athena has not alleged that Allergan has a specific share of the REEPM, the dual-market allegations are inadequate. (Pl. Br. at 18-19). Not so. The theory behind Athena’s dual-market allegations is not that Allergan is expanding the scope of its monopoly, but that Allergan is destroying the adjacent market to maintain its dominance - i.e., that it is engaging in anticompetitive conduct designed to maintain its monopoly. Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297 (3d Cir. 2007) is instructive. At issue in Broadcom were the two primary technology paths for mobile telephones, CDMA and UMTS. Id. at 303. Broadcom alleged that Qualcomm viewed competition from the UMTS market as a “long-term threat to its existing monopolies in CDMA technology” and had sought to monopolize the UMTS chipset market through conduct including discriminatory licensing and demanding royalties on parts of UMTS chipsets for which it did not own patents. Id. Although Broadcom alleged that Qualcomm possessed a 90% share of the market for CDMA-path chipsets, id. at 304, Broadcom did not allege Qualcomm’s share of the UMTS market. Id. at 319. The relevant market in the suit, however, was the worldwide market for UMTS chipsets. Id. at 318. The UMTS chipset market was “in its infancy,” and was experiencing “rapid growth.” Id. at 318-19. The Third Circuit held that determining whether a defendant has a “dangerous probability” of successful monopolization is a “fact-sensitive inquiry, in which market share is simply one factor.” Id. (citation omitted). The Broadcom Court found several factors persuasive in concluding that Broadcom had adequately alleged the “dangerous probability” element despite its having omitted any market share allegation. First, the complaint alleged the anticompetitive conduct in considerable detail, and described their anticompetitive effects. Id. Also, Broadcom alleged that Qualcomm’s actions had foreclosed its entry into the UMTS chipset market Id. Finally the Broadcom Court noted that the target market was experiencing “rapid growth,” and that Qualcomm was extending its anticompetitive practices into that emerging market. Id. Broadcom thus speaks to the specific scenario presented by Athena’s dual-market allegations: the existence of two adjacent markets, one over which the monopolist already Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 28 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 18 possesses dominance, and a second target market that the monopolist views as a threat to its position and therefore seeks to destroy. In Broadcom Qualcomm already possessed a 90% share of the CDMA chipset market and sought to preempt a threat to its CDMA monopoly from the burgeoning UMTS market. In the instant case, Athena has alleged that Allergan possesses 100% of the EPDM, and is launching sham patent litigation against firms in the adjacent REEPM in order to eliminate the threat from their products in that market. (SAC, ¶¶21-24). Moreover, just as in Broadcom, Athena alleged how Allergan has used sham patent litigation and its threat to prevent new firms from entering as well as to force participants in the REEPM to exit permanently . (SAC, ¶¶26-27). Like the UMTS market at issue in Broadcom, the REEPM is a relatively new market. Finally, Broadcom concerned a monopolist whose power to control prices and exclude competitors derived at least in part from patents, and circumstances where it wielded those patents as a club, just as Athena has alleged Allergan has done. (SAC, ¶¶22, 26-30). In support of its assertion that it cannot be held liable unless it has some share of the REEPM, Allergan cites several cases. Upon reading, however, it is clear that each case is inapposite. Indeed, not a single one of the cases cited by Allergan deals with a monopoly maintenance claim involving products in two markets. Allergan cites E. Portland Imaging Ctr., P.C. v. Providence Health Sys.-Or., 2008 U.S. App. LEXIS 10984 (9th Cir. May 20, 2008), for the proposition that Athena must allege Allergan’s market share in the target market to withstand a motion to dismiss. (Pl. Br. at 19). However, E. Portland Imaging does not stand for this proposition, and is itself inapposite. E. Portland Imaging is an unpublished case in which the issue on appeal was a grant of summary judgment, not a motion to dismiss. E. Portland Imaging Ctr., P.C., 2008 U.S. App. LEXIS 10984, at *1. Moreover, the only substantive issue was whether the plaintiff had adequately pleaded entry barriers-not market share. The issue of defendants’ participation within the relevant market was not discussed at all. Id. Allergan also cites Mercy-Peninsula Ambulance, Inc. v. County of San Mateo, 791 F.2d 755 (9th Cir. 1986), but that case principally dealt with whether the defendant-a Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 29 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 19 municipality-enjoyed immunity from federal antitrust laws under a state statute. Id. at 757-58. In the final two paragraphs, the Mercy-Peninsula Court addressed the plaintiff’s Sherman Act §2 claim that the defendant should be held liable for conduct occurring prior to the passage of the state statute. Id. at 759. The court held that, because the defendant municipality “performs no health care services,” it was not a competitor in any market, and could not be charged with using its position to exclude competitors. Id. (emphasis added). Also cited by Allergan, Portney v. CIBA Vision Corp., 593 F. Supp. 2d 1120 (C.D. Cal. 2008), is inapposite for similar reasons. In Portney, the relevant market was for “multifocal contact lenses” in the United States. Id. at 1126-27. The Portney Court held that, because the antitrust defendant “did not himself produce or sell contact lenses or otherwise compete in the contact lens market,” and was “an individual without any manufacturing or sales capacity, and no market share whatsoever,” the antitrust defendant was not a “competitor.” Id. at 1128 (emphasis added). Both Mercy-Peninsula and Portney dealt with a single relevant market, and a defendant who did not compete at all. In our case, Allergan is unlike the county defendant in Mercy-Peninsula or the individual patentee/licensor in Portney, in that Allergan competes in the Eyelash Prescription Drug Market (“EPDM”)-a market closely adjacent to the REEPM target market - and is using the baseless patent claims that contribute, in part, to its monopoly power in the EPDM to eliminate a threat to its monopoly emanating from eyelash enhancement products currently competing in the REEPM. As such, neither Mercy- Peninsula nor Portney controls the instant case. In fact, none of the cases cited by Allergan deals with the issue presented here. In each of those cases, the focus was on whether monopoly power can be inferred from market participation, such that the monopolist can exclude competition and charge supracompetitive prices. However, a patent holder that is illegally wielding its patents for anticompetitive purposes can exercise market power in a target market just as surely as a market participant. Cf., Illinois Tool Works v. Independent Ink, Inc., 547 U.S. 28, 42-43 (2006); United States Department of Justice and Federal Trade Commission, Antitrust Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 30 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 20 Guidelines for the Licensing of Intellectual Property, § 4.1.1 (1995) (when a licensor and licensee are in a vertical relationship, the agencies will look to see whether the particular licensing arrangement “may harm competition among entities in a horizontal relationship at either the level of the licensor or the licensees, or possibly in another relevant market”; no requirement that the licensor compete in an affected market). Also, Allergan does actually compete. As Athena’s allegations state, Allergan has, in less than a year, managed to realize revenues from its Latisse product that dwarf those of other prostaglandin or prostaglandin analog eyelash product sellers. (SAC, ¶16). By dint of its sham patent litigation, Allergan asserts the power to clear out the target market of purported infringers. That is essentially Athena’s claim-that it can and will shut the REEPM down entirely. Finally, Allergan argues that Athena’s dual-market allegations are inadequate because Allergan is prohibited by law from selling Latisse in the REEPM. (Pl. Br. at 18- 19). In support of this argument, Allergan cites Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., 113 F.3d 405 (3d Cir. 1997). The issue in Schuylkill was whether the plaintiff had suffered antitrust injury and thus had standing under Section 4 of the Clayton Act to maintain a private cause of action for damages arising under Section 2. Id. at 413- 15. The Schuylkill Court answered that question in the negative, holding that a plaintiff who does not herself participate in the relevant market does not have standing under Section 4 of the Clayton Act. Id. at 415. Schuylkill is therefore a case that stands for the proposition that an antitrust plaintiff must participate in the relevant market in order to have suffered antitrust injury and have standing under Clayton Act Section 4. It is a case about failure to plead antitrust injury, not about monopoly power. Because Allergan’s standing under Clayton Act Section 4 is plainly irrelevant, and because Athena has properly alleged that it does participate in the target REEPM, Schuylkill is inapposite. 3. Athena Adequately Alleged Antitrust Injury An antitrust plaintiff must prove its injury flowed from the anticompetitive acts: Plaintiffs must prove antitrust injury, which is to say injury of Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 31 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 21 the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful. The injury should reflect the anti-competitive effect of the violation or of anticompetitive acts made possible by the violation. It should, in short, be “the type of loss that the claimed violations . . . would be likely to cause.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977) (emphasis in original). “If the plaintiff’s injury is directly related to the competitive evil that makes a practice unlawful, then that harm is antitrust injury.” Areeda & Hovenkamp, ANTITRUST LAW, ¶391a at 320 (3d ed. 2007). In the SAC, Allergan’s anticompetitive conduct “harm[ed] the competitive process and thereby consumers in the relevant markets . . . if Allergan’s anticompetitive behavior is not enjoined, competition from retail prostaglandin eyelash products will be eliminated, and consumers will be forced to pay higher prices than they would in a competitive market [].” (SAC, ¶36). Moreover, Athena and other competitors offering prostaglandin or prostaglandin analog eyelash products in the PGEEP Market or the REEPM “have lost substantial sales and revenues as a result of Allergan’s monopolizing conduct.” Id. Thus, Athena has lost “sales and revenues” as a result of Allergan’s conduct. (SAC, ¶36). The conduct that harmed Athena and the other remaining prostaglandin or prostaglandin analog eyelash product manufacturers is the very same conduct that has also harmed consumers with reduced output. For instance, Allergan’s sham litigation tactics have already reduced product output by forcing some competitors to leave the market as a condition of settlement. (SAC, ¶27). In addition, Allergan’s bad-faith lawsuits forced prostaglandin or prostaglandin analog molecule manufacturing firms to leave the market. (SAC, ¶26). Because these injuries stem directly from competition-reducing aspects of Allergan’s conduct, Athena has adequately alleged antitrust injury. See Atl. Ritchfield Co. v. USA Petroleum, Co., 495 U.S. 328, 344 (1990). In addition, Athena alleged injury in the form of the costs it has incurred in order to defend against Allergan’s sham litigation-more than $1.2 million over the past two- plus years. (SAC, ¶37). Allergan’s sham lawsuits are a barrier to entry, and excluded Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 32 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 22 competitors means reduced output, as well as injuries to consumers in the forms of fewer choices, reduced quality and higher prices. See Amgen, Inc. v. F. Hoffman-La Roche, Ltd., 480 F. Supp. 2d 462, 468-69 (D. Mass. 2007). An antitrust counterclaimant’s litigation costs qualify as valid antitrust injury where the antitrust plaintiff also has other damages that that are related to the decrease in competition. See Ostrofe v. H.S. Crocker Co., Inc., 740 F.2d 739, 751 (9th Cir. 1984) (Kennedy, J. dissenting) (citing Handgards, Inc. v. Ethicon, Inc., 743 F.2d 1282, 1296-97 (9th Cir. 1984) (awarding cost of defending sham patent infringement suit in addition to lost profits)); see also Rickards v. Canine Eye Registration Foundation, 783, F.2d 1329, 1335 (9th Cir. 1986); CVD, Inc. v. Raytheon Co., 769 F.2d 842, 858 (1st Cir. 1985); Amgen, 480 F. Supp. 2d at 468-69 (denying motion to dismiss and holding litigation expenses incurred by Walker Process counterclaim are antitrust injury). Athena clearly has alleged other damages related to the decrease in competition, such as lost sales and revenues. (SAC, ¶36). Thus, Athena has properly alleged antitrust injury. B. Athena Has Stated a Claim for Unfair Competition Under the Lanham Act Federal Rule of Civil Procedure 9(b) does not apply to Athena’s counterclaim. Thus, Athena’s counterclaim should be judged by the ordinary notice-pleading standard. Even if Rule 9(b) did apply, however, Athena’s pleading would still pass muster. Accordingly, the Court should deny Allergan’s Motion to Dismiss the Unfair Competition Claim. 1. Rule 9(b) Does Not Apply to Athena’s Unfair Competition Claim Although Allergan contends that Rule 9(b) governs the pleading of Athena’s unfair competition claim, the Ninth Circuit has never held that the rule applies to claims under the Lanham Act. See Pom Wonderful LLC v. Ocean Spray Cranberries, Inc., 2009 U.S. Dist. LEXIS 64108, at *23 (C.D. Cal. July 16, 2009) (“The Ninth Circuit has not determined that Rule 9(b) applies to Lanham Act claims, although some district courts have applied this standard.”).4 At most, Athena must meet an intermediate pleading 4 A Lanham Act claim is not categorically held to the stringent Rule 9(b) standard. See, e.g., In re Century 21-RE/MAX Real Estate Adver. Claims Litig., 882 F. Supp. 915, 927 (C.D. Cal. 1994) (Lanham Act claim is not subject to the strict pleading Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 33 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 23 standard that is weaker than the Rule 9(b) requirement because Athena alleges that the false statements were made to third parties, and therefore Athena lacks knowledge of more granular details at this early stage. See 5A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1298 (3d ed. 2004) (“When the pleader is asserting that third persons have been defrauded, the pleader may lack sufficient information to be able to detail the claim at the outset of the action and less particularity should be required.”); Corley v. Rosewood Care Ctr., Inc., 142 F.3d 1041, 1051 (7th Cir. 1998) (“[The] particularity requirement of Rule 9(b) must be relaxed where the plaintiff lacks access to all facts necessary to detail his claim, and that is most likely to be the case where [he] alleges a fraud against one or more third parties.”). Also, less particularity is required since Allergan representatives made the false statements to a number of third-party Athena customers, and thus the statements are well within Allergan’s knowledge. See Transcription Communs. Corp. v. John Muir Health, 2009 U.S. Dist. LEXIS 25151, at *38-39 (N.D. Cal. Mar. 13, 2009) (finding adequate pleading, although the plaintiff did not specify “time and person details,” because defendants had knowledge of the communications). 2. The Unfair Competition Claim Meets Rule 9’s Pleading Standard Even under Rule 9(b), however, Athena’s pleading meets that heightened standard by providing the “who, what, when, where and how” of the alleged misconduct. See Brosnan v. Tradeline Solutions, Inc., 2009 U.S. Dist. LEXIS 48262, at *13 (N.D. Cal. June 5, 2009) (“Courts have explained [Rule 9(b)] as requiring that claims of fraud include the ‘who, what, when, where and how’ of the alleged misconduct.”) (citations omitted). Instead of generally naming the entire Allergan corporation, the SAC identifies requirements of Rule 9 fraud claims-- claim need only be sufficiently detailed to give party charged notice of the nature of the alleged wrongful act) (citation omitted); Wellnx Life Sciences, Inc. v. Iovate Health Sciences Research, Inc., 516 F. Supp. 2d 270, 283 n.2 (S.D.N.Y. 2007) (“Rule 8(a) . . . and not Rule 9(b) . . . applies to false advertising claims under the Lanham Act.”); Syncor Int’l Corp. v. Newbaker, 12 F. Supp. 2d 781, 783-84 (W.D. Tenn. 1998) (applying Rule 8(a) to a Lanham Act claim based on false implications); John P. Villano v. CBS, Inc., 176 F.R.D. 130, 131 (S.D.N.Y. 1997) (“[A] claim of false advertising under § 1125 . . . may not be the subject of any heightened pleading requirement.”) (citation omitted); Summit Tech. v. High-Line Medical Instruments, Co., 933 F. Supp. 918, 937 (C.D. Cal. 1996) (applying Rule 8(a) to a trademark infringement and false advertising claim under the Lanham Act); Brandt Consol., Inc. v. Agrimar Corp., 801 F. Supp. 164, 170 (C.D. Ill. 1992) (applying Rule 8(a) to Lanham Act claim based on false representations). Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 34 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 24 Allergan’s sales representatives as those who have been making the false and disparaging comments to Athena’s customers and the general public. (SAC, ¶¶31-32). The SAC provides what specific false statements the representatives have made, including, for example, the statement that RevitaLash would imminently be “seized by the FDA.” (Id., ¶31). Athena explains when these statements have been made, alleging that they began at the instigation of the first patent lawsuit and are still ongoing. The SAC states where the statements have been made - in “geographically disparate locations including Dallas and Austin, Texas, Arizona, Georgia, and San Francisco, Costa Mesa and Ventura, California.” (Id., ¶32). Finally, Athena describes how representatives have been disseminating the false comments - “in the course of marketing [Allergan’s] own products (including Latisse).” (Id., ¶31). Athena’s allegations are more than sufficient to satisfy Rule 9(b)’s standard. See United States v. Chapman Univ., 2006 U.S. Dist. LEXIS 53686, at *26 (C.D. Cal. May 23, 2006) (finding adequate pleading under Rule 9(b) where plaintiffs alleged “the who, Chapman, the when, the past ten years, and the what, [Institutional Participation Agreements].”). Specifically, the allegations do not fail to “give [Allergan] notice of the particular conduct . . . so that [Allergan] can defend against the charge.” Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1108 (9th Cir. 2003); see also Wright & Miller, supra (“Perhaps the most basic consideration for a federal court in making a judgment as to the sufficiency of a pleading for purposes of Rule 9(b) . . . is the determination of how much detail is necessary to give adequate notice to an adverse party and enable that party to prepare a responsive pleading.”). Athena has also articulated “what is false and misleading about [the] statement[s], and why [they are] false.” Vess, 317 F.3d at 1106. Athena specifically alleges that it does not infringe Allergan’s patents. (SAC, ¶6). Thus, statements by Allergan’s representatives that Athena’s products infringe Allergan’s patents and that Athena has to pay royalties to Allergan are false. In addition, Athena has not yet been “put out of business”; Athena notes that although its revenues have declined, the company made approximately $3 million in the first quarter of 2009. (SAC, ¶15). Finally, despite Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 35 of 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS 25 Allergan representatives’ comments that RevitaLash will be seized by the FDA, Athena clearly affirms in the SAC that “RevitaLash is a cosmetic product,” (SAC, ¶8) (emphasis added), not a prescription-only drug like Latisse, and thus it is misleading at best to state the product will be seized. 3. Alternatively, Athena Should Be Granted Leave to Amend If Rule 9(b) applies to Athena’s counterclaim and the Court determines that even more specificity is yet required, Athena requests that the Court dismiss without prejudice and grant Athena leave to amend. “[D]ismissals for failure to comply with Rule 9(b) should ordinarily be without prejudice.” Vess, 317 F.3d at 1108. If Athena’s Seventh Cause of Action is dismissed, Athena requests leave to amend. Athena can plead the cause of action with even more particularity if the Court so requires. The Ninth Circuit has consistently held that leave to amend should be freely granted “when justice so requires.” Lopez v. Smith, 203 F.3d 1122, 1128 (9th Cir. 2000); see also Bly-Magee v. California, 236 F.3d 1014, 1019 (9th Cir. 2001) (when dismissing a claim for failure to meet the Rule 9(b) standard, “leave to amend should be granted unless the district court determines that the pleading could not possibly be cured by the allegation of other facts”) (internal quotation marks omitted). Here despite having amended previously, this is Athena’s first opportunity to have a ruling from the Court as to what will be required. It must be given at least one opportunity to comply with such a ruling. IV. CONCLUSION For the foregoing reasons, the Court should deny the Motion or, alternatively, grant Athena leave to amend. Dated: August 31, 2009 GRAVES LAW OFFICE, P.C. /s/Philip J. Graves Philip J. Graves John Walton Attorneys for Defendants ATHENA COSMETICS, INC., PHARMA TECH INTERNATIONAL, INC. and NORTHWEST COSMETIC LABORATORIES, LLC Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 36 of 38 PROOF OF SERVICE 1 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 PROOF OF SERVICE I am over the age of eighteen years and not a party to this action. My business address is Graves Law Office, P.C., 12121 Wilshire Boulevard, Suite 775, Los Angeles, California 90025. On August 31, 2009, I served the following document entitled ATHENA COSMETICS, INC.’S OPPOSITION TO ALLERGAN INC.’S MOTION TO DISMISS ATHENA’S THIRD, FOURTH, FIFTH, SIXTH AND SEVENTH COUNTERCLAIMS on all interested parties to this action in the manner prescribed as follows: See attached list. _CM/ECF: I electronically transmitted the above document to the Clerk’s Office using the CM/ECF System for filing, which transmits a Notice of Electronic Filing to the CM/ECF registrants listed above. MAIL: I placed true and correct copies of the document(s) in sealed envelope(s) addressed to the above addressee(s). I am readily familiar with Graves Law Office, P.C.’s practice for collecting and processing of correspondence for mailing with the United States Postal Service, said practice being that, in the ordinary course of business, correspondence with postage fully prepaid is deposited with the United States Postal Service the same day as it is placed for collection. FAX: I caused the within document to be transmitted via facsimile transmission to the above addressee(s) at the above facsimile numbers before 5:00 p.m. on the above date. X EMAIL:I transmitted true copies of the within document (with exhibits) electronically by means of email to the above addressee(s) at the above email address(es). HAND: I caused the within document to be hand-delivered to the above addressee(s) at the above address(es). FEDEX: I caused the within document to be delivered by Federal Express addressee(s) at the above address(es). I declare that I am employed by a member of the bar at whose direction such service was made. Executed on August 31, 2009, at Los Angeles, California. /s/ Tiphanie Sparks Tiphanie Sparks Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 37 of 38 PROOF OF SERVICE 2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Attorneys for Plaintiffs/Counterclaimants ALLERGAN, INC. and MURRAY A. JOHNSTONE Jeffrey T. Thomas T. Kevin Roosevelt GIBSON, DUNN & CRUTCHER LLP 3161 Michelson Drive Irvine, California 92612-4412 Facsimile: (949) 451-4220 kroosevelt@gibsondunn.com jtthomas@gibsondunn.com Attorneys for Defendant LIFETECH RESOURCES LLC Karen D. McDaniel Elizabeth A. Zondes MERCHANT AND GOULD 3200 IDS Center 80 South Eighth Street Minneapolis, MN 55402 kmcdaniel@merchantgould.com ezidones@merchantgould.com Attorneys for Defendant LIFETECH RESOURCES LLC Martin C. Washton Amanda Rose Washton TOWLE DENISON SMITH LLP 10866 Wilshire Boulevard, Suite 500 Los Angeles, CA 90024 mwashton@tdstlaw.com awashton@tdstlaw.com Attorneys for Defendants PETER THOMAS ROTH LABS LLC PETER THOMAS ROTH INC. Bryan J. Sinclair MINTZ LEVIN COHN FERRIS GLOVSKY & POPEO PC 5 Palo Alto Square - 6th Floor 3000 El Camino Real Palo Alto, CA 94306 bsinclair@mintz.com Attorneys for Defendants METICS LLC PRODUCT INNOVATIONS LLC STELLA INTERNATIONAL LLC COSMETIC ALCHEMY LLC Jeffrey L. Weiss WEISS MOY & HARRIS 4204 N. Brown Ave. Scottsdale, AZ 85251 jweiss@weissiplaw.com Case 8:07-cv-01316-JVS-RNB Document 359 Filed 08/31/2009 Page 38 of 38