Kay-Lu Llc et al v. Anigan Inc. et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM with Brief In Support

N.D. Ga.May 31, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION KAY-LU LLC; FERAYCO, INC.; MEDIHEALTH 1 PTY LTD; VITAL JOURNEY LIMITED; SHOP MONKEE INC.; AND SHENZHEN ZHONGTUOFU TECNOLOGY CO, LTD, Plaintiffs, v. ANIGAN, INC., MS. AI CHEN TEO, LOUIS TAK WAI CHAN, LOU CHAN DESIGN INC. Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO. 1:17-cv-00056-TCB DEFENDANTS’ MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Defendants Anigan, Inc., Ms. Ai Chen Teo, Louis Chan, and Lou Chan Design, Inc. (collectively, “Defendants”), through counsel and pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, move to dismiss counts I-IV and VII of Plaintiffs’ second amended complaint in this matter for failure to state a claim on which relief can be granted. The grounds for this motion are set forth more fully in Defendants’ supporting Brief filed contemporaneously herewith. Case 1:17-cv-00056-TCB Document 18 Filed 05/31/17 Page 1 of 4 2 WHEREFORE, Defendants pray that their motion be granted and that the case be dismissed. Respectfully submitted this the 31st day of May, 2017. /s/ Preston H. Heard Preston H. Heard GA Bar No. 476319 WOMBLE CARLYLE SANDRIDGE & RICE, LLP 271 17th Street, NW, Suite 2400 Atlanta, GA 30363 Telephone: (404) 872-7000 Fax: (404) 879-2966 Email: pheard@wcsr.com Ronald C. Finley (pro hac vice) Alfredo A. Bismonte (pro hac vice) Beck, Bismonte & Finley, LLP 150 Almaden Blvd., 10 th Floor San Jose, CA 95070 Telephone (408) 938-7900 Fax: (408) 938-0790 Email: rfinley@beckllp.com abismonte@beckllp.com Attorneys for Defendants Case 1:17-cv-00056-TCB Document 18 Filed 05/31/17 Page 2 of 4 3 CERTIFICATE OF COMPLIANCE I hereby certify that the foregoing was prepared using Times New Roman, 14-point font, and otherwise conforms to the requirements of Local Rule 5.1. /s/ Preston H. Heard Preston H. Heard Case 1:17-cv-00056-TCB Document 18 Filed 05/31/17 Page 3 of 4 4 CERTIFICATE OF SERVICE I certify that on May 31, 2017, I filed the foregoing DEFENDANTS’ MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM using the Court’s ECF filing system, which will send a copy to all counsel of record. /s/ Preston H. Heard Preston H. Heard Case 1:17-cv-00056-TCB Document 18 Filed 05/31/17 Page 4 of 4 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION KAY-LU LLC; FERAYCO, INC.; MEDIHEALTH 1 PTY LTD; VITAL JOURNEY LIMITED; SHOP MONKEE INC.; AND SHENZHEN ZHONGTUOFU TECNOLOGY CO, LTD, Plaintiffs, v. ANIGAN, INC., MS. AI CHEN TEO, LOUIS TAK WAI CHAN, LOU CHAN DESIGN INC. Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO. 1:17-cv-00056-TCB DEFENDANTS’ BRIEF IN SUPPORT OF MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 1 of 28 i Table of Contents BACKGROUND ............................................................................................................................ 2 ARGUMENT .................................................................................................................................. 3 I. Legal Standard ..................................................................................................................... 3 II. Plaintiffs Fail to State a Claim for “Wire Fraud” ............................................................. 4 III. Plaintiffs Fail to State a Claim for RICO Violations ....................................................... 5 A. Plaintiffs Fail to Allege Racketeering Activity ................................................................ 7 1. Plaintiffs Fail to Allege Wire Fraud or Mail Fraud ............................................................. 7 2. The Alleged “Fraud on the USPTO” is not a RICO Violation ............................................ 8 3. Communications with Amazon are not RICO Violations ................................................... 9 4. Internet Posts are not RICO Violations ............................................................................. 11 IV. Plaintiffs Fail to State a Claim For a Sherman Act Violation ........................................ 12 1. Plaintiffs Fail to Allege a Contract, Combination, or Conspiracy ..................................... 13 2. Plaintiffs Fail to Allege an Unreasonable Restraint of Trade ............................................ 15 V. Plaintiffs Fail to State a Claim for Fraud ....................................................................... 17 1. Plaintiffs’ Claim for “Inventor’s Fraud” is Preempted ...................................................... 17 2. Plaintiffs Fail to State a Claim for Fraud ........................................................................... 18 VI. Plaintiffs Fail to State a Claim for “Conspiracy” ........................................................... 19 CONCLUSION ............................................................................................................................. 20 Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 2 of 28 ii Table of Authorities Cases Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503 (1994) ............................................................................................19 Ashcroft v. Iqbal, 556 U.S. 662 (2009) .................................................................................. 4, 14, 20 Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990) .............................................................................................16 Bajorat v. Columbia-Breckenridge Dev. Corp., 944 F. Supp. 1371 (N.D. Ill. 1996) ......................................................................... 5 Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) .................................................................................... 4, 6, 20 Best Jewelry Mfg. Co. v. Reed Elsevier Inc., 780 S.E.2d 689 (2015) ..........................................................................................20 Bivens Gardens Office Bldg., Inc. v. Barnett Banks of Florida, Inc., 140 F.3d 898 (11th Cir. 1998) ................................................................................ 9 Bonner v. City of Prichard, Ala., 661 F.2d 1206 (11th Cir. 1981) .............................................................................. 5 Borman’s, Inc. v. Great Scott Super Markets, Inc., 433 F. Supp. 343 (E.D. Mich. 1975) ....................................................................12 Cadlo v. Owens-Illinois, Inc., 125 Cal. App. 4th 513 (Cal. App. 2004) ..............................................................17 Conley v.Gibson, 355 U.S. 41 (1957) ................................................................................................. 4 Cooper v. Blue Cross & Blue Shield of Florida, Inc., 19 F.3d 562 (11th Cir. 1994) .................................................................................. 8 Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) .............................................................................................13 Dowis v. Mud Slingers, Inc., 621 S.E.2d 413 (2005) ..........................................................................................17 Drummond v. McKinley, 15 S.E.2d 535 (1941) ............................................................................................19 Feldman v. Am. Dawn, Inc., 849 F.3d 1333 (11th Cir. 2017) ............................................................................20 FMC Corp. v. Manitowoc Co., 654 F. Supp. 915 (N.D. Ill. 1987) .........................................................................15 Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 3 of 28 iii In re Netflix Antitrust Litig., 506 F. Supp. 2d 308 (N.D. Cal. 2007) ..................................................................18 Jackson v. BellSouth Telecommunications, 372 F.3d 1250 (11th Cir. 2004) ..................................................................... 10, 12 Jones v. Childers, 18 F.3d 899 (11th Cir.1994) ................................................................................... 6 Juneau Square Corp. v. First Wisconsin Nat. Bank of Milwaukee, 624 F.2d 798 (7th Cir. 1980) ................................................................................13 Mendez Internet Mgmt. Servs., Inc. v. Banco Santander de Puerto Rico, 621 F.3d 10 (1st Cir. 2010) ..................................................................................11 Napper v. Anderson, Henley, Shields, Bradford & Pritchard, 500 F.2d 634 (5th Cir. 1974) .................................................................................. 5 Papasan v. Allain, 478 U.S. 265 (1986) ............................................................................................... 4 Procaps S.A. v. Patheon, Inc., 845 F.3d 1072 (11th Cir. 2016) ..................................................................... 15, 16 Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., 75 F.3d 1568 (Fed. Cir. 1996) ....................................................................... 10, 18 Raney v. Allstate Ins. Co., 370 F.3d 1086 (11th Cir. 2004) .............................................................................. 6 RSA Media, Inc. v. AK Media Grp., Inc., 260 F.3d 10 (1st Cir.2001) ...................................................................................16 S. Snow Mfg. Co. v. SnoWizard Holdings, Inc., 912 F. Supp. 2d 404 (E.D. La. 2012), aff’d, 567 F. App’x 945 (Fed. Cir. 2014) 10 Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479 (1985) ............................................................................................... 6 Semiconductor Energy Lab. Co. v. Samsung Elecs. Co., 204 F.3d 1368 (Fed. Cir. 2000) ..........................................................................8, 9 Spanish Broad. Sys. of Fla., Inc. v. Clear Channel Commc’ns, Inc., 376 F.3d 1065 (11th Cir. 2004) ..................................................................... 15, 16 Sterling Merch., Inc. v. Nestle, S.A., 656 F.3d 112 (1st Cir. 2011) ................................................................................16 Stop & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57 (1st Cir. 2004) ..................................................................................17 Tiftarea Shopper, Inc. v. Georgia Shopper, Inc., 786 F.2d 1115 (11th Cir. 1986) ..................................................................... 13, 15 U.S. ex rel. Costner v. United States, 317 F.3d 883 (8th Cir. 2003) .................................................................................. 8 Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 4 of 28 iv Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369 (Fed. Cir. 2005) ............................................................................18 United States v. Ward, 486 F.3d 1212 (11th Cir. 2007) .............................................................................. 7 Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172 (1965) .............................................................................................17 Williams v. Mohawk Indus., Inc., 465 F.3d 1277 (11th Cir. 2006) ................................................................. 6, 12, 18 Statutes 15 U.S.C. § 1 ............................................................................................................12 18 U.S.C. § 1343 ....................................................................................................4, 7 18 U.S.C. § 1962(c) ................................................................................................... 5 18 U.S.C. §1961 ......................................................................................................... 6 28 U.S.C. § 1295(a)(1) ............................................................................................... 8 Rules Fed. R. Civ. Proc 9(b) ..........................................................................................7, 17 Federal Rule of Civil Procedure 12(b)(6) ................................................... 1, 3, 4, 12 Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 5 of 28 1 Upon reviewing Defendants Anigan Inc. (“Anigan”) and Ai Chen Teo’s motion to dismiss (Dkt. No. 9-1), Plaintiffs recognized this Court lacks personal jurisdiction over those Defendants for those claims. Rather than opposing the motion, Plaintiffs instead amended their complaint to allege four new causes of action and to sue two additional Defendants, Ai Chen Teo’s husband and his business. But Plaintiffs’ Second Amended Complaint (“SAC”) (Dkt. No. 17) contains almost no new factual allegations. Instead, Plaintiffs attempt to shoehorn the same old facts into new legal theories. Plaintiffs’ new counts for “Wire Fraud,” “Conspiracy,” “RICO,” “Sherman Antitrust,” are bogus, and simply meant to drag Defendants (who have never set foot in Georgia) to Georgia for Plaintiffs’ litigation advantage. Plaintiffs’ attempts to stretch the RICO statute (meant to apply to organized crime) and the Sherman Act (meant to apply to market manipulation conspiracies), to a married couple running small businesses out of their home must fail. The SAC fails to state a claim on which relief can be granted for the causes of action designated “Wire Fraud,” “Conspiracy,” “RICO,” “Sherman Antitrust,” and “Inventor’s Fraud.” Accordingly, those claims should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6). 1 1 Defendants are concurrently filing a motion to dismiss all claims in this matter for lack of personal jurisdiction and improper venue. Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 6 of 28 2 BACKGROUND Defendants Louis Chan and Ai Chen Teo are a married couple who reside in San Ramon, a city in California’s Northern District. (Dkt. No. 17 ¶¶10, 13). Anigan, Inc. is a California corporation, whose sole place of business is the couple’s San Ramon home. Anigan is engaged in the business of selling menstrual cups and related products. (Dkt No. 17 ¶9, 55) Lou Chan Design is a California corporation whose sole place of business is the couple’s San Ramon home. (Dkt. No. 17 ¶14). Lou Chan Design is engaged in the business of providing marketing services. Plaintiffs are mostly resellers of menstrual cups who sell through Amazon.com. Ferayco, Inc. is a California corporation with its business in California. Medihealth 1 Pty Ltd is an Australian corporation - where it does business. Vital Journey Limited is a New Zealand company - doing business there. Shop Monkee Inc. is a Canadian company - where it does its business. Kay-lu LLC (“Kay-lu”) is a Georgia company. (Dkt. No. 17 ¶¶3-7). In addition, Plaintiff ShenZen ZhongTuoFu Technology Co., LTD (“ShenZen”) is a Chinese company that makes menstrual cup molds and alleges that Defendants have not paid them on a contract for the purchase of a mold. (Dkt. No. 17 ¶8). Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 7 of 28 3 The reseller Plaintiffs claim Defendants damaged them by informing Amazon that Defendants have a design patent covering certain menstrual cup designs. (Dkt. No. 17 ¶172). After being so informed, Amazon allegedly took down some of Plaintiffs’ listings, preventing Plaintiffs from selling their products through the Amazon website. Based on those alleged facts, Plaintiffs’ original complaint included counts for patent declaratory relief and interference with business relations. (Dkt. No. 1 ¶¶95-108). As stated in Defendants’ motion to dismiss or transfer the original complaint (Dkt. No. 9-1), this Court lacks personal jurisdiction over Defendants with regard to those claims. In an attempt to manufacture personal jurisdiction, Plaintiffs now assert that Defendants’ conduct amounts to criminal wire fraud, racketeering violations under RICO, and Sherman Act antitrust violations. Those statutes prevent specific wrongs, much of which is criminal conduct. The facts that Plaintiffs can allege in good faith do not support such claims, and those causes of action should be dismissed under Federal Rule of Civil Procedure 12(b)(6). ARGUMENT I. Legal Standard On a 12(b)(6) motion, the Supreme Court has done away with the old rule Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 8 of 28 4 that Plaintiff can “prove no set of facts … which would entitle him to relief.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 561 (2007) (quoting Conley v.Gibson, 355 U.S. 41, 45–46 (1957). Instead, pleadings must now meet the “plausibility standard,” under which plaintiff’s “obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986). A complaint does not “suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557). For each of their new causes of action, Plaintiffs fail to allege facts beyond the “naked assertion” that Defendants have violated the law. That is not enough — accordingly the claims should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(6). II. Plaintiffs Fail to State a Claim for “Wire Fraud” Plaintiffs’ first count is a claim for “Wire Fraud.” (Dkt. No. 17 at 38-39). Wire fraud is a crime. 18 U.S.C. § 1343. There is no private right of action for wire fraud. Napper v. Anderson, Henley, Shields, Bradford & Pritchard, 500 F.2d Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 9 of 28 5 634, 636 (5th Cir. 1974) (no private right of action under wire fraud statute) 2 ; Bajorat v. Columbia-Breckenridge Dev. Corp., 944 F. Supp. 1371, 1378 (N.D. Ill. 1996) (dismissing wire fraud count with prejudice, and collecting cases confirming no private right of action). Accordingly, Plaintiffs’ count I for wire fraud should be dismissed. 3 III. Plaintiffs Fail to State a Claim for RICO Violations Plaintiffs’ third count is a claim for violation of the Racketeer Influenced Corrupt Organization Act (RICO) under 18 U.S.C. § 1962(c). (Dkt. No. 17 ¶159). RICO was “initially enacted to fight organized crime.” Ray v. Spirit Airlines, Inc., 836 F.3d 1340, 1348 (11th Cir. 2016). While the Supreme Court has stated that is not RICO’s sole purpose (Id.), one can hardly imagine a case farther from that goal than this one. Plaintiffs’ attempt to stretch RICO’s racketeering provisions to cover the conduct alleged here simply goes too far. “[I]n order to establish a federal civil RICO violation under § 1962(c), the plaintiffs ‘must satisfy four elements of proof: (1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.’” Williams v. Mohawk Indus., Inc., 2 In Bonner v. City of Prichard, Ala., 661 F.2d 1206, 1209 (11th Cir. 1981), the Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit handed down prior to October 1, 1981. 3 In addition, as further discussed below, even if there were a private right of action, Plaintiffs have not sufficiently pled the elements of wire fraud, so the claim should be dismissed for that reason as well. Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 10 of 28 6 465 F.3d 1277, 1282 (11th Cir. 2006) (quoting Jones v. Childers, 18 F.3d 899, 910 (11th Cir.1994) (quoting Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 (1985))). “Racketeering activity” is defined as the criminal offenses listed in 18 U.S.C. §1961. “In order to survive a motion to dismiss in a civil RICO case, a plaintiff must show a ‘pattern of racketeering activity’ by alleging that the defendants committed two qualifying predicate acts.” Raney v. Allstate Ins. Co., 370 F.3d 1086, 1087 (11th Cir. 2004). Further, “civil RICO claimants, such as the plaintiffs here, must show (1) the requisite injury to ‘business or property,’ and (2) that such injury was ‘by reason of’ the substantive RICO violation.” Williams v. Mohawk Indus., Inc., 465 F.3d 1277, 1283 (11th Cir. 2006). Because the alleged predicate acts are mail and wire fraud (Dkt. No. 17 ¶158) 4 , Plaintiffs’ “substantive RICO allegations must comply not only with the plausibility criteria articulated in Twombly and Iqbal but also with Federal Rule of Civil Procedure 9(b)’s heightened pleading standard.” Ray v. Spirit Airlines, Inc., No. CV 12-61528-CIV, 2015 WL 11143079, at *2 (S.D. Fla. June 4, 2015). That requires Plaintiffs to “state with particularity the circumstances constituting fraud 4 At one point Plaintiffs also refer to a predicate act of “18 U.S.C. § 1962 (Conspiracy),” (Dkt. No. 17 ¶15) but that appears to be an error as the named section is part of the Civil RICO statute, and is not listed as “racketeering activity” under 18 U.S.C. § 1961(1). Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 11 of 28 7 or mistake.” Fed. R. Civ. Proc 9(b). A. Plaintiffs Fail to Allege Racketeering Activity Plaintiffs allege that “[a]ll of the mailings and the numerous telephone calls, e-mails and internet postings by Defendants were made … in violation of the mail and wire fraud statutes.” (Dkt. No. 17 ¶158). In the SAC, Plaintiffs point to three categories of communications: (1) Defendants’ alleged communication with the USPTO; (2) Defendants’ alleged communications with Amazon; and (3) Defendants’ alleged internet postings. (Dkt. No. 17 ¶¶94-102, 133-140). None of these constitutes wire fraud or mail fraud, and none is sufficient to support an allegation of a RICO violation. 1. Plaintiffs Fail to Allege Wire Fraud or Mail Fraud “[T]he elements of mail fraud, 18 U.S.C. § 1341, and wire fraud, 18 U.S.C. § 1343, are identical. Both offenses require that a person (1) intentionally participates in a scheme or artifice to defraud another of money or property, and (2) uses or ‘causes’ the use of the mails or wires for the purpose of executing the scheme or artifice.” United States v. Ward, 486 F.3d 1212, 1221–22 (11th Cir. 2007) (citations omitted). Plaintiffs’ allegations regarding this fraud are limited to the statement that “Plaintiffs was [sic] defrauded by one or more of these mails and wires.” (Dkt. Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 12 of 28 8 No. 17 ¶158). That statement is plainly insufficient under the specificity requirements of Rule 9(b). Plaintiffs fail to allege what statement they relied on, who made it, when it was made, and how it caused them harm. See Cooper v. Blue Cross & Blue Shield of Florida, Inc., 19 F.3d 562, 568 (11th Cir. 1994) (“The plaintiff's complaint must allege the details of the defendants allegedly fraudulent acts, when they occurred, and who engaged in them.”); U.S. ex rel. Costner v. United States, 317 F.3d 883, 888 (8th Cir. 2003) (To properly plead fraud, the “claim must identify who, what, where, when, and how.”). Because Plaintiffs fail to properly plead the alleged predicate acts, their RICO claim must be dismissed. Moreover, as set forth below, none of Defendants’ alleged conduct can constitute a predicate act for a RICO violation. 2. The Alleged “Fraud on the USPTO” is not a RICO Violation Plaintiffs allege Ai Chen Teo committed “Fraud on the USPTO” in applying for U.S. Design Patent No. D760,897. (Dkt. No. 17 ¶¶133-136). The Federal Circuit 5 applies its “own law to determine whether [] conduct before the PTO qualifies as mail fraud for purposes of the predicate acts requirement of the federal RICO statute.” Semiconductor Energy Lab. Co. v. Samsung Elecs. Co., 204 F.3d 1368, 1380 (Fed. Cir. 2000). As the Federal Circuit stated in Semiconductor 5 Any appeal of this matter would go before the Federal Circuit. 28 U.S.C. § 1295(a)(1). Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 13 of 28 9 Energy, “inequitable conduct before the PTO cannot qualify as an act of mail fraud or wire fraud for purposes of the predicate act requirement.” Id. A wire fraud must defraud the victim of property, but “an application that has not yet matured into a patent cannot properly be deemed government property.” Id. Defendants’ communications with the USPTO do not qualify as a predicate act for purposes of Plaintiffs’ RICO claim. Moreover, Plaintiffs fail to allege that they suffered injury from the communication with the PTO. (Dkt. No. 17 ¶¶133-137). Without a proximately caused injury, a RICO claim cannot stand. Bivens Gardens Office Bldg., Inc. v. Barnett Banks of Florida, Inc., 140 F.3d 898, 906 (11th Cir. 1998). In addition, even if communication with the USPTO were found to be a predicate act, Plaintiffs have failed to allege a “pattern” of racketeering activity, as the SAC alleges only one such fraudulent communication. (Dkt. No. 17 ¶¶133- 136). The RICO claim should be dismissed. 3. Communications with Amazon are not RICO Violations Defendants’ communications with Amazon also cannot be “predicate acts.” Plaintiffs allege the “Defendants contacted Amazon.com to allege that Plaintiffs were infringing the ‘897 Patent.” (Dkt. No. 17 ¶¶172). In other words, Defendants informed Amazon of their patent rights. Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 14 of 28 10 Asserting patents in the marketplace is not a criminal violation that can support a RICO claim. “[I]t would be illogical to conclude that asserting [] patents and trademarks in the marketplace would constitute a RICO violation. … since the underlying alleged fraud on the USPTO does not constitute mail or wire fraud … representations to customers and competitors regarding its intellectual property rights cannot constitute RICO violations.” S. Snow Mfg. Co. v. SnoWizard Holdings, Inc., 912 F. Supp. 2d 404, 421 (E.D. La. 2012), aff’d, 567 F. App’x 945 (Fed. Cir. 2014); see Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., 75 F.3d 1568, 1575 (Fed. Cir. 1996) (finding “no legal basis for a holding that inequitable conduct, or the assertion of a patent procured through inequitable conduct, constitutes unfair competition”). “This position is further buttressed by the general rule that fraud cannot be predicated upon misrepresentations of law.” SnoWizard, 912 F. Supp. 2d at 421. Accordingly, Defendants’ assertion of patent rights in the marketplace, by filing a complaint with Amazon, is not a predicate act, and no RICO violation is properly pled. In addition, if communications to Amazon were found to be a predicate act, Plaintiffs cannot allege a pattern of racketeering activity. The pattern requirement “cannot be met with allegations of schemes lasting less than a year.” Jackson v. BellSouth Telecommunications, 372 F.3d 1250, 1266 (11th Cir. 2004). Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 15 of 28 11 Defendants’ patent issued July 5, 2016. Accordingly Defendants have not been contacting Amazon regarding the patent for more than a year, and there is no “pattern” of racketeering activity. 4. Internet Posts are not RICO Violations Finally, Plaintiffs assert Defendants committed fraud by making comments on the internet regarding Plaintiffs’ products. (Dkt. No. 17 ¶¶137-40). The alleged posts state that Plaintiffs’ products are knock-off cups available for less money elsewhere, and that Plaintiffs’ cups are not legal to sell in the United States. Again Plaintiffs’ allegations do not rise to the criminal level necessary for a RICO violation. “[M]erely alleging defamation … can standing alone hardly be enough to comprise fraud.” Mendez Internet Mgmt. Servs., Inc. v. Banco Santander de Puerto Rico, 621 F.3d 10, 15 (1st Cir. 2010). Instead, “in fraud cases, the familiar pattern is a material deceitful statement or omission causing the victim to undertake a transaction that inflicts economic loss on the defrauded party and ordinarily benefits the deceiving party.” Id. Here Plaintiffs fail to allege that anyone was deceived, or that anyone undertook an economic loss based on the alleged internet comments. (Dkt. No. 17 ¶¶138-40). Plaintiffs have failed to meet the Rule 9(b) standard for pleading fraud, and fail to allege “(1) the requisite injury to ‘business or property,’ and (2) that such injury was ‘by reason of’ the Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 16 of 28 12 substantive RICO violation.” Williams v. Mohawk Indus., Inc., 465 F.3d 1277, 1283 (11th Cir. 2006). The RICO claims should be dismissed. Moreover, Plaintiffs fail to allege a “pattern” of activity lasting more than a year. Jackson v. BellSouth Telecommunications, 372 F.3d 1250, 1266 (11th Cir. 2004). Plaintiffs allege only two internet comments, and do not specify their dates. For that additional reason, Plaintiffs’ RICO claim should be dismissed. Plaintiffs have failed to properly plead any “racketeering activity,” let alone the “pattern” required for a RICO violation. Accordingly, Plaintiffs’ RICO claims must be dismissed under Federal Rule of Civil Procedure 12(b)(6). IV. Plaintiffs Fail to State a Claim For a Sherman Act Violation Plaintiffs’ fourth count is for “Sherman Antitrust (15 U.S.C. § 1).” (Dkt. No. 17 at 41). The statute reads in pertinent part: “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. The antitrust laws are aimed at anticompetitive behavior, “monopolization, group boycotts, price fixing, or the like, not a mere intent to reduce competition.” Borman’s, Inc. v. Great Scott Super Markets, Inc., 433 F. Supp. 343, 348 (E.D. Mich. 1975). “An adverse effect upon competition, however small, is the distinguishing characteristic of a restraint of trade in contrast to a Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 17 of 28 13 business tort.” Juneau Square Corp. v. First Wisconsin Nat. Bank of Milwaukee, 624 F.2d 798, 810 (7th Cir. 1980). Plaintiffs allege that Defendants “intended to reduce competition by eliminating Plaintiffs from selling the exact same Generic Cup on Amazon.com.” (Dkt. No. 17 ¶164). This does not point to an antitrust violation, rather if anything it alleges a business tort. Defendants have not conspired with their competitors to restrain competition; instead they are alleged to be vigorously competing with Plaintiffs. Such conduct does not violate the antitrust laws. 1. Plaintiffs Fail to Allege a Contract, Combination, or Conspiracy Plaintiffs’ antitrust allegation appears to be a remnant of their First Amended Complaint. Therein, Plaintiffs alleged “Super Jennie” was a separate entity from Defendants. (Dkt. No. 10 ¶12). As Plaintiffs now know, Super Jennie is a brand owned by Anigan (Dkt. No. 17 ¶12), and accordingly cannot conspire with Anigan to violate antitrust laws. Tiftarea Shopper, Inc. v. Georgia Shopper, Inc., 786 F.2d 1115, 1118 (11th Cir. 1986). Accordingly, the SAC fails to allege a contract, combination or conspiracy. A conspiracy under Section 1 of the Sherman Act requires the concerted action of at least two independent business entities. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984). “In any conspiracy, two or Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 18 of 28 14 more entities that previously pursued their own interests separately are combining to act as one for their common benefit.” Id. at 769. Plaintiffs allege that “Defendants” violated section 1 of the Sherman Act. (Dkt. No. 17 ¶¶162-65). The Defendants in this matter are Anigan, Inc., Ai Chen Teo (Anigan Inc.’s CEO), Louis Tak Wai Chan, (Ai Chen Teo’s husband), and Lou Chan Design Inc. (a company owned by Louis Tak Wai Chan). The SAC alleges that Defendants “intended to reduce competition by eliminating Plaintiffs from selling the exact same Generic Cup on Amazon.com.” (Dkt. No. 17 ¶164). Apart from that extremely generic statement, Plaintiffs fail to make any allegations that Louis Chan and Lou Chan Design were involved in any anticompetitive conspiracy. Instead, Louis Chan and his company are only alleged to have provided marketing services to Anigan and to have had involvement in the decision to apply for a patent. (Dkt. No. 17 ¶40). Plaintiffs’ naked assertion that “Defendants” conspired is insufficient to survive a 12(b)(6) motion. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Therefore the complaint must be dismissed. Moreover, even if Plaintiffs had alleged participation by Louis Chan and Lou Chan Design, they acted only as agents of Anigan, Inc. “Unilateral action [by a corporation] is not actionable under § 1, and for purposes of this section, officers, employees, agents and subsidiaries are considered part of the corporation itself.” Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 19 of 28 15 FMC Corp. v. Manitowoc Co., 654 F. Supp. 915, 935 (N.D. Ill. 1987), aff'd, 835 F.2d 1411 (Fed. Cir. 1987); see also Tiftarea Shopper, Inc. v. Georgia Shopper, Inc., 786 F.2d 1115, 1118 (11th Cir. 1986) (“[A] corporation cannot conspire with itself.”). To the extent Defendants communicated with Amazon, they were acting on behalf of Anigan, and therefore were not “conspiring” for Sherman Act purposes. Plaintiffs fail to allege a Sherman Act conspiracy, therefore dismissal under Rule 12(b)(6) is appropriate. 2. Plaintiffs Fail to Allege an Unreasonable Restraint of Trade “While all contracts restrain trade to some extent, the Supreme Court has read ‘in restraint of trade’ as used in Section 1 to prohibit only those contracts that unreasonably restrain trade.” Procaps S.A. v. Patheon, Inc., 845 F.3d 1072, 1081 (11th Cir. 2016). “In alleging ‘the anticompetitive effect of the defendant’s conduct,’ an antitrust plaintiff must show harm to competition rather than to competitors. That is, the ‘anticompetitive effects’ are measured by their impact on the market rather than by their impact on competitors.” Spanish Broad. Sys. of Fla., Inc. v. Clear Channel Commc’ns, Inc., 376 F.3d 1065, 1071 (11th Cir. 2004). Here, the SAC alleges that Defendants “intended to reduce competition by eliminating Plaintiffs from selling the exact same Generic Cup on Amazon.com.” (Dkt. No. 17 ¶164). That allegation complains of the impact on competitors, not Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 20 of 28 16 on competition. Nowhere does the complaint allege any detrimental impact on competition. Moreover, because they do not allege any detrimental impact on competition, Plaintiffs also fail to allege an antitrust injury. “Antitrust injury does not arise … until a private party is adversely affected by an anticompetitive aspect of the defendant’s conduct.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339 (1990). For example, in a price fixing conspiracy, customers would be harmed by higher prices. Here, Plaintiffs allege no harm to competition, and no antitrust injury, accordingly they lack standing to sue under the Sherman Act. Sterling Merch., Inc. v. Nestle, S.A., 656 F.3d 112, 121 (1st Cir. 2011) (“the absence of ‘antitrust injury’ will generally defeat standing” (quoting RSA Media, Inc. v. AK Media Grp., Inc., 260 F.3d 10, 14 (1st Cir.2001)). As such, Plaintiffs fail to state a claim for a Section 1 violation. Spanish Broad. Sys. of Fla., Inc. v. Clear Channel Commc’ns, Inc., 376 F.3d 1065, 1071 (11th Cir. 2004) (affirming 12(b)(6) dismissal because harm to competition was not alleged). “‘[S]ome antitrust cases are intrinsically hopeless because ... they merely dress up in antitrust garb what is, at best, a business tort or contract violation.’” Procaps S.A. v. Patheon, Inc., 845 F.3d 1072, 1087 (11th Cir. 2016) (quoting Stop Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 21 of 28 17 & Shop Supermarket Co. v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 69 (1st Cir. 2004). That is the case here. Plaintiffs fail to allege an antitrust violation, and this cause of action should be dismissed. 6 V. Plaintiffs Fail to State a Claim for Fraud Plaintiffs’ Seventh Count is for “The Alleged Inventor’s Fraud.” (Dkt. No. 17 ¶¶180-86). This claim is apparently a state law claim made under Georgia law 7 (Id. ¶16), and is based on Defendants’ communications with the USPTO, which Plaintiffs allege were fraudulent. Id. ¶¶180-86. This claim must be plead with specificity under Federal Rule of Civil Procedure 9(b). 1. Plaintiffs’ Claim for “Inventor’s Fraud” is Preempted Plaintiffs’ claim for “Inventor’s fraud” alleges only that Ai Chen Teo misrepresented facts to the USPTO in applying for a patent (Dkt. No. 17 ¶¶180- 186). “Claims that are predicated on no more than bad-faith misconduct or fraud before the PTO or that are identical in scope to an inequitable conduct defense are 6 Defendants note that the antitrust section more traditionally associated with patent claims is Section 2, rather than Section 1. See, e.g., Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 173 (1965). However, Plaintiffs bring their antitrust claim under Section 1, presumably because they cannot plead the monopolization requirements of Section 2. 7 If this claim were to survive California law should likely apply as Georgia follows the rule of lexi loci delicti; “a tort action is governed by the substantive law of the state where the tort was committed.” Dowis v. Mud Slingers, Inc., 621 S.E.2d 413, 414 (2005). Here, any alleged “tort” was committed in California, where Defendants reside, not Georgia. For purposes of this motion, however, the issues are the same whether California or Georgia law applies. Cadlo v. Owens-Illinois, Inc., 125 Cal. App. 4th 513, 519 (Cal. App. 2004) (“the plaintiff must plead that he or she actually relied on the misrepresentation.”) Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 22 of 28 18 preempted by federal patent law.” In re Netflix Antitrust Litig., 506 F. Supp. 2d 308, 319 (N.D. Cal. 2007); see also Pro-Mold & Tool Co. v. Great Lakes Plastics, Inc., 75 F.3d 1568, 1575 (Fed. Cir. 1996) (“there are adequate remedies to deal with inequitable conduct when it is found. Resort to federal unfair competition law is not one of them.”); Ultra-Precision Mfg., Ltd. v. Ford Motor Co., 411 F.3d 1369, 1376 (Fed. Cir. 2005) (“Federal Circuit law governs whether federal patent law preempts a state law claim.”). Here, the “Inventor’s fraud” count is based only on alleged misconduct before the PTO, and is therefore preempted. The count for “Inventor’s fraud” should be dismissed. 2. Plaintiffs Fail to State a Claim for Fraud Under Georgia law, “[t]he tort of fraud has five elements: a false representation by a defendant, scienter, intention to induce the plaintiff to act or refrain from acting, justifiable reliance by plaintiff, and damage to plaintiff.” Crawford v. Williams, 258 Ga. 806, 806, 375 S.E.2d 223, 224 (1989). Here Plaintiffs fail to plead reliance on any alleged misrepresentation. Instead, Plaintiffs allege that a misrepresentation was made to the USPTO, not to Plaintiffs, and do not allege that Plaintiffs believed or relied on the alleged misrepresentation. Plaintiffs fail to state a claim for fraud, and Plaintiffs’ seventh Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 23 of 28 19 count for “Inventor’s fraud” should be dismissed. VI. Plaintiffs Fail to State a Claim for “Conspiracy” Plaintiffs’ second count is for “Conspiracy.” As with Plaintiffs’ “Inventor’s fraud” claim, this count is apparently brought under Georgia law 8 , despite the lack of contacts with Georgia. (Dkt. No. 17 ¶16). Under Georgia law, a conspiracy is not a cause of action on its own, but rather must be based on an underlying tort. Drummond v. McKinley, 15 S.E.2d 535, 538 (1941). “A conspiracy, upon which a civil action may be based, is a combination between two or more persons, either to commit a tortious act, or to do some lawful act by methods constituting a tort. The conspiracy of itself does not constitute the cause of action, but the gist of the action, if one exists, is the tort committed against the plaintiff and the resulting damage.” Id. Plaintiffs do not identify the alleged underlying tort in the SAC, do not allege which of the Defendants conspired, and do not allege any harm to Plaintiffs from the alleged conspiracy. (Dkt. No. 17 ¶¶146-152) (stating that “Defendants agreed to eliminate or reduce competition to Anigan’s sales of the Generic Cups by 8 California law should likely be applied to this cause of action should it survive, but again it makes little difference for purposes of this motion. Applied Equip. Corp. v. Litton Saudi Arabia Ltd., 7 Cal. 4th 503, 510–11 (1994) (“Conspiracy is not a cause of action, but a legal doctrine that imposes liability on persons who, although not actually committing a tort themselves, share with the immediate tortfeasors a common plan or design in its perpetration.”). Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 24 of 28 20 asserting the fraudulently-obtained ‘897 Patent.”). For that reason alone their conspiracy claim should be dismissed. See, e.g., Feldman v. Am. Dawn, Inc., 849 F.3d 1333, 1344–45 (11th Cir. 2017) (“‘Absent [an] underlying tort, there can be no liability for civil conspiracy.’” (quoting Best Jewelry Mfg. Co. v. Reed Elsevier Inc., 780 S.E.2d 689, 697 (2015))). Plaintiffs’ conspiracy allegation is nothing more than a “naked assertion,” devoid of further factual enhancement, and does not meet the requirements of Twombly and Iqbal. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 557). Moreover, as stated above, Plaintiffs have failed to state a claim for a RICO violation, failed to state a claim for a Sherman Act violation, and failed to state a claim for “Inventor’s fraud.” To the extent Plaintiffs’ conspiracy cause of action is interpreted to rest on those claims, it fails to state a claim for conspiracy, as the underlying torts are not properly pled. Plaintiffs’ conspiracy cause of action should be dismissed. CONCLUSION Plaintiffs allege that Anigan notified Amazon of Defendants’ patent, resulting in Amazon removing Plaintiffs’ listings. From those facts, Plaintiffs attempt to find a federal crime of wire fraud, a racketeering violation, and a conspiracy in violation of antitrust laws. The facts do not support these bogus Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 25 of 28 21 claims, and Plaintiffs’ newly-pled causes of action I-IV are simply attempts to manufacture jurisdiction over Defendants. Plaintiffs’ new claims, along with count VII for “Inventor’s fraud,” should be dismissed for failure to state a claim. Date: May 31, 2017 /s/ Preston H. Heard Preston H. Heard GA Bar No. 476319 WOMBLE CARLYLE SANDRIDGE & RICE, LLP 271 17th Street, NW, Suite 2400 Atlanta, GA 30363 Telephone: (404) 872-7000 Fax: (404) 879-2966 Email: PHeard@wcsr.com Ronald C. Finley (pro hac vice) Alfredo A. Bismonte (pro had vice) Beck, Bismonte & Finley, LLP 150 Almaden Blvd., 10 th Floor San Jose, CA 95070 Telephone (408) 938-7900 Fax: (408) 938-0790 Email: rfinley@beckllp.com abismonte@beckllp.com Attorneys for Defendants Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 26 of 28 22 CERTIFICATE OF COMPLIANCE I hereby certify that the foregoing was prepared using Times New Roman, 14-point font, and otherwise conforms to the requirements of Local Rule 5.1. /s/ Preston H. Heard Preston H. Heard Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 27 of 28 23 CERTIFICATE OF SERVICE I certify that on May 31, 2017, I filed the foregoing DEFENDANTS’ MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM using the Court’s ECF filing system, which will send a copy to all counsel of record. /s/ Preston H. Heard Preston H. Heard Case 1:17-cv-00056-TCB Document 18-1 Filed 05/31/17 Page 28 of 28 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION KAY-LU LLC; FERAYCO, INC.; MEDIHEALTH 1 PTY LTD; VITAL JOURNEY LIMITED; SHOP MONKEE INC.; AND SHENZHEN ZHONGTUOFU TECNOLOGY CO, LTD, Plaintiffs, v. ANIGAN, INC., MS. AI CHEN TEO, LOUIS TAK WAI CHAN, LOU CHAN DESIGN INC. Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) CIVIL ACTION NO. 1:17-cv-00056-TCB ORDER GRANTING MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM Case 1:17-cv-00056-TCB Document 18-2 Filed 05/31/17 Page 1 of 2 2 Having considered Defendants’ Motion to Dismiss for Failure to State a Claim, and good cause appearing, the motion is hereby GRANTED. Counts I, II, III, IV, and VII of Plaintiffs’ second amended complaint are hereby dismissed with prejudice. IT IS SO ORDERED. Dated: ___________________________ Timothy C. Batten, Sr. United States District Judge Case 1:17-cv-00056-TCB Document 18-2 Filed 05/31/17 Page 2 of 2