VDF FutureCeuticals, Inc. v. Sandwich Isles Trading Co. Inc. et al
Filing
47
ORDER Granting In Part And Denying In Part Plaintiff's Motion To Dismiss In Part Defendant's Counterclaim re #17 . Signed by JUDGE ALAN C KAY on 12/27/11. (gls, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
)
)
)
Plaintiff, )
)
)
vs.
)
)
Sandwich Isles Trading Co.,
Inc., d/b/a/ Kona Red, Inc., et )
)
al.,
)
Defendants. )
)
VDF FutureCeuticals, Inc.,
Civ. No. 11-00288 ACK-RLP
ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF’S MOTION TO
DISMISS IN PART DEFENDANT’S COUNTERCLAIM
I. FACTUAL AND PROCEDURAL BACKGROUND1/
Plaintiff VDF FutureCeuticals, Inc. (“VDF”) filed a
complaint against Sandwich Isles Trading Co., Inc., d/b/a/ Kona
Red, Inc. (“Sandwich Isles”).
(Compl., ECF No. 1.)
VDF alleges
that it “is the assignee and owner of all rights, title and
interest” in three United States patents: No. US 7,754,263 (“the
‘263 Patent”); No. US 7,807,205 (“the ‘205 Patent”); and No. US
7,815,959 (“the ‘959 Patent”).
(Id. ¶¶ 10–12.)
VDF alleges that
it “has marketed, sold, and continues to market and sell, the
patented product and products made from the patented processes
1/
The facts as recited in this order are for the purpose of
disposing of this motion and are not to be construed as findings
of fact or conclusions of law that the parties may rely on in
future proceedings.
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under the trademark “COFFEEBERRY®.”
(Id. ¶ 14.)
The complaint
contains counts involving infringement of the ‘263 Patent, the
‘205 Patent, and the ‘959 Patent.
(Id. ¶¶ 19–35.)
It does not
contain counts involving trademark infringement.
Sandwich Isles filed a counterclaim, portions of which
the instant motion to dismiss challenges.
15-1.)
(Countercl., ECF No.
The motion to dismiss argues that several counts of the
counterclaim are insufficiently pleaded.
This order will
therefore describe the factual allegations of the counterclaim in
the discussion below.
The counts in the counterclaim are as follows:
Count I seeks a declaration that Sandwich Isles has not
infringed the patents-in-suit.
VDF has not sought to dismiss
this count.
Count II seeks a declaration that the ‘205 Patent is
invalid or unenforceable, on several grounds.
VDF seeks to
dismiss this count to the extent that it alleges that the patent
is unenforceable as a result of “inequitable and deceptive
conduct” or “misuse,” on the grounds that such claims are
insufficiently pleaded.
VDF does not seek to dismiss this count,
however, to the extent that it challenges the patent on the
grounds of lack of novelty, obviousness, or lack of specificity.
Count III seeks a declaration that VDF does not have
provisional rights under 35 U.S.C. § 154(d) dating back to the
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publication dates of the relevant patent applications.
VDF does
not seek to dismiss this count.
Count IV seeks a declaration that VDF’s trademark
registrations are invalid.
VDF seeks to dismiss this count on
the grounds that there is no actual case or controversy between
Sandwich Isles and VDF concerning VDF’s trademarks.
Count V seeks cancellation of VDF’s trademark
registrations under 15 U.S.C. § 1119.
VDF seeks to dismiss this
count on the grounds that there is no pending “action involving a
registered mark” as is required for courts to cancel trademark
registrations under § 1119.
Counts VI, VII, and VIII are affirmative claims under
Hawai#i state law for, respectively, “tortious interference with
existing contracts and prospective business advantage”; “unfair
methods of competition in violation of Haw. Rev. Stat. § 480-2”;
and “unfair and deceptive trade practices in violation of Haw.
Rev. Stat. § 481A-3.”
VDF seeks to dismiss each of these claims
on the grounds that they are preempted by federal law and, to the
extent they are not preempted, that they are insufficiently
pleaded.
II. STANDARD OF REVIEW
A.
Motion to Dismiss for Failure to State a Claim
Federal Rule of Civil Procedure 12(b)(6) (“Rule
12(b)(6)”) permits dismissal of a complaint that fails “to state
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a claim upon which relief can be granted.”
Under Rule 12(b)(6),
review is generally limited to the contents of the complaint.
Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir.
2001); Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir.
1996).
Courts may also “consider certain materials—documents
attached to the complaint, documents incorporated by reference in
the complaint, or matters of judicial notice—without converting
the motion to dismiss into a motion for summary judgment.”
United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003).
Documents whose contents are alleged in a complaint and whose
authenticity is not questioned by any party may also be
considered in ruling on a Rule 12(b)(6) motion to dismiss.
See
Branch v. Tunnell, 14 F.3d 449, 453-54 (9th Cir. 1994), overruled
on other grounds by Galbraith v. County of Santa Clara, 307 F.3d
1119 (9th Cir. 2002).
On a Rule 12(b)(6) motion to dismiss, all allegations
of material fact are taken as true and construed in the light
most favorable to the nonmoving party.
Fed’n of African Am.
Contractors v. City of Oakland, 96 F.3d 1204, 1207 (9th Cir.
1996).
However, conclusory allegations of law, unwarranted
deductions of fact, and unreasonable inferences are insufficient
to defeat a motion to dismiss.
See Sprewell, 266 F.3d at 988;
Nat’l Assoc. for the Advancement of Psychoanalysis v. Cal. Bd. of
Psychology, 228 F.3d 1043, 1049 (9th Cir. 2000); In re Syntex
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Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996).
Moreover,
the court need not accept as true allegations that contradict
matters properly subject to judicial notice or allegations
contradicting the exhibits attached to the complaint.
Sprewell,
266 F.3d at 988.
In summary, to survive a Rule 12(b)(6) motion to
dismiss, “[f]actual allegations must be enough to raise a right
to relief above the speculative level . . . on the assumption
that all the allegations in the complaint are true (even if
doubtful in fact).”
Bell Atl. Corp. v. Twombly, 550 U.S. 544,
555 (2007) (internal citations and quotations omitted).
“While a
complaint attacked by a Rule 12(b)(6) motion to dismiss does not
need detailed factual allegations . . . a plaintiff’s obligation
to provide the ‘grounds’ of his ‘entitlement to relief’ requires
more than labels and conclusions, and a formulaic recitation of
the elements of a cause of action will not do.”
citations and quotations omitted).
Id. (internal
Dismissal is appropriate
under Rule 12(b)(6) if the facts alleged do not state a claim
that is “plausible on its face.”
Id. at 570.
“Determining
whether a complaint states a plausible claim for relief
will . . . be a context-specific task that requires the reviewing
court to draw on its judicial experience and common sense.”
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009) (citation
omitted).
“[W]here the well-pleaded facts do not permit the
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court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not ‘show[n]’—‘that the pleader
is entitled to relief.’”
Id. (quoting Fed. R. Civ. P. 8(a)(2)).
“Dismissal without leave to amend is improper unless it
is clear that the complaint could not be saved by any amendment.”
Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009)
(internal quotation marks omitted).
“But courts have discretion
to deny leave to amend a complaint for futility, and futility
includes the inevitability of a claim’s defeat on summary
judgment.”
Johnson v. Am. Airlines, Inc., 834 F.2d 721, 724 (9th
Cir.1987) (citations and internal quotation marks omitted).
B.
Motion to Dismiss under Federal Rule of Civil Procedure
9(b)
Federal Rule of Civil Procedure 9(b) requires that
“[i]n alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake.
Malice, intent, knowledge, and other conditions of a person’s
mind may be alleged generally.”
Fed. R. Civ. P. 9(b).
Rule 9(b)
requires the pleading to provide an “account of the time, place,
and specific content of the false representations as well as the
identities of the parties to the misrepresentations.”
Swartz v.
KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007)(internal quotation
marks omitted).
In other words, “[a]verments of fraud must be
accompanied by the ‘who, what, when where, and how’ of the
misconduct charged.”
Vess v. Ciba-Geigy Corp. USA, 317 F.3d
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1097, 1106 (9th Cir. 2003).
Plaintiffs “must set forth what is
false or misleading about a statement, and why it is false.”
Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir.
2010).
“A motion to dismiss a claim ‘grounded in fraud’ under
Rule 9(b) for failure to plead with particularly is the
functional equivalent of a motion to dismiss under Rule
12(b)(6).”
Vess, 317 F.3d at 1107.
Thus, “[a]s with Rule
12(b)(6) dismissals, dismissals for failure to comply with Rule
9(b) should ordinarily be without prejudice.
Leave to amend
should be granted if it appears at all possible that the
plaintiff can correct the defect.”
Id. (alterations and internal
quotation marks omitted).
III. DISCUSSION
A.
Inequitable Conduct
Count II of Sandwich Isles’s counterclaim seeks a
declaration that the ‘205 Patent is invalid or unenforceable for
several reasons, including “VDF’s inequitable and deceptive
conduct in the prosecution of the ‘205 Patent Application before
the USPTO.”
VDF’s motion to dismiss asserts that this portion of
Count II is insufficiently pleaded.
In Therasense, Inc. v. Becton, Dickinson & Co., 649
F.3d 1276 (Fed. Cir. 2011) (en banc), the Federal Circuit
determined that “the inequitable conduct doctrine has plagued not
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only the courts but also the entire patent system,” and the court
therefore “tighten[ed] the standards for finding both intent and
materiality in order to redirect a doctrine that has been
overused to the detriment of the public.”
Id. at 1289–90.
The Federal Circuit has since summarized its holding in
Therasense as follows: “To prove inequitable conduct, the accused
infringer must provide evidence that the applicant (1)
misrepresented or omitted material information, and (2) did so
with specific intent to deceive the PTO.”
Am. Calcar, Inc. v.
Am. Honda Motor Co., 651 F.3d 1318, 1334 (Fed. Cir. 2011) (citing
Therasense, 649 F.3d at 1287).
The court continued: “Under
Therasense, the materiality required to establish inequitable
conduct is, in general, but-for materiality.
When an applicant
fails to disclose prior art to the PTO, that prior art is but-for
material if the PTO would not have allowed a claim had it been
aware of the undisclosed prior art.”
F.3d at 1291).
Id. (citing Therasense, 649
The court stated that “[w]hile deceptive intent
can be inferred from indirect and circumstantial evidence, that
‘inference must not only be based on sufficient evidence and be
reasonable in light of that evidence, but it must also be the
single most reasonable inference able to be drawn from the
evidence to meet the clear and convincing standard.’”
Id. at
1334 (quoting Star Scientific, Inc. v. R.J. Reynolds Tobacco Co.,
537 F.3d 1357, 1366 (Fed. Cir. 2008)).
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The court concluded that
“[i]n a case involving nondisclosure of information, clear and
convincing evidence must show that the applicant made a
deliberate decision to withhold a known material reference.”
Id.
(emphasis in original) (quoting Therasense, 649 F.3d at 1289).
The Theransense court emphasized that “[i]ntent and
materiality are separate requirements,” and that a “district
court should not use a ‘sliding scale,’ where a weak showing of
intent may be found sufficient based on a strong showing of
materiality, and vice versa.”
649 F.3d at 1290.
The court
continued:
Moreover, a district court may not infer
intent solely from materiality. Instead, a
court must weigh the evidence of intent to
deceive independent of its analysis of
materiality. Proving that the applicant knew
of a reference, should have known of its
materiality, and decided not to submit it to
the PTO does not prove specific intent to
deceive.
Id.
The Therasense court preserved an “exception [to the
materiality prong of inequitable conduct] in cases of affirmative
egregious misconduct.”
649 F.3d at 1292 (“When the patentee has
engaged in affirmative acts of egregious misconduct, such as the
filing of an unmistakably false affidavit, the misconduct is
material.”).
The exception covers all “affirmative egregious
acts,” and is not limited to “the example provided—the filing of
an unmistakably false affidavit.”
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Id. at 1293.
The court noted
the roots of the inequitable conduct doctrine in “early unclean
hands” cases from the Supreme Court, which involved “perjury and
suppression of evidence”; “manufacture and suppression of
evidence”; and “bribery and suppression of evidence.”
Id.
But
“neither mere nondisclosure of prior art references to the PTO
nor failure to mention prior art references in an affidavit
constitutes affirmative egregious misconduct, [so] claims of
inequitable conduct that are based on such omissions require
proof of but-for materiality.”
Id. at 1292–93.
“Therasense does not address the initial pleading stage
nor does it suggest that a challenger could never plead a claim
of inequitable conduct.”
Jersey Asparagus Farms, Inc. v. Rutgers
Univ., Civil No. 10-2849 (FLW), 2011 WL 2148631, at *14 (D.N.J.
May 31, 2011).
The Federal Circuit has recently stated that “[a]
charge of inequitable conduct based on a failure to disclose will
survive a motion to dismiss only if the plaintiff’s complaint
recites facts from which the court may reasonably infer that a
specific individual both knew of invalidating information that
was withheld from the PTO and withheld that information with a
specific intent to deceive the PTO.”
Delano Farms Co. v. Cal.
Table Grape Comm’n, 655 F.3d 1337, 1350 (Fed. Cir. 2011) (citing
Exergen v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1318, 1330 (Fed.
Cir. 2009); citing generally Therasense).
The Delano Farms court
held that a complaint was sufficient to plead inequitable conduct
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where there had been “widespread prior use of the patented
[grape] varieties,” and where, from the allegations in the
complaint, “a reasonable jury could infer that [a co-inventor]
knew of the prior use, appreciated that the prior use was
material, and decided not to disclose that information to the
PTO, with deceptive intent.”
Id.
Similarly, a district court in the Eastern District of
Virginia has recently determined that “Exergen still states the
correct elements required for pleading inequitable conduct after
Therasense.”
Pfizer Inc. v. Teva Pharm. USA, Inc., Civil No.
2:10cv128, 2011 WL 3563112, at *16 (E.D. Va. Aug. 12, 2011).
Specifically, the court determined that “[a] party must still
‘identify the specific who, what, when, where, and how of the
material misrepresentation or omission committed.’”
Id. (citing
Exergen, 575 F.3d at 1328); see also Exergen, 575 F.3d at 1326
(holding that claims of inequitable conduct must be pleaded with
particularity under Rule 9(b)).
“[A]dditionally, a party must
allege intent to deceive the PTO, such that the specific intent
is plausible from the facts alleged.”
at *16.
Pfizer, 2011 WL 3563112,
The court noted, however, that “after Therasense, a mere
recitation that ‘X’ individual, at ‘X’ time, failed to turn over
‘X’ information to the PTO that would have been material to the
prosecution, with the specific intent to deceive the PTO, is
insufficient.”
Id.
“Instead, in alleging those elements, a
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party must make an initial showing from which it may be plausibly
inferred that: (1) the individual knew of the information not
disclosed; (2) the information not disclosed was but-for material
to the prosecution of the patent; and (3) the intent to deceive
is the single most likely explanation for the non-disclosure.”
Id.
The court noted that it was “mindful that at the pleading
stage a party is not required to meet the clear and convincing
evidence standard that applies on the merits,” but also that
under Therasense, “courts must take an active role in examining
the propriety of inequitable conduct claims,” which courts cannot
do without “allegations of the specific elements to be proven.”
Id.
Another court, this one in the Northern District of
California, recently acknowledged Therasense’s determination that
“the doctrine of inequitable conduct has become overplayed and
has ‘plagued’ both the courts and the patent system.”
Oracle
Corp. v. DrugLogic, Inc., No. C 11-00910 JCS, 2011 WL 3443889, at
*13 (N.D. Cal. Aug. 8, 2011).
But the court concluded that
Therasense “did not foreclose all inequitable conduct claims,”
and that “[i]t would be inappropriate at the motion to dismiss
stage to hold that [a party] cannot plead inequitable conduct
based on a case that addressed the heightened standards not for
pleading but for proving the elements of such a claim.”
Id.
(“The court in Therasense did not address inequitable conduct at
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the motion to dismiss stage and did not discuss leave to
amend.”).
With these standards in mind, the Court now turns to
the allegations in Sandwich Isles’s counterclaim.
The
allegations related to the claim of inequitable conduct are
contained in paragraphs 44–53 of the counterclaim.
Specifically,
the counterclaim alleges that VDF’s final submission to the PTO
concerning the ‘205 Patent took place on July 14, 2010, when “VDF
. . . cancelled claims 1–20 of the ‘205 Patent Application,
replaced them with newly added claims 21–39, and argued that the
prior rejections by the USPTO were thereby rendered moot.”
¶ 50.)
(Id.
The counterclaim alleges that this submission was
“materially misleading and deceptive” in that “the newly added
claims disclosed a method involving comminuting whole coffee
cherries ‘or portions thereof’” where the previously allowed
claims in the ‘263 Patent “disclosed a method for processing
whole coffee cherries.”
(Id. ¶¶ 51–52 (emphasis added).)
The
difference between claims involving whole coffee cherries and
partial coffee cherries is material, according to the
counterclaim, because the PTO had previously rejected claims
involving partial coffee cherries based on prior art, and VDF had
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sought to distinguish its claims from the prior art based on the
use of the whole fruit in the ‘205 Patent.2/
(Id. ¶¶ 45–48.)
The Court finds that the allegations in the
counterclaim neither plead with particularity that any actor had
a specific intent to deceive the PTO nor give rise to a plausible
inference that the intent to deceive was the single most likely
explanation for any statement.
The “Remarks/Arguments” section of VDF’s July 14, 2010,
submission to the PTO focuses primarily on mycotoxins rather than
on a distinction between whole and partial coffee cherries.
(Countercl. Ex. 10.)
The submission states that “mycotoxins are
known to be associated with coffee fruit,” but that “much of the
anlysis in the literature is focused on mycotoxins in/on the
bean.”
(Id.)
It further states that the prior art cited by the
examiner either could not achieve “the claimed limits on . . .
specific mycotoxins” or was “entirely silent on the issue of any
mycotoxins in extracts.”
(Id.)
There is no discussion in the
July 14 submission attempting to distinguish prior art based on
the use of whole as opposed to partial coffee cherries.
In any
event, the phrase “coffee cherries or portions thereof” appears
2/
At the hearing, VDF argued that any distinction between
whole and partial fruit was immaterial, because while VDF had
attempted to distinguish prior art on that basis, the PTO had not
been persuaded by that attempt.
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at least fifteen times in the three pages of claims.
(Countercl.
Ex. 10.)
The counterclaim as it stands is insufficient to state
a claim for inequitable conduct under the “tightened” standards
set forth in Therasense.
The Court will therefore DISMISS Count
II of Sandwich Isles’s counterclaim to the extent that it claims
that the ‘205 Patent is unenforceable due to inequitable conduct.
VDF argues that the inequitable conduct claim should be
dismissed with prejudice, claiming that its attorney’s arguments
in favor of patentability cannot form the basis of an inequitable
conduct claim.
The basis of VDF’s position is that “[a]
misrepresentation of material fact may give rise to a claim for
inequitable conduct, however, an applicant’s legal or
interpretive arguments in favor of patentability are not
actionable.”
Schwendimann v. Arkwright Advanced Coating, Inc.,
Civil No. 11-820 ADM/JSM, 2011 WL 4007334, at *4 (D. Minn. Sept.
8, 2011) (collecting cases, including Rothman v. Target Corp.,
556 F.3d 1310, 1328–29 (Fed. Cir. 2009) (“While the law prohibits
genuine misrepresentations of material fact, a prosecuting
attorney is free to present argument in favor of patentability
without fear of committing inequitable conduct.”)).
But not all arguments by attorneys are shielded from
liability for inequitable conduct.
“An applicant’s legal or
interpretive arguments favoring patentability are not
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misrepresentations if such arguments do not contain ‘gross
mischaracterizations or unreasonable interpretations’ and are not
‘demonstrably false.’”
Id. (quoting Young v. Lumenis, Inc.,, 492
F.3d 1336, 1349 (Fed. Cir. 2007)).
“On the other hand, if an
applicant’s legal or interpretive argument is based on distorted
facts or is contrary to what a person of skill in the art would
understand a reference to disclose, the interpretation exceeds
the bounds of acceptable argument and may be subject to a claim
for inequitable conduct.”
Id. (citing Ring Plus, Inc. v.
Cingular Wireless Corp., 614 F.3d 1354, 1360–61 (Fed. Cir. 2010);
Semiconductor Energy Lab Co. v. Samsung Elecs. Co., 204 F.3d
1368, 1376–78 (Fed. Cir. 2000).
While the counterclaim as it stands fails to
sufficiently plead that VDF’s attorney engaged in inequitable
conduct, it is possible that Sandwich Isles might be able to
state a claim.
See Schwendimann, 2011 WL 4007334, at *4; see
generally Therasense, 649 F.3d at 1292 (preserving an “exception
[to the materiality prong of inequitable conduct] in cases of
affirmative egregious misconduct,” including but not limited to
“the filing of an unmistakably false affidavit”); but see
Therasense, 649 F.3d at 1292–93 (“[N]either mere nondisclosure of
prior art references to the PTO nor failure to mention prior art
references in an affidavit constitutes affirmative egregious
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misconduct, [so] claims of inequitable conduct that are based on
such omissions require proof of but-for materiality.”).
The Court, mindful of its obligation to grant leave to
amend “if it appears at all possible that the plaintiff can
correct the defect” in a claim that is insufficiently pleaded,
will GRANT LEAVE for Sandwich Isles to file an amended
counterclaim.
B.
Patent Misuse
Count II of the counterclaim also contains a contention
that the ‘205 Patent is “unenforceable by reason of . . . VDF’s
misuse of the ‘205 Patent.”
(Countercl. ¶ 65.)
VDF argues that
this counterclaim is insufficiently pleaded.
According to the Federal Circuit, “[t]he doctrine of
patent misuse is . . . grounded in the policy-based desire to
prevent a patentee from using the patent to obtain market benefit
beyond that which inheres in the statutory patent right.”
Princo
Corp. v. Int’l Trade Comm’n, 616 F.3d 1318, 1328 (Fed. Cir. 2010)
(internal quotation marks omitted).
Therefore, “[i]t follows
that the key inquiry under the patent misuse doctrine is whether,
by imposing the condition in question, the patentee has
impermissibly broadened the physical or temporal scope of the
patent grant and has done so in a manner that has anticompetitive
effects.”
Id.
The court noted “the narrow scope of the
doctrine,” given that “the patentee begins with substantial
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rights under the patent grant—‘includ[ing] the right to suppress
the invention while continuing to prevent all others from using
it, to license others, or to refuse to license, . . . to charge
such royalty as the leverage of the patent monopoly permits,’ and
to limit the scope of the license to a particular ‘field of
use.’”
Id. (quoting U.S. v. Studiengesellschaft Kohle, m.b.H.,
670 F.2d 1122, 1127, 1133 (D.C. Cir. 1981)).
The parties dispute whether claims of patent misuse
must be pleaded with particularity under Rule 9(b).
While the
Federal Circuit does not appear to have determined what pleading
standard applies, the Court agrees with several courts’ holdings
that to the extent a patent misuse claim rests on allegations of
inequitable conduct, that claim must be pleaded with
particularity under Rule 9(b).
See, e.g., Appelera Corp. v.
Mich. Diagnostics, LLC, 594 F. Supp. 2d 150, 163–64 (D. Mass.
2009); United Fixtures Co. v. Base Mfg., No. 6:08-cv-506-Orl28GJK, 2008 WL 4550212, at *2–5 (M.D. Fla. Oct. 8, 2008);
Advanced Cardiovascular Sys., Inc. v. Medtronic, Inc., No. C-953577 DLJ, 1996 WL 467293, at *13 (N.D. Cal. July 24, 1996).
The
case cited by Sandwich Isles, Matsushita Elec. Indus. Co. v. CMC
Magnetics Corp., No. C 06-04538 WHA, 2006 WL 3290413, at *2 (N.D.
Cal. Nov. 13, 2006), is not to the contrary because in that case
the court found that the claim of patent misuse was supported by
allegations that the patentee “impermissibly broadened the
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physical or temporal scope of the patent grant and has done so in
a manner that has anticompetitive effects.”
The Matsushita court
did state that the patent misuse claim was also supported by
“allegations from . . . other counterclaims which allege that
Matsushita obtained its patents in suit through inequitable
conduct,”
id., but it is not clear from the order, which
concerned only the patent misuse counterclaim, whether those
other counterclaims were sufficiently pleaded under Rule 9(b).
To the extent that the Matsushita decision might be read to imply
that claims of patent misuse based on inequitable conduct need
not be pleaded with particularity, the Court disagrees with that
implication and instead follows the authorities cited
previously.3/
As discussed above, the counterclaim insufficiently
pleads that there was inequitable conduct in the prosecution of
VDF’s patents.
Given the Court’s determination that the
inequitable conduct claim is insufficiently pleaded, so too is
3/
The Court notes that one other proposition in Matsushita
appears to have been abrogated, at least in part. The decision
states that “[t]he Federal Circuit has not stated that there is a
finite list of patent misuse practices.” 2006 WL 3290413, at *3.
But in Princo, the Federal Circuit stated that “proof of an
antitrust violation . . . does not establish misuse of a patent
in suit unless the conduct in question restricts the use of that
patent and does so in one of the specific ways that have been
held to be outside the otherwise broad scope of the patent
grant.” 616 F.3d at 1329 (emphasis added).
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the patent misuse claim to the extent that it relies on
inequitable conduct.
What remains, if anything, are the contents of the
November 3, 2009, letter from VDF’s counsel to XOWii, LLC, and
the broad allegation in paragraph fifty-four of the counterclaim.
As to the first, the letter merely “draws [the recipient’s]
attention to” 35 U.S.C. § 154(d), which provides that a “patent
shall include the right to obtain a reasonable royalty” from an
infringer of an ultimately issued patent who “had actual notice
of the published patent application.”
Id. § 154(d)(1).
The
statute specifically conditions the right to obtain a royalty to
situations where “the invention as claimed in the patent is
substantially identical to the invention as claimed in the
published patent application.”
Id. § 154(d)(2).
Sandwich Isles
argues that the letter constitutes misuse because at the time
that the letter was sent, the claims in the patent application
had already been amended, such that VDF had no prospect of
obtaining royalties dating back to the original filing of the
application.
But the letter contains no representation to the
contrary; all the letter does is cite a statute and relay one of
that statute’s provisions.
At the hearing, the parties disputed the impact of
Stephens v. Tech Int’l, Inc., 393 F.3d 1269 (Fed. Cir. 2004).
that case, the Federal Circuit, in addressing a similar letter
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In
notifying a potential infringer of the potential for reasonable
royalties under 35 U.S.C. § 154(d), stated that “[t]he letter
represented [the patent applicant’s] adherence to section 154’s
requirement that [the potential infringer] be placed on notice of
[the applicant’s] future right to obtain royalties if a patent
issued in a form substantially identical to the published
[patent] application.”
Id. at 1276.
The court continued by
stating that:
[The applicant] did not harass [the potential
infringer] by sending the section 154 notice
while the [patent] application was being
amended. The application was actually
amended after the section 154 notice was sent
to [the potential infringer]. Further, [the
applicant] was not required to withdraw its
section 154 notice; it believed [the
potential infringer] still infringed the
amended claims, and had a right to await
possible patent issuance to see if its
infringement allegations were correct.”
Id.
The Court notes that Stephens has different factual
circumstances from this case because in Stephens, the amendments
were made after the section 154 notice was sent to the potential
infringer, whereas in this case, amendments had been made before
the section 154 notice was sent.
difference material.
The Court does not find this
The letter references the identification
numbers for the patent applications, and the parties do not
dispute that XOWii could have used those identification numbers
to determine whether any amendments had been filed since the
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applications had been published (as could any member of the
public).
The letter, standing alone, does not give rise to a
plausible inference that VDF was misusing any patent.
Cf. First
Years, Inc. v. Munchkin, Inc., No. 07-cv-558-bbc, 2008 WL
4283122, at *2 (W.D. Wis. Sept. 17, 2008) (“[Section] 154(d)
requires no more than ‘actual notice of the published patent
application.’”); Arendi Holding Ltd. v. Microsoft Corp., Civ. No.
09-119-JJF-LPS, 2010 WL 1050177, at *8 (D. Del. Mar. 22, 2010)
(noting that First Years referred to “just the application, not
the application and thousands of other documents”).
Notably, the
letter does not assert that XOWii will actually be liable once
the patents issue.
Cf. GEA Westfalia Separator, Inc. v.
Greenshift Corp., No. 09-Civ. 7686(LMM), 2010 WL 2076951, at *4
(S.D.N.Y. May 17, 2010) (determining that a complaint “adequately
allege[d] falsity” where a letter stated that the recipient would
be “liable under 35 U.S.C. § 154(d) once these patent
applications issue,” even though the claims in the patent, as
granted, were not substantially identical to the claims in the
published application).
The counterclaim also contains an allegation that “at
or about the time VDF filed its Complaint in this action on April
29, 2011, VDF contacted existing and/or potential customers of
SITC and threatened to sue them for patent infringement if they
continued or agreed to do business with SITC, including the
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national distributor of the nutritional supplement ‘Juice Plus+,’
who has not agreed to consummate negotiations with SITC to buy
SITC’s products in view of VDF’s threats.”
(Countercl. ¶ 54.)
This allegation does not suffice to make out a claim for patent
misuse under either Rule 8(a) or Rule 9(b); there is nothing in
the allegation to suggest how, if at all, the contacts made by
VDF to Sandwich Isles’s existing or potential customers involved
claims that would have “impermissibly broadened the physical or
temporal scope of the patent grant.”
See 35 U.S.C. § 271(d)(3)
(“No patent owner otherwise entitled to relief for infringement
or contributory infringement of a patent shall be denied relief
or deemed guilty of misuse or illegal extension of the patent
right by reason of his having . . . sought to enforce his patent
rights against infringement or contributory infringement.”).
Federal Circuit has stated:
[The patentee’s] practices did not constitute
patent misuse because they did not broaden
the scope of its patent, either in terms of
covered subject matter or temporally. That
[the patentee] sent infringement notices
. . . , even notices that threatened suit and
injunctions, did not indicate that VP
attempted to broaden its patent monopoly.
. . . A patentee that has a good faith
belief that its patents are being infringed
violates no protected right when it so
notifies infringers. Accordingly, a patentee
must be allowed to make its rights known to a
potential infringer so that the latter can
determine whether to cease its allegedly
infringing activities, negotiate a license if
one is offered, or decide to run the risk of
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The
liability and/or the imposition of an
injunction.
Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 869 (Fed. Cir.
1997) (citation and internal quotation marks omitted).
In short, the counterclaim fails to allege that VDF has
“impermissibly broadened the physical or temporal scope of the
patent grant . . . in a manner that has anticompetitive effects.”
Princo, 616 F.3d at 1328.
The counterclaim therefore fails to
state a claim for patent misuse.
Count II is DISMISSED to the
extent that it claims that the ‘205 Patent is unenforceable due
to patent misuse.
C.
Counterclaims Involving the COFFEEBERRY® Mark
The Counterclaim contains two counts concerning VDF’s
COFFEEBERRY® trademark.
Count IV seeks a declaration that the
mark is generic, descriptive, and nondistinctive.
¶¶ 71–76.)
(Countercl.
Count V seeks cancellation of VDF’s trademark
registrations under 15 U.S.C. § 1119.
(Id. ¶¶ 77–83.)
VDF argues that the Court lacks jurisdiction over both
of these claims.
The Court agrees.
“[C]ourts may adjudicate only actual cases or
controversies.”
Rhoades v. Avon Prods., Inc., 504 F.3d 1151,
1157 (9th Cir. 2007) (citing U.S. Const. art. III, § 2, cl. 1.)
As the Supreme Court restated in MedImmune, Inc. v. Genentech,
Inc., 549 U.S. 118 (2007), “the question in each case is whether
the facts alleged, under all the circumstances, show that there
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is a substantial controversy, between parties having adverse
legal interests, of sufficient immediacy and reality to warrant
the issuance of a declaratory judgment.”
Id. at 127 (quoting Md.
Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273 (1941)).
In this case, the pleadings reflect that VDF has sought
to assert its trademark against another company’s use of the
phrase “coffee berry,” (Countercl. Ex. 4), and Sandwich Isles has
alleged that “[s]ince at least as early as 2008, SITC, directly
or through its affiliates, has been marketing and/or selling in
interstate commerce coffee berry products.”
(Countercl. ¶ 11.)
But there are no allegations that Sandwich Isles itself has ever
used, or has any intention to use, the phrase “coffee berry” in
selling or marketing its products.
(Cf. Countercl. Ex. 4
(referring to Sandwich Isles’s marketing of its product as the
noninfringing “KonaRed Coffee Fruit”); Compl. ¶ 3 (alleging that
Sandwich Isles’s products are marketed as “‘KonaRed Wellness
Beverages,’ including ‘3oz Concentrated Shots,’ ‘RTD [Ready to
Drink] 16oz Beverages,’ and ‘Convenient, on-the-go Stick
Packs,’”); id. ¶ 5 (alleging that Sandwich Isles also offers a
“whole powder and a liquid extract containing ‘KonaRed Coffee
Fruit,’”); Answer ¶¶ 3, 5 (admitting these allegations).)
Nor does the record reflect any threat of action
against Sandwich Isles based on VDF’s trademarks that might give
rise to a reasonable apprehension of liability.
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The complaint
mentions the trademarks only in the context of an allegation that
“VDF has marketed, sold, and continues to market and sell, the
patented product and products made from the patented processes
under the trademark ‘COFFEEBERRY®.’”
(Compl. ¶ 14.)
The
statement in the opposition that VDF’s letter to XOWii
“assert[ed] potential liability based on SITC’s use of ‘KonaRed
Coffee Fruit” is incorrect; the letter identifies “KonaRed Coffee
Fruit” as a noninfringing term and contrasts it with XOWii’s use
of the terms “coffee berry” and “KonaRed Coffee Cherry.”
(Countercl. Ex. 4.)
Moreover, the letter does not give rise to a
reasonable apprehension of potential contributory infringement
liability because there is nothing in the letter to indicate that
VDF suspected Sandwich Isles of contributing in any way to
XOWii’s choices in marketing its products.
At the hearing, Sandwich Isles’s counsel argued that
the Court could infer, from the company’s use of the term “coffee
fruit” to describe its products, that the company would actually
prefer to use the term “coffee berry” and only has only chosen to
use the term “coffee fruit” based on threats of trademarkinfringement litigation made by VDF.
argument speculative.
The Court finds this
If Sandwich Isles’s intent to use the term
“coffee berry” in marketing its products has been thwarted by
VDF’s trademarks, then Sandwich Isles should be able to
affirmatively state allegations to that effect.
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As VDF’s counsel conceded at the hearing, such
allegations might be sufficient to allege a case or controversy
such that this Court would have jurisdiction under Article III.
But the allegations in the complaint and the counterclaim, as
they stand, do not, “under all the circumstances, show that there
is a substantial controversy, between parties having adverse
legal interests, of sufficient immediacy and reality to warrant
the issuance of a declaratory judgment.”
127.
MedImmune, 549 U.S. at
The court therefore lacks jurisdiction over the claim for
declaratory judgment because there is no case or controversy
concerning VDF’s trademarks.
See Malava, LLC v. Innovative Grp.
Holdings, Inc., No. 09cv173 WQH (WVG), 2010 WL 4868024, at *2–3
(S.D. Cal. Nov. 22, 2010) (holding that even where a party had
“previously used” a mark, and a trademark infringement action had
been filed, there was no case or controversy sufficient to
support a declaratory judgment action where the party “had ceased
using” the term and the trademark owner had sought voluntary
dismissal of its trademark infringement claims); cf. Green Edge
Enters., LLC v. Rubber Mulch Etc., LLC, 620 F.3d 1287, 1302–03
(Fed. Cir. 2010) (holding that a party’s use of a term was
insufficient to give rise to a case or controversy even where
another party had been sued by the trademark owner for the use of
the same term) (“Presumably, if Green Edge had wanted to sue
Rubber Resources for trademark infringement, it could have
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included that claim in the existing suit [for patent
infringement]”).
Sandwich Isles cites authority in favor of the
proposition that as a competitor in the market for coffee-berry
products, it may challenge VDF’s trademarks on the grounds that
they are generic or descriptive.
(Opp’n at 32–34.)
But the
authority concerns administrative petitions to cancel trademarks
under 15 U.S.C. § 1064.
There is no case or controversy
requirement for such petitions, so the authority is inapposite.
See Ritchie v. Simpson, 170 F.3d 1092, 1094 (Fed. Cir. 1999)
(“‘[C]ase’ and ‘controversy’ restrictions for standing do not
apply to matters before administrative agencies and boards, such
as the PTO.”)
As the Federal Circuit has stated:
Section 14(c) of the Lanham Act [i.e., 15
U.S.C. § 1064] does authorize persons
interested in using marks that have become
the common descriptive names of articles to
petition the Patent and Trademark Office to
cancel registration of those marks. It does
not, however, authorize suits for
cancellation in district courts.
Windsurfing Int’l Inc. v. AMF Inc., 828 F.2d 755, 758 (Fed. Cir.
1987) (emphasis added).
It may well be that Sandwich Isles can
file an administrative petition to have VDF’s trademarks
cancelled.
It cannot, however, achieve that result in this court
via an action for declaratory relief, unless it can show that
there is an actual case or controversy.
fails to make that showing.
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The instant counterclaim
As for Count V of the counterclaim, 15 U.S.C. § 1119
grants courts authority to cancel trademark registrations “[i]n
any action involving a registered mark.”
But given that the
court lacks jurisdiction over Count IV of the counterclaim
because there is no actual case or controversy, and that the
complaint against Sandwich Isles does not include a trademark
infringement claim, there is no pending “action involving a
registered mark,” so the Court has no authority under § 1119 to
cancel VDFs trademarks.
As the Federal Circuit has stated:
Under the Lanham Act, district courts have
the power to cancel registrations, but only
in an “action involving a registered mark.”
“Involving” cannot mean the mere presence of
a registered trademark, but must be read as
involving the right to use the mark and thus
the right to maintain the registration.
There must, therefore, be something beyond
the mere competitor status of the parties to
serve as a basis for the court’s
jurisdiction. Such a basis may, for example,
be a suit for trademark infringement, or a
“case of actual controversy” referred to in
the Declaratory Judgment Act.
Windsurfing Int’l, 828 F.2d at 758–59 (citations omitted).
In summary, for the reasons stated above, both Count IV
and Count V of Sandwich Isles’s counterclaim are DISMISSED.
D.
State Law Claims
As stated above, Counts VI, VII, and VIII of Sandwich
Isles’s counterclaim are affirmative claims under Hawai#i state
law for, respectively, “tortious interference with existing
contracts and prospective business advantage”; “unfair methods of
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competition in violation of Haw. Rev. Stat. § 480-2”; and “unfair
and deceptive trade practices in violation of Haw. Rev. Stat.
§ 481A-3.”
The parties agree that these claims are preempted
absent allegations that state law was violated in bad faith.
(Opp’n at 22 (citing Zenith Elec. Corp. v. Exzec, Inc., 183 F.3d
1340, 1355 (Fed. Cir. 1999)); Reply at 25 (citing Zenith and
Globetrotter Software, Inc. v. Elan Computer Grp., Inc., 362 F.3d
1367, 1374 (Fed. Cir. 2004)).)
As VDF quoted in its motion:
This “bad faith” standard has objective and
subjective components. The objective
component requires a showing that the
infringement allegations are “objectively
baseless.” The subjective component relates
to a showing that the patentee in enforcing
the patent demonstrated subjective bad faith.
Absent a showing that the infringement
allegations are objectively baseless, it is
unnecessary to reach the question of the
patentee’s intent.
800 Adept, Inc. v. Murex Securities, Ltd., 539 F.3d 1354, 1370
(Fed. Cir. 2008).
The Court finds that the state claims are partially
derivative of the claim for inequitable conduct.
(See, e.g.,
Opp’n at 31–32 (“For example, SITC contends that VDF contacted
its customers and [threatened] infringement lawsuits despite
having procured the ‘205 Patent through inequitable conduct.”).)
As that claim is insufficiently pleaded, see supra Part III.A,
the state law claims fail to the extent that they rely on it.
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Setting aside the claim of inequitable conduct, all
that remains are allegations that VDF informed other parties of
its intellectual property and associated rights.
This conduct,
as pleaded in the counterclaim, does not constitute bad faith,
either objectively or subjectively.
See supra Part III.B.
The state law claims, Counts VI, VII, and VIII, are
therefore DISMISSED.4/
IV. CONCLUSION
For the foregoing reasons, the Court DISMISSES Counts
IV, V, VI, VII, and VIII of Sandwich Isles’s counterclaim.
The
Court also DISMISSES Count II of that counterclaim to the extent
that it relies on claims that VDF obtained its patents through
4/
The Court by this holding does not intend to imply that
Counts VI, VII, and VIII would state claims upon which relief
could be granted if only there were sufficient allegations of bad
faith. It does appear that Count VI, given sufficient
allegations of bad faith, might be sufficient under Rule 8 to
state a plausible claim for tortious interference with
prospective business advantage. See Iqbal, 129 S. Ct. at 1950;
Kahala Royal Corp. v. Goodsill Anderson Quinn & Stifel, 151 P.3d
732, 748 n.18 (Haw. 2007) (setting forth the elements of that
claim); (Am. Countercl. ¶¶ 28, 54, 86–90). But the remainder of
the state-law claims are infirm. For example, Count VI fails to
state a claim for tortious interference with contractual
relations because, at least, the counterclaim fails to allege
that any contract has actually been breached. See Kahala Royal,
151 P.3d at 748 n.17. Counts VII and VIII contain little more
than a “formulaic recitation of the elements of a cause of
action” and do not give VDF “fair notice” of what the “claim is
and the grounds upon which it rests”; they are therefore
insufficient to state a claim under Rule 8(a). Twombly, 550 U.S.
at 555. And all three of the counts fail to state claims with
sufficient particularity under Rule 9(b) to the extent that they
rely on allegedly fraudulent conduct.
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inequitable conduct or misused its patents.
These counts are
dismissed WITHOUT PREJUDICE, and Sandwich Isles is GRANTED LEAVE
to file an amended counterclaim correcting the deficiencies noted
in this order.
IT IS SO ORDERED.
DATED:
Honolulu, Hawai#i, December 27, 2011.
________________________________
Alan C. Kay
Sr. United States District Judge
VDF FutureCeuticals, Inc. v. Sandwich Isles Trading Co., Civ. No. 11-00288
ACK-RLP: Order Granting in Part and Denying in Part Plaintiff’s Motion to
Dismiss in Part Defendant’s Counterclaim
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