MGA Entertainment Inc v. Mattel Inc et al

Filing 38

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 First Amended Complaint 36 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
Stephen R. Neuwirth (admitted pro hac vice)
7
([e-mail])
8 51 Madison Avenue, 22nd Floor
New York, New York 10010
9 Telephone: [phone]
10 Facsimile: [phone]
11 Attorneys for Mattel, Inc. and
Robert A. Eckert
12
UNITED STATES DISTRICT COURT
13
CENTRAL DISTRICT OF CALIFORNIA
14
15

SOUTHERN DIVISION

16 MGA ENTERTAINMENT, INC.,
17
Plaintiff,
18
vs.
19
MATTEL, INC. and ROBERT A.
20 ECKERT,
21
Defendants.
22
23
24

CASE NO. CV 11-01063
Hon. David O. Carter
MATTEL, INC.’S AND ROBERT A.
ECKERT’S REPLY IN SUPPORT OF
MOTION TO DISMISS FIRST AMENDED
COMPLAINT
Hearing Date: February 13, 2012
Time:
8:30 a.m.
Place:
Courtroom 9D

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

TABLE OF CONTENTS

1

Page

2
3

4 Preliminary Statement ................................................................................................. 1
5 Argument ..................................................................................................................... 2
6 I.
7

II.

8
9

MGA’s Amended Complaint Fails to Comply with the Requirements
Set by the Court in Granting Leave to Amend.................................................. 2
MGA’s Arguments Effectively Call For The Court To Reconsider And
Reverse Its Rulings On The Prior Motion To Dismiss, And These
Arguments Should Be Rejected ........................................................................ 5
A.

MGA’s Claim Could Have Been, And Was, Brought Prior To
Final Judgment........................................................................................ 5

B.

MGA Offers No Basis To Reverse The Court’s Prior Res
Judicata Ruling........................................................................................ 9

C.

MGA Offers No Basis To Reverse The Court’s Prior
Compulsory Counterclaim Ruling ........................................................ 13

10
11
12
13
14 III.

MGA’s Claim is Barred by Noerr-Pennington ............................................... 15

15 IV.

MGA Has Failed to Plead a Section 2 Claim.................................................. 17

16 Conclusion ................................................................................................................. 18
17
18
19
20
21
22
23
24
25
26
27
28
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1

TABLE OF AUTHORITIES
Page

2
3
4
5

Cases
Ascon Properties, Inc. v. Mobil Oil Co.,
866 F.2d 1149 (9th Cir. 1989).............................................................................. 19

6 Austin v. McNamara,
979 F.2d 728 (9th Cir. 1992)................................................................................ 18
7
Aydin Corp. v. Loral Corp.,
8
718 F.2d 897 (9th Cir. 1983).................................................................................. 9
9 Boulware v. Nev. Dep’t of Human Res.,
960 F.2d 793 (9th Cir. 1992)................................................................................ 15
10
11 Columbia Pictures Indus., v. Prof’l Real Estate Investors, Inc.,
866 F.2d 278 (9th Cir. 1989).................................................................................. 6
12
Destiny Tool v. SGS Tools Co.,
344 Fed. App’x 320 (9th Cir. 2009)....................................................................... 7
13
14 Eden Hannon & Co. v. Sumitomo Trust & Banking Co.,
914 F.2d 556 (4th Cir. 1990)................................................................................ 15
15
Feminist Women’s Health Center v. Codispoti,
16
63 F.3d 863 (9th Cir. 1995).................................................................................3-4
17 Grumman Sys. Support Corp. v. Data General Corp.,
125 F.R.D. 160 (N.D. Cal. 1988) ......................................................................... 14
18
19 In re Hawaiian Airlines, Inc., D. Haw. Jan. 22, 2008) ................................................ 8
2008 WL 185649 (Bankr.
20
Hydranautics v. FilmTec Corp.,
70 F.3d 533 (9th Cir. 1995).......................................................................... 6, 7, 14
21
22 Int’l Union of Operating Eng’r-Employers Constr. Indus. Pension v. Karr,
994 F.2d 1426 (9th Cir. 1993).............................................................................. 12
23
Intellective, Inc. v. Mass. Mut. Life Ins. Co.,
24
190 F. Supp. 2d 600 (S.D.N.Y. 2002).................................................................. 15
25 Jenkins v. Pope,
217 Cal. App. 3d 1292 (Cal. Ct. App. 1990) ......................................................... 9
26
Klor’s, Inc. v. Broadway-Hale Stores, Inc.,
27
359 U.S. 207 (1959) ............................................................................................. 18
28
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1 Los Angeles Branch NAACP v. Los Angeles Unified School District,
750 F.2d 731 (9th Cir. 1984).................................................................................. 4
2
Los Angeles Memorial Coliseum Comm’n v. City of Oakland,
3
717 F.2d 470 (9th Cir. 1983).................................................................................. 8
4 Mattel, Inc. v. MGA Entm’t, Inc.,
616 F.3d 904 (9th Cir. 2010)................................................................................ 18
5
6 Mead Data Central v. West Pub. Co.,
679 F. Supp. 1455 (S.D. Ohio 1987).................................................................... 14
7
Mercoid Corp. v. Mid-Continent Inv. Co.,
320 U.S. 661 (1944) ..................................................................................... 5, 8, 14
8
9 Metris U.S.A., Inc. v. Faro Techs., Inc.,
2011 WL 4346852 (D. Mass. Sept. 19, 2011) ....................................................... 9
10
Mosdos Chofetz Chaim, Inc. v. Village Of Wesley Hills,
11
701 F. Supp. 2d 568 (S.D.N.Y. 2010).................................................................... 7
12 Mpoyo v. Litton Electro-Optical Sys.,
430 F.3d 985 (9th Cir. 2005)................................................................................ 11
13
Omni Res. Dev. Corp. v. Conoco, Inc.,
14
739 F.2d 1412 (9th Cir. 1984)........................................................................ 15, 16
15 Pace Indus., Inc. v. Three Phoenix Co.,
813 F.2d 234 (9th Cir. 1987).............................................................................. 3, 4
16
17 Prods. Liability Ins. Agency, Inc. v. Crum & Forster Ins. Cos.,
682 F.2d 660 (7th Cir. 1982)................................................................................ 18
18
Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc.,
508 U.S. 49 (1993) ....................................................................................... 6, 7, 16
19
20 Rebel Oil Co. v. Atl. Richfield Co.,
51 F.3d 1421 (9th Cir. 1995)................................................................................ 17
21
Shire LLC v. Sandoz, Inc.,
22
2008 WL 4402251 (D. Colo. Sept. 24, 2008) ........................................................ 9
23 Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency,
322 F.3d 1064 (9th Cir. 2003).............................................................................. 11
24
County of Los Angeles,
25 Thomas v. Housing Auth. of Cal. Feb. 28, 2006)...................................................... 16
2006 WL 5670938 (C.D.
26
UGG Holdings, Inc. v. Severn,
2004 WL 5458426 (C.D. Cal. Oct. 1, 2004) ........................................................ 17
27
28
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1 Uniroyal Chem. Co. v. Syngenta Crop Prot., Inc.,
2006 WL 516749 (D. Conn. Mar. 1, 2006).......................................................... 16
2
USS-POSCO Indus. v. Contra Costa County Bldg. & Constr. Trades Council,
3
31 F.3d 800 (9th Cir. 1994).................................................................................. 16
4 White v. Lee,
227 F.3d 1214 (9th Cir. 2000).........................................................................16-17
5
6
7

Miscellaneous

8 I Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 207(b) (3d ed. 2006)..................................................................8-9
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
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1
2

Preliminary Statement
In granting MGA leave to replead its antitrust complaint, the Court held that

3 any amended complaint must be predicated on conduct post-dating August 16, 2010.
4 See, e.g., Oct. 20, 2011 Order (Dkt. No. 29) (“MTD Order”) at 8-10, 12, 20. In
5 order to avoid dismissal, that alleged conduct must – independent of any earlier
6 conduct – meet the requirements for liability under the antitrust laws. MGA fails
7 that test with the stray allegations of its amended complaint.

Tellingly, its

8 opposition brief does not even attempt to justify an antitrust claim consistent with
9 the Court’s Order. To the contrary, MGA continues to rely on the litigation conduct
10 that this Court’s prior ruling held was barred by res judicata. The only injury
11 alleged in the amended complaint, or raised in MGA’s opposition, to fulfill the
12 antitrust injury requirement stems from the grant of the injunction that pre-dated
13 August 2010, not the smattering of new alleged conduct. In the same vein, MGA’s
14 repeated argument that it could not have raised by August 2010 the antitrust claim
15 that this Court held is barred by res judicata ignores (a) that the Court previously
16 rejected that precise contention and (b) indeed that the very same allegations were
17 the subject of MGA's RICO and wrongful injunction claims in the underlying
18 litigation.
19

Much of MGA’s brief is no more than a plea for reconsideration of the

20 Court’s prior ruling, without any new facts or new law as its basis. The only
21 additional legal theory now offered by MGA in its brief is an unsupported argument
22 that “sham litigation” claims are not ripe until final judgment has been entered in the
23 litigation alleged to be sham. This argument is contrary to authority, long-standing
24 federal court practice, MGA's own prior conduct and positions and common sense.
25 MGA cannot cite a single decision in support of its novel theory. To the contrary,
26 courts regularly require sham litigation claims to be asserted prior to final judgment
27 in the action alleged to be sham. The notion that a lawsuit cannot be considered a
28 “sham” until final judgment is entered also turns on its head the requirement that
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1 sham litigation must be patently unjustifiable from the beginning, and not simply
2 unsuccessful.

And flying in the face of the “rule” it now urges, MGA itself

3 commenced this antitrust suit when trial in the prior action was underway and before
4 final judgment in that case.
5

MGA's amended complaint is independently barred by Noerr-Pennington.

6 MGA’s effort to avoid application of Noerr-Pennington immunity by labeling
7 Mattel’s claims “sham” clearly fails. It ignores the determinations by this Court and
8 the Ninth Circuit that Mattel’s claims could be pursued. Neither the fact that those
9 claims were ultimately rejected nor the scope of relief awarded is sufficient as a
10 matter of law to classify the lawsuit at issue as “sham” and thus fit within the narrow
11 exception to the First Amendment right to petition the courts for redress.
12

Finally, and as further independent grounds for dismissal, MGA has failed, as

13 in its first complaint, to adequately plead essential elements of a monopolization
14 claim, including market definition, monopoly power and antitrust injury.
15

MGA’s inability, despite all efforts and the skill of experienced counsel, to

16 meet the Court’s mandate to amend its complaint to state a cause of action based on
17 post-August 2010 conduct makes clear that it cannot do so.

Mattel therefore

18 respectfully submits that the amended complaint should be dismissed, this time with
19 prejudice.
20

Argument

21 I.

MGA’s Amended Complaint Fails to Comply with the Requirements Set

22

by the Court in Granting Leave to Amend

23

In dismissing MGA’s first complaint, this Court squarely held that Mattel’s

24 “conduct in the prior litigation – conduct which must have occurred before August
25 16, 2010” – is barred by res judicata. MTD Order at 9. The Court’s dismissal Order
26 directed that repleading be limited to post-August 2010 conduct; it was allowed only
27 because it did “not appear impossible for MGA to allege anticompetitive conduct
28 after August 16, 2010.”

Id. at 20 (emphasis in original).
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MGA’s amended

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1 complaint does not comply with the dismissal Order. Mattel’s current motion to
2 dismiss MGA’s amended complaint provided a detailed analysis of why the few
3 allegations of post-August 2010 conduct included by MGA fail – by any measure –
4 to overcome the bar of res judicata or to state a cognizable antitrust claim. In its
5 opposition, MGA ignores that analysis.
6

MGA does not dispute that its amended complaint offers only three

7 allegations that could be viewed as post-August 16, 2010 conduct, namely that (1)
8 Mattel filed post-trial motions and a notice of appeal following the second trial in
9 the prior action; (2) Mattel purportedly withheld communications with Kohl’s and
10 “35 boxes” of other documents until Mattel was required to produce those materials
11 in the middle of the second trial in the underlying litigation; and (3) Mattel brought
12 a fraudulent-transfer claim against Omni and MGA parties in state court. See Mattel
13 Motion to Dismiss First Amended Complaint (“Mot.”) at 9. The closest MGA
14 comes to identifying purportedly new facts is “Mattel’s investment analysis” that
15 supposedly establishes that Mattel’s purpose in bringing suit against MGA was not
16 to win.

See MGA Opposition to Mattel’s Motion to Dismiss First Amended

17 Complaint (“Opp.”) at 2 (“As Mattel’s investment analysis report makes clear:
18 ‘Outcome is less relevant . . . a Bratz ‘win’ was never part of our model or thesis.’”)
19 (emphasis omitted); see also id. at 21. But, as the amended complaint concedes, the
20 quoted report comes not from Mattel, but from a third-party research analyst, Drew
21 E. Crum of the firm Stifel Nicolaus. See Am. Compl. ¶ 73. Thus, this is not an
22 allegation of post-August 16, 2010 conduct by Mattel, let alone one which would
23 support an independent claim.
24

Nor does MGA make any attempt to show how the post-August 2010

25 allegations are distinct from the litigation conduct that has already been adjudged to
26 be barred by res judicata. It offers no answer to established Ninth Circuit law
27 holding that filing a motion and appeal in connection with a claim is not distinct
28 from bringing the claim in the first instance. See Pace Indus., Inc. v. Three Phoenix
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1 Co., 813 F.2d 234, 238 (9th Cir. 1987). It does not explain or even address the fact
2 that it has long alleged discovery abuses by Mattel, and actually raised and litigated
3 the 35 boxes and Kohl’s issue in the prior action and that, having done so, any
4 claims based on those facts are encompassed by the prior action. See Feminist
5 Women’s Health Center v. Codispoti, 63 F.3d 863, 866-68 (9th Cir. 1995); Los
6 Angeles Branch NAACP v. Los Angeles Unified School District, 750 F.2d 731, 740
7 (9th Cir. 1984).

And it ignores the fact that Mattel’s state court claims as to

8 fraudulent transfer were originally brought in the federal action in 2009, and were
9 brought in state court – in what was clearly a continuation of the litigation – as a
10 result of the Court’s determination that it lacked supplemental jurisdiction. See
11 Pace Indus., 813 F.2d at 238.
12

Most tellingly, because antitrust injury is a required element of liability, MGA

13 admits that its antitrust claim still rests on pre-August 2010 conduct by emphasizing
14 that the entire alleged injury here is predicated on the equitable remedies sought and
15 granted in 2008. See, e.g., Opp. at 17 (expert discovery needed to determine
16 whether “Mattel’s seeking and achieving the constructive trust remedy was the
17 proximate cause of injury to MGA”); id. at 30 (“Judge Larson’s order and erroneous
18 instructions were wrongfully solicited by Mattel, knowing they would not withstand
19 appellate scrutiny for the singular purpose of killing Bratz as a brand . . . And Mattel
20 has accomplished that objective.”).
21

Having conceded that its allegations are limited to those identified by Mattel,

22 having no answer as to why they give rise to a claim distinct from the litigation
23 conduct that is barred by res judicata, and having relied solely on injury that
24 allegedly resulted from remedies sought and granted in 2008, MGA is left with the
25 conclusory assertion that its amended complaint “relies on continuing conduct and
26 developments throughout the pendency of the trial, jury verdict, judgment, and post27 trial motions in the underlying case.” Id. at 18. But in dismissing MGA’s original
28 antitrust complaint, this Court already explained that such unsupported generalities
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1 about ostensibly continuing conduct cannot save MGA’s complaint from dismissal.
2 See MTD Order at 11-14.
3 II.

MGA’s Arguments Effectively Call For The Court To Reconsider And

4

Reverse Its Rulings On The Prior Motion To Dismiss, And These

5

Arguments Should Be Rejected

6

Rather than defend an antitrust claim based on post-August 2010 allegations,

7 MGA presents arguments that are tantamount to a request for reconsideration of the
8 Court’s prior dismissal Order. MGA does not claim to have altered its pleading to
9 render the Court’s prior ruling inapposite; it simply argues the prior ruling was
10 wrong. Thus, according to MGA, Mercoid and Hydranautics compel a ruling that
11 antitrust claims are not compulsory for the same reasons the Court rejected before,
12 and res judicata does not apply, because there is no identity of claims between the
13 two suits if one ignores, as MGA's opposition does, MGA’s RICO and wrongful
14 injunction claims in the prior action. These arguments fare no better than when the
15 Court rejected them three months ago. MGA’s failure to address the Court’s prior
16 ruling, or even mention it, speaks volumes.
17

MGA’s only new argument is that it could not have brought an antitrust claim

18 prior to judgment in the prior action because it was unripe.

That position is

19 unsupported – and unsupportable. Numerous authorities, including those relied
20 upon by MGA, show otherwise. Indeed, refuting its contention, MGA did bring its
21 antitrust claim in this case before final judgment in the prior action. MGA, lacking
22 any response, fails even to acknowledge this point.
23
24
25

A.

MGA’s Claim Could Have Been, And Was, Brought Prior To Final
Judgment

MGA urges that it could not have brought its antitrust claim before final

26 judgment in the prior case because, as with a malicious prosecution claim, it needed
27 to defeat Mattel’s claims before it could challenge the pursuit of those claims as a
28 sham. According to MGA, the “Supreme Court has properly determined that an
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1 antitrust claim based on sham litigation requires adjudication of the underlying
2 claim in favor of the antitrust plaintiff before any antitrust claim comes into being,”
3 and therefore MGA’s antitrust claim “was not ripe and was premature until MGA
4 secured a favorable verdict and judgment in the underlying suit.” Opp. at 7-8.
5 Because its antitrust claim was unripe prior to judgment, MGA argues, the claim
6 could not be barred by res judicata or the compulsory counterclaim rule.
7

This ripeness argument enjoys no support in authority. No court has held that

8 a sham litigation antitrust claim is unripe prior to final judgment in the alleged
9 “sham” litigation, and legions of cases show the opposite is true.
10

MGA’s primary authority, Prof’l Real Estate Investors, Inc. v. Columbia

11 Pictures Indus., Inc., 508 U.S. 49 (1993) (“PREI”), nowhere states that a sham
12 litigation antitrust claim cannot be brought prior to judgment. To the contrary, the
13 antitrust claim in that case was brought as a counterclaim, prior to resolution of the
14 underlying claims (id. at 52), and it was dismissed on Noerr-Pennington grounds,
15 not on ripeness grounds. Id. at 65.1 MGA notes that the trial court in PREI chose to
16 resolve the underlying infringement claims before addressing the pending sham
17 litigation counterclaim (Opp. at 7), but that is immaterial. The discretion vested in
18 trial courts to bifurcate proceedings as they see fit hardly reflects a jurisprudential
19 rule of ripeness, much less a categorical exception to the principles of claim
20 preclusion. Nothing at all prevented MGA from alleging in the underlying case, as
21 the antitrust counterclaimant did in PREI, that Mattel’s claims not only lacked merit,
22
23

1

The earlier proceedings in PREI confirm that the “sham” litigation
24 counterclaim had been filed before any summary judgment decision was rendered
25 on the underlying claims. See Columbia Pictures Indus., v. Prof’l Real Estate
Investors, Inc., 866 F.2d 278, 279 (9th Cir. 1989) (“After learning of these activities
26 at La Mancha, Columbia Pictures, Inc. and six other motion picture studios
27 (‘Columbia’) filed suit to prevent La Mancha from renting videodiscs to its guests,
alleging copyright infringement. La Mancha counterclaimed, alleging unfair
28 (footnote continued)
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1 but were objectively baseless and therefore “sham” under Noerr.

See PREI, 508

2 U.S. at 52, 60-61.
3

MGA cites no authority that actually adopts its position that a sham litigation

4 antitrust claim cannot be brought in the litigation alleged to be a sham. On the other
5 hand, numerous authorities hold, as this Court did previously (see MTD Order at 176 19), that such claims not only may be brought in the underlying case but, as
7 compulsory counterclaims, must be. See Mot. at 24-25 (collecting cases); Destiny
8 Tool v. SGS Tools Co., 344 Fed. App’x 320, 323 (9th Cir. 2009) (holding antitrust
9 claim compulsory in prior infringement action, reasoning that “although the antitrust
10 and patent infringement claims are grounded in different statutes, they raise many of
11 the same legal, factual, and evidentiary issues” such that “[j]udicial economy and
12 efficiency counsel analysis of these issues in a single proceeding”); Mosdos Chofetz
13 Chaim, Inc. v. Village Of Wesley Hills, 701 F. Supp. 2d 568, 590 (S.D.N.Y. 2010)
14 (allegation that prior lawsuit was a “pretext for illegal actions” is “logically
15 intertwined” with the validity of the claims in the prior lawsuit and, consequently,
16 principles of “judicial economy and fairness dictate that all the issues should be
17 resolved in one lawsuit” (internal quotation marks omitted)). These authorities
18 plainly defeat MGA’s ripeness argument, and yet MGA fails even to acknowledge
19 them.
20

Moreover, even as it insists its claim was unripe, MGA concedes that its

21 antitrust claim was at least “a permissive counterclaim” (Opp. at 18-19), meaning it
22 could have been brought before the underlying case terminated and would not have
23 been dismissed as unripe.2 This concession is consistent with both the fact that the
24
25 competition and violation of antitrust laws. Cross-motions for summary judgment
concerning the copyright infringement claim were thereafter filed.”).
2
26
MGA heavily relies on Hydranautics v. FilmTec Corp., 70 F.3d 533 (9th Cir.
27 1995), as it did previously. Opp. at 13. As this Court has recognized (see MTD
Order at 17-19), that authority does not apply to non-patent cases. Yet even if it did,
28 (footnote continued)
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1 claim was brought pre-termination and MGA’s express admission in its amended
2 pleading that its claim was “born” not by virtue of the underlying judgment, but “by
3 reason of the Ninth Circuit’s July 22, 2010 decision.” Am. Compl. ¶19(c). As this
4 Court recognized at oral argument on the last motion to dismiss, and as MGA
5 admitted, the assertion of an antitrust counterclaim in response to an infringement
6 claim is so common that it is “a knee-jerk reaction.” October 11, 2011 Hearing Tr.
7 at 38-39 (“THE COURT: How many times have you seen a patent case with the
8 counterclaim being that counterclaim of antitrust? Numerous? MR. BLECHER: It’s
9 a knee-jerk reaction. THE COURT: It’s a knee-jerk reaction. It happens.”).3 It
10 would be unprecedented to reject both the existing authority and widespread federal
11 court practice by ruling, as MGA requests, that sham litigation antitrust claims are
12 unripe and premature prior to judgment in the underlying case. This Court should
13 not be the first to do so.
14

In the face of all this, MGA attempts to justify its novel ripeness theory by

15 analogizing between sham litigation claims and malicious prosecution claims. This
16 too is unsupported and misses the critical distinction between such claims. While a
17 party must plead that the prior action terminated in its favor to state a claim for
18
19 it too treated the antitrust claim there as at least a permissive counterclaim, i.e., one
that could have been brought in the underlying case rather than one that would have
20 been disallowed as unripe. See Hydranautics,70 F.3d at 536 (“While there may be
21 cases where resolving both issues at once is preferable, Mercoid leaves open the
possibility of raising antitrust claims as permissive counterclaims in an infringement
22 action, or in a separate and subsequent action.”).
3
In addition to his acknowledgment at the prior oral argument that parties
23
frequently bring sham litigation claims before the allegedly “sham” actions are
24 terminated, MGA’s counsel has actually done so on numerous occasions. See, e.g.,
25 Los Angeles Memorial Coliseum Comm’n v. City of Oakland, 717 F.2d 470, 471-73
& n.3 (9th Cir. 1983) (Clayton Act claim to enjoin pending state-court eminent
26 domain proceeding alleged to be a “sham”); In re Hawaiian Airlines, Inc., 2008 WL
27 185649, at *1 (Bankr. D. Haw. Jan. 22, 2008) (antitrust counterclaim alleging that
pending breach of contract claim constituted “sham”).
28
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1 malicious prosecution (Jenkins v. Pope, 217 Cal. App. 3d 1292, 1298 (Cal. Ct. App.
2 1990)), there is no analogous requirement for a “sham litigation” claim. See, e.g.,
3 Aydin Corp. v. Loral Corp., 718 F.2d 897, 903 (9th Cir. 1983) (district court
4 properly granted summary judgment on sham litigation antitrust claim on merits, not
5 on ripeness grounds, before the alleged sham litigation proceedings were
6 terminated); Metris U.S.A., Inc. v. Faro Techs., Inc., 2011 WL 4346852 at *11 (D.
7 Mass. Sept. 19, 2011) (granting summary judgment on sham litigation antitrust
8 counterclaim while allowing underlying patent claim to proceed); Shire LLC v.
9 Sandoz, Inc., 2008 WL 4402251 at *13 (D. Colo. Sept. 24, 2008) (similar); I Phillip
10 E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 207(b) (3d ed. 2006) (party
11 asserting “sham litigation” exception to Noerr-Pennington must only plead the
12 elements of the substantive claim and allege with sufficient specificity that the
13 relevant petitioning activity is “sham”). MGA itself has proclaimed, in arguing
14 against the application of Noerr-Pennington, that “[s]uccess or failure on the merits
15 is not dispositive” of the sham inquiry. Opp. at 22 (emphasis added). Its argument
16 in the remainder of its brief that sham litigation is just like malicious prosecution
17 because both do not “ripen unless and until there is a favorable outcome” (Opp. at
18 12) is inconsistent both with its own stance pages later, and with authority.
19

MGA’s unsubstantiated ripeness argument is erroneous and should be

20 rejected.
21
22
23

B.

MGA Offers No Basis To Reverse The Court’s Prior Res Judicata
Ruling

The traditional rules of res judicata fully apply, and as to these, there hardly is

24 a genuine dispute. Recognizing that res judicata bars all “claims that were raised or
25 could have been raised in a prior suit” where the two suits share an identity of
26 claims (MTD Order at 6), this Court specifically ruled in dismissing MGA’s first
27 complaint that, “to the extent MGA’s antitrust claim relies on Defendants’ litigation
28 conduct, this claim also arises from the same transactional nucleus of facts as
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1 MGA’s prior claims,” rendering it barred. See id. at 9-10. Nowhere does MGA
2 contest that, as repleaded, its antitrust claim continues to rely on the same alleged
3 litigation misconduct at issue in the prior version of its antitrust claim, meaning the
4 claim continues to share the same transactional nucleus of facts as MGA’s prior
5 claims.
6

As before, the “gravamen” of MGA’s amended complaint is its allegation that

7 Mattel has “for 7 years” been trying “to litigate MGA to death.” Am. Compl. ¶ 1
8 (internal quotation marks omitted).

Ignoring the Court’s mandate to limit its

9 allegations, MGA’s opposition extols the very allegations that the Court held barred
10 by res judicata, urging that its “Complaint outlines in great detail that Mattel has
11 developed and ruthlessly deployed a costly, lengthy ‘litigate MGA to death’
12 strategy, pursued a case that it knew was statute-barred, pursued remedies that it
13 knew lacked merit, and made material misrepresentations to the Court to accomplish
14 its anticompetitive objective.” Opp. at 20.4 In fact, portions of MGA’s opposition
15 here cuts and pastes passages directly from its prior opposition to Mattel’s motion to
16 dismiss that the Court granted. Thus, for example, both briefs claim, in identical
17 language, that “[n]ot only did Mattel knowingly pursue baseless copyright and trade
18 secret claims and a time-barred intentional interference claim, and seek imposition
19 of a constructive trust . . . which no reasonable litigant could expect to be upheld on
20 the record presented under established law, Mattel also [advocated for and] secured
21

4

See also Am. Compl. ¶ 1 (“Mattel has spent 7 years . . . to ‘litigate MGA to
22 death’ – pursuing ‘overbroad remedies stunning in scope’ and pursuing claims it
23 knew were statute-barred”); id. ¶ 17 (amended complaint “based on Mattel’s sham
abusive tactics in the underlying litigation”); id. ¶ 19(c) (amended complaint “‘born’
24 by reason of the Ninth Circuit’s July 22, 2010 decision”); id. ¶ 49 (beginning in
25 2003 or 2004, Mattel began a “Kill Bratz” campaign and sought to “Litigate MGA
to Death”); id. ¶ 65 (“Judge Larson’s order and erroneous instruction were
26 wrongfully solicited by Mattel, knowing they would not withstand appellate
27 scrutiny, for the singular purpose of killing Bratz as a brand”).
28
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1 the appointment of an auditor and temporary receiver (Dkt. 4657) based on false
2 allegations . . . .” Opp. at 5-6; Dkt. No. 19 (MGA Opp. to First MTD) at 3.
3

This is the same conduct that the Court ruled was barred on res judicata

4 grounds in its prior dismissal Order, as arising out of the same transaction asserted
5 by MGA in the prior suit. See, e.g., MTD Order at 9; see also id. at 8-14. The
6 Court explained that rights established in the first suit would be jeopardized if
7 MGA’s litigation misconduct antitrust claim proceeded, including because MGA
8 sought a “recovery for a claim against which Mattel previously successfully
9 defended. For example, judgment was previously entered against MGA regarding
10 its counterclaims-in-reply that Mattel was liable for RICO violations and wrongful
11 injunction – two claims that share the same transactional nucleus of facts as the
12 current antitrust claim.”

MTD Order at 15.

MGA’s opposition fails even to

13 mention the RICO and wrongful injunction claims it pursued in the prior action or,
14 for that matter, the Court’s prior dismissal Order.
15

Rather than address the plain factual overlap between MGA’s current claim

16 and its prior ones, MGA attempts (as it did on the last round of dismissal briefing) to
17 supplant the governing transactional test, which turns on the identity of facts
18 underlying the past and current claims, with a comparison of legal elements. See
19 Opp. at 11-12; see also Dkt. No. 19 (MGA Opp. to First MTD) at 10-11. For
20 example, MGA argues that its antitrust claim arises from a distinct nucleus of facts
21 because “the antitrust claim involves analysis of” barriers to entry, the relevant
22 product market, and competitive injury. See Opp. at 12. But as this Court observed
23 when rejecting MGA’s previous iteration of this argument, the specific elements of
24 prior and new claims are “irrelevant” to the res judicata inquiry under controlling
25 law. See MTD Order at 7 n.2 (“indeed, res judicata prevents ‘an imaginative
26 lawyer’ from relitigating old facts by ‘attaching a different legal label.’”) (quoting
27 Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 322
28 F.3d 1064, 1079 (9th Cir. 2003)); see also Dkt. No. 20 (Mattel First MTD) at 8. The
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MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT

1 common factual nucleus test is “the most important” factor in determining if res
2 judicata applies (MTD Order at 8), and is generally “outcome determinative.”
3 Mpoyo v. Litton Electro-Optical Sys., 430 F.3d 985, 988 (9th Cir. 2005). That test
4 clearly is satisfied here.
5

MGA fares no better on the remaining, subsidiary res judicata factors:

6 namely, whether (1) “substantially the same evidence is presented in the two
7 actions;” (2) “the rights or interests established in the prior judgment would be
8 destroyed or impaired by prosecution of the second action;” and (3) “the two suits
9 involve infringement of the same right.” See MTD Order at 8.
10

With respect to the first, MGA rehashes the argument that res judicata is

11 inappropriate because different evidence will be required to prove its antitrust claim
12 than was required to prove the claims it filed in the prior litigation. See Opp. at 913 11; see also Dkt. No. 19 (MGA Opp. to First MTD) at 11. As this Court has already
14 determined, “MGA’s reliance on the same factual allegations in both its present and
15 prior claim demonstrates that the same evidence would be presented to prove both
16 claims.” See MTD Order at 15; see also Int’l Union of Operating Eng’r-Employers
17 Constr. Indus. Pension v. Karr, 994 F.2d 1426, 1430 (9th Cir. 1993) (some
18 difference in the evidence “does not defeat the bar of res judicata.”).
19

As to the second and third factors, MGA again incorrectly asserts that it has

20 never sought relief for Mattel’s allegedly anticompetitive and “abusive sham
21 litigation” efforts (see Opp. at 11) and that its antitrust claim therefore involves the
22 infringement of a different right which cannot impair any rights established in the
23 prior action. See id. at 8-9; see also Oct. 11, 2011 Hearing Transcript (Dkt. No. 30)
24 at 7-8. But, as is clear from the pleadings, MGA’s prior and new claims are based
25 on the same allegedly anticompetitive litigation conduct, and necessarily implicate
26 the possible “infringement of the same right, namely, MGA’s right to be compete in
27 the market free from Mattel’s allegedly illegal litigation strategy and out-of-court
28 tactics.” See MTD Order at 15. As the Court recognized in dismissing MGA’s first
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1 antitrust complaint, recovery by MGA on an antitrust claim in the pending action
2 could improperly “lead to either a double recovery for the same injury or recovery
3 for a claim against which Mattel previously successfully defended.” Id. at 15.
4

Last, MGA once again urges an unprecedented expedience exception to res

5 judicata, claiming it should be allowed to proceed on its antitrust claim because it
6 purportedly could not feasibly have prepared that claim between the Ninth Circuit’s
7 decision on July 22, 2010, and the scheduled trial date of January 11, 2011. See
8 Opp. at 16-17; Dkt. No. 19 (MGA Opp. to First MTD) at 9-10.

The Court

9 previously rejected this argument too when it dismissed MGA’s first antitrust
10 complaint, and here as well MGA fails to acknowledge that it had brought RICO
11 and wrongful injunction claims that, just like its antitrust claim, were based on
12 Mattel's conduct in the underlying litigation during that very same window of time
13 that it claims it could not have brought an antitrust claim. See MTD Order at 10.
14 MGA offers no explanation for its failure to raise all claims arising out of the same
15 transactional nucleus of facts at that time. As this Court determined before, “the
16 failure” to bring the antitrust claim in the underlying action “rests with MGA.” Id.;
17 see also Mot. at 6-7, 23-24; Dkt. No. 20 (Mattel First Reply) at 8-9.
18
19
20

C.

MGA Offers No Basis To Reverse The Court’s Prior Compulsory
Counterclaim Ruling

While MGA renews its prior challenge to the application of the compulsory

21 counterclaim rule, MGA does not suggest its current antitrust claim differs from its
22 original one in this regard either. Thus, the amended complaint is equally subject to
23 this Court’s determination that MGA’s original antitrust claim was a compulsory
24 counterclaim in the prior action. See MTD Order at 20 (Because “both MGA’s
25 [antitrust] claim and Mattel’s prior claim arise from the parties’ conduct in the prior
26 litigation, MGA’s [antitrust] claim was compulsory and should have been brought in
27 the prior litigation.”); see also id. at 16-17, 19; Dkt. No. 11 (Mattel First MTD) at
28 14-17. MGA wholly ignores its own arguments in the prior litigation that its
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MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT

1 counterclaims-in-reply were compulsory because “[t]he parties are fighting over the
2 same thing: are Mattel’s claims justified, did Mattel bring those claims improperly,
3 and did Mattel seek to prevent a defense of those claims through its own
4 wrongdoing. To try Mattel’s claims, this Court is necessarily trying the same facts
5 that give rise to MGA’s Counterclaims-in-Reply. They are therefore compulsory.”
6 See Dkt. No. 8747 at 13. MGA’s concession that its amended complaint “is based
7 on Mattel’s anticompetitive litigation tactics in the underlying litigation” (Opp. at
8 16) demonstrates that its antitrust claim was compulsory in that prior litigation.
9

MGA repeats its arguments that Supreme Court’s decision in Mercoid Corp.

10 v. Mid-Continent Inv. Co., 320 U.S. 661 (1944), and the Ninth Circuit’s decision in
11 Hydranautics preclude the application of the compulsory counterclaim rule to sham
12 litigation antitrust claims. See Opp. at 12-15; see also Dkt. No. 19 (MGA Opp. to
13 First MTD) at 12-14. The Court has already rejected this contention, explaining that
14 Mercoid and Hydranautics are limited to where the prior litigation is based on patent
15 infringement. See MTD Order at 19. The limited applicability of Mercoid and
16 Hydranautics is well established in the case law and academic literature. See MTD
17 Order at 18 (“‘[I]t is clear at this point that there is no general exception [grounded
18 in Mercoid] to the operation of Rule 13(a) and no case decided in the last twenty
19 years holds to the contrary.’”) (quoting Grumman Sys. Support Corp. v. Data
20 General Corp., 125 F.R.D. 160, 164 (N.D. Cal. 1988))). Because Mattel did not
21 bring patent claims in the prior action, Mercoid and Hydranautics simply do not
22 apply. MGA cites Mead Data Central v. West Pub. Co., 679 F. Supp. 1455 (S.D.
23 Ohio 1987), as showing that Mercoid extends “outside the realm of patent
24 infringement to antitrust claims based on copyright infringement” (Opp. at 15), but
25 again simply ignores the Court’s prior rejection of that authority. See MTD Order at
26 18.
27

In sum, there is no basis for not dismissing this pleading, like the prior one, as

28 barred by both res judicata (in light of the claims MGA brought in the prior case)
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MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT

1 and the compulsory counterclaim rule (in light of the claims Mattel brought). Given
2 the manner in which MGA chose to replead its claim, the Court’s prior ruling is on
3 all fours and controlling. MGA’s claim again should be dismissed as barred by res
4 judicata.
5 III.

MGA’s Claim is Barred by Noerr-Pennington

6

The Noerr-Pennington doctrine independently warrants dismissal.

MGA

7 offers no answer to Mattel’s argument that the fact that the prior decisions in its
8 favor – twice surviving summary judgment, and even in the Ninth Circuit’s reversal,
9 convincing the Court that it might well succeed on remand and even that equitable
10 relief of some sort might be justified – establish that the underlying claims are of
11 sufficient merit to defeat a sham litigation allegation. See, e.g., Boulware v. Nev.
12 Dep’t of Human Res., 960 F.2d 793, 790 (9th Cir. 1992) (rejecting “contention that
13 the subsequent reversal of the injunction . . . proves that the suit was without
14 foundation”); Omni Res. Dev. Corp. v. Conoco, Inc., 739 F.2d 1412, 1414 (9th Cir.
15 1984) (dismissing alleged “sham” where defendant was successful “at least to the
16 point of a preliminary injunction” in the underlying litigation); Eden Hannon & Co.
17 v. Sumitomo Trust & Banking Co., 914 F.2d 556, 565 (4th Cir. 1990) (“If a litigant
18 can persuade a neutral judge or jury that it is entitled to legal relief from the conduct
19 of another based upon the law and facts, that suit cannot be a sham under the Noerr20 Pennington doctrine.”); Intellective, Inc. v. Mass. Mut. Life Ins. Co., 190 F. Supp.
21 2d 600, 608 n.2 (S.D.N.Y. 2002) (“Although the state court eventually decided
22 against granting an injunction on the software portion of the complaint, the fact that
23 a state court granted a TRO and then a partial preliminary injunction precludes a
24 finding that the litigation was ‘objectively baseless.’”); see also Mot. at 26-28.
25

MGA seeks to avoid that bar by claiming that Mattel “knew that merely

26 obtaining that interim order would eliminate the dreaded competition. And it has.”
27 Am. Compl. ¶ 83; see also Opp. at 24 (“Mattel’s knowing inducement of Judge
28 Larson to commit legal error . . . by effectively awarding Bratz in perpetuity to
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Case No. CV 11-01063
MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT

1 Mattel spelled the death knell for Bratz.”). The test for Noerr-Pennington purposes,
2 however, is not whether one form of relief sought was reasonable, but whether the
3 lawsuit was frivolous. See, e.g., Uniroyal Chem. Co. v. Syngenta Crop Prot., Inc.,
4 2006 WL 516749, at *7 (D. Conn. Mar. 1, 2006) (“A lawsuit is not rendered a sham
5 merely because one form of relief sought may be objectively unreasonable.”). And
6 in all events, MGA’s claim would not even fit within the exception it tries to define,
7 because the injury pled here was not based not on the filing of the lawsuit seeking
8 such relief – the First Amendment activity protected subject to the limited sham
9 exception – but on actually “obtaining” that order from the Court years later. See
10 Omni Res. Dev. Corp., 739 F.2d at 1414 (affirming judgment on pleadings where
11 plaintiff “was injured by the finding against it in state court and by the injunction,
12 not by the mere filing of the suit”); Thomas v. Housing Auth. of County of Los
13 Angeles, 2006 WL 5670938, at *9 n.48 (C.D. Cal. Feb. 28, 2006) (dismissing
14 complaint where it was “clear that the successful outcome defendants obtained in
15 the unlawful detainer action caused plaintiffs’ injury, not the mere filing of the
16 action”).
17

MGA’s only remaining argument to avoid the bar of Noerr-Pennington is to

18 focus on what Mattel allegedly “knew” in pursuing its litigation against MGA. See,
19 e.g., Opp. at 20 (Mattel “pursued remedies that it knew lacked merit”); Am. Compl.
20 ¶ 83.

Not only are these assertions impermissibly conclusory, they are also

21 irrelevant, because the pertinent inquiry is whether Mattel’s litigation was
22 objectively baseless.

PREI, 508 U.S. at 60 (“Only if challenged litigation is

23 objectively meritless may a court examine the litigant’s subjective motivation.”);
24 USS-POSCO Indus. v. Contra Costa County Bldg. & Constr. Trades Council, 31
25 F.3d 800, 811 (9th Cir. 1994) (if the suit has “objective merit, the plaintiff can’t
26 proceed to inquire into subjective purposes, and the action is perforce not a sham”);
27 White v. Lee, 227 F.3d 1214, 1232 (9th Cir. 2000) (“a lawsuit’s objective
28 baselessness is the ‘threshold prerequisite’: a court may not even consider the
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1 defendant’s allegedly illegal objective unless it first determines that his lawsuit was
2 objectively baseless”) (quoting PREI, 508 U.S. at 60).
3 IV.

MGA Has Failed to Plead a Section 2 Claim

4

MGA’s opposition brief confirms that MGA is unable to plead critical

5 elements of its monopolization claim.

These grounds independently warrant

6 dismissal.
7

Product Market Definition.

MGA’s description of the relevant product

8 market is improperly premised on “demand considerations alone” without regard to
9 “supply elasticity.” Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1436 (9th
10 Cir. 1995) (citation omitted). MGA seeks to defend its overtly narrow “fashion
11 doll” product market by claiming that narrow submarkets are permissible and that
12 judicial scrutiny of the alleged product market is inappropriate at the pleading stage.
13 See Opp. at 26-28. These arguments have no merit. A plaintiff is not at liberty to
14 fabricate an overly narrow market or submarket definition without any explanation
15 for the lack of reasonable substitute products. See, e.g., UGG Holdings, Inc. v.
16 Severn, 2004 WL 5458426, at *4 (C.D. Cal. Oct. 1, 2004) (dismissing claim where
17 there were “no allegations . . . nor arguments in its Opposition, as to why other types
18 of boots would not be reasonable substitutes for sheepskin, fleece-lined boots”); see
19 also Mot. at 32 n. 30; Dkt. No. 11 (Mattel First MTD) at 38 (highlighting cases
20 dismissing for failure to properly define product market).
21

Monopoly Power. Monopoly power must be properly pleaded to state an

22 antitrust claim. See Mot. at 33-34. While MGA argues that a “small” increase in
23 market share by a competitor does not signify “a breakdown of barriers to entry”
24 (Opp. at 31), the Complaint actually pleads just the opposite – namely, that MGA
25 was able to transform into a major market participant in just a short period of time.
26 See, e.g., Am. Compl. ¶ 36 (“Within only a few years, Bratz devastated Barbie’s
27 dominance of the fashion doll market and acquired a market share equal to or in
28 excess of Barbie . . . .”); see also Mattel, Inc. v. MGA Entm’t, Inc., 616 F.3d 904,
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MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT

1 907 (9th Cir. 2010) (“But 2001 saw the introduction of Bratz . . . Bratz became an
2 overnight success.”). MGA also argues that a “market share of 65% is generally
3 sufficient to establish monopoly power” (Opp. at 29), but it alleges that Mattel’s
4 market share hovered below 50% during the time period that Mattel allegedly
5 engaged in the “Kill Bratz” campaign. See, e.g., Am. Compl. ¶ 36. MGA’s
6 additional argument that a reduction in output by MGA demonstrates Mattel’s
7 monopoly power likewise fails. Even assuming MGA reduced output as a result of
8 Mattel’s purported conduct, there is no allegation that other toy suppliers failed, or
9 were unable, to increase production to fill any supply gap.
10

Antitrust Injury. MGA’s vague and conclusory assertions about harm to

11 “competition” and “consumers” (Opp. at 33-34), are insufficient. Mere harm to
12 MGA fails to satisfy the pleading requirements because “elimination of a single
13 competitor, standing alone, does not prove anticompetitive effect.” See Austin v.
14 McNamara, 979 F.2d 728, 739 (9th Cir. 1992) (emphasis in original) (internal
15 citation and quotation marks omitted). Seeking to avoid application of this settled
16 principle, MGA’s improperly relies on Klor’s, Inc. v. Broadway-Hale Stores, Inc.,
17 359 U.S. 207 (1959). But Klor’s is considered a relic from a different “era in the
18 Supreme Court’s antitrust jurisprudence” and has been limited to cases in which a
19 “wide combination” is alleged to have driven out a competitor. See Prods. Liability
20 Ins. Agency, Inc. v. Crum & Forster Ins. Cos., 682 F.2d 660, 665 (7th Cir. 1982)
21 (Posner, J.).5 No such “wide combination” has been alleged by MGA.
22

Conclusion

23

MGA’s amended complaint restates the claim this Court held to be barred by

24 res judicata because this is, quite simply, the only claim MGA has. A court’s
25

5

See also Klor’s, 359 U.S. at 212-13 (“This is not a case of a single trader
26 refusing to deal with another, nor even of a manufacturer and a dealer agreeing to an
27 exclusive distributorship. Alleged in this complaint is a wide combination
consisting of manufacturers, distributors and a retailer.”).
28
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MATTEL’S REPLY IN SUPPORT OF MOTION TO DISMISS AMENDED COMPLAINT

1 discretion to deny leave to amend is “particularly broad” where, as here, the plaintiff
2 has already failed to rectify identified defects in the complaint. See, e.g., Ascon
3 Properties, Inc. v. Mobil Oil Co., 866 F.2d 1149, 1160 (9th Cir. 1989). MGA is
4 represented by able and experienced counsel; were there a way to amend this
5 complaint consistent with the rules of res judicata, they would have done so. Mattel
6 respectfully submits the amended complaint should be dismissed with prejudice.
7 DATED: January 30, 2012
8

QUINN EMANUEL URQUHART &
SULLIVAN, LLP

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

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Case No. CV 11-01063
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