Maquet Cardiovascular LLC v. Saphena Medical, Inc. et al

Filing 141

ORDER RE 86 MOTION FOR LEAVE TO FILE AMENDED COUNTERCLAIM AND 63 MOTION TO STAY, SEVER, OR BIFURCATE (granting 137 ). Signed by Judge Alsup on 7/27/2017. Amended Pleadings due by 8/3/2017. (whalc2, COURT STAFF) (Filed on 7/27/2017)

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1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 MAQUET CARDIOVASCULAR LLC, 11 For the Northern District of California United States District Court 10 Plaintiff, 12 13 14 No. C 16-07213 WHA v. ORDER RE MOTION FOR LEAVE TO FILE AMENDED COUNTERCLAIM AND MOTION TO STAY, SEVER, OR BIFURCATE SAPHENA MEDICAL, INC., and ALBERT CHIN, Defendants. 15 / 16 INTRODUCTION 17 Following dismissal of its antitrust counterclaim, one defendant in this patent 18 19 infringement action moves for leave to file an amended counterclaim. Plaintiff opposes and, in 20 the event leave to amend is granted, revives its motion to stay, sever, or bifurcate the amended 21 counterclaim. Defendant’s motion for leave to amend is GRANTED IN PART and DENIED IN 22 23 24 PART. Plaintiff’s motion to stay, sever, or bifurcate is GRANTED IN PART and DENIED IN PART. STATEMENT Plaintiff Maquet Cardiovascular LLC and defendant Saphena Medical, Inc. (founded by 25 former Maquet employee and defendant Dr. Albert Chin), both sell medical devices designed 26 for endoscopic vessel harvesting (EVH) procedures. Maquet brought this action against 27 Saphena and Dr. Chin for patent infringement, breach of contract, false advertising in violation 28 of the Lanham Act, and correction of inventorship. Saphena and Dr. Chin both answered. 1 Saphena alone asserted counterclaims against Maquet for (1) below-cost sales in violation of 2 Section 17043, (2) tortious interference with prospective business relationships, (3) unfair 3 competition in violation of Section 17200, (4) loss leaders in violation of Section 17044, (5) 4 false advertising in violation of the Lanham Act, (6) attempted monopolization in violation of 5 Section 2 of the Sherman Act, and (7) unfair competition in violation of Massachusetts law.1 6 A prior order dated May 26 (Dkt. No. 82) granted Maquet’s motion to dismiss 7 Saphena’s counterclaim under Federal Rule of Civil Procedure 12(b)(6) and held in abeyance 8 Maquet’s concurrent motion to stay, sever, or bifurcate the counterclaim (see Dkt. No. 63). 9 Pursuant to the May 26 order, Saphena now moves for leave to file an amended counterclaim (Dkt. No. 86). Its proposed amendment would drop two claims for relief under the Lanham Act 11 For the Northern District of California United States District Court 10 and Massachusetts law, add two claims for declaratory judgment of patent non-infringement, 12 and add one claim for declaratory judgment of patent invalidity. Maquet opposes Saphena’s 13 motion and, in case leave to amend is granted, revives its own motion to stay, sever, or bifurcate 14 the counterclaim (Dkt. No. 100). This order follows full briefing and oral argument. 15 ANALYSIS 16 1. 17 Rule 15(a)(2) advises, “The court should freely give leave when justice so requires.” In SAPHENA’S MOTION FOR LEAVE TO FILE AN AMENDED COUNTERCLAIM. 18 ruling on motions for leave to amend, courts consider (1) bad faith, (2) undue delay, (3) 19 prejudice to the opposing party, (4) futility of amendment, and (5) whether the movant has 20 previously amended their pleading. Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2003). 21 Prejudice to the opposing party is the most important factor. Eminence Capital, LLC v. Aspeon, 22 Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Absent prejudice or a strong showing of another 23 factor, there is a presumption under Rule 15(a) in favor of granting leave to amend. Ibid. 24 Nevertheless, futility alone can justify denying leave to amend. Nunes, 375 F.3d at 808; see 25 also Ebner v. Fresh, Inc., 838 F.3d 958, 968 (9th Cir. 2016). 26 27 28 1 All statutory citations herein are to sections of the California Business and Professions Code unless otherwise specified. 2 1 Maquet contends leave to amend should be denied here because (1) Saphena’s proposed 2 amendment would be futile as to most of its claims, and (2) Saphena proposed its amendment in 3 bad faith. This order addresses each contention in turn. 4 5 A. Whether Saphena’s Proposed Amendment Would Be Futile. Maquet’s argument about futility is directed only to Saphena’s returning counterclaims 6 for violations of California law, tortious interference, and violation of the Sherman Act. For 7 purposes of assessing futility on this motion, the legal standard is the same as it would be on a 8 motion to dismiss, i.e., the counterclaim must plead “enough facts to state a claim to relief that 9 is plausible on its face.” See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has facial plausibility when the party asserting it pleads factual content that allows the court to 11 For the Northern District of California United States District Court 10 draw the reasonable inference that the other side is liable for the misconduct alleged. Ashcroft 12 v. Iqbal, 556 U.S. 662, 678 (2009). This analysis generally considers only allegations in the 13 pleadings, attached exhibits, and matters properly subject to judicial notice. Factual allegations 14 in the counterclaim are accepted as true and construed in the light most favorable to Saphena. 15 See Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1030–31 (9th Cir. 2008). 16 17 (1) Below-Cost Sales. Section 17043 makes it “unlawful for any person engaged in business within this State 18 to sell any article or product at less than the cost thereof to such vendor, or to give away any 19 article or product, for the purpose of injuring competitors or destroying competition.” 20 Saphena’s proposed amended counterclaim alleges that Maquet, as part of its campaign to 21 “protect” its own customers and “attack” Saphena, has sold or given away products at a loss to 22 itself — including through discounts and giveaways outside of bundling arrangements. 23 Saphena further alleges that Maquet specifically targets these discounts and giveaways, which 24 involve products directly competing with Saphena’s product, to customers that are considering 25 a purchase from Saphena (see Dkt. No. 86-2 ¶¶ 71–78, 105–10). 26 Rather than discuss the legal sufficiency of these factual allegations as pled, Maquet 27 attacks as “wild[] mischaracteriz[ation]” Saphena’s reliance on certain documents — for 28 example, a sales data spreadsheet — obtained from Maquet. This attack misses the point. 3 1 Maquet ridicules Saphena for “apparently want[ing] the Court to believe that Maquet, after 2 investing $750 million in EVH technology and acquiring 85% market share, gives away 3 millions of dollars’ worth of product every year for the sole purpose of undercutting Saphena,” 4 but at the pleading stage, Saphena’s well-pled factual allegations are entitled to the presumption 5 of truth — even without reference to any documentary evidence. its United States sales branch, who contends Saphena incorrectly interpreted the raw sales data 8 in the spreadsheet it cited. The Schulte declaration is not part of the pleading or attached 9 exhibits, nor is it properly subject to judicial notice. It is therefore an improper basis on which 10 to challenge the sufficiency of Saphena’s proposed amended counterclaim. Maquet’s argument 11 For the Northern District of California Maquet submits a declaration from Christopher Schulte, vice president of operations at 7 United States District Court 6 about the correct interpretation of the raw sales data goes to the evidence supporting Saphena’s 12 position, not to the pleadings, and is premature at this stage. Insofar as Maquet points out that 13 Saphena irresponsibly misused the raw sales data, however, that problem is addressed below 14 within the context of Maquet’s motion to stay, sever, or bifurcate. 15 The same defect underlies Maquet’s related argument that Saphena incorrectly inferred 16 Maquet’s alleged “injurious intent or purpose” from its internal documents. Maquet offers 17 alternative, innocent explanations for those documents, but again, such arguments are most 18 improper at the pleading stage. 19 Maquet also cites the May 26 order, which rejected Saphena’s prior argument that 20 Maquet sells products below cost merely because it offers “bundle arrangements.” True, that 21 argument was and remains meritless, but Saphena’s allegations in the proposed amended 22 counterclaim are no longer limited to simple bundling. Rather, Saphena alleges that Maquet 23 sells or gives away products at a loss — even outside of bundling arrangements — for the 24 purpose of injuring or destroying competition with Saphena. That is sufficient to state a claim 25 for below-cost sales at the pleading stage. 26 Maquet then alleges that Saphena itself “routinely gives away free products to 27 customers” and derides “Saphena’s outlandish attempt to hold Maquet liable for a ubiquitous 28 business practice . . . that Saphena itself employs.” Maquet’s suggestion that two wrongs make 4 1 a right is a non-starter. Even if Saphena might itself be liable for below-cost sales, that is 2 irrelevant to the sufficiency of its allegations that Maquet is liable for below-cost sales. 3 In summary, Saphena has pled sufficient factual allegations to permit the inference that 4 Maquet is liable for below-cost sales in violation of Section 17043. Leave to amend as to this 5 counterclaim is therefore GRANTED. 6 7 (2) Loss Leaders. Section 17044 makes it “unlawful for any person engaged in business within this State chapter.” Section 17030 defines “loss leader” as any article or product sold at less than cost 10 where (a) the purpose is to induce, promote, or encourage the purchase of other merchandise; 11 For the Northern District of California to sell or use any article or product as a ‘loss leader’ as defined in Section 17030 of this 9 United States District Court 8 (b) the effect is a tendency or capacity to mislead or deceive purchasers or prospective 12 purchasers; or (c) the effect is to divert trade from or otherwise injure competitors. 13 For the same reasons as stated above within the context of Saphena’s Section 17043 14 claim, Saphena has pled sufficient factual allegations to permit the inference that Maquet is 15 liable under Section 17044 because it sells or gives away products as loss leaders with the effect 16 of diverting trade from or otherwise injuring Saphena. Leave to amend as to this counterclaim 17 is therefore GRANTED. 18 (3) Unfair Competition. 19 Section 17200 prohibits “unfair competition,” meaning “any unlawful, unfair or 20 fraudulent business act or practice . . . .” As stated, Saphena’s proposed amended counterclaim 21 includes sufficient factual allegations to state claims for relief for violations of Sections 17043 22 and 17044. This alone suffices to state a claim under Section 17200. Leave to amend as to this 23 counterclaim is therefore GRANTED. 24 25 (4) Tortious Interference. The elements of the tort of intentional interference with prospective economic advantage 26 in this case are (1) an economic relationship between Saphena and some third party, with 27 probable future economic benefit to Saphena, (2) Maquet’s knowledge of the relationship, (3) 28 intentional acts by Maquet designed to disrupt the relationship, (4) actual disruption of the 5 1 relationship, and (5) economic harm to Saphena proximately caused by Maquet’s acts. See 2 Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003). 3 The May 26 order dismissed Saphena’s prior tort counterclaim because it failed to allege 4 facts showing probable future economic benefit to Saphena from an economic relationship with 5 some third party, or showing that Maquet knew of any such relationship. In its proposed 6 amended counterclaim, Saphena adds allegations that its “well-known and highly respected 7 founders,” Dr. Chin and Mike Glennon, have built relationships with prospective customers in 8 the “highly interconnected” EVH industry for years to allow Saphena to “get in the door” with 9 its products. Saphena further alleges that Maquet knew of these relationships and in fact tracked them in order to target its interception strategies, and that this interception actually 11 For the Northern District of California United States District Court 10 caused prospective customers to turn away from working with Saphena (see Dkt. No. 86-2 ¶¶ 12 53–54, 86–89). Finally, as stated, Saphena sufficiently alleges that at least some components of 13 Maquet’s interception strategies separately violated California law. See CRST Van Expedited, 14 Inc. v. Werner Enters., Inc., 479 F.3d 1099, 1107–08 (9th Cir. 2007) (“[I]nterference with 15 prospective economic advantage requires . . . an act that is wrongful independent of the 16 interference itself.” (citation omitted)). 17 Maquet contends that prior existing relationships in the EVH industry forged by 18 Saphena’s founders are irrelevant because Saphena’s hope that those relationships would 19 translate into sales remains “mere speculation.” Not so. Unlike Saphena’s initial counterclaim, 20 which referenced only “potential customers,” its proposed amended counterclaim permits the 21 inference of probable future economic benefit to Saphena based on the unique preexisting 22 economic relationships between Saphena’s founders and at least some of its potential customers 23 in the EVH industry. The mere fact that Saphena had not yet consummated sales agreements 24 with those customers at the time of Maquet’s alleged interference does not necessarily defeat its 25 claim. See, e.g., Aydin Corp. v. Loral Corp., 718 F.2d 897, 904 (9th Cir. 1983) (allegations 26 showing a “colorable economic relationship” with “the potential to develop into a full 27 contractual relationship” suffice to survive dismissal (citations omitted)). Leave to amend as to 28 this counterclaim is therefore GRANTED. 6 1 2 (5) Violation of the Sherman Act. A claim for attempted monopolization under Section 2 of the Sherman Act in this case 3 requires (1) that Maquet engaged in predatory or anticompetitive conduct with (2) specific 4 intent to monopolize and (3) a dangerous probability of achieving monopoly power. See 5 Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). Specifically, to prevail on a 6 predatory pricing claim, Saphena must demonstrate that (1) the prices complained of are below 7 an appropriate measure of Maquet’s costs, and (2) there is a dangerous probability that Maquet 8 will be able to recoup its investment in below-cost prices. See Pac. Bell Tel. Co. v. Linkline 9 Commc’ns, Inc., 555 U.S. 438, 451 (2009) (quotations and citations omitted). As the Supreme Court has noted, “the success of any predatory scheme depends on 11 For the Northern District of California United States District Court 10 maintaining monopoly power for long enough both to recoup the predator’s losses and to 12 harvest some additional gain.” Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 13 U.S. 209, 231–32 (1993) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 14 U.S. 574, 589 (1986)). Our court of appeals has also held that, “while market share is just the 15 starting point for assessing market power . . . market share, at least above some level, could 16 support a finding of market power in the absence of contrary evidence. Where such an 17 inference is not implausible on its face, an allegation of a specific market share is sufficient, as 18 a matter of pleading, to withstand a motion for dismissal.” Cost Mgmt. Servs., Inc. v. Wash. 19 Natural Gas Co., 99 F.3d 937, 950–51 (9th Cir. 1996) (quoting Hunt-Wesson Foods, Inc. v. 20 Ragu Foods, Inc., 627 F.2d 919, 925 (9th Cir. 1980), with added emphasis). Moreover, 21 “[w]hether or not market power is considered a ‘separate’ element of the attempt action, the 22 existence of market power is relevant to drawing the inference of specific intent from conduct, 23 except where the conduct is clearly threatening to competition.” Hunt-Wesson, 627 F.2d at 926 24 (citations and footnote omitted). 25 Here, as stated, Saphena’s proposed amended counterclaim sufficiently alleges that 26 Maquet sold or gave away products below cost in violation of California law and with the 27 specific intent to exclude competitors, including Saphena, from the EVH market. Moreover, 28 Saphena alleges that Maquet already “controls” approximately 85 percent of the market for 7 1 EVH devices, which is “highly concentrated” with “only three principal suppliers” — Maquet, 2 Saphena, and a non-party, Terumo (see Dkt. No. 86-2 ¶¶ 53, 142). 3 Maquet argues that Saphena’s proposed amended counterclaim nevertheless does not 4 allege facts showing a dangerous probability of recoupment because “Maquet faces competition 5 from three separate competitors — Saphena, Terumo, and LivaNova-Sorin — and there is no 6 allegation that Maquet has any probability of excluding all of these competitors from the 7 relevant market” (Dkt. No. 100 at 13). Maquet provides no legal authority for its suggestion 8 that, in order to allege a dangerous probability of recoupment at the pleading stage, Saphena 9 must allege that Maquet has a probability of excluding all competitors from the EVH market. Even without such an allegation, Saphena’s proposed amended counterclaim, taken as a whole, 11 For the Northern District of California United States District Court 10 alleges sufficient facts to permit the inference that Maquet has a dangerous probability of 12 recoupment and is liable for attempted monopolization under Section 2 of the Sherman Act. 13 Leave to amend as to this counterclaim is therefore GRANTED. 14 15 B. Whether Saphena Proposed Its Amendment in Bad Faith. Separately and in addition to arguing futility, Maquet protests that Saphena’s motion 16 should be denied based on a finding of bad faith because the proposed amended counterclaim 17 relies on (1) “baseless theories” and “speculative distortion of information and documents 18 produced in this action” (Dkt. No. 100 at 17, 22–24), and (2) “confidential Maquet documents 19 that were used improperly” and never produced by either side in this action (see id. at 17–22). 20 As explained, Maquet’s first point is meritless. At this stage, the relevant question is whether 21 Saphena has pled its counterclaims with sufficient factual allegations, not whether it has 22 provided sufficient evidentiary support to prove up those counterclaims. 23 Maquet’s second point about Saphena’s reliance on previously-undisclosed 24 “confidential documents” of “suspect origin” is likewise unavailing. Maquet cites non-binding 25 decisions that denied leave to amend based in part upon findings of bad faith under 26 circumstances readily distinguishable from our case. See GSS Props., Inc. v. Kendale Shopping 27 Ctr., Inc., 119 F.R.D. 379, 380–81 (M.D.N.C. 1988) (Judge Russell Eliason) (finding blatant 28 delay and bad faith where plaintiff belatedly sought amendment to add new allegations it 8 1 “clearly knew” of prior to filing suit, apparently for the “ulterior purpose of either attempting to 2 force defendant to settle or punishing defendant for failing to settle”); Horton v. Vinson, No. 3 1:14CV192, 2015 WL 4774276, at *29–30 (N.D. W. Va. Aug. 12, 2015) (Judge Irene Keeley) 4 (finding futility and bad faith where plaintiff belatedly sought amendment to add “new” 5 allegations he “clearly knew of” at the time of a previous amendment, apparently for the 6 purpose of pleading around limitations surfaced in motion practice). 7 “Where there is lack of prejudice to the opposing party and the amended [pleading] is 8 obviously not frivolous, or made as a dilatory maneuver in bad faith, it is an abuse of discretion 9 to deny [a motion for leave to amend].” Hurn v. Retirement Fund Trust of Plumbing, Heating & Piping Indus. of S. Cal., 648 F.2d 1252, 1254 (9th Cir. 1981) (quoting Howey v. United 11 For the Northern District of California United States District Court 10 States, 481 F.2d 1187, 1190–91 (9th Cir. 1973)). If Maquet has grievances against Saphena 12 based on its alleged discovery misconduct, including any alleged failure to disclose or produce 13 documents, then it should raise those grievances in a discovery motion. Under these 14 circumstances, however, this order declines to bar Saphena’s proposed amendment based on 15 Maquet’s accusations of “bad faith.” 16 17 C. Saphena’s Newly-Added Counterclaims for Declaratory Judgment. In its opposition brief, Maquet expressly declines to address Saphena’s newly-added 18 counterclaims for declaratory judgment, aside from commenting that those counterclaims “were 19 not authorized under the Court’s Order [and] are entirely duplicative of certain of Saphena’s 20 affirmative defenses” (Dkt. No. 100 at 5–6). 21 Contrary to Maquet’s suggestion, the May 26 order did not limit the range of potential 22 amendments that Saphena could propose. That being said, Saphena’s newly-added 23 counterclaims for declaratory judgment would serve no appreciable purpose in the case and 24 appear to be a litigation gimmick to preemptively defend against Maquet’s motion to stay, 25 sever, or bifurcate. Such counterclaims would be subject to striking under Rule 12(f). See 26 Whittlestone, Inc. v. Handi-Craft Co., 618 F.3d 970, 973 (9th Cir. 2010) (Rule 12(f) allows a 27 district court to strike from a pleading any redundant or immaterial matter “to avoid the 28 expenditure of time and money that must arise from litigating spurious issues by dispensing 9 1 with those issues prior to trial”). Given this futility, leave to amend as to Saphena’s 2 counterclaims for declaratory judgment is DENIED. MAQUET’S MOTION TO STAY, SEVER, OR BIFURCATE. 3 2. 4 In concluding that Saphena has alleged sufficient factual material at this stage to plead 5 claims for relief notwithstanding the collateral evidentiary disputes already emerging between 6 the parties, this order in no way blesses the evidentiary errors in the proposed amendment. As 7 explained, contrary to Maquet, those errors do not warrant denial of leave to amend under these 8 circumstances, and these and other evidentiary disputes should ultimately be resolved after the 9 pleading stage. So, Saphena lives to fight another day. The Court is, however, disappointed that counsel for Saphena misused information obtained from Maquet in seeking leave to amend. 11 For the Northern District of California United States District Court 10 Specifically, during oral argument on these motions, the Court asked Saphena’s counsel 12 to explain how Saphena inferred the numbers of EVH products that Maquet supposedly gave 13 away or sold at a loss in 2014–2017 from the spreadsheets appended as Exhibits 14–17 to the 14 proposed amendment. Counsel could not explain those numbers at the hearing — despite a 15 recess to allow him to do so — but nevertheless insisted on their accuracy. Afterwards, in 16 response to a follow-up order requiring a declaration on this point (Dkt. No. 132), counsel 17 finally admitted to erroneously counting up the number of line items supposedly supporting 18 inferences of below-cost sales (Dkt. No. 136). It has become clear that, while some line items 19 still arguably support Saphena’s position (at least at the pleading stage), the numbers offered in 20 the proposed amendment were vastly exaggerated in Saphena’s favor.2 Having considered the foregoing events, including Saphena’s severe misuse of evidence 21 22 as well as Maquet’s motion and Saphena’s opposition thereto, the Court finds that these 23 circumstances present too great a risk that Saphena will simply use discovery on its antitrust 24 counterclaim to overwhelm Maquet (the original plaintiff here) and prevent a fair adjudication 25 of its patent and related grievances. This order therefore STAYS all discovery and other 26 proceedings as to the counterclaim until further order of the Court. If Maquet abuses the 27 2 28 In addition to the declaration, Saphena’s counsel also filed an administrative motion for permission to lodge a letter of apology with the Court (Dkt. No. 137). The motion is GRANTED and counsel’s apology is accepted. Nevertheless, a mistake of this magnitude can have consequences, as here. 10 1 process through discovery or motion practice, then Saphena may be permitted to proceed more 2 promptly on its counterclaim. We will eventually reactivate the antitrust counterclaim for 3 discovery and trial but for now the first order of business will be the patent suit by Maquet. 4 It remains premature to decide at this stage whether and to what extent the complaint 5 and counterclaim might eventually be consolidated for some purposes, bifurcated, or tried 6 together, all of which remain possible options. Thus, except for the stay, Maquet’s motion is 7 DENIED without prejudice to the possibility that additional case management might be 8 warranted as this litigation progresses. Both sides are expected to work hard to meet existing 9 deadlines and should not anticipate any extensions. The stay does not relieve either side of its duty under Rule 26 to supply initial disclosures, even as to the amended counterclaim. 11 For the Northern District of California United States District Court 10 12 CONCLUSION For the foregoing reasons, Saphena’s motion for leave to file an amended counterclaim 13 is GRANTED IN PART and DENIED IN PART. Maquet’s motion to stay, sever, or bifurcate is 14 GRANTED IN PART and DENIED IN PART. Saphena shall file an amended counterclaim 15 consistent with this order by AUGUST 3 AT NOON, but all discovery and other proceedings as to 16 the amended counterclaim are STAYED until further order of the Court. 17 18 IT IS SO ORDERED. 19 20 Dated: July 27, 2017. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 21 22 23 24 25 26 27 28 11

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