Varentec, Inc. v. GridCo, Inc. et al
REPORT AND RECOMMENDATIONS re 123 MOTION to Dismiss Counterclaims filed by Varentec, Inc. Please note that when filing Objections pursuant to Federal Rule of Civil Procedure 72(b)(2), briefing consists solely of the Objections (no longer than te n (10) pages) and the Response to the Objections (no longer than ten (10) pages). No further briefing shall be permitted with respect to objections without leave of the Court. Objections to R&R due by 6/23/2017. Signed by Judge Mary Pat Thynge on 6/6/17. (cak)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
GRIDCO, INC., et al.,
C. A. No. 16-217-RGA-MPT
REPORT AND RECOMMENDATION
This is a patent case. On April 1, 2016, Varentec, Inc. (“plaintiff”) filed this action
alleging Gridco, Inc. (“defendant”) infringes U.S. Patent Nos. 9,293,922 (“the ‘922
patent”) and 9,014,867 (“the ‘867 patent”).1 On June 3, 2016, plaintiff filed a Motion for
a Preliminary Injunction,2 which the court denied on October 3, 2016.3 On November 3,
2016, the court granted plaintiff’s Unopposed Motion to Amend the Complaint.4 On that
same date, plaintiff filed its Amended Complaint for Patent Infringement which includes
a claim that defendant also infringes plaintiff’s U.S. Patent No. 9,104,184 (“the ‘184
patent”).5 On November 21, 2016, defendant filed its Answer to the Amended
Complaint for Patent Infringement, Affirmative Defenses, and Counterclaims.6 Currently
D.I. 1. Plaintiff is a Delaware corporation, having a principal place of business
in Santa Clara, California. D.I. 114 at ¶ 1. Defendant is a Delaware corporation, having
a principal place of business in Woburn, Massachusetts. Id. at ¶ 2.
D.I. 109, D.I. 110.
before the court is plaintiff’s Motion to Dismiss Defendant’s Counterclaims, pursuant to
FED. R. CIV. P. 12(b)(6).7
According to the Amended Complaint, plaintiff is a Santa Clara-based company
that provides products and solutions that achieve smarter power delivery for its
customers.8 Those products and solutions focus on “Grid Edge” power optimization and
management.9 Plaintiff’s patented products show an improved operation when there is
distributed generation of power at the grid edge, and when there is no distributed
generation of power.10 “Grid Edge” refers to the distribution end of the electrical
grid–e.g., where consumers are located.11 Historically, energy distribution systems
have been centrally managed, with power generated at central facilities, e.g., a power
plant, and distributed via a power grid to points of use, such as a house, factory, or
other electricity user.12 The electrical grid, however, is now undergoing a rapid
transition from centralized power generation to smaller distributed power generators that
are closer to the consumer.13 Examples of distributed power generators include
renewable energy sources such as solar and wind.14 Because of the rapid growth of
distributed power generation, new technology is necessary to efficiently manage power
D.I. 114 at ¶ 7.
generated at the “Grid Edge.”15 Plaintiff’s patented technology fills this space.16 Its
products may deploy on the secondary, that is the edge side, of distribution
transformers to improve management of the power grid.17 Its products also improve
management of the power grid when there is no distributed generation of power.18
Plaintiff owns by assignment the entire right, title, and interest in the patents-in-suit.19
Defendant provides products and services focused on power system
management.20 Those products are on sale throughout the United States, including in
the State of Delaware.21 Plaintiff contends defendant’s SVC-20 products infringe each
of the patents-in-suit.22 Plaintiff alleges defendant has been aware of its patents and
products since before this action was initiated and, nevertheless, chose to willfully
infringe plaintiff’s patents.23
Defendant’s Answer to the Amended Complaint, asserts eleven Causes of Action
(“counterclaims”).24 Plaintiff seeks dismissal of defendant’s second through tenth
counterclaims.25 Defendant’s second counterclaim alleges plaintiff is engaged in “sham
Id. at ¶ 8.
Id. at ¶ 9.
Id. at ¶¶ 10-19.
Id. at ¶ 20.
D.I. 116 at ¶¶ 61-175. All paragraph citations to D.I. 116 reference those
paragraphs found in section “III. Gridco’s Counterclaims Against Varentec” in that
D.I. 123; D.I. 124 at 1. Plaintiff does not seek dismissal of defendant’s first
counterclaim for a Declaration of Non-Infringement, Invalidity, and Unenforceability of
the Asserted Patents or defendant’s eleventh counterclaim for Attorney Fees. D.I. 123;
D.I. 124 at 1 n.1.
litigation” in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.26 Defendant’s
third and fourth counterclaims allege violations of Section 2 of the Sherman Act, 15
U.S.C. § 2,27 and the Robinson-Patman Act, 15 U.S.C. § 13a,28 respectively, by
plaintiff’s purported below-cost pricing, in an attempt to achieve a monopoly, or
eliminate defendant as a competitor, also known as “predatory pricing.” Defendant’s
fifth,29 sixth,30 seventh,31 eighth,32 ninth,33 and tenth34 counterclaims assert claims under
the “Unfair Practices” statutes of California, Hawaii, Massachusetts, Maryland,
Oklahoma, and Arkansas, respectively, also based on plaintiff’s purported below-cost
Federal Rule of Civil Procedure 12(b)(6) governs a motion to dismiss a complaint
for failure to state a claim upon which relief can be granted. The purpose of a motion
under Rule 12(b)(6) is to test the sufficiency of the complaint, not to resolve disputed
facts or decide the merits of the case.35 “The issue is not whether a plaintiff will
D.I. 116 at ¶¶ 67-80.
Id. at ¶¶ 81-97.
Id. at ¶¶ 98-109.
Id. at ¶¶ 110-117 (Violation of California Unfair Practices Act, California
Business and Professions Code §§ 17000, et seq.).
Id. at ¶¶ 118-129 (Violation of Hawaii Unfair Practices Act, Hawaii Revised
Statute §§ 480-2 and 481-3).
Id. at ¶¶ 130-140 (Violation of Massachusetts Unfair Sales Act, Massachusetts
General Laws Ch. 93).
Id. at ¶¶ 141-149 (Violation of Maryland Sales Below Cost Act, Annotated
Code of Maryland §§ 11-401, et seq.).
Id. at ¶¶ 150-164 (Violation of Oklahoma Unfair Sales Act, Oklahoma Statutes
Annotated §§ 598.1, et seq.).
Id. at ¶¶ 165-172 (Violation of Arkansas Unfair Practices Act, Arkansas Code
Annotated §§ 4-75-201, et seq.).
Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993).
ultimately prevail, but whether the claimant is entitled to offer evidence to support the
claims.”36 A motion to dismiss may be granted only if, after “accepting all well-pleaded
allegations in the complaint as true, and viewing them in the light most favorable to the
plaintiff, plaintiff is not entitled to relief.”37 While the court draws all reasonable factual
inferences in the light most favorable to a plaintiff, it rejects unsupported allegations,
“bald assertions,” and “legal conclusions.”38
To survive a motion to dismiss, defendant’s factual allegations must be sufficient
to “raise a right to relief above the speculative level . . . .”39 The defendant is therefore
required to provide the grounds of their entitlement to relief beyond mere labels and
conclusions.40 Although heightened fact pleading is not required, “enough facts to state
In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997)
(internal quotation marks and citations omitted); see also Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 563 n.8 (2007) (“[W]hen a complaint adequately states a claim, it may not
be dismissed based on a district court's assessment that the plaintiff will fail to find
evidentiary support for his allegations or prove his claim to the satisfaction of the
Maio v. Aetna, Inc., 221 F.3d 472, 481-82 (3d Cir. 2000) (citing Burlington, 114
F.3d at 1420).
Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (citations
omitted); see also Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., 113 F.3d 405,
417 (3d Cir. 1997) (citations omitted) (rejecting “unsupported conclusions and
unwarranted inferences”); Associated Gen. Contractors of Cal., Inc. v. Cal. State
Council of Carpenters, 459 U.S. 519, 526 (1983) (“It is not . . . proper to assume
[plaintiff] can prove facts that it has not alleged or that the defendants have violated the .
. . laws in ways that have not been alleged.”). These principals also apply to a motion to
dismiss counterclaims. See, e.g., Loftness Specialized Farm Equip., Inc. v.
Twiestmeyer, 742 F.3d 845, 854 (8th Cir. 2014); Wireless Ink Corp. v. Facebook, Inc.,
787 F. Supp. 2d 298, 306 (S.D.N.Y. 2011).
Twombly, 550 U.S. at 555 (citations omitted); see also Victaulic Co. v. Tieman,
499 F.3d 227, 234 (3d Cir. 2007) (citing Twombly, 550 U.S. at 555).
Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).
a claim to relief that is plausible on its face” must be alleged.41 A claim has facial
plausibility when a plaintiff pleads factual content sufficient for the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.42 Once
stated adequately, a claim may be supported by showing any set of facts consistent
with the allegations in the complaint.43 Courts generally consider only the allegations
contained in the complaint, exhibits attached to the complaint, and matters of public
record when reviewing a motion to dismiss.44
Id. at 570; see also Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir.
2008) (“In its general discussion, the Supreme Court explained that the concept of a
‘showing’ requires only notice of a claim and its grounds, and distinguished such a
showing from ‘a pleader's bare averment that he wants relief and is entitled to it.’”)
(quoting Twombly, 550 U.S. at 555 n.3).
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
Twombly, 550 U.S. at 563 (citations omitted).
See, e.g., Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d
1192, 1196 (3d Cir. 1993) (citations omitted). The Third Circuit has rejected plaintiff’s
suggestion that the court must apply a heightened pleading standard, which it describes
as “special scrutiny” that transforms the court into a “discovery gatekeeper,” in light of
defendant’s antitrust claims. See W. Penn Allegheny Health Sys., Inc. v. UPMC, 627
F.3d 85, 98 (3d Cir. 2010) (“The District Court opined that judges presiding over
antitrust and other complex cases must act as ‘gatekeepers,’ and must subject
pleadings in such cases to heightened scrutiny. The District Court’s gloss on Rule 8,
however, is squarely at odds with Supreme Court precedent. Although Twombly
acknowledged that discovery in antitrust cases ‘can be expensive,’ it expressly rejected
the notion that a ‘heightened’ pleading standard applies in antitrust cases, and Iqbal
made clear that Rule 8's pleading standard applies with the same level of rigor in ‘all
civil actions.’”) (citations omitted); id (“We conclude that it is inappropriate to apply
Twombly’s plausibility standard with extra bite in antitrust and other complex cases.”);
see also Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 317 (3d Cir. 2007)
(“Antitrust claims, at least those not akin to fraud, . . . are subject to the notice-pleading
standard of Federal Rule of Civil Procedure 8(a)(2), which requires only a short plain
statement of the claim showing that the pleader is entitled to relief.”) (internal citation
and quotation marks omitted); accord 8 Charles A. Wright & Arthur R. Miller, Federal
Practice & Procedure § 1221 (3d ed. 2004) (noting Rule 8's general pleading standard
“controls in every case, regardless of its size, complexity, or the numbers of parties that
may be involved”).
Defendant contends defendant’s third and fourth counterclaims, alleging
predatory pricing in violation of § 2 of the Sherman Act, 15 U.S.C. § 2 and the
Robinson-Patman Act, 15 U.S.C. § 13(a), are implausible on their face45 and that its fifth
through tenth counterclaims, alleging violation of several state law unfair practices
statutes, are derivative of defendant’s federal predatory pricing claims and fail for the
same reasons.46 Plaintiff also contends defendant’s second counterclaim, alleging
“sham litigation” in violation of § 2 of the Sherman Act, 15 U.S.C. § 2, violates the First
Amendment and is implausible on its face.47
Predatory Pricing (Counterclaims 3 and 4)
According to plaintiff, defendant’s third counterclaim for attempted
monopolization under § 2 of the Sherman Act, and fourth counterclaim under the federal
Robinson-Patman Act, are both based on defendant’s assertion that plaintiff engaged in
D.I. 124 at 5-10. Section 2 of the Sherman Act imposes liability on “[e]very
person who shall monopolize, or attempt to monopolize, or combine or conspire with
another person or persons, to monopolize any part of the trade or commerce among the
several States . . . .” 15 U.S.C. § 2. The Robinson-Patman Act provides, in part, that
“[i]t shall be unlawful for any person engaged in commerce, in the course of such
commerce, either directly or indirectly, to discriminate in price between different
purchasers of commodities of like grade and quality, where either or any of the
purchases involved in such discrimination are in commerce, where such commodities
are sold for use, consumption, or resale within the United States or any Territory thereof
or the District of Columbia or any insular possession or other place under the jurisdiction
of the United States, and where the effect of such discrimination may be substantially to
lessen competition or tend to create a monopoly in any line of commerce, or to injure,
destroy, or prevent competition with any person who either grants or knowingly receives
the benefit of such discrimination, or with customers of either of them . . . .” 15 U.S.C.
D.I. 124 at 17-18.
Id. at 10-16.
below-cost pricing to harm defendant’s business, an antitrust theory referred to as
“A claim of attempted monopolization under § 2 of the Sherman Act must allege
‘(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a
specific intent to monopolize and (3) a dangerous probability of achieving monopoly
[W]hether the claim alleges predatory pricing under § 2 of the Sherman
Act or primary-line price discrimination under the Robinson-Patman Act,
two prerequisites to recovery remain the same. First a plaintiff seeking to
establish competitive injury resulting from a rival’s low prices must prove
that the prices complained of are below an appropriate measure of its
rival’s costs. . . . The second prerequisite to holding a competitor liable
under the antitrust laws for charging low prices is a demonstration that the
competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a
dangerous probability, of recouping its investment in below-cost prices.50
Plausible Allegations that Plaintiff Priced Below Its Cost
“To sufficiently plead the first element of a predatory pricing claim, a plaintiff must
allege more than prices that are ‘below general market levels or the costs of a firm’s
competitors.’ Instead, a plaintiff must plead something akin to ‘what [the defendant’s]
actual costs were’ or, in some situations, ‘standard industry cost.’”51
Id. at 5.
Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 318 (3d Cir. 2007) (quoting
Crossroads Cogeneration Corp. v. Orange & Rockland Utils., Inc., 159 F.3d 129, 141
(3d Cir. 1998)).
Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-24
(1993) (citations and footnote omitted).
Affinity LLC v. GfK Mediamark Research & Intelligence, LLC, No. 12 Civ. 1728
(RJS), 2013 U.S. Dist. LEXIS 45921, at *8 (S.D.N.Y. Mar. 24, 2013) (alteration in
original) (quoting Brooke Grp. Ltd., 409 U.S. at 223. On appeal, the Second Circuit
reiterated that “[i]n order to plead a predatory pricing claim under § 2 of the Sherman
Act, a plaintiff must first allege ‘that the prices complained of are below an appropriate
measure of its rival’s costs’ . . . .” Affinity LLC v. GfK Research & Intelligence, LLC, 547
Plaintiff maintains defendant fails to plausibly allege plaintiff priced below its
costs because it fails to allege plaintiff’s “actual costs.”52 Instead, defendant purportedly
relies on boilerplate and conclusory assertions that plaintiff is pricing below cost.53
Defendant’s counterclaims fail to allege either plaintiff’s actual costs or standard
industry costs. As it has been noted, “the difficulty of meeting a pleading standard does
not provide an excuse for failing to satisfy that standard.”54 Defendant merely makes
conclusory allegations in support of its predatory pricing claims. Defendant alleges:
Varentec has engaged in predatory or anticompetitive conduct by offering
discounts on its ENGO-V10 product, or components of its product, to
electric utility customers nationwide. . . . Varentec’s practice of
discounting its ENGO-V10 product, or components of the product in some
instances, has resulted in Varentec selling the product, or components of
the product, on a below-cost basis.55
Varentec has repeatedly offered electric utility customers nationwide
substantial percentage discounts on its ENGO-V10 product, or
components of its product. In at least one instance, Varentec offered its
ENGO-V10 hardware to a [sic] electric utility customer at a 100% discount.
. . . Employing percentage discounts to its ENGO-V10 product, or
Fed. App’x 54, 56 (2d Cir. 2013) (quoting Brooke Grp. Ltd., 409 U.S. at 222; see also
Astra Media Grp., LLC v. Clear Channel Taxi Media, LLC, 414 Fed. App’x 334, 336 (2d
Cir. 2011)) (“A defendant’s pricing practice violates the Sherman Act only if the plaintiff
can ‘prove that the prices complained of are below an appropriate measure of [the
defendant’s] costs.’ The complaint fails properly to allege as much. . . . The complaint
is silent with respect to what [defendant] ultimately charged Disney or what
[defendant’s] actual costs were.”) (first alteration in original) (quoting Brooke Grp. Ltd.,
409 U.S. at 222).
D.I. 124 at 8.
Affinity LLC, 2013 U.S. Dist. LEXIS 45921, at *11-12; see also Virgin Atl.
Airways Ltd. v. British Airways PLC, 257 F.3d 256, 266 (2d Cir. 2001) (“[T]he Supreme
Court has expressed deep skepticism regarding the viability of proving a predatory
pricing scheme.”) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475
U.S. 574, 589 (1986) (“[P]redatory pricing schemes are rarely tried, and even more
D.I. 116 at ¶¶ 82-83.
components of the product, has resulted in sales below cost.56
Defendant’s assertion that plaintiff offered discounts resulting in below-cost
pricing are not supported by any factual allegations. Without alleging plaintiff’s actual
costs, or industry standard cost, it is impossible to plausibly conclude that those alleged
discounts resulted in below-cost pricing. Moreover, with exception of “one instance,”
defendant does not even allege the percentage discounts that were purportedly offered,
other than simply declaring they were “substantial.”
Defendant alleges that in “at least one instance,” plaintiff offered a customer a
“100% discount.” Even there, defendant does not plead facts supporting its allegation,
including when, and to what customer, the discount was offered. Defendant also makes
no allegation that it suffered any harm from that purported offer. Also, allegations
related to a single offer do not plausibly support its predatory pricing claims. The
Second Circuit found that assertions “limited to a single bid for a single contract” do not
plausibly allege predatory pricing because “an allegation that one of those contracts
provides below-cost prices for services is insufficient to allege predatory pricing.”57
Likewise, the Eighth Circuit has noted “[c]ourts have been wary of plaintiffs’ attempts to
prove predatory pricing through evidence of a low price charged for a single product out
of many, or to a single customer.”58 Consequently, the court determines defendant’s
predatory pricing claims under the Sherman Act and Robinson-Patman Act fail to
Id. at ¶¶ 31-32.
Astra Media Grp., LLC, 414 Fed. App’x at 336.
Morgan v. Ponder, 892 F.2d 1355, 1362 (8th Cir 1989) (emphasis added)
plausibly allege plaintiff engaged in below-cost pricing.59
Plausible Allegations of a Relevant Market
To adequately allege its antitrust claims, defendant must define the relevant
market that plaintiff is alleged to attempt to monopolize.60
“The outer boundaries of a product market are determined by the
reasonable interchangeability of use or the cross-elasticity of demand
between the product itself and substitutes for it.” Where [defendant] fails
to define its proposed relevant market with reference to the rule of
reasonable interchangeability and cross-elasticity of demand, or alleges a
proposed relevant market that clearly does not encompass all
interchangeable substitute products even when all factual inferences are
granted in [defendant’s] favor, the relevant market is legally insufficient
and a motion to dismiss may be granted.61
Defendant states it does not believe it is required to plead specific bids in
which plaintiff sold its ENGO-V10 product below cost, but is prepared to do so. D.I. 129
at 6. Defendant attached to its answering brief several documents purporting to show
bids and/or sales of the ENGO-V10 below plaintiff’s costs. Id., Ex. A. Defendant only
specifically directs the court to a single document indicating a Hawaiian electric
company being offering a 100% discount. Id. at 7. “Generally, in ruling on a motion to
dismiss, a district court relies on the complaint, attached exhibits, and matters of public
record.” Sands v. McCormick, 502 F.3d 263, 268 (3d Cir. 2007). The documents in
defendant’s Exhibit A are not specifically mentioned in its counterclaims, are not
attached as exhibits thereto, and are not matters of public record. The court concludes,
therefore, those documents will not be considered in support of defendant’s opposition
to plaintiff’s motion to dismiss. Although the court determines, infra, that defendant
plausibly pleads a “dangerous probability” of monopolization, and thus also a
“reasonable probability” under the Robinson-Patman Act, to satisfy the “recoupment”
element of its third and fourth counterclaims, its failure to plausibly plead below-cost
pricing is fatal to both of those counterclaims.
Queen City Pizza, Inc. v. Domino’s Pizza Inc., 124 F.3d 430, 436 (3d Cir.
1997) (“[T]he party asserting an antitrust claim has] the burden of defining the relevant
market.”) (citations omitted).
Id at 436 (quoting Brown Shoe Co. v. U.S., 370 U.S. 294, 325 (1962)); see also
Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 307 (“Competing products are in the
same market if they are readily substitutable for one another; a market’s outer
boundaries are determined by the reasonable interchangeability of use between a
product and its substitute, or by their cross-elasticity of demand.”) (citing Brown Shoe
Co., 370 U.S. at 325).
Plaintiff argues defendant fails to plausibly allege a relevant market. It further
contends defendant refers to, in a conclusory and inconsistent fashion, various potential
markets, which are not defined or explained.62 Plaintiff also maintains defendant does
not identify what products are, or are not, included in any of the purported markets and
does not explain why the included products, and only the included products, are
“reasonably interchangeable” with each other.63 Plaintiff asserts that defendant’s
pleading leaves unclear what products and product market defendant is referencing.64
Plaintiff also contends defendant appears to allege that plaintiff’s and defendant’s
products have important differences, suggesting that they should not be included in the
same relevant market.65
Plaintiff accurately states that defendant’s counterclaims refer to various potential
markets.66 Defendant does, however, specify a specific relevant market. In the
“Relevant Market” section of its counterclaims, defendant alleges “there is a market for
products that can be deployed on the lower voltage side of the service transformer.”67
Although the parties’ competing products function differently, defendant alleges that
“Gridco and Varentec compete in the market of electric grid voltage management
D.I. 124 at 6.
Id. at 7.
D.I. 116 at ¶ 1 (“field of power grid optimization”), ¶ 27 (“market of electric grid
voltage management products”), ¶ 13 (“market for products that can be deployed on the
lower side of the service transformer”), ¶ 90 (“VAR product market”), ¶ 106 (“line of
commerce related to secondary side electric grid management”), ¶ 92 (“competitive
Id. at ¶ 13.
products, and both offer their products for sale on a nationwide basis.”68
The court disagrees with plaintiff’s argument that defendant’s allegations of
differences between the technological approach of its SVC-20 product and plaintiff’s
ENGO-V10 suggest they should not be included in the same relevant market. Plaintiff
cites no authority for the proposition that products employing different technological
approaches to solve the same problem cannot be reasonable substitutes for one
another.69 Defendant notes that Third Circuit case law discussing antitrust market
definition focuses on reasonable substitutability rather than how the products function.70
“Interchangeability implies that one product is roughly equivalent to another for the use
to which it is put; while there may be some degree of preference for the one over the
other, either would work effectively. . . . A court making a relevant market determination
looks . . . to the uses to which the product is put by consumers in general.”71 By way of
example, the court stated “[a] person needing transportation to work could accordingly
buy a Ford or a Chevrolet automobile, or could elect to ride a horse or bicycle,
Id. at ¶ 27; see also Id. at ¶ 2 ("Gridco and Varentec both market products that
allow utility customers to improve management of the power grid. The products do this
by working in conjunction with existing equipment to give utilities more control over the
voltage range throughout the power distribution network, and by giving the utility the
ability to flatten the voltage in the power distribution network when and where
necessary.”). In addition to defendant’s SVC-20 and plaintiff’s ENGO-V10 products,
defendant identifies other products in its portfolio that also compete in the same market,
such as “In-line Power Regulators (‘IPRs’), Power Regulating Transformers (‘PRTs’),
Distributed Grid Controllers (‘DGCs’), and a Grid Management and Analytics Platform
(‘GMAP’)”. Id. at ¶¶ 14-16.
D.I. 129 at 9.
Queen City Pizza, 124 F.3d at 437-38 (emphasis added) (citation and internal
quotation marks omitted).
assuming those options were feasible.”72 The court concludes, therefore, that
defendant’s allegations of the differences between the technological approach of the
parties’ products does not necessarily mean those products cannot be included in the
same relevant market.
The court also concludes that defendant plausibly alleges that the parties’
products are interchangeable. Defendant alleges that its products are deployed on the
lower voltage segment of the electric grid: “[t]hese service transformers transform the
medium voltage to a low voltage, secondary circuit most commonly connecting
residential and commercial customers to the grid.”73 Defendant alleges utilities deploy
these products “to achieve power at the required voltage levels.”74 “Accordingly, there is
a market for products that can be deployed on the lower voltage side of the service
transformer.”75 Finally, defendant alleges that both plaintiff’s and defendant’s products
are deployed “to achieve power at the required voltage levels” offered into this market.76
Consequently, the court determines that defendant plausibly alleges the relevant
Plausible Allegations that Plaintiff is Likely to Recoup Its
Asserted “Predatory Losses”
Id. at 437 (citation and internal quotation marks omitted).
D.I. 116 at ¶ 12.
Id. at ¶ 11.
Id. at ¶ 13.
Id. at ¶ 15 (“Gridco’s Static Volt Ampere Reductions (‘VAR’) Compensators
(‘SVR-20') Product serves this market. The SVR-20. . . . is deployed on the secondary
side of distribution transformers. It provides targeted voltage boosts at specific
locations along a distribution factor.” Id. at ¶ 22 (“Varentec’s ENGO-V10 product
deploys on the secondary side of distribution transformers to improve management of
the power grid.”).
If circumstances indicate that below-cost pricing could likely produce its
intended effect on the target, there is still the further question whether it
would likely injure competition in the relevant market. The plaintiff must
demonstrate that there is a likelihood that the predatory scheme alleged
would cause a rise in prices above a competitive level that would be
sufficient to compensate for the amounts expended on the predation,
including the time value of the money invested in it. As we have observed
on a prior occasion, “[i]n order to recoup their losses, [predators] must
obtain enough market power to set higher than competitive prices, and
then must sustain those prices long enough to earn in excess profits what
they earlier gave up in below-cost prices.”77
Plaintiff contends defendant fails to plausibly plead this “recoupment” element as
it purportedly does not provide any essential details about the market at issue.78
According to plaintiff, defendant does not plausibly allege plaintiff had “market power” in
the relevant market–i.e., the ability to control price and exclude competition in the
relevant market–including through specific allegations of plaintiff’s market share.79
Defendant does not identify the competitors in the market at issue or explain why they
are all susceptible to the alleged predatory pricing scheme.80 Finally, defendant must
plausibly allege the relevant market has sufficient “barriers to entry,” because “without
barriers to entry it would presumably be impossible to maintain supracompetitive prices
for an extended time.”81 Plaintiff argues defendant offers only a conclusory assertion on
Brooke Grp. Ltd., 509 U.S. at 225-26 (alterations in original) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 590-91 (1986)); see
also Virgin Atl. Airways Ltd. v. British Airways PLC, 257 F.3d 256, 266 (2d Cir. 2001)
(“Success under [a predatory pricing] scheme is rare because a predatory competitor
must not only sustain short-term losses to drive out competition, but also maintain
monopoly power long enough to recoup those losses and derive additional gain.”) (citing
Matsushita, 475 U.S. at 588-89).
D.I. 124 at 8.
Id. at 9.
Id. (quoting Matsushita, 475 U.S. at 591, n.15).
As plaintiff acknowledges, for defendant to meet this element it must plausibly
allege plaintiff’s market power in the relevant market.83 The Third Circuit has
commented, however, that whether a complaint alleges sufficient facts as to the
dangerous probability of a rival obtaining monopoly power is “a particularly fact intensive
inquiry. Courts typically should not resolve this question at the pleading stage unless it
is clear on the face of the complaint that the dangerous probability standard cannot be
met as a matter of law.”84 Where, as here, defendant alleges attempted monopolization,
the court noted such claims are “frequently interdependant so that proof of one may
provide circumstantial evidence or permissible inferences of other elements.”85 The
court continued, stating, “[i]n a determination of dangerous probability–and
remembering that we are only considering the face of the complaint–factors such as
significant market share coupled with anticompetitive practices, barriers to entry, the
strength of competition, the probable development of the industry, and the elasticity of
consumer demand may be considered. No single factor is dispositive.”86 Based on this
Id. at 8.
Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297, 318 (3d Cir. 2007) (citations
and internal quotation marks omitted).
Id. (emphasis added) (citations and internal quotation marks omitted); see also
Harrison Aire, Inc. v. Aerostar Int’l, Inc., 423 F.3d 374, 381 (3d Cir. 2005) (Defendant
can plausibly allege plaintiff’s market power by relying on “circumstantial evidence” of
plaintiff’s market power. To do this, defendant “must plead and produce evidence of a
relevant product market, of the alleged monopolist’s dominant share of that market, and
high barriers to entry.”) (emphasis added) (quoting Queen City Pizza, 124 F.3d at 436).
Id. (emphasis added) (citations and internal quotation marks omitted); id. at
319 (“[D]etermining whether a defendant has a ‘dangerous probability’ of successful
monopolization is a fact-sensitive inquiry, in which market share is simply one factor.”).
precedent, the court disagrees with plaintiff that defendant is required to allege plaintiff’s
actual market share.
The court has determined defendant plausibly alleges the relevant market.
Defendant also alleges that plaintiff “has already obtained a significant share of the VAR
[Volt Ampere Reduction] product market”87 and “has already obtained the business of a
significant number of electric utilities nationwide.”88 In addition, defendant alleges
“several significant barriers to entry that prevent prospective competitors from entering
the electric grid voltage management product market.”89 Those barriers include “[h]igh
capital costs and technological obstacles associated with research and development of
electric grid voltage management products.”90 Defendant alleges:
The nature of the electric grid voltage management product market itself
presents a barrier to entry for competitors. Consumers in this market are
electric utilities. Where Varentec has already obtained the business of a
significant number of electric utilities nationwide through its anticompetitive
practices, and its ENGO-V10 solution has already been deployed and
physically installed into the electric grid, any new competitor is foreclosed
from obtaining business from the electric utility without also discounting its
product below costs.91
Considering the “face of the complaint,” or here, the “face of defendant’s
counterclaims,” defendant has plausibly plead plaintiff’s attempted monopolization of the
relevant market and its ability to “obtain enough market power to set higher than
competitive prices, and then . . . sustain those prices long enough to earn in excess
D.I. 116 at ¶ 90.
Id. at ¶ 95 (emphasis added). Defendant also claims it has lost sales or has
otherwise been injured by plaintiff’s conduct, and plaintiff’s actions have slowed and
impacted local markets as well as market share. Id. at ¶¶ 35-36.
Id. at ¶ 93.
Id. at ¶ 94.
Id. at ¶ 95.
profits what they earlier gave up in below-cost prices.”92
To reiterate, however, because defendant failed to plausibly allege plaintiff’s
purported below-cost sales, counterclaims three and four should be dismissed.
State Law “Unfair Practices” (Counterclaims 5 through 10)
Defendant’s fifth through tenth counterclaims assert violations of the “Unfair
Practices” statutes of California (Cal. Bus. & Prof. Code § 17043), Hawaii (Haw. Rev.
Stat. § 481-3), Massachusetts (Mass. Gen. Laws Ch. 93), Maryland (Md. Code Ann.,
Com. Law § 11-404(a)), Oklahoma (Okl. St. Ann. § 598.3), and Arkansas (Ark. Code
§ 4-75-209(a)(1)), respectively.
Each of defendant’s state law claims is based on the same below-cost pricing
allegations underlying its federal predatory pricing claims (counterclaims three and
four). Plaintiff contends those statutes impose very similar pleading requirements,
particularly, each requires defendant to allege plaintiff priced below its cost.93
According to plaintiff, each state statue at issue requires defendant to allege it
was injured by plaintiff’s below-cost pricing in the form of lost sales, but defendant failed
to identify any lost sale due to plaintiff’s purportedly below-cost pricing.94 Defendant
does not dispute that the state law claims require a plausible allegation of below-cost
pricing.95 Because the court has determined that defendant failed to plausibly allege
that plaintiff engaged in below-cost pricing, defendant’s state law claims should
Brooke Grp. Ltd., 509 U.S. at 225-26 (alterations in original) (quoting
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 590-91 (1986)).
D.I. 124 at 17.
Id. (citing, as an example, Kyne v. Ritz-Carlton Hotel Co., 835 F. Supp. 2d 914,
922 (D. Haw. 2011) (applying Hawaiian Unfair Practices Act).
D.I. 129 at 18.
Sham Litigation (Counterclaim 2)
Plaintiff maintains defendant’s second counterclaim, alleging sham litigation in
violation of Section 2 of the Sherman Act, 15 U.S.C. § 2, violates the First Amendment
and is implausible on its face.97 The First Amendment to the U.S. Constitution grants a
fundamental right to petition the government, including by filing a lawsuit.98
Consequently, “[t]hose who petition the government for redress are generally immune
from antitrust liability.”99 That immunity does not, however, extend to a “‘mere sham
[lawsuit] to cover . . . an attempt to interfere directly with the business relationships of a
competitor.’”100 The Supreme Court created a two-part definition of “sham litigation.”
“First, the lawsuit must be objectively baseless in the sense that no reasonable litigant
Defendant states that even a single sale below cost, “together with proof of the
injurious effect of such act is presumptive evidence of the purpose or intent to injure
competitors or destroy competition.” Id. at 19 (emphasis added) (quoting Cal. Bus. &
Prof. Code § 1707). Defendant, however, has not provided evidence of any injury from
the single purportedly below-cost sale it alleges to support its contention that the
presumption of injurious effect should apply. Also, defendant states that it is “prepared
to cite specific instances of below-cost pricing of the ENGO-V10 in each of the six
states under whose laws Gridco asserts claims.” D.I. 129 at 19. Again, “in ruling on a
motion to dismiss, a district court relies on the complaint, attached exhibits, and matters
of public record.” Sands v. McCormick, 502 F.3d 263, 268 (3d Cir. 2007).
D.I. 124 at 10-16.
See Cal. Motor Transp. Co v. Trucking Unlimited, 404 U.S. 508, 510 (1972)
(“The right of petition is one of the freedoms protected by the Bill of Rights, and we
cannot, of course, lightly impute to Congress an intent to invade those freedoms. . . .
The right to access to the courts is indeed but one aspect of the right to petition.”)
(citations and internal quotation marks omitted).
Prof’l Real Estate Inv’rs v. Columbia Pictures Indus., Inc., 508 U.S. 49, 56
Prof’l Real Estate Inv’rs, 508 U.S. at 56 (omission in original) (quoting Eastern
R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144 (1961)); see
also Abbott Labs. v. Teva Pharms. USA Inc., 432 F. Supp. 2d 408, 424-25 (D. Del.
2006) (noting First Amendment immunity does not apply if the litigation is a “sham”).
could realistically expect success on the merits.”101 “Under the second part of our
definition of sham, the court should focus on whether the baseless lawsuit conceals an
attempt to interfere directly with the business relationships of a competitor through the
use of the governmental process–as opposed to the outcome of that process–as an
Realistic Expectation of Success on the Merits
Plaintiff argues defendant has not plausibly alleged “that no reasonable litigant
could realistically expect success on the merits” in this case.”103 The Supreme Court
has stated this element requires defendant to plead and prove plaintiff lacked “probable
cause” to bring this lawsuit, where probable cause “requires no more than a
‘reasonabl[e] belie[f] that there is a chance that [a] claim may be held valid upon
adjudication.’”104 Plaintiff maintains defendant does not plausibly allege there is no
chance that plaintiff could prevail on any of its claims.105
Plaintiff asserts that, even if defendant could plausibly allege that plaintiff’s claims
are “objectively baseless” with respect to the ‘867 and ‘922 patents, defendant’s failure
to allege its claim that the ‘184 patent is infringed is objectively baseless is fatal to
defendant’s sham litigation counterclaim.106 Plaintiff reasons that because no such
allegations were made, it retains a viable claim for infringement of the ‘184 patent
Id. at 60.
Id. at 60-61 (emphasis in original) (internal citations and quotation marks
D.I. 124 at 12.
Prof’l Real Estate Inv’rs, 508 U.S. at 62-63 (alterations in original) (quoting
Hubbard v. Beatty & Hyde, Inc., 343 Mass. 258, 262 (1961)).
D.I. 124 at 12.
Id. at 13.
regardless of the court’s findings with respect to the ‘867 and ‘922 patents and,
therefore, defendant’s sham litigation counterclaim must be dismissed.107
Defendant does not contest that its sham litigation counterclaim is not based on
plaintiff’s claim of infringement of the ‘184 patent. It notes, however, the original
complaint was filed on April 1, 2016 and asserted only infringement of the ‘867 and ‘922
patents; the amended complaint, adding a claim of infringement of the ‘184 patent, was
filed over seven months later, on November 3, 2016.108 Defendant argues that even if
the court found it did not state a Sherman Act claim based on allegations regarding the
‘184 patent, it would have a separate cause of action against plaintiff for the filing of the
Each party cites the same case, Content Extraction & Transmission LLC v. Wells
Fargo Bank, N.A.,110 as support for their respective positions. Plaintiff relies on the
court’s statement that it could not conclude the suit at issue was objectively baseless
where a reasonable litigant “could have expected success on at least one of [plaintiff’s]
claims.”111 Based on that language, and the failure of defendant to allege the ‘184
patent infringement claim is a sham, plaintiff concludes its suit is not objectively
baseless because it could reasonably expect success on at least that one claim.
Defendant relies on the court’s statement that “the act of filing the complaint [is] the
D.I. 129 at 13 (citing D.I. 1, D.I. 114).
Id. at 13 (“[E]ven if the Court were to find that Gridco did not state a Sherman
Act claim based on its allegations regarding the ‘184 Patent, Gridco would have a
separate cause of action against Varentec for the filing of the original Complaint in this
776 F.3d 1343 (Fed. Cir. 2014).
Id. at 1350 (emphasis added).
actionable event.”112 Based on that language, defendant argues it would have a
separate cause of action against plaintiff for filing the original complaint.
Content Extraction does not support defendant’s position. The court’s statement
that “the act of filing the complaint [is] the actionable event” was made in the context of
determining whether the suit was objectively baseless with respect to the state of the
law at the time the claim was filed.113 The court found the plaintiff’s suit not objectively
baseless “because the state of the law of § 101 was deeply uncertain at the time
[plaintiff] filed its complaints . . . .”114 As a result, the court upheld the district court’s
dismissal of defendant’s counterclaims where “at least one” of the claims the case was
not objectively baseless.115 Consequently, the court finds plaintiff’s suit in this case is
not objectively baseless as it could reasonably expect success, at least, on its ‘184
patent infringement claim.116
Id. (emphasis added).
Id. (emphasis added).
The court also disagrees that defendant would have a separate cause of
action based on the filing of the original complaint because the original complaint was
mooted with the filing of the amended complaint, and defendant asserted its
counterclaims in its answer to that amended complaint. “This court has held that a valid
amended complaint supersedes the original complaint at the time it is filed with the
court. An amended complaint takes the place of the original complaint, effectively
invalidating the original complaint.” Mowafy v. Noramco of Del., Inc., C.A. No. 05-733,
2007 WL 2828013, at *2 (D. Del. Sept. 27, 2007); see also, e.g., Drake v. City of Detroit,
266 Fed. App’x 444, 448 (6th Cir. 2008) (stating that the original complaint “is a nullity,
because an amended complaint supercedes all prior complaints”) (citing Pintando v.
Miami-Dade Housing Agency, 501 F.3d 1241, 1243 (11th Cir. 2007)); Fritz v. Standard
Sec. Life Ins. Co., 676 F.2d 1356, 1358 (11th Cir. 1982) (“Under the Federal Rules, an
amended complaint supersedes the original complaint.”) (citing Dussouy v. Gulf Coast
Inv. Corp., 660 F.2d 594, 601 (5th Cir. 1991)); accord 6 Charles A. Wright et al., Federal
Practice & Procedure § 1476 (3d ed. 2013) (“A pleading that has been amended under
Rule 15(a) supersedes the pleading it modifies and remains in effect throughout the
Attempt to Interfere with the Business Relationships of a
Competitor Through the Use of the Governmental Process–as
Opposed to the Outcome of that Process–as an
Plaintiff contends defendant fails to plausibly allege plaintiff filed this lawsuit with
the specific, subjective intent of using the costs and burdens of litigation to directly harm
defendant’s business.117 The court agrees with plaintiff.
In the “Sham Litigation” section of defendant’s counterclaim, it declares
“Varentec improperly filed and is prosecuting this objectively baseless patent
infringement action against Gridco for the purpose of driving Gridco from the electric
grid voltage management products market”118 and “[d]efending a baseless, costly, and
action unless it subsequently is modified. Once an amended pleading is interposed, the
original pleading no longer performs any function in the case . . . .”). Plaintiff moved to
file its amended complaint pursuant to Rule 15(a). See D.I. 112.
Even with respect to the ‘867 and ‘922 patents, defendant’s sham litigation
counterclaim primarily rests on its disagreement with plaintiff that its products infringe
those patents. Defendant argues “[t]he technical papers or marketing documents relied
on by Varentec do not actually describe how the SVC-20 operates,” D.I. 116 at ¶ 48,
and “Varentec lacked a reasonable basis to initiate its patent infringement suit against
Gridco in that it relied on technical papers or marketing documents in support of its
infringement claim. The technical papers and marketing documents Varentec relied on
do not actually describe how the SVC-20 operates,” Id. at ¶ 68, and declares that
“Varentec knows or reasonably should know that it cannot prevail on its infringement
claim under the doctrine of equivalents as doing so would vitiate the ‘predetermined
delay’ limitation of claim 1 of the ‘867 and ‘922 patents. Based on the prosecution
history Varentec cannot reasonably argue that its patent would have issued without the
‘predetermined delay’ limitation.” Id. at ¶ 72. Defendant also complains that plaintiff did
not timely produced documents in response to defendant’s First Request for Production.
Id. at ¶ 56. As plaintiff correctly notes, these are common positions taken by almost all
defendants in patent cases, D.I. 124 at 12, and do not plausibly support defendant’s
position that plaintiff’s claims of infringement of the ‘867 and ‘922 are objectively
D.I. 124 at 13.
D.I. 116 at ¶ 73.
burdensome patent litigation impairs Gridco’s ability to compete in the electric grid
voltage management products market.”119 Defendant also alleges it “is a small
Massachusetts-based startup”120 and that plaintiff and defendant are competitors.121
The allegation that plaintiff brought this suit for the purpose of driving defendant
from the grid voltage management products market is simply a bald assertion, as is the
allegation that this action is “baseless.” That defending a patent suit is costly and
burdensome is unsurprising as that is almost always the case. Small companies are
often a party in patent litigation and competitors frequently engage in such litigation.
These allegations do not plausibly support defendant’s contention that plaintiff brought
this action with specific, subjective intent of using the costs and burdens of litigation to
directly harm defendant’s business.
Because defendant fails to plausibly allege the objective and subjective
components of a sham, its second counterclaim should be dismissed.
Based on the above, the court concludes that plaintiff’s motion to dismiss
defendant’s second, third, fourth, fifth, sixth, seventh, eighth, ninth, and tenth
counterclaims122 should be granted. In briefing, plaintiff requested that its motion be
granted with prejudice and without leave to amend.123 Plaintiff argues defendant has
Id. at ¶ 74; see also id. at ¶ 59 (“Varentec instituted this objectively baseless
lawsuit in order to subject its competitor, Gridco, to a burdensome and costly litigation in
order to drive Gridco out of the electric grid voltage management product market.”).
Id. at ¶ 7.
Id. at ¶ 14.
D.I. 124 at 18; D.I. 136 at 10.
not sought leave to amend and that, in any event, any attempt to amend would be
futile.124 The court declines plaintiff’s request. Although defendant has not filed a
motion to amend, it indicated plaintiff has produced numerous documents in the course
of this litigation and is prepared to identify those purportedly demonstrating plaintiff’s
below-cost pricing, which it could do in a proposed amended pleading.125 Plaintiff also
maintains any attempt to amend defendant’s counterclaims would be futile. That could
end up being correct. At this point, however, not having a proposed amended pleading
to review, the court is unable to make that determination. Consequently, the court
determines plaintiff’s motion should be granted without prejudice.
Consistent with the findings contained in the Report and
IT IS RECOMMENDED that plaintiff’s motion (D.I. 123) be GRANTED without
Pursuant to 28 U.S.C. § 636(b)(1)(B) and (C), FED. R. CIV. P. 72 (b)(1), and D.
DEL. LR 72.1, any objections to the Report and Recommendation shall be filed within
fourteen (14) days limited to ten (10) pages after being served with the same. Any
response shall be limited to ten (10) pages and filed within fourteen (14) days thereafter.
The parties are directed to the Court’s Standing Order in Non-Pro Se Matters for
Objections Filed under FED. R. CIV. P. 72 dated October 9, 2013, a copy of which is
D.I. 136 at 10. The court notes plaintiff presented this argument in its reply
D.I. 129 at 6.
found on the Court’s website (www.ded.uscourts.gov.)
Dated: June 6, 2017
/s/ Mary Pat Thynge
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