Ubiquiti Networks, Inc. v. Kozumi USA Corp. et al

Filing 122

ORDER by Judge Claudia Wilken GRANTING IN PART AND DENYING IN PART 96 MOTION TO DISMISS COUNTERCLAIMS. (ndr, COURT STAFF) (Filed on 1/29/2013)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

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4

UBIQUITI NETWORKS, INC.,

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6

No. C 12-2582 CW

Plaintiff,

ORDER GRANTING IN
PART AND DENYING
IN PART MOTION TO
DISMISS
COUNTERCLAIMS
(Docket No. 96)

v.

7

KOZUMI USA CORP., et al.

8

Defendants.
________________________________/

9

United States District Court
For the Northern District of California

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Plaintiff Ubiquiti Networks, Inc. moves to dismiss the

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counterclaims of Defendants Kozumi USA Corp. and Shao Wei Hsu

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pursuant to Federal Rule of Civil Procedure 12(b)(6).1

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oppose the motion.

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submissions and oral argument, the Court grants the motion in part

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and denies it in part.

16
17

Defendants

After considering all of the parties’

BACKGROUND
Ubiquiti is a Delaware corporation with its principal place

18

of business in San Jose, California.

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Complaint (CC) ¶ 2.

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various kinds of wireless communications devices, including

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receivers, transmitters, routers, and antennas.

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contracts with third-party distributors and resellers to market

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and sell its products around the world.

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Docket No. 91, Counter-

The company designs, develops, and sells

Id.

It typically

Id.

In May 2008, Ubiquiti entered into a Distribution Agreement

25

with Defendants Wu and Kozumi.

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shareholder and officer of Kozumi, a Florida corporation with its

Id. ¶ 7.

Wu is the sole

27
1

28

The individual Defendant named in Plaintiff’s complaint as Shao
Wei Hsu indicates that his true name is William Hsu Wu.

principal place of business in Miami.

2

terms of the parties’ Distribution Agreement, Kozumi agreed to

3

purchase certain Ubiquiti products in exchange for the right

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distribute them in “All Latin American countries.”

5

Declaration of Whitney McCollum, Ex. B, Distribution Agreement, at

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7.2

7

be automatically renewed every year thereafter, unless either

8

party sought to terminate it.

9

after the Agreement was renewed, Ubiquiti informed Kozumi that it

10
United States District Court
For the Northern District of California

1

was on track to become one of Ubiquiti’s “master distributors,” a

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title reserved for distributors who are able to meet a two million

12

dollar annual sales quota.

13

Id. ¶¶ 3-4.

Under the

Id. ¶ 7;

The Agreement would remain in effect for one year and would

CC ¶ 8.

In June 2009, shortly

Id. ¶ 11.

Three months later, in November 2009, Ubiquiti contacted

14

Kozumi to terminate the Distribution Agreement.

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Kozumi sought an explanation for the termination, a Ubiquiti

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representative responded with an e-mail stating, “Hi William,

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Sorry, but we will not be proceeding further at this point.

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has been a lot of pushback from existing distributors with pricing

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and some of the new product released by Kozumi.”

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Kozumi alleges that the termination caused it “significant

21

damages,” including lost sales opportunities.

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particular, Kozumi asserts that the termination “had negative

23

ripple effects on Kozumi’s reputation and ability to sell a range

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of other, non-[Ubiquiti] products.”

Id. ¶ 12.

When

There

Id. ¶ 13.

Id. ¶ 15.

In

Id.

25
26
2

27
28

Plaintiff asks the Court to take judicial notice of the
Distribution Agreement. Docket No. 97. Because Defendants quote
excerpts of this document in both their counter-complaint and their
brief, Plaintiff’s request for judicial notice is granted.

2

1

After the termination, Kozumi continued to purchase Ubiquiti

2

products through “official” distributors under contract with

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Ubiquiti and other “unofficial” resellers who were not under

4

contract with Ubiquiti.

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to purchase “thousands of units” in this manner, which it

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continued selling through its existing customer network in Latin

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America.

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Argentina, where Kozumi made “virtually all of its [resales] of

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[Ubiquiti]’s products.”

United States District Court
For the Northern District of California

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Id. ¶¶ 20-21.

Id. ¶¶ 20-21, 31.

Kozumi was ultimately able

This network was concentrated in

Id. ¶ 31.

Beginning in the middle of 2010, however, Ubiquiti began

11

taking steps to prevent Kozumi from acquiring its products.

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¶¶ 23-24.

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coordinated a “boycott” among its various distributors and

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resellers to stop selling Ubiquiti products to Kozumi.

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¶¶ 23-24, 27-28.

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its distributors into participating in the boycott by threatening

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to terminate their distribution agreements or otherwise restrict

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their access to Ubiquiti products.

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several of the distributors and resellers that had previously sold

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Ubiquiti products to Kozumi ceased doing so.

21

Id.

Specifically, Kozumi and Wu allege that Ubiquiti

Id.

They further allege that Ubiquiti “coerce[d]”

Id. ¶¶ 27-28.

As a result,

Id. ¶¶ 25-26.

In May 2012, Ubiquiti filed this lawsuit against Kozumi and

22

Wu for trademark infringement, counterfeiting, computer fraud,

23

copyright infringement, unfair competition, false advertising, and

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libel.

25

that Kozumi and Wu contracted a foreign manufacturer to produce

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counterfeit Ubiquiti products and then sold these counterfeit

27

products in Latin America under Ubiquiti’s trademarks.

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¶¶ 100-96.

Docket No. 1, Compl. ¶¶ 100-96; CC ¶ 42.

The suit alleges

Compl.

Soon after filing its complaint, Ubiquiti learned that
3

1

Wu was attempting to transfer assets out of the country and sought

2

a preliminary injunction to block the transfer.

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solicited briefing and oral argument on the matter and, on July 5,

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2012, issued a preliminary injunction freezing Wu’s assets.

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Docket No. 61.

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The Court

One month later, in August 2012, Ubiquiti sent an e-mail to
all of its customers notifying them of the injunction against Wu.

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McCollum Decl., Ex. A, Ubiquiti E-Mail.3

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“COUNTERFEIT UPDATE,” featured Wu’s picture and stated that he was

10
United States District Court
For the Northern District of California

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a counterfeiter who had used several different aliases and e-mail

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addresses to purchase Ubiquiti products.

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also detailed Ubiquiti’s pending litigation efforts against Wu and

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his associates outside the United States, specifically in

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Argentina and China.

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hand margin, below Wu’s picture, the e-mail featured a small

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heading that read “WARNING!”

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stated: “[W]e urge those who have worked with the counterfeiters

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to come forward and let us know in exchange for amnesty no later

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than August 20, 2012, after which we will be pursuing full-force

20

all of those who have been involved with the counterfeiters.”

The e-mail, titled

CC ¶¶ 43-44.

McCollum Decl., Ex. A, at 1.

Id.

The e-mail

In the right-

The text beneath the heading

Id.

21

On September 27, 2012, the Court denied Wu and Kozumi’s

22

motions to dismiss Ubiquiti’s complaint and modify the preliminary

23

injunction.

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complaint the following week and Wu and Kozumi filed their answer

Docket No. 85.

Ubiquiti then filed an amended

25
26
3

27
28

Plaintiff asks the Court to take judicial notice of the August
2012 e-mail. Docket No. 97. Because Defendants quote excerpts of this
document in both their counter-complaint and their brief, Plaintiff’s
request for judicial notice is granted.

4

1

and counter-complaint on October 29, 2012.

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dismiss the counter-complaint on November 19, 2012.

3
4

Ubiquiti moved to

LEGAL STANDARD
A complaint must contain a “short and plain statement of the

5

claim showing that the pleader is entitled to relief.”

6

Civ. P. 8(a).

7

state a claim, dismissal is appropriate only when the complaint

8

does not give the defendant fair notice of a legally cognizable

9

claim and the grounds on which it rests.

Fed. R.

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

Bell Atl. Corp. v.

United States District Court
For the Northern District of California

10

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

11

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

12

material allegations as true and construe them in the light most

13

favorable to the plaintiff.

14

896, 898 (9th Cir. 1986).

15

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

16

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

17

taken as true.

18

(citing Twombly, 550 U.S. at 555).

In considering whether the

NL Indus., Inc. v. Kaplan, 792 F.2d

However, this principle is inapplicable

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

19

When granting a motion to dismiss, the court is generally

20

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

21

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

22

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

23

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

24

amendment would be futile, the court examines whether the

25

complaint could be amended to cure the defect requiring dismissal

26

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

27

complaint.”

28

Cir. 1990).

In determining whether

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

5

1
2
3

DISCUSSION
A.

Breach of Contract (First Counterclaim)
To state a valid claim for breach of contract, the claimant

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must plead: (1) the existence of a contract; (2) the claimant’s

5

performance or excuse for nonperformance; (3) the opposing party’s

6

breach; and (4) damages to the claimant as a result of the breach.

7

Armstrong Petrol. Corp. v. Tri–Valley Oil & Gas Co., 116 Cal. App.

8

4th 1375, 1391 n.6 (2004).

9

Here, Defendants allege that Plaintiff breached the

United States District Court
For the Northern District of California

10

Distribution Agreement by terminating it without providing

11

adequate notice or explanation.

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Plaintiff breached Section 6(a) of the Agreement, which provides,

13

This agreement will be effective for one (1) year
. . . . [and] will be automatically renewed from year to
year thereafter unless terminated by either party with
or without cause upon 30 days written termination notice
transmitted to the other party prior to the end of the
official term of this Agreement, or any renewal term.

14
15
16

McCollum Decl., Ex. B, at 3.

Specifically, they assert that

Plaintiff asserts that it terminated

17
the contract pursuant to a different provision of the Agreement,
18
namely, section 6(b).

That provision permits either party to

19
terminate the contract if the other party “engages in deceptive or
20
fraudulent business practices that could affect the aggrieved
21
party’s reputation or business.”

Id.

Plaintiff contends that

22
this provision allowed it to terminate the contract without giving
23
Defendants an explanation or thirty days’ notice because
24
Defendants were “leveraging Ubiquiti’s trademarks and goodwill” to
25
market counterfeit Ubiquiti products.

Pl.’s Mot. 8.

26
These assertions do not justify dismissal here.

Defendants

27
expressly deny Plaintiff’s accusations of counterfeiting and
28
6

1

trademark infringement, see Answer ¶¶ 55, 57-58, and Plaintiff

2

fails to provide any support for these charges beyond the

3

allegations in its own complaint.

4

a Rule 12(b)(6) motion.

5

F.3d 1031, 1038 (9th Cir. 2010) (stating that, on a motion to

6

dismiss, courts generally may only consider the complaint and

7

materials incorporated therein).

8
9

This is insufficient to support

See Coto Settlement v. Eisenberg, 593

Plaintiff next argues that Defendants have failed to plead
that they suffered damages as a result of the alleged breach.

United States District Court
For the Northern District of California

10

This assertion, however, is contradicted by Defendants’ counter-

11

complaint, which unequivocally states that Plaintiff’s “sudden and

12

unexplained termination of the Distribution Agreement caused

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Kozumi significant damages.”

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allege that Plaintiff’s alleged breach “had negative ripple

15

effects on Kozumi’s reputation and ability to sell a range of

16

other [products]” and “caused Kozumi lost sales and []

17

opportunities.”

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CC ¶ 15.

Defendants specifically

Id.

Plaintiff contends that these allegations of damages conflict

19

with a declaration submitted earlier by Defendant Wu.

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declaration, Wu admits that Defendants were able to obtain

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Plaintiff’s products through other channels after Plaintiff

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terminated the Distribution Agreement.

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Decl. ¶ 11.

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the Agreement did not harm Defendants.

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Defendants were able to obtain Plaintiff’s products from other

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sources after Plaintiff terminated the Agreement does not mean

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that Defendants did not incur added expenses or suffer other

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damages in doing so.

In that

See Docket No. 24, Wu

But Wu never states that Plaintiff’s termination of
The mere fact that

Wu’s declaration, in short, is not
7

1

inconsistent with the allegations in Defendants’ counter-

2

complaint.

3

Thus, because Defendants have plead every element of a breach

4

of contract claim, Plaintiff’s motion to dismiss is denied with

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respect to Defendants’ first cause of action.

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B.

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Breach of the Implied Covenant of Good Faith and Fair Dealing
(Second Counterclaim)
Under California law, “[t]here is an implied covenant of good

8
faith and fair dealing in every contract that neither party will
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do anything which will injure the right of the other to receive
10
United States District Court
For the Northern District of California

the benefits of the agreement.”

Comunale v. Traders & Gen. Ins.

Co., 50 Cal. 2d 654, 658 (1958).

To state a claim for breach of

11
12
the implied covenant, the claimant must allege “that the conduct
13
of the [opposing party], whether or not it also constitutes a
14
breach of a consensual contract term, demonstrates a failure or
15
refusal to discharge contractual responsibilities, prompted not by
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an honest mistake, bad judgment or negligence but rather by a
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conscious and deliberate act.”

Careau & Co. v. Security Pac.

18
Business Credit, Inc., 222 Cal. App. 3d 1371, 1395 (1990).
19
Here, Defendants allege that Plaintiff breached the implied
20
covenant of good faith and fair dealing by failing to give them
21
sufficient notice prior to terminating the Distribution Agreement.
22
They further allege that Plaintiff failed to provide an adequate
23
explanation for the termination and an opportunity to cure any
24
alleged breach on their part.

Plaintiff contends that these

25
allegations merely restate Defendants’ breach of contract
26
allegations and, thus, are superfluous.
27
28
8

1

California courts have made clear that a claimant must allege

2

more than a simple breach of contract to state a valid claim for

3

breach of the covenant of good faith and fair dealing.

4

Bechtel Nat’l Corp., 24 Cal. 4th 317, 352 (2000).

5

allegations do not go beyond the statement of a mere contract

6

breach and, relying on the same alleged acts, simply seek the same

7

damages or other relief already claimed in a companion contract

8

cause of action, they may be disregarded as superfluous as no

9

additional claim is actually stated.”

See Guz v.

“If the

Careau, 222 Cal. App. 3d at

United States District Court
For the Northern District of California

10

1395; see also Zody v. Microsoft Corp., 2012 WL 1747844, at *4

11

(N.D. Cal.) (“‘[I]nsofar as the employer’s acts are directly

12

actionable as a breach of an implied-in-fact contract term, a

13

claim that merely re-alleges that breach as a violation of the

14

covenant is superfluous.’” (quoting Guz, 24 Cal. 4th at 352)).

15

Defendants have failed to satisfy this standard.

Their

16

counterclaim for breach of the implied covenant does not allege

17

any conduct beyond that which their breach of contract claim

18

alleges.

19

that Plaintiff acted in bad faith -- in particular, that Plaintiff

20

fabricated its reasons for terminating the Agreement -- they omit

21

this allegation from their counter-complaint.

22

had included the allegation in the counter-complaint, their claim

23

would still likely fall short.

24

alleging bad faith here is that Plaintiff’s current explanation

25

for the termination differs slightly from the explanation it

26

provided to Defendants in 2009.

27

evince bad faith.

28

Plaintiff’s 2009 e-mail explaining its termination decision was

Although Defendants contend in their opposition brief

Even if Defendants

Defendants’ only basis for

This deviation, however, does not

Defendants’ own counter-complaint asserts that

9

1

both “cryptic” and incomplete.

2

differs slightly from the formal allegations Plaintiff now asserts

3

in this lawsuit does not support a showing of bad faith.

4

CC ¶ 13.

The fact that the e-mail

Accordingly, Defendants’ counterclaim for breach of the

5

implied covenant of good faith and fair dealing is dismissed.

6

Defendants are granted leave to amend to allege conduct by

7

Plaintiff, beyond its alleged breach of the Distribution

8

Agreement, that constitutes bad faith.

9

C.

United States District Court
For the Northern District of California

10

Sherman Antitrust Act Violations (Third Counterclaim)
To state a claim under section 1 of the Sherman Act, 15

11

U.S.C. § 1, a claimant “must demonstrate: ‘(1) that there was a

12

contract, combination, or conspiracy; (2) that the agreement

13

unreasonably restrained trade under either a per se rule of

14

illegality or a rule of reason analysis; and (3) that the

15

restraint affected interstate commerce.’”

16

Cal., 252 F.3d 1059, 1062 (9th Cir. 2001) (quoting Hairston v.

17

Pac. 10 Conference, 101 F.3d 1315, 1318 (9th Cir. 1996)).

18

Tanaka v. Univ. of S.

Here, Defendants allege that Plaintiff violated section 1 of

19

the Sherman Act by asking its distributors and resellers not to

20

sell Plaintiff’s products to Defendants.

21

this counterclaim is barred by the Foreign Trade Antitrust

22

Improvements Act (FTAIA), 15 U.S.C. § 6a.

23

Defendants have failed to allege a cognizable antitrust injury.

24

This section addresses each argument in turn.

25
26
27
28
10

Plaintiff contends that

It also contends that

FTAIA Jurisdictional Bar4

1

1.

2

The FTAIA, enacted in 1982, establishes a general rule that

3

the Sherman Act “shall not apply to conduct involving trade or

4

commerce (other than import trade or import commerce) with foreign

5

nations” unless the conduct has an effect on domestic commerce.

6

15 U.S.C. § 6a; In re DRAM Antitrust Litig., 546 F.3d 981, 985

7

(9th Cir. 2008).

8

that American courts’ jurisdiction over international commerce

9

should be limited to transactions that affect the American

Congress enacted the FTAIA because it believed

United States District Court
For the Northern District of California

10

economy.

11

n.23 (1993) (citing H.R. Rep. No. 97–686, ¶¶ 2–3, 9–10 (1982)).

12

The FTAIA provides that all trade with foreign nations is exempt

13

from the Sherman Act unless

14

(1)

15
16
17
18
19

(2)

20

See Hartford Fire Ins. v. California, 509 U.S. 764, 796

such conduct has a direct, substantial, and
reasonably foreseeable effect -(A) on trade or commerce which is not trade or
commerce with foreign nations, or on import
trade or import commerce with foreign nations;
or
(B) on export trade or export commerce with
foreign nations, of a person engaged in such
trade or commerce in the United States; and
such effect gives rise to a claim under the
provisions of sections 1 to 7 of this title, other
than this section.

15 U.S.C. § 6a.

Thus, the FTAIA creates a two-part test asking

21
whether the alleged antitrust conduct “(1) has a ‘direct,
22
23
4

24
25
26
27
28

Plaintiff asserts that, although its motion arises under Rule
12(b)(6), dismissal under the FTAIA “would be equally appropriate under
Rule 12(b)(1) [for lack of subject matter jurisdiction].” Pl.’s Mot. 11
n.4. Defendants, however, contend that the “FTAIA does not implicate
the Court’s subject matter jurisdiction.” Opp. 7 n.3 (emphasis in
original). The Court addressed this issue -- which is relegated to
footnotes in the parties’ briefs -- in In re Static Random Access Memory
(SRAM) Antitrust Litig., 2010 WL 5477313, at *2-*3 (N.D. Cal.)
(concluding that “courts in this district continue to apply the [FTAIA]
statute as jurisdictional”).

11

1

substantial, and reasonably foreseeable effect’ on domestic

2

commerce, and (2) ‘such effect gives rise to a [Sherman Act]

3

claim.’”

4

Hoffmann–La Roche Ltd. v. Empagran S.A., 542 U.S. 155, 159

5

(2004)).

6

In re DRAM Antitrust Litig., 546 F.3d at 985 (quoting F.

Ninth Circuit case law interpreting the FTAIA makes clear

7

that Defendants’ Sherman Act claims are barred here.

8

Shell Chemical Co., 845 F.2d 802 (9th Cir. 1988), is particularly

9

instructive.

McGlinchy v.

There, the plaintiffs asserted claims under sections

United States District Court
For the Northern District of California

10

1 and 2 of the Sherman Act against a chemical producer after the

11

chemical producer terminated their rights to distribute its

12

products abroad.

13

enjoyed the exclusive right to distribute the defendant’s products

14

in Southeast Asia, South America, Africa, and the Middle East.

15

Id.

16

distribution agreements, the Ninth Circuit held that the FTAIA

17

barred the plaintiffs’ antitrust claims because they “relate[d]

18

only to foreign commerce without the requisite domestic

19

anticompetitive effect.”

20

Id. at 805-06.

Previously, the plaintiffs

After reviewing the geographic scope of the parties’

Id. at 815.

The court reasoned that “section 6a ‘was intended to exempt

21

from United States antitrust law conduct that lacks the requisite

22

domestic effect, even where such conduct originates in the United

23

States or involves American-owned entities operating abroad.’”

24

Id. at 814 (quoting Eurim-Pharm GmbH v. Pfizer, Inc., 593 F. Supp.

25

1102, 1106 (S.D.N.Y. 1984)).

26

that the parties’ distribution agreement only pertained to product

27

distribution abroad and, thus, only “involve[d] trade or commerce

The court then highlighted the fact

28
12

1

(other than import trade or import commerce) with foreign

2

nations.”

3

845 F.2d at 815 (quoting 15 U.S.C. § 6a).

Just like the plaintiffs in McGlinchy, Defendants in the

4

present case have “failed to allege that [Plaintiff’s] conduct

5

has a ‘direct, substantial, and reasonably foreseeable effect’ on

6

domestic commerce.”

7

the impact of Plaintiff’s conduct on a foreign market.

8

counter-complaint expressly states that “the relevant geographic

9

market is Argentina, as virtually all of Kozumi’s resells of UBNT

United States District Court
For the Northern District of California

10

Id.

Rather, Defendants’ allegations focus on

products were sent to Argentina.”

Their

CC ¶ 31.

11

Although Defendants allege that Plaintiff also engaged in

12

anticompetitive conduct within the United States by asking its

13

distributors and re-sellers not to offer its products to

14

Defendants, id., this allegation is insufficient to overcome the

15

FTAIA bar.

16

the alleged conduct must have had an impact on competition in the

17

United States -- in short, the “requisite domestic effect.”

18

F.2d at 814 (noting that domestic conduct alone is insufficient).

19

Defendants’ assertion that they were injured in Florida, where

20

they reside, is too narrow to satisfy this requirement and does

21

not implicate the broader concerns about market competition that

22

the Sherman Act targets.

23

Chronicle Broadcasting Co., 794 F.2d 1359, 1363 (9th Cir. 1986)

24

(“We have held that ‘it is injury to the market, not to individual

25

firms, that is significant.’” (citations omitted)).

26

As McGlinchy illustrates, to avoid FTAIA dismissal,

845

Id.; see also Ralph C. Wilson Indus. v.

Defendants fail to address McGlinchy in their brief and rely

27

instead on two cases from other jurisdictions to argue that the

28

FTAIA does not apply in the present case: Carpet Grp. Int’l v.
13

1

Oriental Rug Importers Ass’n, 227 F.3d 62 (3d Cir. 2000), and In

2

re Air Cargo Shipping Servs. Antitrust Litig., 2008 WL 5958061

3

(E.D.N.Y.).

4

involved conduct affecting “import trade or import commerce,”

5

which the FTAIA specifically recognizes is subject to the Sherman

6

Act.

7

Sherman Act “shall not apply to conduct involving trade or

8

commerce (other than import trade or import commerce) with foreign

9

nations” (emphasis added)).

These cases are inapposite, however, as they both

See 15 U.S.C. § 6a (stating that sections 1 through 7 of the

Defendants here do not allege that

United States District Court
For the Northern District of California

10

they were importing Ubiquiti products into the United States.

11

fact, Defendant Wu has specifically asserted that Kozumi shipped

12

its Ubiquiti products only into Argentina.

13

Declaration of William Hsu Wu ¶¶ 11-12 (“Between November 2009 and

14

December 2011, Kozumi purchased thousands of [Ubiquiti] products

15

through Ubiquiti distributors and resellers, nearly 100% of which

16

were imported into Argentina.”).

17

oral argument that they shipped other, non-Ubiquiti products into

18

the United States, they never plead that Plaintiff prevented them

19

from importing those other products into the United States.

20

Accordingly, Defendants cannot escape the FTAIA’s jurisdictional

21

bar here.

In

Docket No. 40-1,

Although Defendants claimed at

22

2.

23

Even if Defendants’ claims were not subject to dismissal

24

under the FTAIA, they would still fail for a more fundamental

25

reason: namely, failure to allege a cognizable injury under the

26

Sherman Act.

27

“alleged violation must cause injury to competition beyond the

28

impact on the claimant under section 1” of the Act.

Cognizable Antitrust Injury

The Ninth Circuit has repeatedly recognized that an

14

McGlinchy,

1

845 F.2d at 811; see also Fine v. Barry & Enright Prods., 731 F.2d

2

1394, 1399 (9th Cir. 1984) (“Plaintiff must show injury to a

3

market or to competition in general, not merely injury to

4

individuals.”).

5

As noted above, Defendants have not alleged an injury to

6

competition in the relevant market here.

7

identifies the “market for wireless networking equipment” in

8

Argentina as the relevant market but fails to explain how

9

Plaintiff’s conduct has undermined competition in that market.

Their counter-complaint

United States District Court
For the Northern District of California

10

See CC ¶¶ 30-31.5

11

injuries to Defendants themselves, asserting that “the impact of

12

UBNT’s boycott was felt primarily or exclusively at Kozumi’s

13

principal place of business in Miami, Florida.”

14

added); see also id. (“Kozumi has been injured by the boycott.”

15

(emphasis added)).

16

distributors and resellers are also harmed by Plaintiff’s conduct,

17

id. (alleging that “distributors and resellers who desire to sell

18

to Kozumi are barred from doing so”), Defendants never allege that

19

these distributors and resellers are participants in the

20

Argentinian market for wireless networking products.

21

their counter-complaint does not say that Plaintiff asked these

22

distributors and resellers to stop selling any wireless networking

23

products to Defendants; it merely alleges that Plaintiff asked

Rather, the counter-complaint focuses on

CC ¶ 31 (emphasis

Although Defendants suggest that other

Moreover,

24
25
26
27
28

5

The McGlinchy court emphasized the importance of alleging an
injury in the “relevant market.” See 845 F.2d at 812 (“Appellants . . .
specifically identify the relevant market by alleging: ‘For the purposes
of the antitrust claims alleged herein, PB [a chemical product] is the
relevant market for determining the anti-competitive effects of the
defendant’s actions.’ Nowhere in their AFA complaint, however, do
appellants allege injury to the competitive market for PB.”).

15

1

them to stop selling its own products to Defendants.

2

is not clear how this narrow request would disrupt the broader

3

market for wireless networking products -- especially when

4

Defendants themselves concede that “[t]here are many manufacturers

5

of wireless networking equipment,” CC ¶ 30 -- this allegation is

6

insufficient to state a claim.

7

Because it

The limited nature of Plaintiff’s request -- focusing only on

8

sales of its own products -- distinguishes this case from Klor’s,

9

Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207 (1959), which

United States District Court
For the Northern District of California

10

Defendants cite for support.

11

that an agreement among several national distributors not to do

12

business with an individual appliance store violated the Sherman

13

Act because it deprived the store of “its freedom to buy

14

appliances in an open competitive market.”

15

defendants there agreed not to sell any appliances to the

16

individual store or to sell to it “only at discriminatory prices.”

17

Id. at 209-10.

18

Plaintiff sought to prevent them from acquiring any wireless

19

networking products.

20

Plaintiff sought to prevent them from acquiring Plaintiff’s own

21

products -- a much narrower restraint of trade than in Klor’s.

22

In Klor’s, the Supreme Court held

Id. at 213.

The

Here, in contrast, Defendants do not allege that

As noted above, they only allege that

Defendants also fail to allege that Plaintiff’s conduct was

23

designed to achieve some specific anticompetitive purpose.

24

Klor’s, the express purpose of the defendants’ boycott was to

25

benefit one of the plaintiff’s competitors.

26

Klor’s Court was willing to “infer[] injury to the competitive

27

process itself from the nature of the boycott agreement,” even

28

though the plaintiff’s store was the only firm harmed by the
16

Id.

In

This is why the

1

agreement.

2

But here, Defendants have not alleged that Plaintiff organized the

3

alleged boycott to benefit one of Kozumi’s competitors or even to

4

expand its own market share.

5

from Klor’s and demonstrates why it provides little support to

6

Defendants.

7

729, 733-34 (9th Cir. 1987) (affirming dismissal of Sherman Act

8

claims because the plaintiff wine distributor failed to allege

9

sufficient harm to competition under Klor’s despite alleging that

NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 134 (1998).

This distinguishes the present case

Cf. Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d

United States District Court
For the Northern District of California

10

the defendant wine manufacturer organized a group boycott of

11

plaintiff).

12

Defendants’ reliance on Z Channel Ltd. P’ship v. Home Box

13

Office, Inc., 931 F.2d 1338 (9th Cir. 1991), is similarly

14

misplaced.

15

“agreement to exclude the plaintiff from the relevant market via

16

an economic boycott of necessary input units constitutes antitrust

17

injury.”

18

however, has little application in the present case where, as

19

noted above, Defendants have failed to explain how Plaintiff’s

20

alleged conduct affected the relevant market or accomplished some

21

anticompetitive purpose.

22

Defendants cite Z Channel for the proposition that an

Opp. 16 (citing 931 F.2d at 1347).

This principle,

Although Defendants may be able to amend their Sherman Act

23

counterclaim to explain how Plaintiff’s conduct undermined

24

competition in the relevant market -- namely, Argentina -- doing

25

so would be futile here.

26

to competition only in foreign markets are barred by the FTAIA.

27

Accordingly, Defendants’ Sherman Act counterclaim is dismissed

28

with prejudice.

As explained above, claims alleging harm

17

1
2

D.

Cartwright Act Violations (Fourth Counterclaim)
Defendants’ Cartwright Act counterclaim relies on the same

3

allegations as its Sherman Act counterclaim.

4

California courts have long recognized that a claimant’s failure

5

to state a Sherman Act claim will likewise condemn its claims

6

under the Cartwright Act.

7

Realtors, Inc. v. Palsson, 16 Cal. 3d 920 (1976) (“A long line of

8

California cases has concluded that the Cartwright Act is

9

patterned after the Sherman Act and both statutes have their roots

See CC ¶¶ 33-35.

See generally Marin Cnty. Bd. of

United States District Court
For the Northern District of California

10

in the common law.

11

Sherman Act are applicable to problems arising under the

12

Cartwright Act.”).

13

Consequently, federal cases interpreting the

Once again, McGlinchy offers guidance:

18

[A]ppellants base their state law claim on the same
facts on which they base their Sherman Act claims. We
have recognized that Cartwright Act claims raise
basically the same issues as do Sherman Act claims.
California state courts follow federal cases in deciding
claims under the Cartwright Act. As a result, our
conclusion with regard to the Sherman Act claims applies
with equal force to appellants’ Cartwright Act claims.
Accordingly, we also affirm the district court’s grant
of judgment on the pleadings on the state antitrust
claims.

19

845 F.2d at 811 n.4 (citations omitted); see also Korea Kumho

20

Petrochemical v. Flexsys America LP, 2008 WL 686834, at *9 (N.D.

21

Cal.) (“Plaintiff’s failure to plead a cognizable Sherman Act

22

claim requires dismissal of the fourth cause of action under

23

California’s Cartwright Act as well.”).

14
15
16
17

24

Here, Defendants’ Cartwright Act counterclaims suffer from

25

the same shortcomings as their Sherman Act counterclaims.

26

Specifically, Defendants’ failure to explain how Plaintiff’s

27

conduct undermined competition in domestic markets means that they

28

have similarly failed to explain how Plaintiff’s conduct
18

1

undermined competition in a California market.

2

Inc. v. SBC Communications, Inc., 133 Cal. App. 4th 1277, 1281

3

(2005) (recognizing that the Cartwright Act is meant to protect

4

against “anticompetitive conduct that causes injury in

5

California”).6

6

counterclaim, like their Sherman Act counterclaim, is dismissed

7

with prejudice.

8

E.

9

See RLH Indus.,

Accordingly, Defendants’ Cartwright Act

Defamation (Sixth Counterclaim)
Defendants assert a counterclaim for defamation based on

United States District Court
For the Northern District of California

10

Plaintiff’s August 2012 e-mail to its customers characterizing

11

Defendants as counterfeiters.

12

is barred because its e-mail is protected by California’s

13

litigation privilege and by the Noerr-Pennington doctrine.

Plaintiff contends that this claim

14

1.

15

Under California Civil Code section 47(b), communications

16

made in or related to judicial proceedings cannot give rise to

17

tort liability.

18

litigants . . . the utmost freedom of access to the courts without

19

fear of being harassed subsequently by derivative tort actions.”

20

Silberg v. Anderson, 50 Cal. 3d 205, 213 (1990).

21

Litigation Privilege

The purpose of the privilege is “to afford

The litigation privilege applies to communications (1) made

22

during a judicial proceeding; (2) by litigants or other

23

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

24

litigation; (4) that have some connection or logical relation to

25
26
27
28

6

Defendants’ suggestion that Plaintiff’s California-based
resellers and distributors are harmed by Plaintiff’s conduct is
unpersuasive for the reasons articulated in the Sherman Act discussion:
Defendants have failed to allege that these firms are competing in the
relevant market.

19

1

the action.

2

Fuentes, 880 F.2d 1096, 1102 (9th Cir. 1987).

3

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

4

privilege.

5

Id. at 212; Premier Communications Network, Inc. v.
Once these

Silberg, 50 Cal. 3d at 216.

The privilege is quite broad.

It covers “any publication

6

required or permitted by law in the course of a judicial

7

proceeding to achieve the objects of the litigation, even though

8

the publication is made outside the courtroom and no function of

9

the court or its officers is involved.”

Id.

Courts have applied

United States District Court
For the Northern District of California

10

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

11

malicious prosecution.

12

(1997).

13

resolved in favor of applying it.”

14

App. 4th 892, 913 (2002).

15

Edwards v. Centex, 53 Cal. App. 4th 15, 29

“Any doubt about whether the privilege applies is
Kashian v. Harriman, 98 Cal.

Defendants contend that the privilege does not apply here

16

because Plaintiff’s e-mail was sent to non-parties who lacked a

17

substantial interest in the outcome of the litigation.

18

support, they cite broad language from Silberg stating that

19

“republications to nonparticipants in the action are generally not

20

privileged under section 47.”

21

to this Court’s decision in Sharper Image Corp. v. 4 Target Corp.,

22

which required the party asserting the privilege to show that it

23

directed its communication at recipients with a “substantial

24

interest” in the outcome of the underlying litigation.

25

Supp. 2d 1056, 1079 (N.D. Cal. 2006).

26

under these cases, Plaintiff’s e-mail is not privileged because

27

its recipients had no connection to Wu or Kozumi and, thus, lacked

28

a substantial connection to this case.

50 Cal. 3d at 219.

20

For

They also point

425 F.

Defendants argue that,

1

A more complete reading of Sharper Image demonstrates why
Defendants’ argument fails.

3

asserted a counterclaim against the plaintiff for tortious

4

interference with economic advantage based on an e-mail that the

5

plaintiff had sent to certain retailers and media outlets.

6

1060.

7

or advertisements and noted that the plaintiff had sued the

8

defendants for patent and trademark infringement.

9

This Court found that the e-mail was protected by the litigation

10
United States District Court
For the Northern District of California

2

privilege because “the retailer and media recipients possessed a

11

substantial interest in the underlying dispute.”

12

The Court reasoned that, if the plaintiff ultimately prevailed,

13

the outcome could “significantly disrupt[] the recipients’

14

business arrangements.”

15

“significantly increase[] the legal liability of the letter

16

recipients.”

17

Court held that the e-mail was privileged under section 47 and the

18

defendants’ counterclaim was barred.

19

In Sharper Image, the defendants

Id. at

The e-mail asked them not to carry the defendants’ products

Id.

Id.

Id. at 1075-76.

Id. at 1079.

The outcome could also

Because of these potential consequences, the

Id.

Defendants argue that Sharper Image is inapposite because the

20

e-mail recipients in that case, unlike in this one, all had

21

existing business relationships with the defendants.

22

Court found those business relationships relevant in Sharper

23

Image, it did so only because they illustrated the limited reach

24

of the plaintiff’s e-mails.

25

“were not broadcast to the entire media through a press release,

26

or to the public generally, but to specific media representatives

27

who carried advertisements for the [defendant].”

28

e-mail in the present case was similarly limited in its reach,

Although the

As the Court noted, the messages

21

Id.

Plaintiff’s

1

even if it was not directed specifically at Defendants’ business

2

associates.

3

entire media” nor to “the public generally” but, rather, to its

4

own customer base -- the very group that Defendants were likely to

5

contact to acquire Plaintiff’s products after Plaintiff terminated

6

the Distribution Agreement.

7

had a “substantial interest” in the outcome of Plaintiff’s lawsuit

8

because the litigation implicated their business prospects and,

9

potentially, their legal liability.

United States District Court
For the Northern District of California

10

Indeed, Plaintiff’s e-mail was not sent to “the

Just as in Sharper Image, this group

More recently, in Weiland Sliding Doors & Windows, Inc. v.

11

Panda Windows & Doors, LLC, a Southern District of California

12

court dismissed a counterclaim for tortious interference based on

13

similar logic.

14

There, the plaintiff issued a press release on its website

15

describing its pending lawsuit against the defendant for patent

16

infringement and warning other “[c]ontractors and dealers” of the

17

potential risks of doing business with the defendant.

18

1037.

19

thousand recipients, including its customers, vendors, and to

20

trade publications . . . that had not advertised any [of the

21

defendant’s] product[s].”

22

found that

23
24
25
26

814 F. Supp. 2d 1033, 1040-41 (S.D. Cal. 2011).

Id. at

The plaintiff then sent the press release to “several

Id.

Nevertheless, the court still

those who received the Press Release have a substantial
interest in the outcome of this litigation. For those
that bought or have considered buying the [products] at
issue, they are potentially subject to infringement
liability. And those considering business with [the
defendant] would want to know what of [the defendant]’s
products may be subject to infringement liability.

27

Id. at 1041.

28

privilege even more broadly than this Court did in Sharper Image

In short, the Weiland court applied the litigation

22

1

by extending it to communications with entities who had never

2

previously done business with the defendant.

3

Weiland and Sharper Image, the August 2012 e-mail falls squarely

4

within the scope of section 47’s privilege.

5

Defendants’ defamation claim based on the contents of that e-mail

6

must be dismissed.

7

if they can plead a counterclaim based on communications that are

8

not protected by the litigation privilege.

9

2.

Thus, under both

Accordingly,

Defendants are granted leave to amend but only

Noerr-Pennington Doctrine

United States District Court
For the Northern District of California

10

Because Plaintiff’s e-mail is subject to California’s

11

litigation privilege, the Court need not address whether it is

12

also protected by the Noerr-Pennington doctrine, Eastern R.R.

13

Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127

14

(1961); United Mine Workers v. Pennington, 381 U.S. 657 (1965).

15

F.

16

Intentional Interference with Prospective Economic Advantage
(Fifth Counterclaim)
Defendants allege that Plaintiff tortiously deprived them of

17
prospective economic advantage by intentionally undermining their
18
relationships with certain of Plaintiff’s resellers and
19
distributors.
20
To state a valid claim for intentional interference with
21
prospective economic advantage, a claimant must show (1) an
22
economic relationship with a third party containing the
23
probability of future economic benefit for the claimant; (2) the
24
opposing party’s knowledge of this relationship; (3) intentional
25
acts by the opposing party designed to disrupt the relationship;
26
(4) actual disruption of the relationship; (5) damages proximately
27
caused by the opposing party’s acts; and (6) that those acts were
28
23

1

wrongful by some legal measure other than the fact of the

2

interference itself.

3

29 Cal. 4th 1134, 1153-54 (2003).

Korea Supply Co. v. Lockheed Martin Corp.,

4

“California law has long recognized that the core of

5

intentional interference business torts is interference with an

6

economic relationship by a third-party stranger to that

7

relationship, so that an entity with a direct interest or

8

involvement in that relationship is not usually liable for harm

9

caused by pursuit of its interests.”

Marin Tug & Barge, Inc. v.

United States District Court
For the Northern District of California

10

Westport Petroleum, Inc., 271 F.3d 825, 832 (9th Cir. 2001).

11

also ViChip Corp. v. Lee, 438 F. Supp. 2d 1087, 1097 (N.D. Cal.

12

2006) (“[T]he core of intentional interference business torts is

13

interference with an economic relationship by a third-party

14

stranger to that relationship.”).

See

15

Defendants have failed to state a claim for intentional

16

interference with prospective economic advantage for several

17

reasons.

18

had prior relationships with the third-party entities it contacted

19

here.

20

their counter-complaint as “UBNT distributors and resellers of

21

UBNT products.”

22

interest in Defendants’ relationship with these distributors and

23

resellers and was not a stranger to them.

24

First, Defendants’ pleading recognizes that Plaintiff

Indeed, Defendants expressly refer to these entities in

CC ¶ 37 (emphasis added).

Thus, Plaintiff had an

Second, Defendants have not identified any “independently

25

wrongful” conduct by Plaintiff here.

26

1159 (“We conclude . . . that an act is independently wrongful if

27

it is unlawful, that is, if it is proscribed by some

28

constitutional, statutory, regulatory, common law, or other
24

Korea Supply, 29 Cal. 4th at

1

determinable legal standard.”).

2

tort claims against Plaintiff based on the same conduct, none of

3

those other claims survive this motion.

4

Although Defendants assert other

Third and finally, Plaintiff has shown that its e-mails to
distributors and resellers -- the communications on which

6

Defendants’ intentional interference counterclaim is based -- are

7

protected by California’s litigation privilege.

8

E.1.

9

intentional interference with prospective economic advantage,

10
United States District Court
For the Northern District of California

5

Plaintiff would be immune because of the litigation privilege.

11

See above Section

Thus, even if Defendants had stated a valid counterclaim for

This counterclaim is therefore dismissed.

Defendants are

12

granted leave to amend if they can remedy the deficiencies noted

13

above and plead some other “independently wrongful” conduct by

14

Plaintiff that is not protected by the litigation privilege.

15

G.

16

UCL Violations (Seventh Counterclaim)
Defendants’ UCL counterclaim arises entirely from their tort

17

and antitrust counterclaims.

18

is based on “violations of law as described in Counts II through V

19

above.”).

Because all of those claims fail, so, too, does their

20

UCL claim.

Cf. Digital Sun v. The Toro Co., 2011 WL 1044502, at

21

*5 (N.D. Cal.) (“[Plaintiff]’s third cause of action under [the

22

UCL] is based solely upon a violation of § 2 of the Sherman Act.

23

Because the Sherman Act violation is insufficiently pled, it

24

follows that [the plaintiff] has also failed to plead any

25

violation of the Unfair Competition Law.”).

26
27
28

CC ¶ 52 (stating that the UCL claim

CONCLUSION
For the reasons set forth above, the Court GRANTS IN PART and
DENIES IN PART Plaintiff’s motion to dismiss Defendants’
25

1

counterclaims (Docket No. 96).

2

counterclaims are dismissed with prejudice; their second, fifth,

3

sixth, and seventh counterclaims are dismissed with leave to amend

4

as outlined above.

5

complaint within twenty-one days of this order.

6

Defendants’ third and fourth

Defendants may file an amended counter-

IT IS SO ORDERED.

7
8
9

Dated: 1/29/2013

CLAUDIA WILKEN
United States District Judge

United States District Court
For the Northern District of California

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