MGA Entertainment Inc v. Mattel Inc et al

Filing 20

REPLY in Support of MOTION to Dismiss Case Mattel, Inc.'s and Robert A. Eckert's Notice of Motion and Motion to Dismiss MGA Entertainment, Inc.'s Complaint 11 filed by Defendant Mattel Inc. (Proctor, Brett)

1 QUINN EMANUEL URQUHART & SULLIVAN, LLP
John B. Quinn (Bar No. 090378)
2
([e-mail])
Michael T. Zeller (Bar No. 196417)
3
([e-mail])
865 South Figueroa Street, 10th Floor
4
Los Angeles, California 90017-2543
5 Telephone: [phone]
Facsimile: [phone]
6
7 Attorneys for Mattel, Inc. and
Robert A. Eckert
8
UNITED STATES DISTRICT COURT
9
CENTRAL DISTRICT OF CALIFORNIA
10
SOUTHERN DIVISION

11

12 MGA ENTERTAINMENT, INC.,
13
14

CASE NO. CV 11-01063

Plaintiff,
vs.

Hon. David O. Carter

15
MATTEL, INC. and ROBERT A.
16 ECKERT,
17
Defendants.
18
19

MATTEL, INC.’S AND ROBERT A.
ECKERT’S REPLY IN SUPPORT OF
MOTION TO DISMISS
Hearing Date: June 6, 2011
Time:
8:30 a.m.
Place:
Courtroom 9D

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00505.23470/4129318.1

Case No. CV 11-01063
MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

TABLE OF CONTENTS

1

Page

2
3

4 PRELIMINARY STATEMENT ................................................................................. 1 
5 ARGUMENT ............................................................................................................... 2 
6 I. 
7

MGA’S DUPLICATIVE COMPLAINT SHOULD BE DISMISSED
UNDER CLAIM-SPLITTING DOCTRINE .................................................... 2 
A. 

MGA’s “New” Claims Are Not Based on New Facts ............................ 2 

B. 

MGA’s Allegations of Ongoing Conduct Do Not Defeat
Preclusion ................................................................................................ 4 

10

C. 

MGA Mischaracterizes Settled Claim-Splitting Doctrine ...................... 6 

11

D. 

MGA’s Claims Could Have Been Litigated with Its Prior Claims ........ 8 

12 II. 

MGA’S CLAIMS WERE ALSO COMPULSORY
COUNTERCLAIMS ......................................................................................... 9 

8
9

13

A. 

15

III. 

16

Hydranautics Does Not Save MGA’s Antitrust Claim ........................... 9 

B. 

14

MGA’s Abuse of Process and § 17043 Claims Were Compulsory ...... 11 

THE NOERR-PENNINGTON DOCTRINE BARS MGA’S CLAIMS ........ 11 
A. 

Courts Regularly Dismiss Attempts to Plead “Shams” ........................ 12 

B. 

17

Mattel’s Litigation Was Not Objectively Baseless ............................... 12 

18

1. 
2. 

The Rulings of the Ninth Circuit and This Court Make
Clear That Mattel’s Litigation Was Not Objectively
Baseless ....................................................................................... 13 

3. 

19

“Objectively Baseless” Is the Relevant Standard ....................... 12 

The Complaint Pleads Mattel Used the Outcome of
Litigation, Which Compels Application of NoerrPennington .................................................................................. 15 

20
21
22
23

C. 

MGA Does Not Allege or Argue That Any Misrepresentations
Deprived the Litigation of Legitimacy ................................................. 16 

25

D. 

The Litigation Privilege Bars MGA’s Abuse of Process Claim ........... 17 

26 IV. 

THE VACATED EQUITABLE REMEDIES DO NOT GIVE RISE TO
AN ACTION FOR DAMAGES ..................................................................... 18 

24

27

V. 

MGA FAILS TO STATE A SHERMAN ACT CLAIM ................................ 19 

28
Case No. CV 11-01063
-iMATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1

A. 

MGA Does Not Dispute Its Failure to Plead Antitrust Injury .............. 19 

2

B. 

MGA’s Market Definition Is Facially Implausible and
Contradicted by the Complaint ............................................................. 20 

C. 

Bratz’s Own Sudden Success in the Market Renders Implausible
MGA’s Market Power Allegations ....................................................... 22 

3
4
5 VI. 

MGA FAILS TO PLEAD A § 17043 CLAIM ............................................... 24 

6 VII.  LEAVE TO AMEND SHOULD NOT BE GRANTED ................................. 25 
7 CONCLUSION.......................................................................................................... 25 
8
9
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Case No. CV 11-01063
-iiMATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1

TABLE OF AUTHORITIES
Page

2
3

Cases

4 AT&T Corp. v. MRO Commc'n, Inc.,
1999 WL 1178965 (9th Cir. Dec. 13, 1999) .......................................................... 5
5
Adams v. Cal. Dept. of Health Serv.,
6
487 F.3d 684 (9th Cir. 2007) .......................................................................... 4, 7, 9
7 Assoc. of Wash. Pub. Hosp. Dists. v. Philip Morris Inc.,
241 F.3d 696 (9th Cir. 2001) ................................................................................ 20
8
9 Baker by Thomas v. General Motors Corp.,
522 U.S. 222 (1998) ............................................................................................... 3
10
Baymiller v. Guarantee Mut. Life Co.,
2000 WL 33774562 (C.D. Cal. Aug. 3, 2000) ..................................................... 15
11
12 Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) ............................................................................................. 24
13
Costantini v. Trans World Airlines,
14
681 F.2d 1199 (9th Cir. 1982) ............................................................................ 4, 7
15 In re Dual-Deck Video Cassette Recorder Antitrust Litig.,
11 F.3d 1460 (9th 1993) ..................................................................................... 5, 6
16
E.I. DuPont De Nemours & Co. v. Kolon Indus., Inc.,
17
2011 WL 834658 (4th Cir. Mar. 11, 2011) .......................................................... 21
18 E.W. French & Sons, Inc. v. Gen. Portland Inc.,
885 F.2d 1392 (9th Cir. 1989) .......................................................................... 9, 19
19
20 Eden Hannon & Co. v. Sumitomo Trust & Banking Co., ,
914 F.2d 556 (4th Cir. 1990) ................................................................................ 14
21
F. Hoffmann-La Roche Ltd. v. Empagran S.A.,
542 U.S. 155 (2004) ............................................................................................. 22
22
23 Freeman v. Lasky, Haas & Cohler,
410 F.3d 1180 (9th Cir. 2005) ........................................................................ 12, 16
24
Fujisawa v. Compass Vision, Inc.,
25
735 F. Supp. 2d 1171 (N.D. Cal. 2010)................................................................ 17
26 G.H.I.I. v. MTS, Inc.,
147 Cal. App. 3d 256 (Cal. App. 1st Dist. 1983) ........................................... 24, 25
27
28
Case No. CV 11-01063
-iiiMATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 Galavan Supplements, Ltd. v. Archer Daniels Midland Co.,
1997 WL 732498 (N.D. Cal. Nov. 19, 1997) ....................................................... 22
2
Gonzalez v. Compass Vision, Inc.,
3
2010 WL 3783164 (S.D. Cal. Sept. 27, 2010) ..................................................... 17
4 Gordon v. City of Oakland,
627 F.3d 1092 (9th Cir. 2010) .............................................................................. 25
5
6 Gregory v. Albertson's Inc.,
104 Cal. App. 4th 845 (Cal. App. 1st Dist. 2002) .................................................. 8
7
Harkins Amusement Enters., Inc. v. Harry Nace Co.,
890 F.2d 181 (9th Cir. 1989) .............................................................................. 5, 6
8
9 Hydranautics v. Filmtec Corp.,
70 F.3d 533 (9th Cir. 1995) .................................................................................. 10
10
Image Tech. Servs., Inc. v. Eastman Kodak Co.,
11
125 F.3d 1195 (9th Cir. 1997) .............................................................................. 24
12 Indep. Journal Newspapers v. United W. Newspapers, Inc.,
15 Cal. App. 3d 583 (Cal. App. 2d Dist. 1971) .................................................... 25
13
Int'l Union of Operating Eng'r-Employers Const. Indus. Pension v. Karr,
14
994 F.2d 1426 (9th Cir. 1993) ................................................................................ 4
15 Klor's, Inc. v. Broadway-Hale Stores, Inc.,
359 U.S. 207 (1959) ............................................................................................. 19
16
17 Korea Kumho Petrochem. v. Flexsys Am. LP,
2008 WL 686834 (N.D. Cal. Mar. 11, 2008) ....................................................... 23
18
Lanphere Enters., Inc. v. Koorknob Enters., LLC,
145 Fed. Appx. 589 (9th Cir. Aug. 19, 2005) ........................................................ 5
19
20 LiMandri v. Judkins,
52 Cal. App. 4th 326 (1997) ................................................................................. 17
21
In re Lindsay,
22
59 F.3d 942 (9th Cir. 1995) .................................................................................... 4
23 Luxpro Corp. v. Apple Inc.,
2011 WL 1086027 (N.D. Cal. Mar. 24, 2011) ..................................................... 12
24
25 Magna Pictures Corp. v. Paramount Pictures Corp.,
265 F. Supp. 144 (C.D. Cal. 1967) ......................................................................... 9
26
Mattel, Inc. v. MGA Entm't, Inc.,
616 F.3d 904 (9th Cir. 2010) ................................................................................ 14
27
28
Case No. CV 11-01063
-ivMATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 McCabe Hamilton & Renny, Co. v. Matson Terminals, Inc.,
2008 WL 2437739 (D. Haw. June 17, 2008) ....................................................... 23
2
Mead Data Cent., Inc. v. West Publ'g Co.,
3
679 F. Supp. 1455 (S.D. Ohio 1987) .................................................................... 10
4 Mercoid Corp. v. Mid-Continent Inv. Co.,
320 U.S. 661 (1944) ............................................................................................. 10
5
6 Nesses v. Shepard, Cir. 1995) .................................................................................. 5
68 F.3d 1003 (7th
7
Oahu Gas Serv., Inc. v. Pac. Res., Inc.,
838 F.2d 360 (9th Cir. 1988) ................................................................................ 23
8
9 Omni Res. Dev. Corp. v. Conoco, Inc.,
739 F.2d 1412 (9th Cir. 1984) .............................................................................. 16
10
Or. Natural Res. Council v. Mohla,
11
944 F.2d 531 (9th Cir. 1991) ................................................................................ 12
12 Owens v. Kaiser Found. Health Plan, Inc.,
244 F.3d 708 (9th Cir. 2001) .................................................................................. 7
13
Pochiro v. Prudential Ins. Co. of Am.,
14
827 F.2d 1246 (9th Cir. 1987) .......................................................................... 9, 11
15 Prods. Liability Ins. Agency, Inc. v. Crum & Forster Ins. Cos.,
682 F.2d 660 (7th Cir. 1982) ................................................................................ 19
16
17 Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc.,
508 U.S. 49 (1993) ......................................................................................... 13, 14
18
Razorback Ready Mix Concrete Co., Inc. v. Weaver,
761 F.2d 484 (8th Cir. 1985) ................................................................................ 12
19
20 Rebel Oil Co., Inc. v. Atl. Richfield Co.,
51 F.3d 1421 (9th Cir. 1995) ................................................................................ 22
21
Rohde v. Trantina,
22
2011 WL 684178 (C.D. Cal. Feb. 15, 2011) .............................................. 6, 17, 24
23 Rotella v. Wood,
528 U.S. 549 (2000) ............................................................................................... 8
24
v. Farley,
25 Russell U.S. 433 (1881) ............................................................................................. 18
105
26
Sprewell v. Golden State Warriors,
266 F.3d 979 (9th Cir. 2001) ................................................................................ 12
27
28
Case No. CV 11-01063
-vMATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 Stacy & Witbeck, Inc. v. City & County of San Francisco,
36 Cal. App. 4th 1074 (1995) ............................................................................... 17
2
Tahoe-Sierra Preservation Council, Inc. v. Tahoe Reg'l Planning Agency,
3
322 F.3d 1064 (9th Cir. 2003) ........................................................................ 3, 5, 6
4 Tanaka v. Univ. of S. Cal.,
252 F.3d 1059 (9th Cir. 2001) .............................................................................. 19
5
Int'l, Inc. v. Insultherm, Inc.,
6 Tank Insulation (5th Cir. 1997) .................................................................................. 10
104 F.3d 83
7
Thomas v. Housing Auth. of County of Los Angeles,
2006 WL 5670938 (C.D. Cal. Feb. 28, 2006) ...................................................... 16
8
9 Toledo Mack Sales & Serv., Inc. v. Mack Trucks, Inc.,
530 F.3d 204 (3d Cir. 2008) ................................................................................... 9
10
UGG Holdings, Inc. v. Severn,
11
2004 WL 5458426 (C.D. Cal. Oct. 1, 2004) ........................................................ 20
12 Uniroyal Chem. Co. v. Syngenta Crop Prot., Inc.,
2006 WL 516749 (D. Conn. Mar. 1, 2006) .......................................................... 16
13
United Nat. Ins. Co. v. Spectrum Worldwide, Inc.,
14
555 F.3d 772 (9th Cir. 2009) .................................................................................. 9
15 United States v. Cote,
51 F.3d 178 (9th Cir. 1995) .................................................................................. 15
16
17 Walton v. Eaton Corp.,
563 F.2d 66 (3d Cir. 1977) ................................................................................. 6, 7
18
Winters v. Jordan,
2010 WL 3000192 (E.D. Cal. July 27, 2010)....................................................... 18
19
20
21
22
23

Statutes
Business & Professions Code § 17043 ............................................................ 2, 11, 24
Foreign Trade Antitrust Improvement Act of 1982, 15 U.S.C. § 6a ................... 21, 22

24
25
26
27
28
Case No. CV 11-01063
-viMATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1
2

Preliminary Statement
As Mattel demonstrated in its moving papers, MGA’s claims in this action are

3 precluded by both claim-splitting principles and compulsory counterclaim rules, and
4 are otherwise irreparably defective. After nearly a decade of litigation and two jury
5 trials, MGA seeks to pursue an entirely duplicative set of claims that it readily could
6 have brought, and indeed was required to bring, in the prior action. This late
7 attempt to open a new front in the litigation should be rejected at the threshold.
8

MGA contends that its claims here are not “virtually identical” to its

9 previously filed claims. But under the doctrines of claim-splitting and compulsory
10 counterclaims, the issue is not whether the claims in the new action and the prior
11 action are identical, but rather whether they arise from the same transactional facts.
12 MGA fails to identify a single fact that MGA did not also allege in the prior action.
13

MGA also has no sufficient answer to Mattel’s showing that the new antitrust

14 and abuse of process claims are barred because Mattel’s pursuit of litigation – the
15 backbone of these claims – is protected by both Noerr-Pennington immunity and
16 California’s litigation privilege. MGA cannot avoid these important protections by
17 cavalierly labeling Mattel’s claims as “sham,” and MGA’s arguments depend on
18 tortured interpretations of relevant rulings from the Ninth Circuit and this Court.
19

At the same time, MGA fails adequately to answer Mattel’s showing that

20 MGA’s antitrust and abuse of process claims are barred because MGA only alleges
21 harm resulting from equitable remedies imposed by Judge Larson. It is well-settled
22 that court-imposed equitable remedies cannot give rise to any action for damages,
23 and MGA identifies no applicable contrary authority.
24

Finally, to the extent MGA’s antitrust claim is not completely implausible

25 (grounds enough for dismissal), that claim is inherently self-contradictory. MGA’s
26 own allegations directly undermine the essential elements of market definition,
27 market power and antitrust injury. And in any event, MGA could never prove
28 causation, given the Court’s prior holding that the equitable remedies issued in the
Case No. CV 11-01063
-1MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 prior-filed litigation were the product of Judge Larson, not Mattel. MGA’s Business
2 & Professions Code § 17043 claim also is defectively pleaded as a matter of law.
3

Because no amount of amending could remedy the Complaint’s defects,

4 Mattel respectfully submits that the Complaint should be dismissed with prejudice.
5

Argument

6 I.

MGA’S DUPLICATIVE COMPLAINT SHOULD BE DISMISSED

7

UNDER CLAIM-SPLITTING DOCTRINE

8

A.

9

While MGA repeats the mantra that its newly filed antitrust, abuse of process

MGA’s “New” Claims Are Not Based on New Facts

10 and predatory pricing claims are premised on “new facts” and “new conduct” arising
11 subsequent to the filing of its prior claims, MGA fails to identify a single fact
12 underlying these new claims that was not in MGA’s possession when it filed its
13 prior claims. MGA does not dispute the chart set out at pages 9-10 of Mattel’s
14 opening brief, which describes where MGA previously alleged each of the material
15 facts that MGA now alleges to support its new claims. Nor does MGA precisely
16 delineate any “facts” that purportedly arose after the filing of its prior claims.
17

MGA argues that the “Ninth Circuit’s ruling gave birth” to its newly filed

18 claims. See MGA Entertainment Inc.’s Memorandum of Points and Authorities in
19 Opposition to Defendants’ Motion to Dismiss the Complaint (Case No. 11-01063,
20 Dkt. No. 19) (“Pl. Br.”) at 1, 9-10. This argument is factually baseless. MGA’s
21 new claims are premised on a purported “Kill Bratz” campaign that Mattel allegedly
22 commenced in 2004 (see Compl. ¶¶ 10-14, 53) and the specific transactional facts
23 underlying MGA’s new claims were virtually all alleged in support of MGA’s 2005
24 unfair competition claim, long before the Ninth Circuit’s ruling. See Mattel Inc.’s
25 and Robert Eckert’s Memorandum of Points and Authorities in Support of Motion to
26 Dismiss (Case No. 11-01063, Dkt. No. 11) (“Def. Br.”) at 9-10.
27

But in any event, MGA filed counterclaims in the prior litigation after the

28 Ninth Circuit’s ruling – including a RICO counterclaim based on allegations
Case No. CV 11-01063
-2MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 regarding Mattel’s litigation and an anticompetitive scheme to eradicate Bratz – and
2 those counterclaims specifically invoked and relied upon the Ninth Circuit’s
3 decision. See Case No. 04-09049, Dkt. No. 8583 ¶¶ 4-5, 60, 320. Thus, even if the
4 Ninth Circuit decision were to have “birthed” MGA’s new claims, the claims are
5 barred because they could have been brought when MGA filed its RICO
6 counterclaim. See Tahoe-Sierra Preservation Council, Inc. v. Tahoe Reg’l Planning
7 Agency, 322 F.3d 1064, 1078 (9th Cir. 2003) (“Res judicata bars relitigation of all
8 grounds of recovery that were asserted, or could have been asserted, in a previous
9 action between the parties.” (internal quotation marks omitted)). see also Baker by
10 Thomas v. General Motors Corp., 522 U.S. 222, 238 (1998) (applying standard
11 claim preclusion principles to counterclaimant, observing that “[a] defendant who
12 interposes a counterclaim is, in substance, a plaintiff, as far as the counterclaim is
13 concerned” (internal quotation marks omitted)). Remarkably, MGA’s opposition
14 papers fail even to mention MGA’s RICO counterclaim.
15

MGA also contends that its sham litigation claim is supported by “new

16 evidence” (see Pl. Br. at 1) – specifically, evidence adduced at trial purportedly
17 demonstrating that Mattel was on notice of its claims as early as 2001, rendering the
18 claims time-bared. See Pl. Br. at 2-3. But MGA has long alleged that Mattel was
19 on notice of its claims by 2001 and that the claims were therefore untimely. See,
20 e.g., Case No. 04-09049, Dkt. No. 2572 at 6-12, 15-34 (March 7, 2008 Motion for
21 Summary Judgment). The evidence to which MGA points is also anything but new.
22 MGA specifically relied on the same evidence or functionally equivalent deposition
23 testimony when it moved for summary judgment in 2008.1 Judge Larson ruled in
24
1

See Case No. 04-09049, Dkt. No. 2573 (MGA Parties’ [Proposed] Statement
of Uncontroverted Facts, dated March 7, 2008) (¶¶ 47-56 (internal 2001 discussions
26 at Mattel concerning suspicion that MGA was copying Mattel’s product line); ¶¶ 5727 58 (2002 investigation into possible infringement); ¶¶ 62-63, 73 (Mattel executive
Richard DeAnda on notice of potential infringement by March 2002); ¶ 34 (Mattel
28 (footnote continued)
25

Case No. CV 11-01063
-3MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 favor of Mattel on the statute of limitations at summary judgment. See Case No. 042 09049, Dkt. Nos. 3826 and 3902. Then, after the Court sent the issue to the jury, the
3 jury found in Mattel’s favor. See Case No. 04-09049, Dkt. No. 4279 at 8-9. As
4 discussed further below, a position accepted by a judge and jury cannot be a sham.
5

In any event, had MGA uncovered any truly new evidence, its claims would

6 still be barred. It is settled that adding “evidentiary detail” to a claim that was made
7 or could have been made in a prior lawsuit is “scarcely enough to establish that the
8 instant lawsuit arises out of a different transactional nucleus of facts.” Costantini v.
9 Trans World Airlines, 681 F.2d 1199, 1202 (9th Cir. 1982) (internal quotation marks
10 omitted) (rejecting argument that new information obtained in FOIA requests
11 supporting prior claims gave rise to a fresh cause of action); accord Adams v. Cal.
12 Dept. of Health Serv., 487 F.3d 684, 690 (9th Cir. 2007) (evidentiary detail deemed
13 “cumulative” insufficient to overcome preclusion). Simply put, claim preclusion
14 applies even where the “second action presents new evidence or new theories.” In
15 re Lindsay, 59 F.3d 942, 952 (9th Cir. 1995) (citing Restatement (Second) of
16 Judgments § 25); accord Int’l Union of Operating Eng’r-Employers Const. Indus.
17 Pension v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993).

MGA’s assertion that

18 evidence adduced at trial supports its new claims only underscores the overlap of the
19 new claims and those in the prior action. See infra at Point I(D).
20

B.

21

MGA also suggests, again without any sustained analysis, that its claims can

MGA’s Allegations of Ongoing Conduct Do Not Defeat Preclusion

22 proceed because Mattel’s alleged anticompetitive conduct is “ongoing to date.” See
23
visited Bratz at toy fairs by 2002); ¶¶ 47-50, 542-56 (internal suspicions about
24 Bryant and MGA and similarity between Bratz dolls and Toon Teens and Diva
25 Starz); ¶¶ 59, 67 (investigation of Mr. Larian); ¶ 69 (Mr. Eckert’s receipt of
anonymous letter)). The remaining evidence MGA highlights as “new” was either
26 indisputably in its possession or publicly available by 2003. See Pl. Br. at 2-3 (2002
27 letter to Mr. Larian from Mattel’s counsel; July 2003 Wall Street Journal article;
MGA’s 2002 efforts to copyright Bratz in Brazil).
28
Case No. CV 11-01063
-4MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 Pl. Br. at 12. This argument, too, fails as a matter of law. The Ninth Circuit has
2 held that the “continuation of commercial activity pursuant to . . . old arrangements”
3 does not support a new antitrust cause of action. In re Dual-Deck Video Cassette
4 Recorder Antitrust Litig., 11 F.3d 1460, 1464 (9th Cir. 1993) (affirming dismissal of
5 antitrust claim that merely alleged continuation of conduct previously sued upon);2
6 see also Tahoe-Sierra Preservation Council, 322 F.3d at 1079 & n.12. Accordingly,
7 a party seeking to avoid claim preclusion must allege more than that the
8 anticompetitive conduct underlying a prior action has “continued unabated through
9 the present”; the party must allege “[d]istinct conduct” occurring after the filing of
10 the prior action. See Dual-Deck, 11 F.3d at 1464 (internal quotation marks omitted)
11 (dismissal deemed appropriate where “no new conspiracy, no new kinds of
12 monopolization, no new acts” were alleged). “Enough new misconduct must be
13 alleged to support the claim without reference to the earlier misconduct.” Nesses v.
14 Shepard, 68 F.3d 1003, 1004 (7th Cir. 1995) (relying on Dual-Deck). Otherwise,
15 claim preclusion could be sidestepped by merely asserting “the continuation of the
16 conspiracy that formed the basis for the previous action.” Id.
17

In this regard, MGA relies on Harkins Amusement Enters., Inc. v. Harry Nace

18 Co., 890 F.2d 181 (9th Cir. 1989). But as Dual-Deck observed, no claim preclusion
19 was found in Harkins Amusement, because the allegation there was that “‘the
20 defendants entered into conspiracies after the date’ of the earlier lawsuit.” Dual21 Deck, 11 F.3d at 1463 (quoting Harkins Amusement, 890 F.2d at 183) (emphasis in
22 Harkins Amusement). MGA, by contrast, does not allege any fresh act of purported
23 monopolization that occurred after the filing of its prior claims. MGA does not
24
2

While Dual-Deck invoked the doctrine of collateral estoppel, its reasoning
applies with equal force in the claim preclusion context, as courts have recognized.
26 See Lanphere Enters., Inc. v. Koorknob Enters., LLC, 145 Fed. Appx. 589, 591 (9th
27 Cir. Aug. 19, 2005); AT&T Corp. v. MRO Commc’n, Inc., 1999 WL 1178965, at *8
(9th Cir. Dec. 13, 1999); Nesses v. Shepard, 68 F.3d 1003, 1004 (7th Cir. 1995).
28
25

Case No. CV 11-01063
-5MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 allege that Mattel is currently engaged in any distinct anticompetitive practice. See
2 Compl. ¶¶ 11, 53. The Complaint focuses on Mattel’s role in obtaining certain
3 equitable remedies after the first trial, which, MGA asserts, delivered a “death blow
4 to Bratz and MGA.” Id. ¶ 24. The Ninth Circuit vacated these equitable remedies
5 before MGA filed its counterclaims-in-reply, and Mattel obviously has not taken
6 distinct action in connection with the remedies since that time.
7

Citing to evidence MGA presented at trial about Kohl’s, MGA now argues

8 that Kohl’s continues to exclude MGA’s products under a 2004 contract with
9 Mattel. See Pl. Br. at 12. Putting aside that MGA cannot use its opposition brief to
10 amend the Complaint, see Rohde v. Trantina, 2011 WL 684178, at *3 n.1 (C.D. Cal.
11 Feb. 15, 2011) (Carter, J.), this assertion is in any event legally deficient. Even if it
12 were assumed that the agreement and actions taken pursuant to it continue, this
13 would not support a new cause of action. See Tahoe-Sierra Preservation Council,
14 322 F.3d at 1079 & n.12 (affirming dismissal on res judicata grounds where claims
15 arose from the execution of a regional management plan that was the subject of prior
16 litigation); see Dual-Deck, 11 F.3d at 1464 (“doing the same thing today as
17 yesterday” is not the type of distinct action that can support a new claim to relief).3
18

C.

19

Unable to identify any new and distinct facts supporting its Complaint, MGA

MGA Mischaracterizes Settled Claim-Splitting Doctrine

20 distorts claim-splitting principles. First, relying on Walton v. Eaton Corp., 563 F.2d
21 66, 70 (3d Cir. 1977) (en banc), MGA asserts that claim-splitting does not apply
22 unless the second filed action is “virtually identical” to the first. See Pl. Br. at 11
23 (internal quotation marks omitted). Asserting that the legal elements of its antitrust
24
3

Even if MGA had alleged distinct conduct occurring subsequent to the filing of
its antitrust claim, that claim would be limited to that conduct. See, e.g., Harkins
26 Amusement, 890 F.2d at 182-83 (party permitted to bring antitrust claim for alleged
27 conspiracies entered “after the date” of its prior complaint, but it was precluded
from raising claims concerning the time period covered by the earlier complaint).
28
25

Case No. CV 11-01063
-6MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 claim are not identical to the elements of its prior claims, MGA argues that its
2 antitrust claim cannot be precluded. See id. But MGA misreads Walton, which
3 merely noted that the claims at issue there were “virtually identical” – not that they
4 had to be for preclusion to apply. See 563 F.2d at 70. In any event, there is no
5 requirement in the Ninth Circuit that claims be “virtually identical” for claim6 splitting preclusion to apply. Rather, claim-splitting analysis turns on whether the
7 claims arose from “a common transactional nucleus of facts.” Adams, 487 F.3d at
8 689. The specific elements of putatively split claims are irrelevant to this inquiry.
9 See, e.g., id. at 690 (second action precluded even though it involved “two new legal
10 theories of recovery” under new state and federal statutes); see also Owens v. Kaiser
11 Found. Health Plan, Inc., 244 F.3d 708, 713 (9th Cir. 2001) (previous action
12 alleging “wrongful termination and various state law claims based on breach of
13 contract” precluded subsequent litigation of “Title VII claims of discriminatory
14 termination, hostile work environment, and wrongful retaliation”); Def. Br. at 8-12.
15

Second, MGA argues that its new claims cannot be precluded because they

16 involve matters “which were not litigated or decided by the ongoing case.” Pl. Br.
17 at 11. Claim preclusion, however, “bar[s] all grounds for recovery which could
18 have been asserted, whether they were or not, in a prior suit between the same
19 parties . . . on the same cause of action.” Costantini, 681 F.2d at 1201 (emphasis
20 added) (internal quotation marks omitted). Thus, the “contention that the question
21 involved in [the] present action was never actually litigated in the prior action is
22 simply irrelevant” to claim-splitting analysis. Id. MGA confuses issue preclusion
23 (which applies to issues “actually and necessarily determined” in the prior action)
24 with claim preclusion and claim-splitting (which apply to issues that “could have”
25 been litigated in the prior action). Id. at 1201 & n.2 (internal quotation marks
26 omitted).
27
28
Case No. CV 11-01063
-7MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1

D.

2

MGA’s contention that its antitrust claim could not have been litigated with

MGA’s Claims Could Have Been Litigated with Its Prior Claims

3 its prior claims (see Pl. Br. at 9-10, 14-15) rings hollow, given that MGA brought an
4 elaborate RICO claim five months before the recent trial was scheduled to
5 commence. See Case No. 04-09049, Dkt. No. 8583 ¶¶ 313-18 (alleging 18-year
6 RICO conspiracy composed of numerous and diverse predicate acts); Rotella v.
7 Wood, 528 U.S. 549, 559 (2000) (noting “necessary complexity of RICO” claims).
8 Far from arguing that its RICO claim was too complicated to be combined for trial,
9 MGA argued that the claim was a compulsory counterclaim and that, as such, it had
10 to be joined in the prior litigation. See Case No. 04-09049, Dkt. No. 8747 at 11-14.
11

Moreover, MGA’s highly generalized assertions of inconvenience are

12 unavailing. The factual predicates for MGA’s antitrust claim – from the allegation
13 that Mattel pursued baseless litigation to the claims that Mattel manipulated industry
14 data and tampered with retail displays – were all alleged in support of MGA’s prior
15 claims. As MGA has acknowledged, the showing required on MGA’s prior unfair
16 competition claim draws expressly on federal antitrust statutes, calling for proof of
17 an “incipient violation of the antitrust law.” Gregory v. Albertson’s Inc., 104 Cal.
18 App. 4th 845, 851 (Cal. App. 1st Dist. 2002); see also Case No. 04-09049, Dkt. No.
19 9620 at 233 (MGA Proposed Jury Instructions).
20

While it is true that, in order to prosecute a Sherman Act claim, MGA will be

21 required to make further showings with an analysis of the relevant market and
22 Mattel’s position within that market, there is no basis to seriously suggest that an
23 antitrust claim could not have been conveniently tried with MGA’s prior claims.
24 And based on the trial record, MGA has asked the Court (albeit without foundation)
25 to make findings on the relevant market and Mattel’s position in it – only
26 confirming the overlap of the old claims and the new ones. See Case No. 04-09049,
27 Dkt. No. 10525 (Proposed Findings of Fact ¶ 3; Proposed Findings of Law ¶¶ 8, 15).
28
Case No. CV 11-01063
-8MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1

In the federal courts, antitrust claims are routinely tried in conjunction with

2 other different claims. See, e.g., Toledo Mack Sales & Serv., Inc. v. Mack Trucks,
3 Inc., 530 F.3d 204, 216 (3d Cir. 2008) (discussing jury trial of antitrust and trade
4 secret misappropriation claims); E.W. French & Sons, Inc. v. Gen. Portland Inc.,
5 885 F.2d 1392, 1394-95 (9th Cir. 1989) (discussing jury trial of antitrust claims and,
6 inter alia, unfair competition claim). The courts long ago rejected the notion that
7 antitrust suits are so complex that they must be approached in isolation. See Magna
8 Pictures Corp. v. Paramount Pictures Corp., 265 F. Supp. 144, 153 (C.D. Cal. 1967)
9 (complexity of antitrust matters does not “relegate antitrust litigation to the sacred
10 and awesome position of requiring the singular attention of judge or jury”).
11

MGA raises no argument why its claims should not be dismissed if the Court

12 finds them to be split.

See Def. Br. at 19-21 (discussing why dismissal is

13 appropriate). Given their duplicative nature, MGA’s claims should be dismissed
14 with prejudice. See Adams, 487 F.3d at 692.
15 II.

MGA’S CLAIMS WERE ALSO COMPULSORY COUNTERCLAIMS

16

A.

17

MGA does not appear to dispute that its antitrust claim bears a logical

Hydranautics Does Not Save MGA’s Antitrust Claim

18 relationship to Mattel’s claims in the prior action. See Pochiro v. Prudential Ins. Co.
19 of Am., 827 F.2d 1246, 1252 (9th Cir. 1987) (counterclaim is compulsory if it
20 stands in “logical relationship” with the other parties’ claims). Nor could it. MGA
21 admits that the “gravamen” of its antitrust claim is Mattel’s litigation conduct (see
22 Pl. Br. at 1), and MGA has already argued, successfully, that claims arising from the
23 parties’ litigation conduct satisfied the logical relationship test and were thus
24 compulsory in the prior action. See Case No. 04-09049, Dkt. No. 8747 at 11-14;
25 Case No. 04-09049, Dkt. No. 8892 at 5-7.4
26
4

Any flip-flop by MGA on this issue should not be countenanced. See
generally United Nat. Ins. Co. v. Spectrum Worldwide, Inc., 555 F.3d 772, 778 (9th
28 (footnote continued)
27

Case No. CV 11-01063
-9MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1

Unable to contest the logical relationship standard, MGA invokes

2 Hydranautics v. Filmtec Corp., 70 F.3d 533 (9th Cir. 1995). But the Hydranautics
3 exception to the compulsory counterclaim rule applies only to patent litigation.
4 Interpreting the Supreme Court’s decision in Mercoid Corp. v. Mid-Continent Inv.
5 Co., 320 U.S. 661 (1944), Hydranautics held that “[a] claim that patent infringement
6 litigation violated an antitrust statute is a permissive, not a mandatory, counterclaim
7 in a patent infringement case.” 70 F.3d at 536 (emphasis added). As set out in
8 Mattel’s opening brief, leading commentators and trial courts in this Circuit have
9 understood Hydranautics to be limited to patent infringement cases, a limitation that
10 makes sense given that appeals in patent and antitrust cases are tracked differently in
11 the federal system. See Def. Br. at 18. Neither party here brought patent claims in
12 the prior action, and Hydranautics therefore does not apply.
13

MGA quibbles, suggesting that Mattel has cited no “controlling authority

14 which expressly limited Hydranautics to patent infringement suits.” Pl. Br. at 14
15 (emphasis added).

But Hydranautics states a rule that applies only to “patent

16 infringement litigation,” 70 F.3d at 536, and courts interpreting Hydranautics have
17 understood the rule to be so limited. MGA certainly has not identified a single case
18 applying Hydranautics to anything but a patent suit, and there is none. MGA relies
19 on Tank Insulation Int’l, Inc. v. Insultherm, Inc., 104 F.3d 83 (5th Cir. 1997), but
20 that case expressly acknowledged that “Mercoid creates a limited exception to rule
21 13(a) for antitrust claims in which the gravamen is the patent infringement lawsuit
22 initiated by the counterclaim defendant.” Id. at 88 (emphasis added). MGA also
23 cites Mead Data Cent., Inc. v. West Publ’g Co., 679 F. Supp. 1455 (S.D. Ohio
24 1987), but that case predates Hydranautics, does not even reference Mercoid, and,
25
26 Cir. 2009) (judicial estoppel designed to prevent litigants from “taking one position,
27 gaining advantage from that position, then seeking a second advantage by later
taking an incompatible position”).
28
Case No. CV 11-01063
-10MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 by running through the standard compulsory counterclaim analysis, presumed that
2 no exception to the rule applied outside the patent context. See id. at 1457-62.
3

B.

4

While Pochiro held that “an abuse of process claim is a compulsory

MGA’s Abuse of Process and § 17043 Claims Were Compulsory

5 counterclaim in the very action which allegedly is abusive” (827 F.2d at 1252), it
6 left open the possibility that such a claim might be permissive if it arose from
7 conduct postdating the pleadings. See id. at 1253 n.11. MGA contends that it
8 satisfies this exception for permissive counterclaims because its abuse of process
9 claim is premised on Mattel’s conduct during the Phase 1 trial. See Pl. Br. at 36.
10 But MGA filed counterclaims-in-reply in August 2010, after the Phase 1 trial had
11 concluded. By that time, any abuse of process claim arising from the events of the
12 Phase 1 trial was clearly ripe and, under Pochiro, compulsory as a matter of law.
13

MGA similarly asserts that its § 17043 claim – premised on the allegation that

14 Mattel sold its Wee 3 Friends dolls below allocated cost – is based on “new facts”
15 and thus was not compulsory in the prior action. See Pl. Br. at 38. MGA, however,
16 does not identify what these supposedly new facts might be. Even before filing its
17 counterclaims-in-reply, MGA had professed its belief that it was “likely” that Mattel
18 was selling Wee 3 Friends Below costs. See Def. Br. at 10. MGA now does not
19 identify any new developments. MGA contends discovery will flesh out the claim
20 (see Pl. Br. at 38), but that is irrelevant to the compulsory counterclaim analysis.
21 III.

THE NOERR-PENNINGTON DOCTRINE BARS MGA’S CLAIMS

22

Mattel demonstrated that the Noerr-Pennington doctrine bars MGA’s antitrust

23 and abuse of process claims. See Def. Br. at 21-30. MGA argues that Noerr24 Pennington protections should be cast aside on two principal grounds: (1) that
25 merely labeling a litigation “sham” by itself satisfies the pleading requirements and
26 justifies imposing discovery costs on those seeking redress against a competitor in
27 court, and (2) that a remand by the Ninth Circuit for further proceedings on the
28 merits constitutes “evidence” that Mattel’s litigation was a sham. This is not the
Case No. CV 11-01063
-11MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 law. MGA’s theories would permit an explosion of sham litigation antitrust claims
2 after remands from appeal and would have a “chilling effect on the exercise of this
3 fundamental First Amendment right” to petition.

Or. Natural Res. Council v.

4 Mohla, 944 F.2d 531, 533 (9th Cir. 1991) (internal quotation marks and citation
5 omitted).5
6

A.

7

As an initial matter, there is no foundation for MGA’s argument that it is

Courts Regularly Dismiss Attempts to Plead “Shams”

8 enough merely to plead that a litigation is “sham.” See Pl. Br. at 19-20. The Court
9 is not “required to accept as true allegations that are merely conclusory, unwarranted
10 deductions of fact, or unreasonable inferences.” Sprewell v. Golden State Warriors,
11 266 F.3d 979, 988 (9th Cir. 2001).

Courts thus regularly dismiss antitrust

12 complaints for failure to state a claim, even where the complaints included an
13 allegation that the defendant had pursued “sham” litigation. See, e.g., Freeman v.
14 Lasky, Haas & Cohler, 410 F.3d 1180, 1186 (9th Cir. 2005) (affirming dismissal);
15 Or. Natural Res. Council, 944 F.2d at 536 (same); Luxpro Corp. v. Apple Inc., 2011
16 WL 1086027, at *4-6 (N.D. Cal. Mar. 24, 2011) (dismissal under Noerr17 Pennington); see also Razorback Ready Mix Concrete Co., Inc. v. Weaver, 761 F.2d
18 484, 486-88 (8th Cir. 1985) (reversing dismissal and holding “that as a matter of law
19 the ‘sham exception’ to the Noerr-Pennington doctrine is inapplicable”).
20

B.

21

Mattel’s Litigation Was Not Objectively Baseless
1.

22

“Objectively Baseless” Is the Relevant Standard

The actual governing standard, ignored by MGA, is that to be considered

23 “sham” litigation unworthy of Noerr-Pennington immunity, “the lawsuit must be
24 objectively baseless in the sense that no reasonable litigant could realistically expect
25 success on the merits. If an objective litigant could conclude the suit is reasonably
26
27
28

5

MGA does not dispute that no “scheme” exception to Noerr-Pennington exists,
or its failure to plead a “series of lawsuits” by Mattel. See Def. Br. at 22, 29-30.
Case No. CV 11-01063
-12MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 calculated to elicit a favorable outcome, the suit is immunized under Noerr, and an
2 antitrust claim premised on the sham exception must fail.” Prof’l Real Estate
3 Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60 (1993) (“PREI”).
4

MGA argues that the focus should be on Mattel’s subjective intent. See, e.g.,

5 Pl. Br. at 19. But Mattel’s subjective intent is irrelevant unless MGA properly
6 pleads the lawsuit was objectively baseless. PREI, 508 U.S. at 57 (“an objectively
7 reasonable effort to litigate cannot be a sham regardless of subjective intent”); see
8 also id. at 60 (“Only if challenged litigation is objectively meritless may a court
9 examine the litigant’s subjective motivation.”).

MGA’s assertions about what

10 Mattel allegedly “knew” and what motivated it to file suit have no bearing unless it
11 has adequately pleaded that Mattel’s lawsuit was objectively baseless.
12

2.

13
14

The Rulings of the Ninth Circuit and This Court Make Clear
That Mattel’s Litigation Was Not Objectively Baseless

MGA asserts that the Ninth Circuit’s appeal ruling in the prior litigation (and

15 related rulings by this Court) are “evidence of sham litigation.” Pl. Br. at 21; see
16 also id. at 5.

This is wrong.

The Ninth Circuit ruling reflects an objective

17 determination that Mattel brought viable claims and sought viable remedies. As this
18 Court observed in the prior litigation: “MGA argues Bryant lacked an assignable
19 right, title, or interest in his ideas because ideas are not property under California
20 law. The Ninth Circuit rejected this argument, which MGA made in its opening
21 brief on appeal, by holding that a narrower constructive trust may be imposed after
22 re-trial.” See Case No. 04-09049, Dkt. No. 9600 (Amended Summary Judgment
23 Order) at 9.

This Court also previously found that “the undisputed evidence

24 establishes that the equitable relief awarded by the district court . . . was the product
25 of a careful and reasoned, albeit incorrect, application of the law by the district
26 court.” Id. at 146 (emphasis added); see also Def. Br. at 23-25.
27

The Ninth Circuit’s opinion itself controverts MGA’s position that Mattel’s

28 litigation was objectively baseless. The Court noted that Bryant’s inventions
Case No. CV 11-01063
-13MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 agreement was “dated September 18[, 2000],” while Bryant was still employed by
2 Mattel. Mattel, Inc. v. MGA Entm’t, Inc., 616 F.3d 904, 907 (9th Cir. 2010).
3 Because the inventions agreement “could be interpreted to cover ideas” (id. at 909),
4 the Court found that the jury’s interpretation of this contract “could easily” support
5 Mattel’s claims that Bryant assigned his “ideas” as an “invention” to Mattel. Id. at
6 909, 912-913. The Court held that “[t]he drawings and sculpt clearly were
7 ‘inventions’ as that term is defined in Bryant’s employment agreement with Mattel.”
8 Id. at 911 (emphasis in original). According to the Court, “[o]n remand, Mattel
9 might well convince a properly instructed jury” to find in its favor. Id. at 913. Even
10 with respect to the equitable remedies, the Ninth Circuit noted that nothing in its
11 opinion would “preclude[] entry of equitable relief based on appropriate findings.”
12 Id. at 917. The Ninth Circuit would not have remanded for a new trial if it thought
13 Mattel’s suit was a sham.
14

These rulings are fatal to the tortured and unreasonable inference MGA is

15 attempting to draw from the history of the prior action. These rulings demonstrate
16 that a “reasonable” company in Mattel’s “position could have believed it had some
17 chance of winning [the] suit.” PREI, 508 U.S. at 65. Indeed, its core claims were
18 accepted by a jury and survived summary judgment in front of two district judges.
19 It matters not that Mattel’s initial trial award was overturned on appeal, and that it
20 did not prevail at trial. Id. (even though the underlying and allegedly baseless
21 litigation did not survive summary judgment, it was not objectively baseless).
22

MGA’s argument that Mattel knowingly pursued time-barred claims (Pl. Br.

23 at 3) is equally meritless. MGA has not identified a single decision where any court
24 has deemed a litigation a “sham” based on the applicable statute of limitations.
25 And, here, where a neutral judge actually granted Mattel summary judgment on the
26 defense and second judge found in Mattel’s favor on the issue (see Def. Br. at 2327 24; supra, at p. 3-4), it cannot be said that MGA’s statute of limitations defenses are
28 objectively ironclad. See Eden Hannon & Co. v. Sumitomo Trust & Banking Co.,
Case No. CV 11-01063
-14MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 914 F.2d 556, 565 (4th Cir. 1990) (“If a litigant can persuade a neutral judge or jury
2 that it is entitled to legal relief from the conduct of another based upon the law and
3 facts, that suit cannot be a sham under the Noerr-Pennington doctrine.”).
4

Against this backdrop, it is difficult to comprehend MGA’s assertion that the

5 Ninth Circuit’s decision and this Court’s rulings establish “law of the case”
6 determinations concerning “sham” litigation. Id. at 1, 20, 21 n.7. Neither the Ninth
7 Circuit nor this Court has ever made a determination that Mattel was pursuing
8 “sham” litigation. See United States v. Cote, 51 F.3d 178, 181 (9th Cir. 1995)
9 (“Although the doctrine applies to a court’s explicit decisions as well as those issues
10 decided by necessary implication, it clearly does not extend to issues an appellate
11 court did not address.” (internal quotation marks and citations omitted)).

And

12 MGA’s attempt to apply the “law of the case” doctrine is simply misplaced, since
13 the doctrine does not apply across two separate lawsuits.

See Baymiller v.

14 Guarantee Mut. Life Co., 2000 WL 33774562, at *2 (C.D. Cal. Aug. 3, 2000)
15 (Carter, J.) (“The ‘law of the case’ doctrine generally bars courts from reconsidering
16 an issue that has already been decided by the same court or a higher court in the
17 same case.” (internal quotation marks and citation omitted)).

To the contrary,

18 Mattel won before a prior jury and survived summary judgment in front of two
19 judges.

And, as shown, far from suggesting Mattel’s claims were objectively

20 baseless, the Ninth Circuit recognized the legitimacy of Mattel’s positions.
21

3.

The Complaint Pleads Mattel Used the Outcome of

22

Litigation, Which Compels Application of Noerr-Pennington

23

MGA asserts in its opposition brief that Mattel “intended to interfere directly

24 with MGA’s business relationships through the use of the governmental process – as
25 opposed to the outcome of that process – as an anticompetitive weapon.” Pl. Br. at
26 18-19 (emphasis in original). But this is not what the Complaint pleads. Rather, the
27 Complaint focuses on the remedy Mattel sought as an outcome of litigation. See,
28 e.g., Compl. ¶ 26 (“Mattel knew that merely obtaining that interim order would
Case No. CV 11-01063
-15MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 eliminate the dreaded competition.”). Courts reject “sham” claims where, as here,
2 an outcome or remedy of the prior litigation, and not the litigation’s initiation, is
3 alleged to have caused the plaintiff’s harm. See, e.g., Omni Res. Dev. Corp. v.
4 Conoco, Inc., 739 F.2d 1412, 1414 (9th Cir. 1984) (affirming judgment on pleadings
5 where plaintiff “was injured by the finding against it in state court and by the
6 injunction, not by the mere filing of the suit”); Thomas v. Housing Auth. of County
7 of Los Angeles, 2006 WL 5670938, at *9 n.48 (C.D. Cal. Feb. 28, 2006) (dismissing
8 complaint where it was “clear that the successful outcome defendants obtained in
9 the unlawful detainer action caused plaintiffs’ injury, not the mere filing of the
10 action”); see also Uniroyal Chem. Co. v. Syngenta Crop Prot., Inc., 2006 WL
11 516749, at *7 (D. Conn. Mar. 1, 2006) (“A lawsuit is not rendered a sham merely
12 because one form of relief sought may be objectively unreasonable.”).
13
14
15

C.

MGA Does Not Allege or Argue That Any Misrepresentations
Deprived the Litigation of Legitimacy

MGA repeatedly asserts that Mattel “made misrepresentations to the court.”

16 See Pl. Br. at 5; see also id. at 2, 4, 15, 37. At no point, however, does MGA make
17 any effort to explain, as is required, how these alleged misrepresentations have
18 “deprive[d] the litigation of its legitimacy.” Freeman, 410 F.3d at 1184 (internal
19 quotation marks and citation omitted); see also Def. Br. at 26-28. MGA cannot
20 avoid application of Noerr-Pennington merely by alleging that “misrepresentations”
21 took place during litigation. See Omni Res. Dev. Corp., 739 F.2d at 1414 (alleging
22 misrepresentations such as the use of false affidavits “is a charge that can easily be
23 leveled, and it is thus insufficient by itself to overcome Noerr-Pennington
24 immunity.”).

MGA

also

simply

ignores

Mattel’s

showing

that

the

25
26
27
28
Case No. CV 11-01063
-16MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 “misrepresentations” MGA alleges have been addressed by the Court or otherwise
2 have no merit. See Def. Br. at 26-28.6
3

D.

4

Mattel showed in its moving papers that California’s litigation privilege bars

The Litigation Privilege Bars MGA’s Abuse of Process Claim

5 MGA’s abuse of process claim.

See Def. Br. at 28-29.

MGA contends in

6 opposition that the privilege “does not immunize tortious courses of conduct.” Pl.
7 Br. at 37. But MGA’s suggestion that the litigation privilege does not apply to
8 litigation conduct is frivolous.

As one case cited by MGA recognizes, “[t]he

9 principal purpose of [the privilege] is to afford litigants and witnesses the utmost
10 freedom of access to the courts without fear of being harassed subsequently by
11 derivative tort actions.” Fujisawa v. Compass Vision, Inc., 735 F. Supp. 2d 1171,
12 1175 (N.D. Cal. 2010) (internal quotation marks and citation omitted). Tellingly,
13 none of the cases cited by MGA on this point even concerns litigation conduct. See
14 LiMandri v. Judkins, 52 Cal. App. 4th 326, 345 (1997) (“neither … was a litigant or
15 other participant in the … litigation.”); Stacy & Witbeck, Inc. v. City & County of
16 San Francisco, 36 Cal. App. 4th 1074, 1091 (1995) (“publication was submitted …
17 for a nonlitigation purpose.”); Gonzalez v. Compass Vision, Inc., 2010 WL
18 3783164, at *5 (S.D. Cal. Sept. 27, 2010) (privilege did not apply to conduct that
19 “occurred before any proceedings had even been commenced”). Despite MGA’s
20 suggestion to the contrary (Pl. Br. at 37), courts regularly invoke the litigation
21 privilege to dismiss abuse of process claims at the pleading stage. See, e.g., Winters
22
23

6

Although the Complaint only includes a monopolization claim under Sherman
24 Act Section 2, in an effort to avoid application of Noerr-Pennington, MGA suggests
25 in its opposition brief that it has also pleaded a Section 1 “Group Boycott” claim.
See Pl. Br. at 16-17. Putting aside this improper effort to amend the Complaint
26 through a brief (see Rohde, 2011 WL 684178, at *3 n.1), even adding a group
27 boycott claim would not change that, as MGA admits, “the gravamen of MGA’s
Complaint is the baseless litigation.” Pl. Br. at 1. Thus, even a properly alleged
28 (footnote continued)
Case No. CV 11-01063
-17MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 v. Jordan, 2010 WL 3000192, at *8-9 (E.D. Cal. July 27, 2010) (dismissing abuse of
2 process claim where the alleged “conduct was made in judicial or quasi-judicial
3 proceedings by a party or her attorney to achieve the objects of the litigation, and it
4 has some connection or logical relation to the action”). Thus, given that MGA’s
5 abuse of process claim is predicated on alleged litigation misconduct, MGA has no
6 answer to application of the litigation privilege.
7 IV.

THE VACATED EQUITABLE REMEDIES DO NOT GIVE RISE TO

8

AN ACTION FOR DAMAGES

9

Mattel showed that Russell v. Farley, 105 U.S. 433 (1881), and its progeny

10 establish that a litigant may not maintain an action for damages resulting from
11 equitable remedies imposed by a court. See Def. Br. at 30-31. The Court applied
12 these principles in the prior-filed action to conclude that MGA could not obtain
13 damages on its wrongful injunction claim. See Case No. 04-09049, Dkt. No. 8892
14 at 12. Thus, to maintain an action for damages, MGA’s alleged injury would need
15 to flow from something other than equitable remedies imposed by Judge Larson.
16 But MGA argues, as alleged in the Complaint, that its damages “flow from Mattel’s
17 abusive and sham litigation,” which purportedly “induce[d] Judge Larson to commit
18 legal error” and impose equitable remedies that “spelled the death knell for Bratz as
19 a brand.” Pl. Br. at 23.
20

MGA cannot legitimately claim an entitlement to damages merely by arguing

21 that Mattel’s purported “sham” litigation was “part and parcel of its wide array of
22 tortious and monopolistic conduct.” Id. The Complaint never once alleges any
23 damages flowing from any conduct besides the alleged “sham” litigation. Indeed,
24 the Complaint states that Mattel commenced “sham” litigation because other
25 practices “were not enough for Mattel to stem the tide” of Bratz sales. See Compl. ¶
26
27 group boycott claim would not avoid Noerr-Pennington immunity for claims
premised on Mattel’s litigation conduct.
28
Case No. CV 11-01063
-18MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 12. MGA seeks as damages the $1 billion (pre-trebling) it claims MGA was worth
2 at the point the equitable remedies were issued after the first trial. See id. ¶¶ 18, 58.
3 V.

MGA FAILS TO STATE A SHERMAN ACT CLAIM

4

A.

5

As Mattel demonstrated in its moving papers, MGA has failed adequately to

MGA Does Not Dispute Its Failure to Plead Antitrust Injury

6 plead either injury to competition (as opposed to harm merely to MGA itself) or that
7 Mattel was the direct cause of any such injury – both critical elements of any
8 Sherman Act claim. See Def. Br. at 32-36.
9

MGA responds that harm to a single competitor is sufficient to establish

10 antitrust injury. Pl. Br. at 35. But this is not the law: harm to a single competitor
11 only violates the antitrust law if the effect is harm to competition. This principle is
12 only confirmed by the case MGA cites on this point. See Pl. Br. at 35 n.10 (citing
13 E.W. French, 885 F.2d at 1401 (“[E]limination of a single competitor may violate
14 [the Sherman Act] if it harms competition.”) (emphasis added)). Modern antitrust
15 jurisprudence is settled that “[i]t is the impact upon competitive conditions in a
16 definable market which distinguishes the antitrust violation from the ordinary
17 business tort. [The] failure to allege injury to competition is a proper ground for
18 dismissal by judgment on the pleadings.” Tanaka v. Univ. of S. Cal., 252 F.3d
19 1059, 1064 (9th Cir. 2001) (brackets in original; internal quotation marks and
20 citations omitted).
21

MGA’s reliance on Klor’s, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207

22 (1959), is misplaced. Klor’s is considered a relic from a different “era in the
23 Supreme Court’s antitrust jurisprudence” and has been limited to cases in which a
24 “wide combination” is alleged to have driven out a competitor. See Prods. Liability
25 Ins. Agency, Inc. v. Crum & Forster Ins. Cos., 682 F.2d 660, 665 (7th Cir. 1982)
26 (Posner, J.) (“No ‘wide combination’ is alleged here.”); see also Klor’s, 359 U.S. at
27 212-13 (“This is not a case of a single trader refusing to deal with another, nor even
28 of a manufacturer and a dealer agreeing to an exclusive distributorship. Alleged in
Case No. CV 11-01063
-19MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 this complaint is a wide combination consisting of manufacturers, distributors and a
2 retailer.”). No such “wide combination” has been alleged by MGA.
3

As to causation, MGA has no meaningful response. MGA maintains that it

4 was injured by the equitable remedies imposed by Judge Larson. But, as this Court
5 held in rejecting MGA’s RICO counterclaim in the prior litigation, Mattel was not
6 the direct legal cause of those remedies, rather the equitable relief imposed by Judge
7 Larson was the “product of a careful and reasoned, albeit incorrect, application of
8 the law by the district court.” Dkt. No. 9600 at 46. That holding is dispositive of
9 MGA’s antitrust claims, as it precludes MGA from establishing the requisite direct
10 causal relationship between the alleged antitrust violation and MGA’s claimed
11 harm. See Assoc. of Wash. Pub. Hosp. Dists. v. Philip Morris Inc., 241 F.3d 696,
12 701 (9th Cir. 2001) (holding that plaintiff must allege a “direct relationship between
13 the injury and the alleged wrongdoing”).
14
15
16

B.

MGA’s

Market

Definition

Is

Facially

Implausible

and

Contradicted by the Complaint
As Mattel showed in its moving papers, MGA’s tortured product market

17 definition of “fashion dolls” that are “9-12” tall” and “dressed with fashion clothes
18 and accessories” (Compl. ¶ 50) is implausibly narrow and fails to account for other
19 substitutes. See Def. Br. at 37-38. The Complaint certainly does not allege the
20 absence of substitutes. MGA asserts that it can identify a submarket, but that
21 requires an adequate threshold definition of the broader market. And a plaintiff is
22 not at liberty to fabricate an overly narrow definition of either a market or submarket
23 without any explanation for the lack of reasonable substitute products. See UGG
24 Holdings, Inc. v. Severn, 2004 WL 5458426, at *4 (C.D. Cal. Oct. 1, 2004)
25 (claimant “makes no allegations in the Antitrust Claim, nor arguments in its
26 Opposition, as to why other types of boots would not be reasonable substitutes for
27 sheepskin, fleece-lined boots”); see also Def. Br. at 37-38 (highlighting decisions
28 dismissing complaints for failure to properly define product market).

MGA’s

Case No. CV 11-01063
-20MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 purported market definition is not rendered adequate for the stringent purposes of
2 the antitrust laws simply because certain trial witnesses in the prior action loosely
3 referred to “fashion dolls” as a toy category. Such toy categories are set more or
4 less arbitrarily by data companies for the sake of convenience, not as a suggestion of
5 what a relevant market would be for an antitrust claim.
6

MGA also has no response to Mattel’s showing that the Complaint itself

7 contradicts MGA’s conclusory allegation that the relevant geographic market is the
8 United States.

See Def. Br. at 38-39.

The Complaint repeatedly alleges that

9 Mattel’s purportedly anticompetitive conduct affected MGA sales around the globe.
10 See, e.g., Compl. ¶ 11 (Mattel paid “retailers around the globe not to buy Bratz or
11 MGA products”); id. (Mattel “spread derogatory and negative statements about
12 MGA and Bratz on a global basis”); Def. Br. at 38-39 (listing other allegations).
13

MGA’s reliance on E.I. DuPont De Nemours & Co. v. Kolon Indus., Inc.,

14 2011 WL 834658 (4th Cir. Mar. 11, 2011), is unavailing. There, the claimant
15 alleged anticompetitive activity and sales in the U.S. geographic market, while
16 supplies of the product at issue originated from foreign countries as well as the
17 United States. Id. at *1, 5. The Fourth Circuit reversed the district court’s holding
18 that headquarter sites must be considered, id. at *6, focusing instead (as Mattel did
19 in its opening brief) on the “geographic area within which the defendant’s customers
20 who are affected by the challenged practice can practicably turn to alternative
21 supplies.” Id. at *3. MGA specifically alleges that customers in foreign countries
22 have been affected by Mattel’s purported anticompetitive conduct, and the
23 Complaint explicitly encompasses alleged anticompetitive activity abroad. DuPont
24 supports dismissal here, given MGA’s “failure even to attempt a plausible
25 explanation” for its geographic market. Id. at *5 (internal quotation marks and
26 citation omitted).

As in DuPont, MGA “alleges a contradictory and vague

27 delineation of the relevant geographic market.” Id. (internal quotation marks and
28 citation omitted).
Case No. CV 11-01063
-21MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1

MGA argues that the Foreign Trade Antitrust Improvement Act of 1982

2 (“FTAIA”), 15 U.S.C. § 6a, somehow limits the relevant geographic market to the
3 United States. But the FTAIA is a jurisdictional statute and is irrelevant to defining
4 the geographic market for purposes of a monopolization claim. Notably, it is the
5 defendant, not the plaintiff, that would seek to take advantage of the FTAIA, by
6 moving to dismiss for lack of jurisdiction. Mattel has not done so here, because
7 MGA has alleged conduct that has a “direct, substantial, and reasonably foreseeable
8 effect” on domestic commerce. See F. Hoffmann-La Roche Ltd. v. Empagran S.A.,
9 542 U.S. 155, 161 (2004) (foreign conduct is beyond the reach of the Sherman Act
10 if it “adversely affect[s] only foreign markets” (emphasis added)).
11

MGA’s invocation of Galavan Supplements, Ltd. v. Archer Daniels Midland

12 Co., 1997 WL 732498 (N.D. Cal. Nov. 19, 1997), is also off point. In Galavan, the
13 court dismissed the complaint on standing grounds (not at issue here), because the
14 plaintiff was foreign but alleged a relevant market of the United States. Id. at *4.
15 Galavan actually held that subject matter jurisdiction (also not at issue here) was
16 proper under the FTAIA. Id. at *1-3.
17
18
19

C.

Bratz’s Own Sudden Success in the Market Renders Implausible
MGA’s Market Power Allegations

A plaintiff may allege either direct or circumstantial evidence of market

20 power. See Rebel Oil Co., Inc. v. Atl. Richfield Co., 51 F.3d 1421, 1434 (9th Cir.
21 1995). MGA has alleged neither. MGA’s assertion that it alleges direct evidence of
22 reduced output (see Pl. Br. at 29) is a mischaracterization of the Complaint. The
23 harm MGA claims here is the alleged exclusion of a single competitor, which is not
24 “direct proof” of “injury to competition” in the form of market-wide “restricted
25 output and supracompetitive prices” sufficient to qualify as direct evidence of
26 market power. Rebel Oil, 51 F.3d at 1434. Even assuming MGA reduced output as
27 a result of Mattel’s purported conduct, MGA has not alleged that other toy suppliers,
28 including Mattel, failed to increase production to fill any supply gap.
Case No. CV 11-01063
-22MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1

Circumstantial allegations of market power would relate to dominant market

2 share, high barriers to entry, and inability of competitors to increase output. See id.
3 Contrary to MGA’s assertion (see Pl. Br. 29), there is no “surrogate method” for
4 establishing market power solely on the basis of market share. The Complaint
5 includes no allegation concerning any purported inability of existing competitors to
6 increase output in response to a decrease in production by Mattel. Bratz’s sudden
7 and successful rise in the toy market – which MGA trumpets throughout the
8 Complaint (Compl. ¶ 37; Def. Br. at 40-41) – certainly renders implausible any
9 allegation of high barriers to entry. See generally Korea Kumho Petrochem. v.
10 Flexsys Am. LP, 2008 WL 686834, at *9 (N.D. Cal. Mar. 11, 2008) (allegations
11 inconsistent with high barriers to entry cannot survive a motion to dismiss).7
12

MGA’s conclusory list of boilerplate allegations of barriers to entry (see Pl.

13 Br. at 32), without any added explanation, makes the insufficiency of the Complaint
14 painfully clear. See McCabe Hamilton & Renny, Co. v. Matson Terminals, Inc.,
15 2008 WL 2437739, at *8-9 (D. Haw. June 17, 2008). MGA’s only non-conclusory
16 support for barriers to entry is MGA’s newly minted argument that Mattel controlled
17 a resource necessary for effective competition by seeking to destroy Bratz. See Pl.
18 Br. at 32-33. But the Bratz brand is not a product input, and in any event Mattel
19 never controlled the Bratz brand, including because the equitable remedies
20
21

7

This is confirmed by Oahu Gas Serv., Inc. v. Pac. Res., Inc., 838 F.2d 360 (9th
22 Cir. 1988), cited by MGA. The court there recognized that the entry of two
23 competitors into the market tended to refute a finding of high barriers to entry. Id. at
367. But the court ultimately did not grant the motion to dismiss because, unlike
24 here, the primary competitor’s “success may have owed not so much to its
25 competition on the merits in an open market as to the ‘insider’ status of its founder,”
who was one of the defendant’s former executives and “took some large accounts
26 with him” to the competitor. Id. Where a market participant seizes accounts to gain
27 market share, its entry into the marketplace says nothing about prevailing
competitive conditions or barriers to entry. Oahu is thus consistent with settled case
28 (footnote continued)
Case No. CV 11-01063
-23MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 transferring the property were never implemented but instead were stayed. See Def.
2 Br. at 4, 6.
3

Finally, MGA’s allegations of dominant market share are demonstrably self-

4 defeating. MGA argues that “market share of 65% is generally sufficient” (Pl. Br. at
5 29), but the Complaint itself alleges Mattel’s market share hovered below 50%
6 during the time period that Mattel allegedly engaged in the “Kill Bratz” campaign.
7 See, e.g., Compl. ¶ 37. Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d
8 1195 (9th Cir. 1997), cited by MGA, held that “Courts generally require a 65%
9 market share to establish a prima facie case of market power.”

Id. at 1206

10 (recognizing that the parties’ agreed jury instruction “required the jury to find a 65%
11 market share in order to find monopoly power”). MGA’s allegation that “Barbie
12 market shares are up again” as a result of the “Kill Bratz” campaign (Compl. ¶ 26) is
13 purely conclusory and does not meet MGA’s burden at the pleading stage. See Bell
14 Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). MGA cannot fix this pleading
15 deficiency through reference in its brief to stray (and off point) testimony, news
16 articles, or snippets from the Ninth Circuit’s opinion. See Pl. Br. at 30-31; Rohde,
17 2011 WL 684178, at *3 n.1.
18 VI.

MGA FAILS TO PLEAD A § 17043 CLAIM

19

Mattel showed that MGA’s § 17043 claim fails adequately to allege Mattel’s

20 sales price and cost structure. See Def. Br. at 41-42. MGA responds by citing
21 G.H.I.I. v. MTS, Inc., 147 Cal. App. 3d 256, 275-76 (Cal. App. 1st Dist. 1983). But
22 that case expressly held that “to satisfy the pleading requirements of section 17043,
23 the plaintiff must allege defendant’s sales price, its cost in the product and its cost of
24 doing business.” Id. at 275. The only issue in G.H.I.I. was whether the plaintiff –
25 which had “specifically allege[d]” both “the price at which [the defendants] sold
26
27 law that contradictory allegations of high entry barriers cannot survive a motion to
dismiss.
28
Case No. CV 11-01063
-24MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS

1 their products, as well as invoice costs” – was also required to plead the defendants’
2 cost of doing business. See id. at 275. The G.H.I.I. court concluded that such an
3 allegation was unnecessary on the facts, because the plaintiff there would only be
4 able to speculate as to such a figure. See id. at 276. Accordingly, even if MGA
5 could establish that it is unable to plead Mattel’s general business costs with
6 specificity, G.H.I.I. in no way relieves MGA of the obligation to plead sales prices
7 and product costs. See id. at 275-76; see also Indep. Journal Newspapers v. United
8 W. Newspapers, Inc., 15 Cal. App. 3d 583, 587 (Cal. App. 2d Dist. 1971). MGA’s
9 one-sentence and wholly conclusory allegation that Mattel sold its product “below
10 its fully allocated costs” (Compl. ¶ 62) is deficient as a matter of law.
11 VII. LEAVE TO AMEND SHOULD NOT BE GRANTED
12

Hoping to stave off dismissal with prejudice, MGA requests leave to cure any

13 deficiencies in its present Complaint. No amendment, however, could avoid the
14 prohibition on claim-splitting, change the fact that MGA’s claims were all
15 compulsory counterclaims in the prior action, overcome Noerr-Pennington
16 immunity, or rectify fundamental defects in MGA’s allegations. Leave to amend
17 should be denied where, as here, amendment would be futile. See Gordon v. City of
18 Oakland, 627 F.3d 1092, 1094 (9th Cir. 2010).
19
20

Conclusion
For all of the foregoing reasons and those set forth in Mattel’s moving papers,

21 Mattel respectfully submits that the Complaint be dismissed with prejudice.
22
23

DATED: May 6, 2011

QUINN EMANUEL URQUHART &
SULLIVAN, LLP

24
25
26
27

By /s/ Michael T. Zeller
Michael T. Zeller
Attorneys for Mattel, Inc. and
Robert A. Eckert

28
Case No. CV 11-01063
-25MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS