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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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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U.S. ETHERNET INNOVATIONS, LLC,
Plaintiff,

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United States District Court
For the Northern District of California

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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,

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Intervenors.

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________________________________/

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Third Party Defendant Parallel Technology LLC moves to
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dismiss the complaint asserted against it by Intervenor Broadcom
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Corporation.

Broadcom opposes the motion.

Having considered the

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papers filed by the parties and their arguments at the hearing,
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the Court GRANTS Parallel’s motion.
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BACKGROUND
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On April 18, 2013, Broadcom filed a first amended complaint
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in intervention and third party complaint against Parallel and
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Plaintiff U.S. Ethernet Innovations.
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Docket No. 735.

In the

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complaint, Broadcom makes the following allegations relevant to

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this motion.

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USEI is an alter ego, and mere instrumentality, of Parallel.

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Compl. ¶¶ 8, 10.

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which is the manager and sole member of USEI, and Parallel’s

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directors are the only officers of USEI.

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addition, USEI is an agent of Parallel.

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causes, directs or is otherwise responsible for the activities of

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USEI, including its filing of patent infringement suits.

United States District Court
For the Northern District of California

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It is a wholly-owned subsidiary of Parallel,

Id. at ¶¶ 8, 11-15. In
Id. at ¶ 9.

Parallel

Id. at

¶ 17.

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3Com Corporation was the original assignee of the patents-in-

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suit.

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agreement, which gave Broadcom a license and associated rights to

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practice the patents-in-suit.

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Id. at ¶ 1.

In 2004, Broadcom and 3Com entered into an

Id. at ¶ 19.

In 2009, 3Com sold the asserted patents to Parallel pursuant

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to a patent sale agreement.

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identified the agreement between Broadcom and 3Com as an

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encumbrance on 3Com’s rights to the patents.

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executing the sale agreement, Parallel acknowledged that it

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received, and had sufficient time to review, the agreement between

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Broadcom and 3Com.

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Id. at ¶ 25.

The sales contract

Id. at ¶ 27.

In

Id. at ¶ 28.

In 2009, Parallel assigned the patents-in-suit to USEI.

Id.

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at ¶ 30; see also id. at ¶ 20 (stating that USEI is the current

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assignee of these patents).

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assignment of the patents to USEI did not recite or otherwise

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provide for any encumbrance, including that which had been set

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forth in the sale agreement between 3Com and Parallel, and that

Broadcom alleges that Parallel’s

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2

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Parallel made this assignment with the intention of evading that

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encumbrance.

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Id. at ¶¶ 32-33, 61.

On October 9, 2009, USEI filed the original complaint in this

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action.

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Broadcom’s customers of making, using, selling, offering to sell

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or importing products that allegedly infringe the asserted

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patents.

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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

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Parallel caused or directed USEI to bring allegations of

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infringement of the patents by Broadcom products.

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It further alleges that this was contrary to Broadcom’s rights

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under its agreement with 3Com and that Parallel disrupted and

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interfered with Broadcom’s rights under that agreement.

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¶¶ 62-63.

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incurred, and continues to incur, including without limitation the

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attorneys’ fees, costs and expenses incurred in defending against

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USEI’s allegations of infringement of the Asserted Patents by

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Broadcom Products.”

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such damages in the prayer for relief).

Id. at

As a result of this interference, “Broadcom has

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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

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claim showing that the pleader is entitled to relief.”

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Civ. P. 8(a).

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state a claim, dismissal is appropriate only when the complaint

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does not give the defendant fair notice of a legally cognizable

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claim and the grounds on which it rests.

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Twombly, 550 U.S. 544, 555 (2007).

Fed. R.

On a motion under Rule 12(b)(6) for failure to

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Bell Atl. Corp. v.

In considering whether the

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complaint is sufficient to state a claim, the court will take all

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material allegations as true and construe them in the light most

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favorable to the plaintiff.

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896, 898 (9th Cir. 1986).

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to legal conclusions; “threadbare recitals of the elements of a

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cause of action, supported by mere conclusory statements,” are not

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taken as true.

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(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

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United States District Court
For the Northern District of California

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required to grant the plaintiff leave to amend, even if no request

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to amend the pleading was made, unless amendment would be futile.

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Cook, Perkiss & Liehe, Inc. v. N. Cal. Collection Serv. Inc., 911

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F.2d 242, 246-47 (9th Cir. 1990).

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amendment would be futile, the court examines whether the

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complaint could be amended to cure the defect requiring dismissal

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“without contradicting any of the allegations of [the] original

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complaint.”

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Cir. 1990).

In determining whether

Reddy v. Litton Indus., Inc., 912 F.2d 291, 296 (9th

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DISCUSSION

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Parallel moves to dismiss Broadcom’s claim on the basis that

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it is barred by the litigation privilege and under the California

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Supreme Court’s rule set forth in Pacific Gas & Electric Co. v.

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Bear Stearns & Co., 50 Cal. 3d 1118 (1990) (hereinafter, PG&E).

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It further contends that Broadcom has not plead a plausible claim

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against it.

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I.

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Litigation privilege
California Civil Code section 47(b) provides that

communications made in or related to judicial proceedings are
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absolutely immune from tort liability.

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Court has explained that the purpose of the privilege is “to

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afford litigants . . . the utmost freedom of access to the courts

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without fear of being harassed subsequently by derivative tort

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actions.”

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litigation privilege applies to any communications (1) made in a

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judicial proceeding; (2) by litigants or other participants

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authorized by law; (3) to achieve the objects of the litigation;

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(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

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Sharper Image Corp. v. Target Corp., 425 F. Supp. 2d 1056, 1077

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(N.D. Cal. 2006) (citing Silberg, 50 Cal. 3d at 212).

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requirements are met, section 47(b) operates as an absolute

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privilege.

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Once these

Silberg, 50 Cal. 3d at 216.

The privilege is quite broad.

It covers “any publication

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required or permitted by law in the course of a judicial

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proceeding to achieve the objects of the litigation, even though

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the publication is made outside the courtroom and no function of

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the court or its officers is involved.”

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the litigation privilege to all tort claims, with the exception of

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malicious prosecution.

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(1997).

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of the objects of the litigation is, in essence, simply part of

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the requirement that the communication be connected with, or have

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some logical relation to, the action, i.e., that it not be

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extraneous to the action.”

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doubt about whether the privilege applies is resolved in favor of

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applying it.”

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(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

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Broadcom disputes that the litigation privilege applies to

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bar its claim against Parallel for two reasons.

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that Parallel cannot benefit from the protections of the

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litigation privilege because it is not a litigant in USEI’s

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underlying claim or another participant authorized by law.

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However, as this Court has recognized previously, “those non-

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litigants possessing a ‘substantial interest in the outcome of the

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litigation’ are ‘authorized participants’ for purposes of the

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litigation privilege.”

First, it argues

Sharper Image Corp. v. Target Corp., 425

United States District Court
For the Northern District of California

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F. Supp. 2d 1056, 1077 (N.D. Cal. 2006) (quoting Costa v. Superior

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Court, 157 Cal. App. 3d 673, 678 (1984)); see also Adams v.

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Superior Court, 2 Cal. App. 4th 521, 529 (1992) (“the privilege is

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not restricted to the actual parties to the lawsuit but need

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merely be connected or related to the proceedings”) (citing

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Profile Structures v. Long Beach Bldg. Material Co., 181 Cal. App.

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3d 437, 443 (1986)).

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has alleged that USEI is the “alter ego,” “mere instrumentality”

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and “agent” of Parallel.

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alleged that the Parallel is in fact responsible for USEI’s

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activities, including its filing of patent infringement suits.

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Id. at ¶ 17.

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party to the underlying lawsuit and has a substantial interest in

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its outcome.

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privilege.

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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

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Parallel is accused is not communicative.”

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the litigation privilege protects only publications and

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communications, a threshold issue in determining the applicability
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Opp. at 10.

“Because

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of the privilege is whether the defendant’s conduct was

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communicative or noncommunicative.”

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40 Cal. 4th 948, 957 (2007) (internal quotation marks and

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citations omitted).

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noncommunicative conduct hinges on the gravamen of the action.”

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Rusheen v. Cohen, 37 Cal. 4th 1048, 1058 (2006) (citations

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omitted).

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applies is whether the injury allegedly resulted from an act that

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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

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gravamen of the action is communicative, the litigation privilege

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extends to noncommunicative acts that are necessarily related to

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the communicative conduct.”

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unless it is demonstrated that an independent, noncommunicative,

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wrongful act was the gravamen of the action, the litigation

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privilege applies.”

Id. at 1065.

“Stated another way,

Id.

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Broadcom contends that the conduct of which it accuses

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Parallel--which it characterizes as “creating a shell company,”

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“assigning the Patents-in-Suit to that shell company,” and

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“financing this litigation”--is not communicative.1

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gravamen of Broadcom’s intentional interference claim against

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Parallel is that it directed USEI’s allegations of infringement,

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which purportedly interfered with Broadcom’s rights under its

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agreement with 3Com.

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USEI, its assignment of the patents to USEI and its financing of

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this litigation do “not provide an independent basis for liability

However, the

Put another way, Parallel’s establishment of

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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.
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separate and apart from” the filing of the lawsuit, and thus the

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filing is the gravamen of the action.

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See id.

Accordingly, the litigation privilege bars the intentional

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inference with contract claim that Broadcom has plead here and the

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Court grants Parallel’s motion to dismiss.

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II.

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The California Supreme Court’s decision in PG&E
As a separate and additional ground for dismissal, Parallel

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contends that Broadcom’s intentional interference with contract

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claim fails because Broadcom did not plead that the underlying

United States District Court
For the Northern District of California

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litigation lacked probable cause and terminated in its favor and

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cannot do so until the litigation has reached a resolution.

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In PG&E, Pacific Gas & Electric (PG&E) sued Bear Stearns &

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Company, an investment brokerage firm, for intentional

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interference with its contract with Placer County Water Agency and

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for intentional interference with prospective business advantage,

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among other things.

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to terminate the contract but felt it could not do so without a

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breach.

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eventually entered into an agreement with it to investigate the

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feasibility of terminating the contract, in return for a

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percentage of any resulting increase in the county’s revenues.

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Id. at 1124.

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arbitration on PG&E to resolve the question of whether it could

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terminate the contract without a breach.

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filing several lawsuits, including the one at issue in PG&E. Id.

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Then, Placer County withdrew its arbitration demand and sought

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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

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Id.

PG&E responded by

Id.

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The trial court dismissed PG&E’s claims for intentional

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interference.

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In upholding the trial court’s decision, the California

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Supreme Court considered, among other things, “whether it is

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proper to impose liability for inducing a potentially meritorious

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lawsuit” and concluded “that it is not.”

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reaching this conclusion, the court explained,

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law, the only common law tort claim that treats the instigation or

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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

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malicious prosecution,” and under that tort, the “actionable harm

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is in forcing the individual to expend the financial and emotional

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resources to defend against a baseless claim.”

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(emphasis in original; citation omitted). Thus, “[t]he bringing of

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a colorable claim is not actionable; plaintiff in a malicious

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prosecution action must prove that the prior action was brought

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without probable cause and was pursued to a legal termination in

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plaintiff’s favor.”

Id. at 1130-31

Id. at 1130-31.

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The court noted that, for a malicious prosecution claim, the

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“probable cause requirement is essential to assure free access to

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the courts” and stressed that “if the bringing of a colorable

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claim were actionable, tort law would inhibit free access to the

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courts and impair our society’s commitment to the peaceful,

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judicial resolution of differences.”

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reasoned, “To permit a cause of action for interference with

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contract . . . to be based on inducing potentially meritorious

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litigation on the contract would threaten free access to the

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courts by providing an end run around the limitations on the tort

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of malicious prosecution.”

Id. at 1131.

Id. at 1137.
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The court

The court therefore held

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that “a plaintiff seeking to state a claim for intentional

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interference with contract or prospective economic advantage

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because defendant induced another to undertake litigation, must

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allege that the litigation was brought without probable cause and

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that the litigation concluded in plaintiff’s favor.”

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Id.

Broadcom appears to argue that the holding in PG&E should not

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apply here because, in the underlying litigation in that case,

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Placer County sought a judgment adjudicating its rights under a

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contract, which is different than the underlying claim brought

United States District Court
For the Northern District of California

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here.

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that reached this conclusion and the PG&E court did not frame it

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in such a narrow way.

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holding in contexts other than claims seeking to ascertain rights

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under an agreement, including where the underlying action was for

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patent infringement.

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Inc., 360 F. Supp. 2d 1064, 1072-1073 (N.D. Cal. 2005) (patent

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infringement); see also Formula One Licensing, B.V. v. Purple

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Interactive Ltd., 2001 U.S. Dist. LEXIS 2968, at * 15-16 (N.D.

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Cal.) (trademark infringement).

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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

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its favor or that it was brought without probable cause and thus

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has failed to state a claim for intentional interference with

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contract.

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prior to the resolution of that litigation.

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acknowledges that “there must be a favorable termination of the

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entire underlying action to give rise to a malicious prosecution

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claim,” Opp. at 12 n.13 (emphasis added), it nevertheless argues

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that it meets this requirement because the underlying litigation

Broadcom disputes primarily whether it could plead this

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Although Broadcom

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purportedly has been partially resolved in its favor.

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of this, Broadcom contends that USEI had recently written to

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Broadcom stating that certain products for which Broadcom had

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previously paid royalties to 3Com were inadvertently included in

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USEI’s infringement contentions.

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prevailed on the “claims against” these products.

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Broadcom cites no case in which a court has permitted an

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intentional interference claim to proceed based on litigation that

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is still ongoing even in part.

United States District Court
For the Northern District of California

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In support

It argues that it has thus
However,

Accordingly, the Court grants Parallel’s motion to dismiss

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Broadcom’s intentional interference claim for this independent

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reason as well.

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in its entirety based on the litigation privilege and PG&E, the

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Court does not reach Parallel’s alternative grounds for its

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motion.

Because the Court has dismissed Broadcom’s claim

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CONCLUSION
For the reasons set forth above, the Court GRANTS Parallel’s

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motion to dismiss (Docket No. 785).

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prejudice to Broadcom filing an amended complaint to correct the

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deficiencies identified above within two weeks of the resolution

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of the underlying litigation.

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This dismissal is without

IT IS SO ORDERED.

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Dated: 8/12/2013

CLAUDIA WILKEN
United States District Judge

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