U.S. Ethernet Innovations, LLC v. Acer, Inc. et al

Filing 855

ORDER by Judge Claudia Wilken GRANTING PARALLELS 785 MOTION TO DISMISS. (ndr, COURT STAFF) (Filed on 8/12/2013)

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1 IN THE UNITED STATES DISTRICT COURT 2 FOR THE NORTHERN DISTRICT OF CALIFORNIA 3 4 U.S. ETHERNET INNOVATIONS, LLC, Plaintiff, 5 6 7 8 9 United States District Court For the Northern District of California 10 11 12 13 14 15 16 No. C 10-3724 CW ORDER GRANTING PARALLEL’S MOTION TO DISMISS (Docket No. 785) v. ACER, INC.; ACER AMERICA CORPORATION; APPLE, INC.; ASUS COMPUTER INTERNATIONAL; ASUSTEK COMPUTER, INC.; DELL, INC.; FUJITSU, LTD.; FUJITSU AMERICA, INC.; GATEWAY, INC.; HEWLETT PACKARD CO.; SONY CORPORATION; SONY CORPORATION OF AMERICA; SONY ELECTRONICS INC.; TOSHIBA CORPORATION; TOSHIBA AMERICA, INC.; and TOSHIBA AMERICA INFORMATION SYSTEMS, INC., Defendants, INTEL CORPORATION; NVIDIA CORPORATION; MARVELL SEMICONDUCTOR, INC.; ATHEROS COMMUNICATIONS, INC.; and BROADCOM CORPORATION, 17 Intervenors. 18 ________________________________/ 19 Third Party Defendant Parallel Technology LLC moves to 20 dismiss the complaint asserted against it by Intervenor Broadcom 21 Corporation. Broadcom opposes the motion. Having considered the 22 papers filed by the parties and their arguments at the hearing, 23 the Court GRANTS Parallel’s motion. 24 BACKGROUND 25 On April 18, 2013, Broadcom filed a first amended complaint 26 in intervention and third party complaint against Parallel and 27 Plaintiff U.S. Ethernet Innovations. 28 Docket No. 735. In the 1 complaint, Broadcom makes the following allegations relevant to 2 this motion. 3 USEI is an alter ego, and mere instrumentality, of Parallel. 4 Compl. ¶¶ 8, 10. 5 which is the manager and sole member of USEI, and Parallel’s 6 directors are the only officers of USEI. 7 addition, USEI is an agent of Parallel. 8 causes, directs or is otherwise responsible for the activities of 9 USEI, including its filing of patent infringement suits. United States District Court For the Northern District of California 10 It is a wholly-owned subsidiary of Parallel, Id. at ¶¶ 8, 11-15. In Id. at ¶ 9. Parallel Id. at ¶ 17. 11 3Com Corporation was the original assignee of the patents-in- 12 suit. 13 agreement, which gave Broadcom a license and associated rights to 14 practice the patents-in-suit. 15 Id. at ¶ 1. In 2004, Broadcom and 3Com entered into an Id. at ¶ 19. In 2009, 3Com sold the asserted patents to Parallel pursuant 16 to a patent sale agreement. 17 identified the agreement between Broadcom and 3Com as an 18 encumbrance on 3Com’s rights to the patents. 19 executing the sale agreement, Parallel acknowledged that it 20 received, and had sufficient time to review, the agreement between 21 Broadcom and 3Com. 22 Id. at ¶ 25. The sales contract Id. at ¶ 27. In Id. at ¶ 28. In 2009, Parallel assigned the patents-in-suit to USEI. Id. 23 at ¶ 30; see also id. at ¶ 20 (stating that USEI is the current 24 assignee of these patents). 25 assignment of the patents to USEI did not recite or otherwise 26 provide for any encumbrance, including that which had been set 27 forth in the sale agreement between 3Com and Parallel, and that Broadcom alleges that Parallel’s 28 2 1 Parallel made this assignment with the intention of evading that 2 encumbrance. 3 Id. at ¶¶ 32-33, 61. On October 9, 2009, USEI filed the original complaint in this 4 action. 5 Broadcom’s customers of making, using, selling, offering to sell 6 or importing products that allegedly infringe the asserted 7 patents. 8 9 Id. at ¶ 36. In its complaint, USEI accused a number of Id. Broadcom asserts a claim for intentional interference with contractual relations against Parallel. Broadcom alleges that United States District Court For the Northern District of California 10 Parallel caused or directed USEI to bring allegations of 11 infringement of the patents by Broadcom products. 12 It further alleges that this was contrary to Broadcom’s rights 13 under its agreement with 3Com and that Parallel disrupted and 14 interfered with Broadcom’s rights under that agreement. 15 ¶¶ 62-63. 16 incurred, and continues to incur, including without limitation the 17 attorneys’ fees, costs and expenses incurred in defending against 18 USEI’s allegations of infringement of the Asserted Patents by 19 Broadcom Products.” 20 such damages in the prayer for relief). Id. at As a result of this interference, “Broadcom has 21 22 Id. at ¶ 62. Id. at ¶ 65; see also id. at 8 (demanding LEGAL STANDARD A complaint must contain a “short and plain statement of the 23 claim showing that the pleader is entitled to relief.” 24 Civ. P. 8(a). 25 state a claim, dismissal is appropriate only when the complaint 26 does not give the defendant fair notice of a legally cognizable 27 claim and the grounds on which it rests. 28 Twombly, 550 U.S. 544, 555 (2007). Fed. R. On a motion under Rule 12(b)(6) for failure to 3 Bell Atl. Corp. v. In considering whether the 1 complaint is sufficient to state a claim, the court will take all 2 material allegations as true and construe them in the light most 3 favorable to the plaintiff. 4 896, 898 (9th Cir. 1986). 5 to legal conclusions; “threadbare recitals of the elements of a 6 cause of action, supported by mere conclusory statements,” are not 7 taken as true. 8 (citing Twombly, 550 U.S. at 555). NL Indus., Inc. v. Kaplan, 792 F.2d However, this principle is inapplicable Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) When granting a motion to dismiss, the court is generally 10 United States District Court For the Northern District of California 9 required to grant the plaintiff leave to amend, even if no request 11 to amend the pleading was made, unless amendment would be futile. 12 Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911 13 F.2d 242, 246-47 (9th Cir. 1990). 14 amendment would be futile, the court examines whether the 15 complaint could be amended to cure the defect requiring dismissal 16 “without contradicting any of the allegations of [the] original 17 complaint.” 18 Cir. 1990). In determining whether Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th 19 DISCUSSION 20 Parallel moves to dismiss Broadcom’s claim on the basis that 21 it is barred by the litigation privilege and under the California 22 Supreme Court’s rule set forth in Pacific Gas & Electric Co. v. 23 Bear Stearns & Co., 50 Cal. 3d 1118 (1990) (hereinafter, PG&E). 24 It further contends that Broadcom has not plead a plausible claim 25 against it. 26 I. 27 28 Litigation privilege California Civil Code section 47(b) provides that communications made in or related to judicial proceedings are 4 1 absolutely immune from tort liability. 2 Court has explained that the purpose of the privilege is “to 3 afford litigants . . . the utmost freedom of access to the courts 4 without fear of being harassed subsequently by derivative tort 5 actions.” 6 litigation privilege applies to any communications (1) made in a 7 judicial proceeding; (2) by litigants or other participants 8 authorized by law; (3) to achieve the objects of the litigation; 9 (4) that have some connection or logical relation to the action.” The California Supreme Silberg v. Anderson, 50 Cal. 3d 205, 213 (1990). “The United States District Court For the Northern District of California 10 Sharper Image Corp. v. Target Corp., 425 F. Supp. 2d 1056, 1077 11 (N.D. Cal. 2006) (citing Silberg, 50 Cal. 3d at 212). 12 requirements are met, section 47(b) operates as an absolute 13 privilege. 14 Once these Silberg, 50 Cal. 3d at 216. The privilege is quite broad. It covers “any publication 15 required or permitted by law in the course of a judicial 16 proceeding to achieve the objects of the litigation, even though 17 the publication is made outside the courtroom and no function of 18 the court or its officers is involved.” 19 the litigation privilege to all tort claims, with the exception of 20 malicious prosecution. 21 (1997). 22 of the objects of the litigation is, in essence, simply part of 23 the requirement that the communication be connected with, or have 24 some logical relation to, the action, i.e., that it not be 25 extraneous to the action.” 26 doubt about whether the privilege applies is resolved in favor of 27 applying it.” 28 (2002). Id. Courts have applied Edwards v. Centex, 53 Cal. App. 4th 15, 29 “The requirement that the communication be in furtherance Silberg, 50 Cal. 3d at 219-20. “Any Kashian v. Harriman, 98 Cal. App. 4th 892, 913 5 1 Broadcom disputes that the litigation privilege applies to 2 bar its claim against Parallel for two reasons. 3 that Parallel cannot benefit from the protections of the 4 litigation privilege because it is not a litigant in USEI’s 5 underlying claim or another participant authorized by law. 6 However, as this Court has recognized previously, “those non- 7 litigants possessing a ‘substantial interest in the outcome of the 8 litigation’ are ‘authorized participants’ for purposes of the 9 litigation privilege.” First, it argues Sharper Image Corp. v. Target Corp., 425 United States District Court For the Northern District of California 10 F. Supp. 2d 1056, 1077 (N.D. Cal. 2006) (quoting Costa v. Superior 11 Court, 157 Cal. App. 3d 673, 678 (1984)); see also Adams v. 12 Superior Court, 2 Cal. App. 4th 521, 529 (1992) (“the privilege is 13 not restricted to the actual parties to the lawsuit but need 14 merely be connected or related to the proceedings”) (citing 15 Profile Structures v. Long Beach Bldg. Material Co., 181 Cal. App. 16 3d 437, 443 (1986)). 17 has alleged that USEI is the “alter ego,” “mere instrumentality” 18 and “agent” of Parallel. 19 alleged that the Parallel is in fact responsible for USEI’s 20 activities, including its filing of patent infringement suits. 21 Id. at ¶ 17. 22 party to the underlying lawsuit and has a substantial interest in 23 its outcome. 24 privilege. 25 Further, as Parallel points out, Broadcom Compl. ¶¶ 8-10. Broadcom has also Taking Broadcom’s allegations as true, Parallel is a Accordingly, Parallel may invoke the litigation Broadcom also argues that the “tortious conduct of which 26 Parallel is accused is not communicative.” 27 the litigation privilege protects only publications and 28 communications, a threshold issue in determining the applicability 6 Opp. at 10. “Because 1 of the privilege is whether the defendant’s conduct was 2 communicative or noncommunicative.” 3 40 Cal. 4th 948, 957 (2007) (internal quotation marks and 4 citations omitted). 5 noncommunicative conduct hinges on the gravamen of the action.” 6 Rusheen v. Cohen, 37 Cal. 4th 1048, 1058 (2006) (citations 7 omitted). 8 applies is whether the injury allegedly resulted from an act that 9 was communicative in its essential nature.” Jacob B. v. County of Shasta, “The distinction between communicative and “That is, the key in determining whether the privilege Id. “[I]f the United States District Court For the Northern District of California 10 gravamen of the action is communicative, the litigation privilege 11 extends to noncommunicative acts that are necessarily related to 12 the communicative conduct.” 13 unless it is demonstrated that an independent, noncommunicative, 14 wrongful act was the gravamen of the action, the litigation 15 privilege applies.” Id. at 1065. “Stated another way, Id. 16 Broadcom contends that the conduct of which it accuses 17 Parallel--which it characterizes as “creating a shell company,” 18 “assigning the Patents-in-Suit to that shell company,” and 19 “financing this litigation”--is not communicative.1 20 gravamen of Broadcom’s intentional interference claim against 21 Parallel is that it directed USEI’s allegations of infringement, 22 which purportedly interfered with Broadcom’s rights under its 23 agreement with 3Com. 24 USEI, its assignment of the patents to USEI and its financing of 25 this litigation do “not provide an independent basis for liability However, the Put another way, Parallel’s establishment of 26 1 27 28 The Court also notes that Broadcom alleged in its complaint that Parallel is “responsible for” this litigation but did not allege that Parallel “financed” the litigation. 7 1 separate and apart from” the filing of the lawsuit, and thus the 2 filing is the gravamen of the action. 3 See id. Accordingly, the litigation privilege bars the intentional 4 inference with contract claim that Broadcom has plead here and the 5 Court grants Parallel’s motion to dismiss. 6 II. 7 The California Supreme Court’s decision in PG&E As a separate and additional ground for dismissal, Parallel 8 contends that Broadcom’s intentional interference with contract 9 claim fails because Broadcom did not plead that the underlying United States District Court For the Northern District of California 10 litigation lacked probable cause and terminated in its favor and 11 cannot do so until the litigation has reached a resolution. 12 In PG&E, Pacific Gas & Electric (PG&E) sued Bear Stearns & 13 Company, an investment brokerage firm, for intentional 14 interference with its contract with Placer County Water Agency and 15 for intentional interference with prospective business advantage, 16 among other things. 17 to terminate the contract but felt it could not do so without a 18 breach. 19 eventually entered into an agreement with it to investigate the 20 feasibility of terminating the contract, in return for a 21 percentage of any resulting increase in the county’s revenues. 22 Id. at 1124. 23 arbitration on PG&E to resolve the question of whether it could 24 terminate the contract without a breach. 25 filing several lawsuits, including the one at issue in PG&E. Id. 26 Then, Placer County withdrew its arbitration demand and sought 27 declaratory judgment that the contract could be terminated. 50 Cal. 3d at 1123-24. Id. at 1124. Placer County wanted Bear Stearns approached Placer County and Thereafter, Placer County served a demand for 28 8 Id. PG&E responded by Id. 1 The trial court dismissed PG&E’s claims for intentional 2 interference. 3 In upholding the trial court’s decision, the California 4 Supreme Court considered, among other things, “whether it is 5 proper to impose liability for inducing a potentially meritorious 6 lawsuit” and concluded “that it is not.” 7 reaching this conclusion, the court explained, 8 law, the only common law tort claim that treats the instigation or 9 bringing of a lawsuit as an actionable injury is the action for Id. at 1127. In “Under existing United States District Court For the Northern District of California 10 malicious prosecution,” and under that tort, the “actionable harm 11 is in forcing the individual to expend the financial and emotional 12 resources to defend against a baseless claim.” 13 (emphasis in original; citation omitted). Thus, “[t]he bringing of 14 a colorable claim is not actionable; plaintiff in a malicious 15 prosecution action must prove that the prior action was brought 16 without probable cause and was pursued to a legal termination in 17 plaintiff’s favor.” Id. at 1130-31 Id. at 1130-31. 18 The court noted that, for a malicious prosecution claim, the 19 “probable cause requirement is essential to assure free access to 20 the courts” and stressed that “if the bringing of a colorable 21 claim were actionable, tort law would inhibit free access to the 22 courts and impair our society’s commitment to the peaceful, 23 judicial resolution of differences.” 24 reasoned, “To permit a cause of action for interference with 25 contract . . . to be based on inducing potentially meritorious 26 litigation on the contract would threaten free access to the 27 courts by providing an end run around the limitations on the tort 28 of malicious prosecution.” Id. at 1131. Id. at 1137. 9 The court The court therefore held 1 that “a plaintiff seeking to state a claim for intentional 2 interference with contract or prospective economic advantage 3 because defendant induced another to undertake litigation, must 4 allege that the litigation was brought without probable cause and 5 that the litigation concluded in plaintiff’s favor.” 6 Id. Broadcom appears to argue that the holding in PG&E should not 7 apply here because, in the underlying litigation in that case, 8 Placer County sought a judgment adjudicating its rights under a 9 contract, which is different than the underlying claim brought United States District Court For the Northern District of California 10 here. 11 that reached this conclusion and the PG&E court did not frame it 12 in such a narrow way. 13 holding in contexts other than claims seeking to ascertain rights 14 under an agreement, including where the underlying action was for 15 patent infringement. 16 Inc., 360 F. Supp. 2d 1064, 1072-1073 (N.D. Cal. 2005) (patent 17 infringement); see also Formula One Licensing, B.V. v. Purple 18 Interactive Ltd., 2001 U.S. Dist. LEXIS 2968, at * 15-16 (N.D. 19 Cal.) (trademark infringement). 20 Opp. at 11. Broadcom, however, has not cited any court Further, numerous courts have applied the See, e.g., Visto Corp. v. Sproqit Techs., Broadcom has failed to plead that the litigation concluded in 21 its favor or that it was brought without probable cause and thus 22 has failed to state a claim for intentional interference with 23 contract. 24 prior to the resolution of that litigation. 25 acknowledges that “there must be a favorable termination of the 26 entire underlying action to give rise to a malicious prosecution 27 claim,” Opp. at 12 n.13 (emphasis added), it nevertheless argues 28 that it meets this requirement because the underlying litigation Broadcom disputes primarily whether it could plead this 10 Although Broadcom 1 purportedly has been partially resolved in its favor. 2 of this, Broadcom contends that USEI had recently written to 3 Broadcom stating that certain products for which Broadcom had 4 previously paid royalties to 3Com were inadvertently included in 5 USEI’s infringement contentions. 6 prevailed on the “claims against” these products. 7 Broadcom cites no case in which a court has permitted an 8 intentional interference claim to proceed based on litigation that 9 is still ongoing even in part. United States District Court For the Northern District of California 10 In support It argues that it has thus However, Accordingly, the Court grants Parallel’s motion to dismiss 11 Broadcom’s intentional interference claim for this independent 12 reason as well. 13 in its entirety based on the litigation privilege and PG&E, the 14 Court does not reach Parallel’s alternative grounds for its 15 motion. Because the Court has dismissed Broadcom’s claim 16 17 CONCLUSION For the reasons set forth above, the Court GRANTS Parallel’s 18 motion to dismiss (Docket No. 785). 19 prejudice to Broadcom filing an amended complaint to correct the 20 deficiencies identified above within two weeks of the resolution 21 of the underlying litigation. 22 This dismissal is without IT IS SO ORDERED. 23 24 25 Dated: 8/12/2013 CLAUDIA WILKEN United States District Judge 26 27 28 11

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