IPS Group, Inc. v. Civicsmart, Inc. et al

Filing 80

ORDER on Defendants' Motion to Dismiss and Plaintiff's Motion for Injunction [Doc. Nos. 24 , 41 ]. Signed by Judge Cathy Ann Bencivengo on 10/25/2017. (jjg)

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UNITED STATES DISTRICT COURT

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SOUTHERN DISTRICT OF CALIFORNIA

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IPS GROUP, INC.,

Case No.: 17-cv-0632-CAB (MDD)
Plaintiff,

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ORDER ON DEFENDANTS’
MOTION TO DISMISS AND
PLAINTIFF’S MOTION FOR
INJUNCTION
[Doc. Nos. 24, 41]

v.
CIVICSMART, INC., DUNCAN
PARKING TECHNOLOGIES, INC., and
DUNCAN SOLUTIONS, INC.,

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Defendants.

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I.

Defendants’ Motion to Dismiss

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On May 26, 2017, Plaintiff IPS Group, Inc., filed a First Amended Complaint against

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Defendants CivicSmart, Inc., Duncan Parking Technologies, Inc., and Duncan Solutions,

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Inc. [Doc. No. 23.] The Defendants moved to dismiss asserting improper venue, claim

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splitting, failure to state a claim and lack of subject matter jurisdiction. [Doc. No. 41.] The

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motion was fully briefed. [Doc. No. 57 and 58.] The Court held argument on August 7,

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2017. As set forth below and discussed on the record at argument the motion is GRANTED

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in Part and DENIED in Part.1

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If this order differs in any way from the Court’s determinations at the oral hearing, this written order
controls.
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17-cv-0632-CAB (MDD)

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A. Improper Venue for the Patent Infringement Claims

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Plaintiff’s Amended Complaint, Third through Sixth Causes of Action, alleges that

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all Defendants infringe U.S. Patent Nos. 8,513,832; 8,749,403; 9,391,474; and 9,424,691.

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Defendants CivicSmart and Duncan Parking contend that venue is not properly exercised

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in this district over them for allegations of patent infringement, under 28 U.S.C. §1400(b).

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Neither Defendant is a resident of the state of California. Both are incorporated in

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Delaware. TC Heartland LLC v. Kraft Food Grp. Brand LLC, 137 S. Ct. 1514, 1521

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(2017).

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This was not disputed, however, Plaintiff alternatively alleged that venue is proper

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in this district as to Defendants CivicSmart and Duncan Parking, under 28 U.S.C. §

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1400(b), because they both have committed acts of infringement and maintained a regular

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and established place of business in this district. The Defendants’ motion challenged only

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IPS Group’s allegation that they have committed acts of infringement in this district.

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Defendants CivicSmart and Duncan Parking argued that Plaintiff’s conclusory

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allegation that they have committed acts of infringement in this district is insufficient to

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demonstrate that venue is proper. They contended that neither CivicSmart nor Duncan

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Parking made, sold, offered for sale or used the accused device in this district. [Doc. No.

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41-1, at 11.]2 Plaintiff responded that an allegation of infringement is itself sufficient to

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establish venue so Defendants’ venue challenge must fail. [Doc. No. 57, at 12, 18.] The

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law on this issue is far from clear. E.g., compare 17 Moore’s Federal Practice—Civil §

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110.01 (defendant has the burden of establishing that venue is improper) with 15 C. Wright,

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A. Miller & E. Cooper, Federal Practice and Procedure § 3826 (4th Ed. 2017) (when the

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defendant has made a proper objection, the burden is on the plaintiff to establish that the

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chosen district is a proper venue.).

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Pinpoint page citations to documents in the record are to the page numbers assigned by ECF at the top
of the page.
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17-cv-0632-CAB (MDD)

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Regardless of which party has the burden on the issue of venue, at the hearing

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Plaintiff presented the factual support for its allegation that, on information and belief,

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“Duncan Parking and CivicSmart have made, used, sold, offered for sale, or imported into

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California (and this District) the products that are the subject of IPS Group’s claims.”3

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Defendants may of course dispute that the evidence presented constitutes infringement of

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the asserted patents. For purposes of the challenge to venue, however, the Court found that

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Plaintiff provided sufficient factual support for its contention that venue is proper in this

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District.4 Therefore the motion to dismiss the Third through Sixth Causes of Action against

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Duncan Parking and CivicSmart for improper venue is DENIED.

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B. Claim Splitting

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The Amended Complaint also alleges that CivicSmart infringes U.S. Patent No.

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8,595,054 (First Cause of Action) and U.S. Patent No. 7,854,310 (Second Cause of Action)

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as a result of its marketing and sales of the accused Liberty Meters. These patents and the

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devices accused of infringement are the same patents and devices at issue in IPS v. Duncan

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Solutions, Case No. 3-15-cv-1526 (“2015 Case”), pending before this court. CivicSmart

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moved to dismiss based on the doctrine against claim splitting, contending that the

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complaint alleges that CivicSmart as the parent corporation is responsible for the alleged

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infringements of Duncan Parking that are already at issue in the 2015 case.

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In the interest of judicial economy and to avoid issues of claim splitting, the Court

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gave Plaintiff leave to amend the complaint in the 2015 Case to join CivicSmart as a party

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to that litigation asserting claims of infringement of the ‘054 and ‘310 patents. The

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amended complaint was filed. [Doc. No. 242 in 15cv1526.] The First and Second Causes

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Plaintiff represented it was not more specific in the amended complaint because the evidence of the
alleged infringing acts was provided to it in discovery in a related case under a protective order.
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At the hearing Defendants requested the opportunity to submit a challenge to the second prong of the
venue provision that requires they maintain a regular and established place of business in the district. The
Court denied the request as untimely. Defendants were fully aware of both prongs of the venue
requirement and by failing to address the second prong in their motion, waived any challenge to venue
based on the requirement they maintain a regular and established place of business in this judicial district.

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17-cv-0632-CAB (MDD)

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of Action against CivicSmart alleging infringement of the ‘054 and ‘310 patents are

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therefore dismissed from this case and the motion to dismiss based on claim splitting is

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deemed MOOT.

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C. The Lanham Act Claim

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The Ninth Cause of Action is for violation of the Lanham Act §43, 15 U.S.C. § 1125.

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Plaintiff alleges that CivicSmart and Duncan Parking violated the Lanham Act by falsely

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representing to unidentified city employees in Milwaukee, Wisconsin, in response to a

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request for proposal, that IPS admitted that a Liberty Meter with the solar panel removed

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would not infringe any IPS Group patents. [Doc. No. 23, at ¶¶ 35-36, 138.] Defendants

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move under Rule 12(b)(6) to dismiss for failure to state a claim.

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To survive a Rule 12(b)(6) motion to dismiss for failure to state a claim, a complaint

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must contain sufficient factual matter, accepted as true, to state a claim to relief that is

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plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp

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v. Twombly, 550 U.S. 544, 570 (2007)). Defendants contend that this allegation of the

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Amended Complaint for a violation of Section 43(a) of the Lanham Act fails because it

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does not involve a “commercial advertisement or promotion” that entered “interstate

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commerce.” The amended complaint only alleges that a misrepresentation was made by

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Milwaukee-based companies to Milwaukee municipal employees as part of a request for

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proposal.

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IPS Group contends that the alleged misrepresentation was commercial speech made

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by a competitor for the purpose of influencing a consumer to buy the Defendants’ goods

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and therefore qualifies as a Lanham Act violation under 15 U.S.C. § 1125(a)(1)(B).

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Coastal Abstract Serv. v. First Am. Title, 173 F.3d 725, 735 (9th Cir. 1999). The allegations

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of the complaint, however, fail to meet the fourth element of the Ninth Circuit’s analysis

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in Coastal Abstract, that the misrepresentation be disseminated sufficiently to the relevant

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purchasing public to constitute “advertising” or “promotion” within that industry. Id. at

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735. The relevant market for parking meters is not so limited, that the single alleged

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representation made in the course of a confidential response to a request for proposal to
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17-cv-0632-CAB (MDD)

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unidentified city employees of Milwaukee is sufficient to qualify as advertising or

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promotion within the relevant industry.5

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Plaintiff’s allegations that the Defendants have made this false claim to other

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consumers without any specifics [Doc. No. 23 at ¶ 40] is insufficient to support the

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dissemination requirement. Therefore the motion to dismiss the Ninth Cause of Action for

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a Lanham Act violation for failure to state a claim is GRANTED.

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D. California State Law Violations under B&P Code §§ 17200 and 17500

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Plaintiff asserts claims under California law for (1) violation of the California False

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Advertising Law (“FAL”) (Seventh Cause of Action) and (2) violation of the California

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Unfair Competition Law (“UCL”) (Eighth Cause of Action). The UCL prescribes business

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practices that are ‘unlawful, unfair or fraudulent,” Cal. Bus. & Prof. Code § 17200 and the

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FAL prohibits the dissemination of any advertising “which is untrue or misleading,” Cal.

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Bus. & Prof. Code § 17500. See In re Sony Gaming Networks & Customer Data Sec.

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Breach Litig., 996 F. Supp. 2d 942, 985-86 (S.D. Cal. 2014). Both claims are premised on

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the same alleged false statement -- IPS admitted that a Liberty Meter with the solar panel

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removed would not infringe any IPS Group patents. Plaintiff fails however to identify with

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any specificity who made this statement, when, where and to whom. [Doc. No. 23 at ¶¶

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40, 124, 134.] Again Defendants move under Rule 12(b)(6) to dismiss for failure to state

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a claim.

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The allegations are grounded in fraud and must be pled with particularity pursuant

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to the heightened pleading standards in Fed. R. Civ. P. 9(b). See Kearns v. Ford Motor

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Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (“Rule 9(b)’s heightened pleading standards

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apply to claims for violations of the …UCL.”); In re Sony Gaming Networks & Customer

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Data Sec. Breach Litig., 903 F. Supp. 2d at 966-67 (Rule 9(b)’s heightened pleading

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Plaintiff argued that the alleged misrepresentation affected interstate commerce as it interfered with the
opportunity for Plaintiff, a California company, to sell product in Wisconsin, which the Court initially
found persuasive. However, this argument while adopted in other circuits, does not satisfy the
dissemination requirement of Coastal Abstract, the applicable Ninth Circuit standard for a Lanham Act
claim.
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standards apply to claims for violation of the UCL and FAL that are grounded in fraud.);

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In re Sony Grand Wega KDF-E A10/A20 Series Rear Projection HDTV Television Litig.,

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758 F. Supp. 2d 1077, 1093 (S.D. Cal. 2010) (“[W]here a plaintiff alleges fraud as the basis

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for a violation of [the FAL], the particularity requirement of Rule 9(b) of the Federal Rules

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of Civil Procedure applies to the fraud allegations.”).

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Plaintiff’s claims are subject to the heightened pleading standard under Rule 9(b),

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which requires plaintiffs to “state with particularity the circumstances constituting fraud.”

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Fed. R. Civ. P. 9(b). “Averments of fraud must be accompanied by the who, what, when,

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where, and how of the misconduct charged.” Kearns, 567 F.3d at 1124 (quoting Vess v.

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Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)) (emphasis added; internal

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quotation marks omitted). Plaintiff’s allegations supporting its UCL and FAL claims do

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not meet the heightened pleading standard of Rule 9(b). The amended complaint fails to

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identify the who, where, when and how the alleged misrepresentation was made to a

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consumer in California. Therefore the motion to dismiss the Seventh and Eighth Causes

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of Action for California FAL and UCL violations for failure to state a claim is

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GRANTED.6

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II.

Plaintiff’s Motion for Preliminary Injunction

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Plaintiff moved for a preliminary injunction to enjoin Defendants from engaging in

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unfair business practices and false advertising in violation of California’s False Advertising

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Law, California’s Unfair Competition Law and the Lanham Act. [Doc. No. 24-1, at 2-3.]

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“A preliminary injunction is an extraordinary remedy never awarded as of right.

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Winter v. Natural Res. Def. Council, Inc., 555 U.S. 9, 24 (2008). Injunctive relief may

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only be granted upon a showing of “irreparable injury and the inadequacy of legal

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remedies.” Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982); Stanley v. Univ. of

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So. Calif., 13 F.3d 1313, 1320 (9th Cir. 1994). For party to prevail on a motion for

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In light the finding that Plaintiff has failed to state a claim as to Causes of Action Seven through Nine,
the Court declines, without prejudice, to reach Defendants’ venue challenge to these claims.
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preliminary injunction, therefore, it must demonstrate that: “(1) it is likely to succeed on

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the merits of its claim, (2) it is likely to suffer irreparable harm in the absence of preliminary

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relief, (3) the balance of hardships tips in its favor, and (4) a preliminary injunction is in

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the public interest.” Int’l Franchise Ass’n, Inc. v. City of Seattle, 803 F.3d 389, 399 (9th

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Cir. 2015) (citing Winter, 555 U.S. at 20).

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Having dismissed the Plaintiff’s claims for violations of the Lanham Act and

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California state law FAL and UCL claims, the Court finds that Plaintiff has failed to

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establish a likelihood of success on the merits. Accordingly, the motion for a preliminary

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injunction is DENIED. See generally Global Horizons, Inc. v. U.S. Dep’t. of Labor, 510

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F.3d 1054, 1058 (9th Cir. 2007) (“Once a court determines a complete lack of probability

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of success or serious questions going to the merits, its analysis may end, and no further

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findings are necessary.”).

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III.

Conclusion

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For the reasons set forth above, Defendants’ Motion to Dismiss [Doc. No. 41],

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1. Causes of Action One and Two is deemed moot in light of the amendment of

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the 2015 Case to adding CivicSmart as a Defendant;

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2. Causes of Action Three, Four, Five and Six for improper venue is denied; and

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3. Causes of Action Seven, Eight and Nine for failure to state a claim is granted.

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It is further ordered that Plaintiff’s Motion for a Preliminary Injunction [Doc. No.

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It is SO ORDERED.
Dated: October 25, 2017

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17-cv-0632-CAB (MDD)