Otter Products, LLC v. Treefrog Developments Inc.

Filing 95

ORDER That Plaintiffs Motion to Dismiss Defendant Counterclaim Nos. I-V or, in the Alternative, to Bifurcate Discovery & Adjudication of Same ECF No. 39 is GRANTED IN PART and DENIED IN PART; Plaintiffs Motion is granted only in that, if this ca se reaches trial, the Court, pursuant to Federal Rule of Civil Procedure 42, will first hold a trial on Plaintiffs patent infringement claims against Defendant, along with Defendants Sixth and Seventh Counterclaims against Plaintiff (non-infringem ent and invalidity, respectively). And then, if necessary, the Court will hold a separate, later trial on Defendants First, Second, Third, Fourth, and Fifth Counterclaims against Plaintiff; and In all other respects, Plaintiffs Motion is DENIED. by Judge William J. Martinez on 9/28/2012.(ervsl, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge William J. Martínez
Civil Action No. 11-cv-02180-WJM-KMT
OTTER PRODUCTS, LLC, a Colorado Limited Liability Company,
Plaintiff,
v.
TREEFROG DEVELOPMENTS, INC. d/b/a LIFEPROOF, A Delaware Corporation,
Defendant.
_____________________________________________________________________
ORDER GRANTING IN PART AND DENYING IN PART
MOTION TO DISMISS COUNTERCLAIMS OR,
IN THE ALTERNATIVE, TO BIFURCATE COUNTERCLAIMS
_____________________________________________________________________
This matter is before the Court on Plaintiff Otter Products, LLC’s (“OtterBox’s”1)
Motion to Dismiss Defendant Counterclaim Nos. I-V or, in the Alternative, to Bifurcate
Discovery & Adjudication of Same (“Motion”). (ECF No. 39.) Defendant Treefrog
Developments Inc. d/b/a LifeProof (“LifeProof”) has filed a Response to the Motion (ECF
No. 42), and OtterBox has filed a Reply (ECF No. 43). The Motion is ripe for
adjudication. For the following reasons, the Motion is GRANTED IN PART and DENIED
IN PART.
I. BACKGROUND
On August 21, 2011, OtterBox initiated this action against LifeProof, bringing four
claims of patent infringement based on the alleged infringement by LifeProof of four of

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Plaintiff refers to itself in Court filings as OtterBox.

OtterBox’s patents. (ECF No. 1.) According to the original Complaint (“Original
Complaint”), OtterBox designs, manufactures, and sells water-resistant and impactresistant cases for electronic devices that allow users fully sensory interaction with and
use of the enclosed electronic devices. (Id.) OtterBox alleged that one or more of the
four patents are infringed by LifeProof’s manufacture, use, sale, and/or offer to sell its
iPhone 4 LifeProof Case, iPad 2 LifeProof Case, Swimming Headphone Adapter, and/or
General Use Headphone Adapter. (Id.)
On October 19, 2011, LifeProof filed an Answer, Affirmative Defenses, and
Counterclaims in Response to Defendant Otter[Box]’s Complaint. (ECF No. 10.) In
support of the counterclaims, LifeProof alleged,
7. On information and belief, in late September 2011, a representative of
OtterBox asserted to a representative from Best Buy that certain LifeProof
products infringed the OtterBox patents and that OtterBox would remove
LifeProof and its products from the market. On information and belief, the
same OtterBox representative indicated that Best Buy would run into
future trouble if it continued to sell LifeProof products.
8. Contrary to statements made by OtterBox to Best Buy, LifeProof’s
products do not infringe any patent or other intellectual property right of
OtterBox under any reasonable claim construction.
9. On information and belief, the comments made by OtterBox to Best
Buy have resulted in substantial concessions being made by LifeProof as
a requirement to continue to sell certain LifeProof products through the
Best Buy retail stores.
(Id.) Based on these allegations, LifeProof asserted seven Counterclaims against
OtterBox: federal unfair competition (First Counterclaim), intentional interference with
contract (Second Counterclaim), intentional interference with prospective economic

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advantage (Third Counterclaim), tortuous interference with business relations (Fourth
Counterclaim), defamation (Fifth Counterclaim), non-infringement (Sixth Counterclaim),
and invalidity (Seventh Counterclaim). (Id.)
On November 1, 2011, OtterBox filed an Answer to LifeProof’s Counterclaims.
(ECF No. 12.)
Apparently through meet-and-confer efforts, OtterBox filed the operative First
Amended Complaint (“Operative Complaint”) on December 7, 2011. (ECF No. 23.) The
Operative Complaint only brings three claims for patent infringement, and alleges (only)
that the iPhone 4 LifeProof Case infringes those three patents. (Id.)
On December 21, 2011, LifeProof filed an Answer to the Operative Complaint,
which also included the same Counterclaims that LifeProof had previously filed in
response to the Original Complaint, based on the same alleged conversation between
an OtterBox representative and a Best Buy representative. (ECF No. 31.) The First,
Second, Third, Fourth, and Fifth Counterclaims filed by LifeProof on December 21, 2011
were identical (verbatim) to the first five Counterclaims filed by LifeProof in response to
the Original Complaint. (Id.)2
On January 11, 2012, OtterBox filed its pending Motion to Dismiss, seeking
dismissal of LifeProof’s First, Second, Third, Fourth, and Fifth Counterclaims. (ECF No.
39.) In the alternative, OtterBox requested that these five Counterclaims be bifurcated

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The Sixth and Seventh Counterclaims were changed merely to track the fact that
OtterBox’s claims in the Operative Complaint involved three, rather than four, patents.

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and stayed for purposes of discovery and trial. (Id.) The Motion is fully briefed (see
also ECF No. 42, 43), and ripe for adjudication.
II. LEGAL STANDARDS
Under Federal Rule of Civil Procedure 12(b)(6), a counter-defendant may move
to dismiss a counterclaim for “failure to state a claim upon which relief can be granted.”
In evaluating such a motion, a court must “assume the truth of the [counter-claimant’s]
well-pleaded factual allegations and view them in the light most favorable to the
[counter-claimant].” Ridge at Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177
(10th Cir. 2007). In ruling on such a motion, the dispositive inquiry is “whether the
[counterclaim] contains ‘enough facts to state a claim to relief that is plausible on its
face.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). Granting a
motion to dismiss “is a harsh remedy which must be cautiously studied, not only to
effectuate the spirit of the liberal rules of pleading but also to protect the interests of
justice.” Dias v. City & Cnty. of Denver, 567 F.3d 1169, 1178 (10th Cir. 2009) (quotation
marks omitted). “Thus, ‘a well-pleaded [counterclaim] may proceed even if it strikes a
savvy judge that actual proof of those facts is improbable, and that a recovery is very
remote and unlikely.’” Id. (quoting Twombly, 550 U.S. at 556).
Federal Rule of Civil Procedure 42 provides in part, “For convenience, to avoid
prejudice, or to expedite and economize, the court may order a separate trial of one or
more separate issues, claims, crossclaims, counterclaims, or third-party claims.” Fed.
R. Civ. P. 42(b). “District courts have broad discretion in deciding whether to sever

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issues for trial and the exercise of that discretion will be set aside only if clearly abused.”
Anaeme v. Diagnostek, Inc., 164 F.3d 1275, 1285 (10th Cir. 1999) (internal quotations
omitted).
III. ANALYSIS
A.

Motion to Dismiss
1.

Procedural Issues

The Court first addresses two procedural issues regarding OtterBox’s Motion to
Dismiss. First, this Court’s Revised Practice Standards clearly state,
In my view the overuse of motions filed pursuant to Fed. R. Civ. P 12(b)(6)
in this District unreasonably delays the progress of civil litigation. Motions
brought pursuant to this Rule are strongly discouraged if the defect is
correctable by the filing of an amended pleading. Counsel should confer
prior to the filing of the motion to determine whether the deficiency . . . can
be corrected by amendment, and should exercise their best efforts to
stipulate to appropriate amendments. Counsel are on notice that failure to
comply with this practice standard may subject counsel to an award of
attorney’s fees and costs assessed personally against them.
WJM Revised Practice Standard III.D.1.
OtterBox’s Motion does not mention any conferral with counsel for LifeProof
regarding attempts to resolve the issues raised in the Motion to Dismiss without Court
intervention. In LifeProof’s Response, however, LifeProof contends,
On January 4, 2012, OtterBox’s counsel first indicated it was considering
filing a Rule 12(b)(6) motion to dismiss LifeProof’s counterclaims and
requested a meet-and-confer. LifeProof informed OtterBox that it was
LifeProof’s position that OtterBox waived its ability to move to dismiss
LifeProof’s Counterclaims 1-5 by answering them on November 1, 2011.
LifeProof explained to OtterBox that the Federal Rules precluded its
motion. Even though LifeProof believed it was unnecessary, it also
offered to amend its counterclaims to further bolster its allegations so the
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parties and the Court could avoid unnecessary motion practice. OtterBox
refused this offer and filed the instant motion on January 11, 2012.
(ECF No. 42, at 3-4 (emphasis added).) OtterBox in no way responds to these
contentions in its Reply. Thus, OtterBox appears to have violated the language and
spirit of WJM Revised Practice Standard III.D.1.
Second, it is notable that OtterBox originally filed an Answer to LifeProof’s
original first five Counterclaims, but then later decided to file a Motion to Dismiss the
identical (verbatim) five Counterclaims after they were re-filed following OtterBox’s filing
of the Operative Complaint. Both parties present viable arguments regarding whether
OtterBox should be allowed to do so, with OtterBox having the stronger arguments.
See, e.g., Fitzgerald v. Corr. Corp. of Am., 403 F.3d 1134, 1140 (10th Cir. 2005) (“If . . .
defendant submits a motion to dismiss after filing an answer, the motion should be
treated as a motion for judgment on the pleadings.”). However, this change of course
makes OtterBox’s failure to comply with WJM Revised Practice Standard III.D.1 even
more troubling. Considering these two issues together, the Court denies OtterBox’s
Motion to Dismiss for failure to comply with WJM Revised Practice Standard III.D.1.
2.

Substantive Analysis

The Court also denies OtterBox’s Motion to Dismiss for the separate and
independent reason that the Motion to Dismiss lacks merit.
a.

Bad Faith

OtterBox’s primary argument in its Motion to Dismiss is that LifeProof’s first five
Counterclaims may only be maintained if OtterBox acted in bad faith in its statements
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made to the Best Buy representative, and LifeProof’s Counterclaims fail to sufficiently
plead OtterBox’s bad faith. LifeProof’s Response indicates its agreement that it must
show bad faith to succeed on its first five Counterclaims. See also Zenith Elecs. Corp.
v. Exzec, Inc., 182 F.3d 1340, 1353 (Fed. Cir. 1999) (“[B]efore a patentee may be held
liable under § 43(a) [of the Lanham Act] for marketplace activity in support of its patent,
and thus be deprived of the right to make statements about potential infringement of its
patent, the marketplace activity must have been undertaken in bad faith.”); id. at 1355
(“[T]o avoid [federal] patent law preemption of . . . state law tort claims, bad faith must
be alleged and ultimately proven, even if bad faith is not otherwise an element of the tort
claim.”).
The question thus turns to whether LifeProof has sufficiently plead OtterBox’s
alleged bad faith in the statements made to the Best Buy representative. Again,
accepting the Counterclaims’ allegations as true, the OtterBox representative not only
told the Best Buy representative that LifeProof’s products were infringing, but also that
“Otter[B]ox would remove LifeProof and its products from the market” and that “Best
Buy would run into future trouble if it continued to sell LifeProof products.” (ECF No. 31,
¶ 7.) LifeProof then goes on to allege that these statements to the Best Buy
representative were “unlawful,” “unfair,” “fraudulent,” “deceptive,” “untrue,” “misleading,”
done with “malice, oppression, and/or fraud,” and done “wrongfully.” (Id. ¶¶ 11, 20, 31.)
Several considerations lead the Court to conclude that LifeProof has sufficiently
plead bad faith. First, while a patent holder is entitled to represent in good faith to a

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potential infringer’s customers that a particular patent is infringed by a particular
product, the OtterBox representative is alleged to have made much more sweeping
comments that OtterBox “would remove LifeProof and its products from the market” and
that Best Buy would be in trouble for selling “LifeProof products.” According to the
Original Complaint itself, LifeProof not only sells the iPhone 4 LifeProof Case, but also
sells a case for the iPad, and certain adapters.3 Thus, the sweeping nature of the
comments, given that OtterBox now asserts that only the iPhone 4 LifeProof Case is
infringing, could evidence bad faith.
Second, on a related point, OtterBox voluntarily agreed to drop its claims that
LifeProof’s iPad case and adapters infringe OtterBox patents. While dropping claims
via an amended complaint certainly does not indicate that those original claims were
brought in bad faith, the Court is not willing to say that a jury could not consider this fact
in evaluating bad faith vel non of the OtterBox representative’s statements to the Best
Buy representative.
And third, the Court declines to require detailed factual allegations clearly
evidencing bad faith at this early stage of the proceedings. Indeed, OtterBox’s
argument that there is insufficient evidence of bad faith “would be more appropriate at
the summary judgment stage than it is on a motion to dismiss.” Skinner v. Metro. Life
Ins. Co., 829 F. Supp. 2d 669, 678-79 (N.D. Ind. 2010) (stating that the plaintiff need not

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LifeProof’s website also indicates that it (at least now) also sells a case for the iPod.
See http://www.lifeproof.com (last visited Sept. 26, 2012); see also Fed. R. Evid. 201(b).

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“make specific allegations of bad faith and [plead] state of mind”). At this early stage,
sufficient indicia of bad faith will suffice, as a plaintiff or counter-claimant will generally
not have tangible, concrete evidence of bad faith (e.g., an internal e-mail) prior to
discovery. See McCampbell v. Chrysler Corp., 425 F. Supp. 1326, 1329 (E.D. Mich.
1977). Here, LifeProof’s allegations regarding the OtterBox’s sweeping representations
regarding LifeProof and its entire business line of products, along with its explicit
allegations of bad faith, make LifeProof’s claims of bad faith plausible. See Ridge at
Red Hawk, 493 F.3d at 1177.
b.

Lanham Act Claim

OtterBox makes three other independent arguments for why certain particular
Counterclaims of LifeProof should be dismissed. First, OtterBox argues that LifeProof’s
Lanham Act claim should be dismissed because LifeProof only conclusorily alleges that
the OtterBox representative’s statements were false. But the falsity vel non of the
OtterBox representative’s statements is intricately tied up with the merits of OtterBox’s
patent infringement claims, and thus LifeProof’s Lanham Act claim is not properly
dismissed at this early stage of the proceedings. If OtterBox’s argument had merit,
LifeProof would be required to provide detailed factual allegations regarding precisely
why LifeProof’s iPhone case does not infringe OtterBox’s patents, which would include
detailed description of the patents, allegations regarding proper claim construction, and
detailed information regarding the nature, characteristics, and features of LifeProof’s
iPhone case. This the Court will not require LifeProof to do at the pleading stage. The

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more telling question is whether LifeProof has sufficiently plead bad faith, which the
Court concludes that it has.
c.

Intentional Interference With Contract Claim

OtterBox also argues that LifeProof has failed to plead certain essential elements
of an intentional interference with contract claim.
[The] elements of intentional interference with contractual relations tort
[are] (1) a valid contract between plaintiff and a third party; (2) defendant’s
knowledge of this contract; (3) defendant’s intentional acts designed to
induce a breach o[r] disruption of the contractual relationship; (4) actual
breach or disruption of the contractual relationship; and (5) resulting
damage.
See Slater Numismatics, LLC v. Driving Force, LLC, No. 11CA0683, 2012 WL 2353847,
at *8 (Colo. App. 2012).
OtterBox first argues that it did not induce Best Buy to breach its contract(s) with
LifeProof, because LifeProof admits that it continues to sell its products through Best
Buy, and that it is simply now more expensive and/or burdensome to do so. However,
Slater, at least, allows this claim to be maintained not only based on an induced breach
of contract, but also based on a sufficient disruption of the contractual relationship. See
also Harris Grp., Inc. v. Robinson, 209 P.3d 1188, 1202 (Colo. App. 2009) (allowing
damages for intentional interference with contracts based on “disruption” to the plaintiff’s
business). LifeProof has sufficiently plead a significant disruption of its relationship with
Best Buy. Further, even if an intentional interference with contract claim must be based
on an induced breach of a contract, LifeProof’s allegations, viewed in a light most
favorable to it, indicate that Best Buy may not have performed under the original terms
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of its contract(s) with LifeProof.
Second, OtterBox argues that LifeProof has failed to sufficiently plead the
required element that OtterBox acted “improperly” in making the alleged statements to
the Best Buy representative. However, because the Court has held that LifeProof
sufficiently plead bad faith, this satisfies the requirement that OtterBox allegedly acted
“improperly.”
d.

Defamation Claim

Finally, OtterBox argues that LifeProof has failed to plead the required elements
of a defamation claim.
In Colorado, the elements of a cause of action for defamation are: (1) a
defamatory statement concerning another; (2) published to a third party;
(3) with fault amounting to at least negligence on the part of the publisher;
and (4) either actionability of the statement irrespective of special
damages or the existence of special damages to the plaintiff caused by
the publication.
Williams v. Dist. Court, Second Judicial Dist., City & Cnty. of Denver, 866 P.2d 908, 911
n.4 (1993).
OtterBox first argues that LifeProof “does not cite much less plead the publication
element.” (ECF No. 39, at 13.) That argument entirely lacks merit, as the allegations
clearly indicate that the OtterBox representative’s statements about LifeProof were
made to the Best Buy representative, a third party. See Robert C. Ozer, P.C. v.
Borquez, 940 P.2d 371, 379 (Colo. 1997) (stating that “the term ‘publication,’ as it is
applied in defamation claims, . . . includes any communication by the defendant to a
third person”) (internal quotations omitted).
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And second, OtterBox argues that its statements were not defamatory. A
statement is “defamatory” if it “tends to hold the plaintiff up to hatred, contempt or
ridicule, or to cause him to be shunned or avoided. Defamation tends to injure the
reputation of the plaintiff and reflect upon his character.” Walters v. Linhof, 559 F.
Supp. 1231, 1236 (D. Colo. 1983). Here, the sweeping statements allegedly made by
OtterBox about LifeProof and its products, along with the effect the statements allegedly
had on LifeProof’s relationship with Best Buy, were sufficient to cause LifeProof to be
“shunned or avoided” by BestBuy, and “tend[ed] to injure” LifeProof’s reputation with
Best Buy. Thus, the defamatory nature of the statement is sufficiently plead by
LifeProof. Again, the more telling question is whether OtterBox acted in bad faith, and
the Court has already held that LifeProof sufficiently plead bad faith.
For all of the aforementioned reasons, OtterBox’s Motion to Dismiss is denied.
B.

Motion to Bifurcate and Stay
OtterBox alternatively requests that the Court bifurcate and stay LifeProof’s first

five Counterclaims.
Regarding discovery of the first five Counterclaims, neither OtterBox’s Motion nor
its Reply makes a separate argument as to why discovery on the five Counterclaims
should be stayed, instead focusing on the benefits of bifurcating trial. In LifeProof’s
Response, however, LifeProof argues that (as of February 1, 2012) the parties “are
already proceeding with discovery on” the Counterclaims and that “very few additional
witnesses or documents are involved in LifeProof’s counterclaims, so no real efficiency

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would be gained by bifurcation.” (ECF No. 42, at 19.) Again, in its Reply, OtterBox
does not specifically respond to these allegations that discovery on the Counterclaims
was near completion as of February 1, 2012. OtterBox has not shown good cause for
why discovery on the five Counterclaims should be stayed. If discovery has not already
been completed as to the first five Counterclaims, the parties should wrap up such
discovery in short order.
As for bifurcation of trial, OtterBox argues that bifurcation is appropriate because
a finding of patent infringement in the first trial can prove that the plaintiff did not
interfere with the defendant’s customers in bad faith, thereby negating any claims of
unfair competition and the like. (ECF No. 39, at 14-15.) In response, LifeProof argues
that that premise does not apply in this case because OtterBox has already conceded,
by amending its Original Complaint, that at least some of its original claims of
infringment were baseless. LifeProof’s argument is entirely unpersuasive because the
trial to be conducted is on the patent infringement claims asserted in the Amended
Complaint, not the Original Complaint.
LifeProof also argues that OtterBox’s patent infringement claims and LifeProof’s
first five Counterclaims should be tried together because are based on substantially the
same facts. The Court disagrees. OtterBox’s patent infringement claims (along with
LifeProof’s Sixth and Seventh Counterclaims) revolve around OtterBox’s patents, the
proper construction of the claims therein, and the nature, characteristics, and features of
the allegedly infringing iPhone 4 LifeProof Case. LifeProof’s first five Counterclaims, on

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the other hand, are based primarily on a September 2011 conversation between an
OtterBox representative and a Best Buy representative (notably, a conversation that
took place after this patent infringement action was first filed). The Court agrees that a
finding of patent infringement in the first trial could clarify the issues for the second trial
on LifeProof’s first five Counterclaims. Thus, the trial will be bifurcated as OtterBox
requests.
IV. CONCLUSION
In accordance with the foregoing, the Court hereby ORDERS as follows:
(1)

Plaintiff’s Motion to Dismiss Defendant Counterclaim Nos. I-V or, in the
Alternative, to Bifurcate Discovery & Adjudication of Same (ECF No. 39) is
GRANTED IN PART and DENIED IN PART;

(2)

Plaintiff’s Motion is granted only in that, if this case reaches trial, the Court,
pursuant to Federal Rule of Civil Procedure 42, will first hold a trial on Plaintiff’s
patent infringement claims against Defendant, along with Defendant’s Sixth and
Seventh Counterclaims against Plaintiff (non-infringement and invalidity,
respectively). And then, if necessary, the Court will hold a separate, later trial on
Defendant’s First, Second, Third, Fourth, and Fifth Counterclaims against
Plaintiff; and

(3)

In all other respects, Plaintiff’s Motion is DENIED.

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Dated this 28th day of September, 2012.
BY THE COURT:

_________________________
William J. Martínez
United States District Judge

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