Radiancy, Inc. v. Viatek Consumer Products Group, Inc.
Filing
113
OPINION AND ORDER re: 55 MOTION to Strike Document No. 26 Plaintiff and Counterclaim Defendant's Notice of Motion to Strike Affirmative Defences. MOTION to Dismiss Counterclaims filed by Radiancy, Inc. In conclusion, Plainti ff's motion to strike Affirmative Defenses Six and Seven is granted. Plaintiff's motion to strike Affirmative Defense twenty-one is granted in part and denied in part. Plaintiff's motion to dismiss PhotoMedex as a Counterclaim Defendan t is granted. Plaintiff's motion to dismiss the Counterclaim for (1) Declaratory Relief of non-infringement of the '445 Patent is granted; (2) Antitrust violation under the Sherman Act is granted; (3) unfair competition is granted; (4) tortious interference is granted. The Clerk of the Court is respectfully requested to terminate PhotoMedex from this case and terminate Docket No. 55. SO ORDERED. (Signed by Judge Nelson Stephen Roman on 3/28/2014) (mml)
the following reasons, Counterclaim Defendant’s motion is granted in part and denied in part
with Counterclaim Plaintiff granted leave to amend its Sherman Act claims only.
I.
Background
Plaintiff is a Delaware company specializing in skincare products, specifically light and
heat-based skincare equipment for professionals and household consumers. Amend. Compl. ¶ 2.
Plaintiff obtained U.S. Patent No. 7,170,034 (“the ‘034 Patent”) from the United States Patent
and Trademark Office (“USPTO”) for its product no!no!® Hair, which is a handheld device that
uses heat to remove hair. Id. at ¶ 4 & Ex. 1. The ‘034 Patent is entitled “PULSED ELECTRIC
SHAVER” and was granted on January 30, 2007. Id. In addition to the ‘034 Patent, Plaintiff is
also the owner of Patent No. 6,825,445 (“the ‘445 Patent”), entitled “REAL ELECTRIC
SHAVER.” Counterclaim ¶ 8 & Ex. B. On December 13, 2011 PhotoMedex, Inc. and Radiancy
effectuated a reverse merger whereby Radiancy became a wholly-owned subsidiary of
PhotoMedex. Counterclaim ¶ 2; Douglass Dec. Ex. K. Following the merger, the pre-merger
shareholders of PhotoMedex owned approximately 20% of the outstanding common stock in
PhotoMedex and its subsidiaries while the pre-merger shareholders of owned approximately
80% of the outstanding common stock of PhotoMedex and its subsidiaries. Douglass Dec. Ex. K.
Defendant is a Florida corporation that develops, manufacturers, and markets home
goods and personal care products, including hair removal devices, personal fans, flashlights,
beauty products, dental products, kitchen supplies, and cleaning products. Counterclaim ¶ 1.
Defendant manufacturers and sells the PearlTM Hair Remover, the allegedly infringing product.
Amend. Compl. ¶ 5. Defendant also manufacturers the SambaTM, a hot wire hair removal device
that does not use a pulsed heating source. Counterclaim ¶ 32. The Samba was first sold on
August 27, 2013 by ShopNBC, one of Defendant’s customers. Id. Plaintiff alleges that in
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Defendant’s advertising of its hair removal products, Defendant uses false and misleading
information to confuse consumers, including directly lifting photographs and videos from
Plaintiff’s advertising materials and using them to promote the Pearl Hair Remover. Id. at ¶¶ 2022.
Plaintiff first confronted Defendant about the alleged patent infringement in a letter sent
on April 27, 2012. Ratner Dec. Ex. G. In that letter, Plaintiff stated that it believed Defendant
was infringing both the ‘034 Patent and the ‘445 Patent. Id. Subsequent exchanges between the
parties show that Viatek contested Radiany’s assertion of infringement and that Radiancy did not
change its original position.
Plaintiff brought suit against Defendant alleging violations of 35 U.S.C. §§ 271 and 281,
based on belief that Defendant “markets, distributes, advertises, uses, offers for sale, sells and
imports into the United States the Pearl Hair Remover, which infringes the ‘034 Patent.”
Amended Complaint (“Amend. Compl.”) ¶ 5. Plaintiff’s Amended Complaint also claims that
Defendant violated Section 43(a) of the Latham Act (15 U.S.C. § 1125(a)) by engaging in false
advertising, trade dress infringement, trademark infringement, and unfair competition. Id.
II.
Procedural History
Following the filing of this action on June 3, 2013, Plaintiff filed an Amended Complaint
on June 24, 2013, in which it added claims for false advertising, trade dress infringement, and
unfair competition to its claims of patent infringement. Viatek filed an Answer and
Counterclaims on September 23, 2013. Dock. No. 22. An Amended Answer with Counterclaims
was filed on September 29, 2013. Dock. No. 24. Viatek filed a Second Amended Answer and
Counterclaims on October 1, 2013. Dock. No. 26. In its Second Amended Answer and
Counterclaim (“Sec. Amend. Ans. & Counterclaims”), Viatek asserts twenty-one affirmative
defenses and seven counterclaims against Counterclaim Defendants. The present motion to strike
3
addresses three affirmative defenses (the Sixth, for inequitable conduct, the Seventh, for
violation of the best mode requirement, and the Twenty-First, for unclean hands) and four
counterclaims (the Second, for declaratory judgment of noninfringment and invalidity of the
‘445 patent, the Third, for violation of Section 2 of the Sherman Act, the Fourth, for unfair
competition, and the Fifth, for tortious interference), and seeks to dismiss PhotoMedex, Inc. from
the action.
III.
Legal Standards
a. Motion to Strike Affirmative Defenses
“The court may strike from a pleading an insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f). In order to prevail on a
motion to strike affirmative defenses under Fed. R. Civ. P. 12(f), plaintiff must satisfy the
following three-part test: “(1) there must be no question of fact that might allow the defense to
succeed; (2) there must be no substantial question of law that might allow the defense to succeed;
and (3) the plaintiff must be prejudiced by the inclusion of the defense.” Coach, Inc. v. Kmart
Corps., 756 F. Supp. 2d 421, 425 (S.D.N.Y. 2010) (citation omitted). “In assessing the
sufficiency of an affirmative defense, the Court ‘should construe the pleadings liberally to give
the defendant a full opportunity to support its claims at trial, after full discovery has been
made.’” Cartier Int’l AG v. Motion in Time, Inc., No. 12 Civ. 8216(JMF), 2013 WL 1386975, at
*3 (S.D.N.Y. 2013) (quoting Coach, Inc., 756 F. Supp. 2d at 425). “Increased time and expense
of trial may constitute sufficient prejudice to warrant striking an affirmative defense.” Coach,
Inc., 756 F. Supp. 2d at 426.
b. Motion to Dismiss Counterclaim
4
“A motion to dismiss a counterclaim is evaluated under the same standard as a motion to
dismiss a complaint.” Revonate Mfg., LLC v. Acer Am. Corp., No. 12 Civ. 6017(KBF), 2013 WL
342922, at *2 (S.D.N.Y. Jan. 18, 2013) (citation omitted). On a motion to dismiss under Fed. R.
Civ. P. 12(b)(6), dismissal is proper unless the complaint “contain[s] sufficient factual matter,
accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim
has facial plausibility when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
678. “Although for the purposes of a motion to dismiss [a court] must take all of the factual
allegations in the complaint as true, [it is] ‘not bound to accept as true a legal conclusion couched
as a factual allegation.’” Id. (quoting Twombly, 550 U.S. at 555).
When there are well-pleaded factual allegations in the complaint, “a court should assume
their veracity and then determine whether they plausibly give rise to an entitlement to relief.”
Iqbal, 556 U.S. at 679. It is not necessary for the complaint to assert “detailed factual
allegations,” but must allege “more than labels and conclusions.” Twombly, 550 U.S at 555. “[A]
formulaic recitation of the elements of a cause of action will not do.” Id. The facts in the
complaint “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.” Id. Ultimately, determining whether a
complaint states a facially plausible claim upon which relief may be granted is “a contextspecific task that requires the reviewing court to draw on its judicial experience and common
sense.” Id.
c. Applicable Law
5
The United States Court of Appeals for the Federal Circuit has “exclusive jurisdiction of
an appeal from a final decision of a district court of the United States ... in any civil action
arising under, or in any civil action in which a party has asserted a compulsory counterclaim
arising under, any Act of Congress relating to patents.” 28 U.S.C. § 1295(a)(1). Based on the
Federal Circuit’s jurisdiction, a “district court must . . . follow Federal Circuit precedent in a case
arising under the patent laws.” Foster v. Hallco Mfg. Co., Inc., 947 F.2d 469, 475 (Fed. Cir.
1991). A case “aris[es] under the patent laws” if the complaint establishes that “plaintiff’s right
to relief necessarily depends on resolution of a substantial question of federal patent law, in that
patent law is a necessary element of one of the well-pleaded claims.” Christianson v. Colt Indus.
Operating Corp., 486 U.S. 800, 809 (1988). If a plaintiff presents a claim “supported by
alternative theories in the complaint,” that claim does not depend on patent law and accordingly
Federal Circuit precedent is not controlling. Id. at 810. “In other words, an antitrust claim only
gives rise to Federal Circuit jurisdiction and only necessitates the application of Federal Circuit
law, if ‘patent law is essential to each of [the] theories” of liability under the antitrust claims
alleged in the complaint.’” In re Lipitor Antitrust Litigation, Master Docket No. 3:12–cv–2389
(PGS), 2013 WL 4780496, at *14 (D.N.J. Sept. 5, 2013) (quoting Christianson, 486 U.S. at 809).
IV.
Discussion
a. PhotoMedex Should be Dismissed From this Action
i. Improper Service
Under Fed. R. Civ. P. 12(b)(5), a defendant may move to dismiss on the basis that service
of process was improper. Fed. R. Civ. P. 12(b)(5). Without proper service, the court lacks
personal jurisdiction over the defendant. Under New York law, a corporation may be served by
personal service on a director, officer, managing or general agent, or cashier or assistant cashier,
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or any other agent authorized by law to accept service. N.Y. C.P.L.R. § 311(a)(1); Fed. R. Civ. P.
4(e)(1), (h).
“New York Courts have consistently held that service of process on one corporation does
not confer jurisdiction over another, even where one corporation may wholly own another, or
where they may share the same principals.” McKibben v. Credit Lyonnais, No. 98 Civ. 3358
LAP, 1999 WL 604883, at *3 (S.D.N.Y. Aug. 10, 1999) (internal quotation and citation
omitted). “The standards set in Rule 4(d) for service on individuals and corporations are to be
liberally construed, to further the purpose of finding personal jurisdiction in cases in which the
party has received actual notice.” Grammenos v. Lemos, 457 F.2d 1067, 1070 (2d Cir. 1972).
“But there must be compliance with the terms of the rule, and absent waiver, incomplete or
improper service will lead the court to dismiss the action unless it appears that proper service
may still be obtained.” Id.
Before Viatek filed its Counterclaims, PhotoMedex, Inc. was not a party to this action.
As such, Viatek was required to serve PhotoMedex, Inc. in accordance with New York law.
Viatek served PhotoMedex by electronically serving a copy of the Answer and Counterclaims on
Radiancy’s counsel. Sec. Amend. Ans. & Counterclaims p. 54. This is not proper service on
PhotoMedex. In order to effectuate proper service, Viatek needed to serve PhotoMedex, Inc., a
company, pursuant to C.P.L.R. § 311. There was no personal service made on PhotoMedex’s
directors, officers, or agents, and Radiancy’s counsel was not authorized to accept service on
behalf of PhotoMedex. 1 Even if Viatek were given leave to properly effectuate service, such
1
Neither the Answer, Amended Answer, nor Second Amended Answer was personally served on PhotoMedex. See
Dock. Nos. 22, 24, 26.
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service would be futile because Viatek does not satisfy the standard under Delaware law for
piercing the corporate veil and holding PhotoMedex liable for Radiancy’s harms.
ii. Piercing the Corporate Veil
In order to hold PhotoMedex liable for Radiancy’s actions, Viatek must seek to pierce the
Radiancy’s corporate veil. “It is a general principle of corporate law deeply ‘ingrained in our
economic and legal systems’ that a parent corporation (so-called because of control through
ownership of another corporation’s stock) is not liable for the acts of its subsidiaries.” U.S. v.
Bestfoods, 524 U.S. 51, 61 (1998). It is equally ingrained, however, that in certain circumstances,
“the corporate veil may be pierced and the shareholder held liable for the corporation’s conduct .
. . .” Id at 62.
“New York’s choice of law rules provide that ‘the law of the state of incorporation
determines when the corporate form will be disregarded and liability will be imposed on
shareholders.’” Taizhou Zhongneng Import and Export Co. v. Koutsobinas, 509 F. App’x 54, 56
n. 2 (2d Cir. 2013) (quoting Fletcher v. Atex, 68 F.3d 1451, 1456 (2d Cir. 1995)). Radiancy is
incorporated in Delaware, thus, the Court must apply Delaware law to determine whether to
pierce the corporate veil. 2
“To pierce a corporate veil under Delaware law, a plaintiff must show that the individual
has ‘complete domination and control’ over the entity such that it ‘no longer ha[s] legal or
independent significance of [its] own.’” Carotek, Inc. v. Kobayashi Ventures, LLC, 875 F. Supp.
2
Viatek erroneously asserts that Nevada law should apply because PhotoMedex is incorporated in Nevada.
However, Viatek is seeking to pierce Radiancy’s corporate veil and therefore, the state of incorporation of Radiancy
is the determining factor. See Nat’l Gear & Piston, Inc. v. Cummins Power Sys., LLC, Case No. 10–CV–4145
(KMK), --- F. Supp. 2d ---, 2013 WL 5434638, at *6 (S.D.N.Y. Sept. 27, 2013) (“[T]he subsidiary[] is a Delawarebased corporation, and . . . the parent, is an Indiana-based corporation. Because Plaintiff seeks to disregard the
subsidiary’s . . . corporate form and hold the parent . . . liable, Delaware law governs Plaintiff’s veil-piercing
attack.”).
8
2d 313, 350 (S.D.N.Y. 2012) (quoting Wallace ex rel. Cencom Cable Income Partners II, L.P. v.
Wood, 752 A.2d 1175, 1183 (Del. Ch. 1999)). The alter ego theory, under which Counterclaim
Plaintiff proceeds, is a subset of the general corporate veil piercing theory and “‘requires that the
corporate structure cause fraud or similar injustice.’ Effectively, the corporation must be a sham
and exist for no other purpose than as a vehicle for fraud.” Wallace, 752 A.2d at 1184 (quoting
Outokumpu Eng’g Enter., Inc. v. Kvaerner Enviropower, Inc., 685 A.2d 724, 729 (Del. 1996)).
“In order to succeed on an alter ego theory of liability, plaintiffs must essentially
demonstrate that, in all aspects of the business, the corporations actually functioned as a single
entity and should be treated as such.” Blair v. Infineon Techns. AG, 720 F. Supp. 2d 462, 470 (D.
Del. 2010) 3 (quoting Pearson v. Component Tech. Corp., 247 F.3d 471, 485 (3d Cir. 2001)
(alterations omitted)). “Under the single entity test, the Third Circuit has considered seven
factors in determining whether a corporation operated as a single economic entity: (1) gross
undercapitalization; (2) failure to observe corporate formalities; (3) non-payment of dividends;
(4) insolvency of the debtor corporations at the time; (5) siphoning of the corporation’s funds by
the dominant stockholder; (6) absence of corporate records; and (7) whether the corporation is
merely a facade.” 4 Blair, 720 F. Supp. 2d at 470-71. “While the list of factors is not exhaustive
and no single factor is dispositive, some combination is required, and an overall element of
fraud, injustice, or unfairness must always be present.” Id. at 471.
Facts not contained in the Complaint, or here, Counterclaim, cannot be considered in
determining the sufficiency of the pleadings on a motion to dismiss. Blair, 720 F. Supp. 2d at
3
Note that “[t]he alter ego analysis is in fact the same under state or federal law because ‘[v]eil piercing is not
dependent on the nature of the liability. Under both state and federal common law, abuse of the corporate form will
allow courts to employ the tool of equity known as veil-piercing.’” Blair v. Infineon Techs. AG, 420 F. Supp. 2d
462, 470 n. 11 (D. Del. 2010) (quoting 18 Francis C. Amendola et al., C.J.S. Corporations § 14 (2010)).
4
“The seven ‘single entity’ factors used by the Third Circuit apply in Delaware regardless of whether the cause of
action is based on federal or state law.” Blair, 720 F. Supp. 2d at 471.
9
472 n. 15. In its Counterclaim, Viatek supports its claim by stating that Radiancy is “completely
controlled by PhotoMedex,” both entities have the same CEO, that PhotoMedex is the alter ego
of Radiancy, and that PhotoMedex is the real owner of the patent at issue. Sec. Amend. Ans. &
Counterclaims p. 17 ¶ 3. The alter ego and patent ownership allegations are conclusory and are
therefore not accepted as factual allegations. Even taking the other assertions as true, there is no
allegation of fraud or injustice, and there are no facts from which such could be inferred. The
standard for piercing the corporate veil under Delaware law is high and requires allegations
beyond those that are present in Viatek’s pleadings. Viatek makes additional claims in its
opposition brief, including that Radiancy and PhotoMedex share legal counsel and support staff,
are operating as the same company, there is common ownership of the two entities as indicated
in SEC filings, PhotoMedex included Radiancy’s assets on its balance sheets, and that company
statements refer to the two entities as a common unit. However, on a motion to dismiss, the
Court is bound by the four corners of the Complaint and will not consider these additional
allegations. 5
b. Affirmative Defenses
i. Sixth Affirmative Defense: Inequitable Conduct
Viatek’s Sixth Affirmative Defense for inequitable conduct alleges that Radiancy
“intentionally omitted, and/or withheld from, and/or misrepresented to, and/or mischaracterized,
and/or buried information respecting the prior art to the [USPTO] . . . with the intent to deceive
the [USPTO] and cause the issuance of each one of the Patents.” Sec. Amend. Ans. &
Counterclaims p. 13. The Federal Circuit in Therasense, Inc. v. Becton, Dickinson & Co., 649
5
Similarly, the surreply submitted by Viatek to the Court in a letter on January 9, 2014 and Radiancy’s response
submitted on January 14, 2014 are not considered on this motion to dismiss.
10
F.3d 1276 (Fed. Cir. 2011), chastised the use of the doctrine of inequitable conduct as having led
to undesirable results in patent cases, including “increased adjudication cost and complexity,
reduced likelihood of settlement, burdened courts, strained PTO resources, increased PTO
backlog, and impaired patent quality.” Id. at 1290. In an attempt to remedy such consequences,
the court established stricter substantive standards – in addition to the higher pleading standards
established in Exergen Corp. v. Wal-Mart Stores, 575 F.3d 1312, 1328 (Fed. Cir. 2009) – in
order to “redirect a doctrine that has been overused to the detriment of the public.” Therasense,
649 F.3d at 1290.
“[T]o plead the ‘circumstances’ of inequitable conduct with the requisite ‘particularity’
under Rule 9(b), the pleading must identify the specific who, what, when, where, and how of the
material misrepresentation or omission committed before the PTO.” Exergen Corp., 575 F.3d at
1328. This means that the pleading must “name the specific individual associated with the filing
or prosecution of the application . . . who both knew of the material information and deliberately
withheld or misrepresented it,” id. at 1329; “identify the specific prior art that was allegedly
known to the applicant and not disclosed,” id. at 1327; “identify which claims, and which
limitations in those claims, the withheld references are relevant to, and where in those references
the material information is found,” id. at 1329; “identify the particular claim limitations, or
combination of claim limitations, that are supposedly absent from the information of record,” id.
Further, “the accused infringer must prove that the patentee acted with the specific intent to
deceive the PTO.” Therasense, 649 F.3d at 1290. “Because direct evidence of deceptive intent is
rare, a district court may infer intent from indirect and circumstantial evidence.” Aventis Pharma
S.A. v. Hospira, Inc., 675 F.3d 1324, 1334 (Fed. Cir. 2012) (quoting Therasense, 649 F.3d at
1290).
11
Radiancy’s motion to strike the affirmative defense of inequitable conduct is granted.
Viatek fails to establish with particularity the who, what, when, where, why, and how of the
deceptive actions taken before the PTO to satisfy the pleading standards. Nor can those specifics
be inferred from the Counterclaims. C.f., Cognex Corp. v. Microscan Sys., Inc., No. 13
Civ.2027(JSR), 2013 WL 6906221, at *8-9 (S.D.N.Y. Dec. 31, 2013) (on a motion to strike
affirmative defense of inequitable conduct, court found that there was an inference of intent that
could be drawn from a number of facts stated in the pleading which satisfied the who, what,
when, where, why, and how pleading requirement of Exergen). Allegations relevant to this
affirmative defense are wholly conclusory and lack specifics regarding exactly what it was that
was misrepresented, mischaracterized, or omitted in Radiancy’s application to the USPTO.
In its opposition brief, Viatek states that U.S. Patent No. 6,307,181 is the relevant prior
art that, if properly disclosed and characterized, the PTO would not have issued the ‘034 Patent.
Opp’n Br. 34-35. Viatek asserts that this prior art was “buried” by Plaintiff in order to
intentionally deceive the PTO Examiner, but courts have generally rejected the claim that a
reference, if submitted to the PTO Examiner, can be buried for the purposes of establishing
inequitable conduct. See, e.g., Fiskars, Inc. v. Hunt Mfg. Co., 221 F.3d 1318, 1327 (Fed. Cir.
2000) (“An applicant can not be guilty of inequitable conduct if the reference was cited to the
examiner, whether or not it was a ground of rejection by the examiner.”). Furthermore, these
allegations were not made in the Counterclaim. The Federal Circuit in Exergen made clear that it
is the pleading that must allege the specifics of the misrepresentation or omission that occurred
before the PTO. Viatek’s pleading falls short of making the requisite factual allegations.
Moreover, even if the Court could consider the additional claims made in Viatek’s opposition
12
brief, there are no factual claims regarding the “who,” or the person or persons that were
involved in the fraudulent conduct. Accordingly, this affirmative defense is stricken.
ii. Seventh Affirmative Defense: Best Mode
Viatek’s Seventh Affirmative Defense states: “The applicant in the patent failed to
disclose the best mode for practicing the alleged invention.” Sec. Amend. Ans. & Counterclaims
p. 13. Under the Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011), in
all proceedings commenced on or after September 16, 2011, “the failure to disclose the best
mode shall not be a basis on which any claim of a patent may be canceled or held invalid or
otherwise enforceable.” 35 U.S.C. § 282(b)(3)(A). Under 35 U.S.C. § 112(a), the statutory
language requires that the patent “specification . . . shall set forth the best mode . . . of carrying
out the invention.” 35 U.S.C. 112(a). Viatek states that while best mode may not be the basis for
cancelling a claim or holding a claim invalid following the amendment to the Leahy-Smith Act,
it nonetheless remains valid on the issues of enforceability, injunctive relief and damages. Sec.
Amend. Ans. & Counterclaims p. 27.
“The version of the Patent Act currently in effect provides that, although an applicant
must disclose the best mode to register a patent, a party to a lawsuit may not rely on an alleged
best mode disclosure violation to cancel, invalidate, or hold a patent otherwise unenforceable.”
In re Cyclobenzaprine Hydrochloride Extended-Release Capsule Patent Litig., 676 F.3d 1063,
1084 (Fed. Cir. 2012). Thus, under section 112, the best mode must still be included in the patent
application, but it may no longer be used as a defense in a patent litigation action. Memorandum
re: Requirement for a Disclosure of the Best Mode, dated September 20, 2011,
http://www.uspto.gov/aia_implementation/best-mode-memo.pdf. The Court grants Plaintiff’s
motion to strike the Seventh Affirmative Defense. See Coach, Inc., 756 F. Supp. 2d at 426
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(“[I]nclusion of a defense that must fail as a matter of law prejudices the plaintiff because it will
needlessly increase the duration and expense of litigation.”).
iii. Twenty-First Affirmative Defense: Unclean Hands
Viatek’s twenty-first Affirmative Defense states, “The Complaint is barred, in whole or
in part, by the doctrine of unclean hands.” Sec. Amend. Ans. & Counterclaims p. 15. Viatek’s
argument for the application of the doctrine of unclean hands is essentially that Radiancy
engaged in the same conduct that it is asserting against Viatek in its Complaint. Specifically,
Viatek points to the claim that Viatek is using Radiancy’s trademark in its website metadata,
directing Google searches toward its product, and the allegations of false advertising with respect
to statements made by Viatek that the hair removal devices cause the cessation of hair growth.
Viatek alleges that Radiancy is similarly using Viatek’s trademark in Radiancy’s website
metadata, Counterclaim ¶ 39, that Radiancy similarly have taken actions to influence Google
searches, Counterclaim ¶ 38, and that Radiancy also advertised that the hair removal devices
could stop hair growth. Sec. Amend. Ans. & Counterclaims, p. 12.
“The ‘unclean hands’ doctrine ‘closes the door of a court of equity to one tainted with
inequitableness or bad faith relative to the matter in which he seeks relief, however improper
may have been the behavior of the defendant.’” ABF Freight Sys., Inc. v. NLRB, 510 U.S. 317,
329-30 (1994) (quoting Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806,
814 (1945)). “It is undisputed that an unclean hands defense requires a finding of bad faith . . .
[and] to assert a defense of unclean hands, a party must have been injured by the allegedly
inequitable conduct.” Obabueki v. Int’l Bus. Machs. Corp., 145 F. Supp. 2d 371, 401 (S.D.N.Y.
2001).
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“Pleading the words ‘unclean hands’ without more . . . is not a sufficient statement of
such defense.” Obabueki, 145 F. Supp. 2d at 401; see also Cartier Int’l, AG, No. 12 Civ.
8216(JMF), 2013 WL 1386975, at *3 (S.D.N.Y. Apr. 5, 2013) (“Because Defendant’s Answer
offers no indication of how the doctrine[] of unclean hands . . . would bar Plaintiffs’ claims, the
motion to strike Defendant’s second affirmative defense is granted.”); Daiwa Special Asset Corp.
v. Desnick, No. 00 CIV. 3856(SHS), 2002 WL 1997922, at *12 (S.D.N.Y. 2002) (“defense of
unclean hands should fail . . . [because] the mere pleading of the defense . . . without more is
insufficient.”). Although Plaintiff does not state why not striking this affirmative defense would
be prejudicial, courts have held that “[a plaintiff] would be prejudiced by inclusion of this claim .
. . [because] additional discovery would be required as a result of the inclusion of the unclean
hands defense . . . [and] the length and scope of the trial . . . would be expanded.” Specialty
Minerals, Inc. v. Pluess-Staufer AG, 395 F. Supp. 2d 109, 114 (S.D.N.Y. 2005). Viatek’s claims
regarding the advertising of the hair removal products is not clearly set forth in its
Counterclaims.
With respect to the claims of use of Viatek’s trademark in Radiancy’s website metadata
and directing Google searches, Viatek adequately alleges that Radiancy is engaging in the same
conduct of which it is accusing Viatek. Thus, with respect to these two issues only, the Court
denies Radiancy’s motion to strike the affirmative defense of unclean hands.
V.
Counterclaims
a. Declaratory Relief Under Patent Number 6,825,445
“The purpose of the Declaratory Judgment Act . . . in patent cases is to provide the
allegedly infringing party relief from uncertainty and delay regarding its legal rights.” Goodyear
Tire & Rubber Co. v. Releasomers, Inc., 824 F.2d 953, 956 (Fed. Cir. 1987). When a party seeks
15
declaratory relief under the Declaratory Judgment Act, the moving party bears the burden of
proving that “the facts alleged, 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.” MedImmune, Inc. v. Genentech, Inc., 549
U.S. 118, 127 (2007) (quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270,
273 (1941)). The standard espoused in MedImmune is that the “dispute [must] be definite and
concrete, touching the legal relations having adverse legal interests and that it be real and
substantial and admit of specific relief through a decree of a conclusive character, as
distinguished from an opinion advising what the law would be upon a hypothetical state of
facts.” Id. at 127 (internal quotations and citations omitted). “Article III jurisdiction may be met
where the patentee takes a position that puts the declaratory judgment plaintiff in the position of
either pursuing arguably illegal behavior or abandoning that which he claims a right to do.”
SanDisk Corp. v. STMicroelectronics, Inc., 480 F.3d 1372, 1381 (Fed. Cir. 2007). The Federal
Circuit in SanDisk held that “where a patentee asserts rights under a patent based on certain
identified ongoing or planned activity of another party, and where that party contends that it has
the right to engage in the accused activity without license, an Article III case or controversy will
arise and the party need not risk a suit for infringement by engaging in the identified activity
before seeking a declaration of its legal rights.” Id.
Viatek states that it has been made to “believe it will be sued for patent infringement
under the ‘445 patent with respect to Accused Products and Planned Products,” 6 Counterclaim ¶
6
Viatek states that its Planned Products are “products with heater elements driven by oscillating current signals in
excess of 50-60 Hz and/or in excess of 250 Hz,” Counterclaim ¶ 61, and that “[i]t is contemplated that Planned
Products will be controlled by an on/off switch, and/or a manual heat intensity control in the form of a knob or upand-down temperature controls, and/or motion detection, and/or velocity detection, and/or other mechanisms for
shutting down the system if excessive heat is threatened or detected.” Id. Viatek defines Accused Products as “heat-
16
66, and therefore seeks a declaratory judgment that it is not infringing the ‘445 Patent. This
apparent fear arises from an exchange of letters between counsel for the two entities beginning in
2012. In a letter sent to Viatek on April 27, 2012, Radiancy stated that it believed that Viatek
was infringing the ‘445 Patent as well as the ‘034 Patent. Ratner Dec. Ex. G. 7 In response,
Viatek stated that it disagreed with the determination that its products infringed either the ‘445
Patent or the ‘034 Patent. Ratner Dec. Ex. H. Radiancy responded on May 17, 2012, holding firm
to its initial position that Viatek’s products infringed Radiancy’s patents (plural). Ratner Dec.
Ex. I. Finally, in a May 15, 2013 letter, Radiancy detailed to Viatek why it believed that the Pearl
Hair Remover infringes the ‘034 Patent, making no reference to the ‘445 Patent. Counterclaim
Ex. J. Ultimately, Radiancy filed the current action against Viatek, stating claims solely under
the ‘034 Patent. It amended its Complaint to add trade dress claims, but continued not to assert
infringement of the ‘445 Patent.
“[A] communication from a patent owner to another party, merely identifying its patent
and the other party’s product line, without more, cannot establish adverse legal interests between
the parties, let alone the existence of a ‘definite and concrete’ dispute.” Hewlett–Packard Co. v.
Acceleron LLC, 587 F.3d 1358, 1362. The letters, although initially asserting the ‘445 Patent,
must be taken in the context of the circumstances. In this case, it is significant that although
Radiancy initially asserted both the ‘034 Patent and the ‘445 Patent, it filed this action only
based haircutting devices in which the heater element was driven by 1) an oscillating current signal having a
frequency in excess of 50 Hz and 2) a DC signal.” Id.
7
Although not attached to the Counterclaim, these letters are deemed incorporated by reference into the
Counterclaim. The letter attached as Exhibit J to the Counterclaim begins, “Further to our letter dated April 27,
2012, and your response to that letter dated May 4, 2012 . . . .” Counterclaim Ex. J. As such, those previous letters
are important to the context of the letter included with the Counterclaim and may be considered on this motion to
dismiss. See, e.g., McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007) (on a motion to dismiss, a
court may consider those facts “asserted within the four corners of the complaint, the documents attached to the
complaint as exhibits, and any documents incorporated in the complaint by reference.”).
17
under the ‘034 patent. See Cepheid v. Roche Molecular Sys., Inc., No. C–12–4411 EMC, 2013
WL 184125, at *11 (N.D. Cal. Jan. 17, 2013) (“Significantly, even in the midst of a heated legal
battle over the [] patent[-in-suit] when Defendant could have invoked the [uncontested] patent as
leverage in that battle, Defendants made no move to pressure Plaintiff into licensing the
[uncontested] patent, and did not threaten legal action on the [uncontested] patent.”). Surely, if
Radiancy believed that Viatek was infringing the ‘445 Patent, it would have asserted such a
claim in this action, which has been vigorously litigated. Since the initial letters referencing the
‘445 Patent – sent almost two years ago – there has been no conduct indicating that Radiancy
believes Viatek is infringing the ‘445 Patent. See Furminator, Inc. v. Ontel Prods. Corp., 246
F.R.D. 579, 589 (E.D. Mo. 2007) (“Nor is there any evidence that [the patent holder] has
asserted that [plaintiff is] engaged in present, ongoing infringement of . . . patent, or demanded
that [plaintiff] license the patents, as occurred in SanDisk.”); see also Cepheid, 2013 WL
184125, at *12 (“While the Federal Circuit has held in several cases that the passage of time
between a defendant’s threat and the filing of a declaratory action suit does not necessarily defeat
standing, these cases involved a more concrete original threat, and in many cases ongoing
activity during the elapsed time suggested that the threat of enforcement had not dissipated.”).
Viatek also points to a trademark infringement action Radiancy filed against Viatek in
Canada as further supporting its apprehension that Radiancy will not hesitate to file another
lawsuit against it based on the ‘445 Patent. Counterclaim Ex. D. When considering whether there
is an actual controversy, “prior litigious conduct is one circumstance to be considered in
assessing whether the totality of circumstances creates an actual controversy.” Prasco, LLC v.
Medicis Pharm. Corp., 537 F.3d 1329, 1341 (Fed. Cir. 2008); see also Hewlett–Packard Co. v.
Acceleron LLC, 587 F.3d 1358, 1364 n. 1 (Fed. Cir. 2009) (“[a] history, or the lack thereof, of
18
litigating in the industry can certainly be a factor to be considered.”); Plumtree Software, Inc. v.
Datamize, LLC, 473 F.3d 1152, 1159 (Fed. Cir. 2006) (finding standing in party because the
defendant had previously brought suit for infringement of a patent that “describe[d] a similar
technology and share[d] a common specification” with the patent-in-suit). However, the
Canadian action was filed for trademark infringement, and that lawsuit, too, did not assert the
‘445 Patent against Viatek.
Finally, there is no indication that Viatek is not pursuing its Planned Products for fear that
Radiancy will assert the ‘445 Patent as against those products. See Ass’n for Molecular
Pathology v. U.S. Patent and Trademark Office, 689 F.3d 1303, 1321 (Fed. Cir. 2012), affirmed
in relevant part by Ass’n for Molecular Pathology v. Myriad Genetics, Inc., --- U.S. ---, 133 S.
Ct. 2107, 2115 n. 3, 186 L. Ed. 2d 124 (2013) (the court found that there was a controversy even
though ten years had passed since the defendant sent a warning letter because that letter
prompted the plaintiff to refrain from conducting the allegedly infringing tests). Therefore, as the
circumstances stand, there is no controversy regarding the ‘445 Patent and the Court does not
have authority to issue any declaratory action with respect to this issue.
b. Sherman Act, Section 2 Claims
Viatek alleges that Radiancy is attempting to monopolize the hot wire hair cutting device
market in the United States and asserts that Radiancy’s conduct in attempting to do so constitutes
a violation of Section 2 of the Sherman Act. 8 Counterclaims ¶¶ 69-77. Such actions include
defrauding the USPTO in order to obtain patents for devices, knowingly filing “sham” lawsuits
to enforce those patents, and interfering with Viatek’s business relationships. “To state a claim
8
Section 2 of the Sherman Act prohibits: “Every person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons, to monopolize any part of the trade or commerce . . . .” 15
U.S.C. § 2.
19
for attempted monopolization, a plaintiff must allege that a defendant ‘(1) engaged in
anticompetitive or predatory conduct with (2) a specific intent to monopolize and (3) a dangerous
probability of achieving monopoly power.’” Navarra v. Marlborough Gallery, Inc., 820 F. Supp.
2d 477, 485 (S.D.N.Y. 2011) (quoting AD/SAT, Div. of Skylight, Inc. v. Associated Press, 181
F.3d 216, 226 (2d Cir. 1999)). Proof of the first element – that there was anticompetitive conduct
– may be used to infer the existence of the second element. See Volvo North Am. Corp. v. Men’s
Int’l Prof’l Tennis Council, 857 F.2d 55, 74 (2d Cir. 1988). The third element, however, must be
separately established because “in the absence of monopoly power, even the specific intent to
drive another company out of business, coupled with arguably tortious conduct in furtherance of
that objective, are not enough to sustain an antitrust claim of attempted monopolization.” All Star
Carts and Vehicles, Inc. v. BFI Canada Income Fund, 887 F. Supp. 2d 448, 453 (E.D.N.Y.
2012).
i. Antitrust Standing
“Private plaintiffs seeking to enforce Section 2 of the Sherman Act must satisfy the
standing requirement of Sections 4 and 16 of the Clayton Act . . . . [which] requires plaintiff to
‘prove antitrust injury[.]’” Xerox Corp. v. Media Sciences Int’l, Inc., 511 F. Supp. 2d 372, 380
(S.D.N.Y. 2007) (quoting Brunswick Corp. v. Pueblo Bowl–O–Mat, Inc., 429 U.S. 477, 489
(1977)). Antitrust injury is “injury of the type the antitrust laws were intended to prevent and that
flows from that which makes defendants’ acts unlawful.” Brunswick Corp., 429 U.S. at 489.
“[A]ntitrust standing is a threshold, pleading-stage inquiry and when a complaint by its terms
fails to establish this requirement we must dismiss it as a matter of law.” Gatt Communications,
Inc. v. PMC Assocs., LLC, 711 F.3d 68, 75 (2d Cir. 2013).
20
Viatek is “require[d to] identify[] the practice complained of and the reasons such a
practice is or might be anticompetitive,” Alternative Electrodes, LLC v. EMPI, Inc., 597 F. Supp.
2d 322, 328 (E.D.N.Y. 2008), meaning it must allege that Radiancy’s actions had a detrimental
effect on competition in the market. “Under Section 4 of the Clayton Act, a plaintiff ‘does not
necessarily’ need to allege and ‘prove an actual lessening of competition in order to recover,’ so
long as competition is likely to decrease, although ‘the case for relief will be strongest where
competition has been diminished.’” Xerox Corp., 511 F. Supp. 2d at 381 (quoting Brunswick
Corp., 429 U.S. at 489 n. 14). Viatek does not allege how Radiancy’s actions have had “‘an
adverse effect on competition market-wide.’” Rutolo v. Fannie Mae, No. 09–CV–7851, 2013
WL 989740, at *7 (S.D.N.Y. Mar. 13, 2013) (quoting Todd v. Exxon Corp., 275 F.3d 191, 213
(2d Cir. 2001)); see also Bhanusali v. Orange Regional Med. Ctr., No 10-CV-6694 (CS), 2013
WL 4828657, at *9 (S.D.N.Y. Aug. 12, 2013). Viatek does not allege price increases, competitor
exits from the market, or anything else that could substantiate the injury necessary to have
standing to sue under the antitrust laws. Thus, Viatek has failed to adequately show that it has
standing to bring its antitrust claim.
ii. Pleading Relevant Market and Market Power
“In order to survive a motion to dismiss, a claim under Sections 1 and 2 of the Sherman
Act must allege a relevant geographic and product market in which trade was unreasonably
restrained or monopolized.” Kramer v. Pollock-Krasner Foundation, 890 F. Supp. 250, 254
(S.D.N.Y. 1995); Marchon Eyewear, Inc. v. Tura LP, No. 98 CV 1932(SJ), 2002 WL 31253199,
at *5 (E.D.N.Y. Sep. 30, 2002) (“Without a definition of the relevant product market, there is no
way to measure a company’s ability to act as a monopolist.”). “In determining the relevant
market, the general rule is that commodities reasonably interchangeable by consumers for the
21
same purposes make up that part of the trade or commerce monopolization of which may be
illegal.” Vitale v. Marlborough Gallery, No. 93 Civ. 6276, 1994 WL 654494, at *3 (S.D.N.Y.
July 5, 1994). Viatek defines the relevant market as both “bladeless non-laser heated hair
element hair remover device,” Counterclaim ¶ 15, and “trade in hot wire hair cutting devices in
the United States.” Counterclaim ¶ 76.
Viatek’s definition of a relevant market is bare-bones and omits reference to the size of
the market, Radiancy’s share of the market, whether there are any other competitors, or any
explanation for why the market should be defined as such. See Thomson Info. Servs., Inc. v.
Lyons Commercial Data, Inc., No. 97 CIV. 7716(JSR), 1998 WL 193236, at *2 (S.D.N.Y.
1998); see also McCagg v. Marquis Jet Partners, 05 Civ. 10607(PAC), 2007 WL 2454192, at *5
(S.D.N.Y. Mar. 29, 2007) (court stated that plaintiffs must offer “a theoretically rational
explanation for why the boundaries of the market are defined as they are” and must “define the
market according to the rules of interchangeability and cross-elasticity”) (quotation and citation
omitted); Intellective, Inc. v. Mass. Mut. Life Ins. Co, 190 F. Supp. 2d 600, 609 (S.D.N.Y. 2002)
(court stated that granting a motion to dismiss is appropriate where a plaintiff fails to “allege
facts regarding substitute products, distinguish among comparable products, or allege facts
relating to cross-elasticity of demand”); A & E Prods. Group L.P. v. The Accessory Corp., 00
Civ. 7271(LMM), 2001 WL 1568238, at *2 (S.D.N.Y. Dec. 7, 2001) (court stated that plaintiff
should allege (1) “all products reasonably interchangeable, where there is cross-elasticity of
demand”; and (2) “products [that] can be effectively substituted for the product allegedly being
monopolized”; and explain “why the market alleged is a relevant, economically significant
market, that is unique”). Without a relevant market definition, the Court cannot begin to assess
the allegedly anticompetitive conduct.
22
Market power (or monopoly power) is “the power to control prices or exclude
competition.” United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 389–91 (1956).
“Monopoly power can be demonstrated directly by showing the power to set prices or exclude
competition, or indirectly, by showing defendant’s large percentage of market share.” All Star
Carts and Vehicles, 887 F. Supp. 2d at 453. Viatek states only that Radiancy has a “very
substantial market share.” Counterclaim ¶ 47. This is a conclusory statement and does not given
the Court an adequate factual basis upon which to determine that there is a “dangerous
probability” that Radiancy will achieve market power. In addition to failing to show antitrust
standing, allege a relevant market, or that there is a dangerous probability that Radiancy will
obtain market power, Viatek cannot sustain its claims that Radiancy engaged in anticompetitive
or predatory conduct on either a Walker Process or a sham litigation theory.
iii. Theories of Anticompetitive Conduct
“A patentee who brings an infringement suit may be subject to antitrust liability for the
anti-competitive effects of that suit if the alleged infringer (the antitrust plaintiff) proves (1) that
the asserted patent was obtained through knowing and willful fraud within the meaning of
Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., . . . or (2) that the
infringement suit was ‘a mere sham to cover what is actually nothing more than an attempt to
interfere directly with the business relationships of a competitor.’” Nobelpharma AB v. Implant
Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998) (quoting Eastern R.R. Presidents
Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144 (1961)).
1. Walker Process 9
9
Although the inequitable conduct Affirmative Defense and Walker Process claim are substantiated upon the same
general factual allegations – that Radiancy engaged in fraud before the USPTO in obtaining its patent – these claims
do differ slightly in analysis. “Consistent with the Supreme Court's analysis in Walker Process, . . . we have
distinguished ‘inequitable conduct’ from Walker Process fraud, noting that inequitable conduct is a broader, more
inclusive concept than the common law fraud needed to support a Walker Process counterclaim. . . . Inequitable
23
As first established in Walker Process Equip., Inc. v. Food Mach. & Chemical Corp., 382
U.S. 172 (1965), antitrust liability under Section 2 of the Sherman Act “may arise when a patent
has been procured by knowing and willful fraud, the patentee has market power in the relevant
market, and has used its fraudulently obtained patent to restrain competition.” C.R. Bard, Inc. v.
M3 Sys., Inc., 157 F.3d 1340, 1367 (Fed. Cir. 1998). Under this theory of antitrust liability,
“[f]irst, the plaintiff must show that the defendant procured the relevant patent by knowing and
willful fraud on the PTO . . . . Second, the plaintiff must prove all the elements otherwise
necessary to establish a Sherman Act monopolization charge.” Ritz Camera & Image, LLC v.
SanDisk Corp., 700 F.3d 503, 506 (Fed. Cir. 2012).
Claims under Walker Process are fraud claims and must therefore satisfy the heightened
pleading standards of Rule 9(b), see MedImmune, 427 F.3d at 967, meaning that “the
circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent,
knowledge, and other condition of mind of a person may be averred generally.” Fed. R. Civ. P.
9(b). This particularity requirement requires “that a party claiming Walker Process fraud[] must
plead with particularity the materiality of the references which the patent applicant omitted, by
presenting particularized allegations that ‘but for’ the omissions, the PTO would not have
granted the patent.” Netflix, Inc. v. Blockbuster, Inc., No. C 06-02361 WHA, 2006 WL 2458717,
*4 (N.D. Cal. Aug.22, 2006).
As with Viatek’s inequitable conduct Affirmative Defense, its pleading falls short of the
particularity requirement for this fraud-like claim. Viatek states that Radiancy did not disclose
relevant prior art of which it was aware to the USPTO in its application for the ‘034 Patent.
conduct in fact is a lesser offense than common law fraud, and includes types of conduct less serious than ‘knowing
and willful’ fraud.” Noblepharma, 141 F.3d at 1069-70.
24
Viatek also pleads that the technology patented by Radiancy existed already and was “described
in patent applications, printed publications, and other prior art teachings, and/or were otherwise
merely obvious and not patentable in view of such prior art and/or relate to physical features
admitted by Counterclaim-Defendants to be meaningless.” Counterclaim ¶ 43. Viatek states only
generalities and makes claims that could easily be lifted from this Counterclaim and be asserted
in a different counterclaim against a different defendant regarding a different patent. Walker
Process claims are a variation on common law fraud and therefore require the particularity that is
required of fraud claims. In re Spalding Sports Worldwide, Inc., 203 F.3d 800, 807 (Fed. Cir.
2000). Although Viatek makes further arguments and substantiations in its opposition brief, this
does not make up for the failure to plead with particularity.
Courts have previously provided parties an opportunity to amend Sherman Act claims to
further particularize the claim before taking the extreme measure of granting dismissal with
prejudice. The Court might be inclined to do so here, especially where facts stated in
Defendant’s opposition brief help overcome some of the deficiencies in Defendant’s
Counterclaim pleading. See, e.g., Viva Optique, Inc. v. Contour Optik, Inc., No. 03 Civ.
8948(LTS)(AJP), 2007 WL 4302729, at *3 (S.D.N.Y. 2007) (granting defendant leave to amend
its counterclaim to properly state a Sherman Act Walker Process antitrust claim); Christen Inc. v.
BNS Industries, Inc., 517 F. Supp. 521, 526 (S.D.N.Y. 1981) (noting that defendant in Walker
Process given leave to amend to state a Section 2 claim but denying leave to amend because
defendant had already been granted leave to amend after having been made aware of the
deficiencies in its Section 2 claim but failed to fix them); Arista Records LLC v. Lime Group
LLC, 532 F. Supp. 2d 556, 585 (S.D.N.Y. 2007) (“Without some indication of what additional
facts, if any, [defendant] can assert in support of its failed counterclaims, the Court cannot
25
conclude that leave to replead is in the interests of justice, and the Court accordingly will not
grant [defendant] an open-ended permission to replead that could result in another round of
motions to dismiss. However, without such an indication, neither can the Court determine that
the projected repleading would be futile. Thus, if [defendant] submits another motion for leave to
replead, it must provide the Court with an “indication of what additional facts [it] would allege if
permitted to amend” by attaching its proposed pleading to the motion.”) However, Defendant
was made aware at a pre-motion conference that its antitrust claims were deficient and made no
effort or request to amend its pleading. Further, it had amended its counterclaims twice before
the conference, neither of which remedied the deficiencies. Due to these facts, and the clear
deficiencies in the pleading, the Court dismisses the antitrust counterclaims with prejudice.
2. Sham Litigation
“Under the Noerr-Pennington doctrine, litigation as well as concerted efforts incident to
litigation may not serve as a basis for an antitrust claim.” Viva Optique, Inc. v. Contour Optik,
Inc., No. 03 Civ. 8948(LTS)(AJP), 2007 WL 4302729, at *2 (S.D.N.Y. 2007). “However, under
the ‘sham exception’ to the doctrine, Noerr-Pennington’s antitrust immunity does not apply
where litigation or other petitioning activity ‘is a mere sham to cover what is actually nothing
more than an attempt to interfere directly with the business relationships of a competitor.’” Id.
“To establish ‘sham’ administrative or judicial proceedings, a plaintiff must show that the
litigation in question is: (i) ‘objectively baseless,’ and (ii) ‘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 anticompetitive weapon.’” Primetime 24 Joint
Venture v. Nat’l Broad., Co., 219 F.3d 92, 100-01 (2d Cir. 2000) (quoting Professional Real
26
Estate Investors, Inc. v. Columbia Pictures Indus., 508 U.S. 49, 60, 113 S.Ct. 1920, 123 L. Ed.
2d 611 (1993)).
Where a patent infringement action is brought “‘with knowledge the patent is invalid or
not infringed, and the litigation is conducted for anti-competitive purposes’ [the case] is a ‘sham’
litigation.” Teva Pharm. Indus., Ltd. v. Apotex, Inc., No 07-5514 (GEB)(JJH), 2008 WL
3413862, at *5 (D.N.J. Aug. 8, 2008) (quoting C.R. Bard Inc. v. M3 Sys., Inc., 157 F.3d 1340,
1368 (Fed. Cir. 1998)). Viatek alleges that Radiancy brought this action knowing that its patent
was invalid. However, subjective intent is only relevant if it is found that the litigation is
objectively without merit. See Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus., 508
U.S. 49, 60 (1993) (“Only if challenged litigation is objectively meritless may a court examine
the litigant’s subjective motivation.”). The existence of probable cause, requiring only “a
reasonable belief that there is a chance that a claim may be held valid upon adjudication,” defeats
the objective component necessary to find that a plaintiff has engaged in sham litigation. Id. at
62-63.
Viatek cannot proceed on a sham litigation theory. Patents are presumptively valid and
Viatek pleads no facts to support its sham litigation claim other than its subjective belief that
Radiancy is deliberately pursuing a strategy to push Viatek out of the market. See Viva Optique,
2007 WL 4302729, at *2 (“Aside from the allegation of subjective intent, the Amended
Complaint simply asserts that Defendants owned a patent and sought to enforce it. Given that
such behavior is normally expected of patent holders . . . the additional generalized allegation
that Defendants subjectively believed that their patents were actually invalid or not infringed is
insufficient to sustain a plausible claim that Defendants’ suits are objectively meritless.” (internal
27
citations omitted)). Its allegations are wholly conclusory and therefore, it does not state an
antitrust claim based on this theory.
c. Unfair Competition
Viatek brings an unfair competition claim under the Lanham Act. 10 “The standard of
unfair competition under New York law is a virtual cognate of the federal Lanham Act and is
predicated on the theory of the misappropriation of a claimant’s commercial goodwill.” Bangkok
Crafts Corp. v. Capitolo di San Pietro in Vaticano, 331 F. Supp. 2d 247, 255 (S.D.N.Y. 2004)
(internal citation omitted). “The essence of both sources of protection is the likelihood that the
consuming public will be confused about the source of the allegedly infringing product.” E.R.
Squibb & Sons, Inc. v. Cooper Labs., Inc., 536 F. Supp. 523, 526 (S.D.N.Y. 1982). “In order for
defendant to succeed in demonstrating unfair competition under both the Lanham Act and the
common law, defendant must show a likelihood of confusion or deception of the consuming
public as to the source of the allegedly infringing product and bad faith on the part of plaintiffs.”
Major League Baseball Props., Inc. v. Opening Day Prods., Inc., 385 F. Supp. 2d 256, 269
(S.D.N.Y. 2005).
“A cause of action for unfair competition, under both the Lanham Act and New York
common law, arises when there is an attempt by a party to ‘pass off’ his goods as those of
another . . . . Additionally, both unfair competition laws prohibit ‘a broader range of unfair trade
practices generally described as the misappropriation of the skill, expenditures and labors of
another.’” Tri-Star Pictures v. Unger, 14 F. Supp. 2d 239, 363 (S.D.N.Y. 1998) (quoting Pan
10
The Counterclaim does not make clear whether Viatek’s unfair competition claim is brought as a common law
claim or under the Lanham Act. However, in its declaration of jurisdiction over the Counterclaims, Viatek states that
the Court has jurisdiction based on the federal patent laws and the federal antitrust laws, and does not make any
claim to supplemental jurisdiction over state law claims. Accordingly, the Court assumes Viatek brings its unfair
competition claim under the Lanham Act.
28
American World Airways, Inc. v. Panamerican School of Travel, Inc., 648 F.Supp. 1026, 1039
(S.D.N.Y. 1986)). At the pleading stage, there must at least be allegations of the goods allegedly
misappropriated or marketed to the public, how such goods competed with those of the
counterclaim-plaintiff, the basis upon which the consuming public would be confused, and the
damages sustained. See Bangkok Crafts Corp. v. Capitolo di San Pietro in Vaticano, 331 F.
Supp. 2d 247, 255 (S.D.N.Y. 2004).
Viatek’s claim for unfair competition states, “all previous allegations of the Complaint
constitute unfair competition under the laws of several states.” Counterclaim ¶ 91. In its
opposition brief, Viatek argues that unfair competition encompasses a broad range of conduct
and that Radiancy’s threats, groundless lawsuits, and contacting ShopNBC fall within the gamut
of an unfair competition claim. Opp’n Br. 33. Viatek may not base its unfair competition claim
on the bad faith litigation claim because “[t]he weight of authority clearly holds that bad faith
litigation-including bad faith patent infringement litigation-does not give rise to an unfair
competition claim under New York law.” Bayer Schera Pharma AG v. Sandoz, Inc., Nos. 08 Civ.
03710(PGG), 08 Civ. 08112(PGG), 2010 WL 1222012, at *7 (S.D.N.Y. Mar. 29, 2010).
Viatek’s Counterclaims include the allegation that Radiancy’s internet marketing
techniques are designed to “piggyback” Viatek’s marketing by using the Pearl trademark in the
code for its website and by paying Google to have results for the no!no!® hair remover appear
before results for Viatek’s product when searching “Pearl hair remover.” Counterclaim ¶ 91. The
question of whether “use of another company’s registered trademark in metadata or as part of a
sponsored search constitutes use of a trademark in commerce under the Lanham Act . . . [has
been sustained by] other circuits . . . . The courts in this Circuit, however, have largely rejected
these claims.” Site Pro-1, Inc. v. Better Metal, LLC, 506 F. Supp. 2d 123, 125 (E.D.N.Y. 2007).
29
The Second Circuit addressed Viatek’s claims regarding a Google search in 1–800 Contacts v.
WhenU.Com, Inc., 414 F.3d 400 (2d Cir. 2005). The Second Circuit stated,
[I]n the search engine context, defendants do not “place” the ZOCOR marks on any
goods or containers or displays or associated documents, nor do they use them in
any way to indicate source or sponsorship. Rather, the ZOCOR mark is “used” only
in the sense that a computer user’s search of the keyword “Zocor” will trigger the
display of sponsored links to defendants’ websites. This internal use of the mark
“Zorcor” as a key word to trigger the display of sponsored links is not use of the
mark in a trademark sense.
Id. at 415.
Instead, “[t]he key question is whether the defendant placed plaintiff’s trademark on any
goods, displays, containers, or advertisements, or used plaintiff’s trademark in any way that
indicates source or origin.” Id. at 127. Viatek does not allege this, nor any other claims that
would state a claim either a misappropriation or a palming off theory. Therefore, Viatek has not
stated a claim for unfair competition under the Lanham Act and this counterclaim is dismissed.
d. Tortious Interference
“[T]o prevail on . . . a claim [of tortious interference], a plaintiff in New York must prove
that (1) it had a business relationship with a third party; (2) the defendant knew of that
relationship and intentionally interfered with it; (3) the defendant acted solely out of malice, or
used dishonest, unfair, or improper means; and (4) the defendant’s interference caused injury to
the relationship.” Carvel Corp. v. Noonan, 350 F.3d 6, 17 (2d Cir. 2003). ShopNBC sold
Viatek’s product on its website, evidencing that there was a relationship between the two entities.
Douglass Dec. Ex. B. Radiancy clearly knew the relationship existed because it sent a letter to
ShopNBC to inform it that Viatek’s product was infringing Radiancy’s patent.
Regarding the issue of malice or dishonest, unfair, or improper means, “[a] trademark
owner is entitled to advise others of his trademark rights, to warn others that they or others are or
may be infringing his rights, to inform others that he is seeking to enforce his rights through legal
30
proceedings, and to threaten accused infringers and their customers with suit.” Dessert Beauty,
Inc. v. Fox, 568 F. Supp. 2d 416, 428-29 (S.D.N.Y. 2008) (quoting Leopold v. Henry I. Siegel
Co., No. 86 Civ. 0063 (MGC), 1987 WL 5373, at *4 (S.D.N.Y. Jan. 5, 1987)). “[C]onduct
undertaken to economically benefit defendants and not solely based on malice toward the
plaintiff does not amount to tortious interference with business relations.” Anderson News, LLC
v. Am. Media, Inc., 732 F. Supp. 2d 389, 404 (S.D.N.Y. 2010), vacated on other grounds, 680
F.3d 162 (2d Cir. 2012). Radiancy’s letter to ShopNBC states that ShopNBC is offering for sale
the Samba Total Body Hair Removal System, which it believes infringes Radiancy’s intellectual
property. This is the type of conduct that a patent-owner may undertake in order to protect its
patents, which are presumed valid. There is nothing from the letter that indicates that the sole
purpose behind Radiancy’s action was malicious or that it used dishonest, unfair, or improper
means. Furthermore, Viatek does not adequately allege an injury.
With respect to the injury showing, “[i]nterference that does not rise to the level of a
breach of agreement or severance of the relationship does not amount to an injury sufficient to
make a tortious interference claim.” RFP, LLC v. SCVNGR, Inc., 788 F. Supp. 2d 191, 198
(S.D.N.Y. 2011). Viatek does not allege in its Counterclaims that the actions taken by Radiancy
caused the end of the business relationship that it enjoyed with ShopNBC. Viatek alleges only
that Radiancy’s actions have “damaged” Viatek, a conclusory statement. Absent allegations that
Radiancy’s conduct caused the deterioration of the business relationship between Viatek and
ShopNBC, Viatek’s claim for tortious interference fails.
Finally, a lack of opposition is evidence that Counterclaim-Plaintiff “apparently concedes
that the claim fails.” Wasserman v. Maimonides Medical Ctr., 970 F. Supp. 183, 192 (E.D.N.Y.
31
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