Koch Agronomic Services, LLC v. Eco Agro Resources LLC
Filing
39
MEMORANDUM OPINION AND ORDER signed by CHIEF JUDGE WILLIAM L. OSTEEN, JR on 09/29/2015. IT IS ORDERED that Counter-Defendant Koch Agronmic Services, LLC's Renewed Rule 12 Motions to Strike Eco Argo's Affirmative Defenses and to Dismiss Eco Agro's Counterclaims 27 is GRANTED IN PART and DENIED IN PART. Counterclaim IV (Violation of section 3 of the Clayton Act), Counterclaim IX Tortious Interference with Prospective Business Contracts), and Counterclaim X (Commercial Disparage ment) are DISMISSED. All other forms of relief requested by Koch Agronomic Services, LLC, are DENIED. IT IS FURTHER ORDERED that Koch Agronomic Services, LLC shall serve its responsive pleading to the remaining counterclaims within 14 days of the issuance of this Memorandum Opinion and Order. (Coyne, Michelle)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
KOCH AGRONOMIC SERVICES, LLC,
Plaintiff and
Counter-Defendant,
v.
ECO AGRO RESOURCES LLC,
Defendant and
Counter-Claimant.
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1:14CV679
MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Counter-Claimant Eco Agro Resources LLC (“Eco Agro”)
asserts numerous affirmative defenses and counterclaims against
Counter-Defendant Koch Agronomic Services, LLC (“KAS”) in its
Amended Answer and Counterclaims (“Amended Answer”). (Doc. 25.)
Presently before this court is KAS’s Renewed Rule 12 Motions to
Strike Eco Agro’s Affirmative Defenses and to Dismiss Eco Agro’s
Counterclaims. (Doc. 27.)
Eco Agro has responded to KAS’s motions and made several
evidentiary objections in its response to KAS’s motions,
pursuant to Local Rule 7.6. (Doc. 34.)
KAS has replied (Doc.
35), and a hearing was held on these motion on May 20, 2015.
These motions are now ripe for adjudication, and for the reasons
stated herein, this court will deny KAS’s motion to strike and
grant in part and deny in part KAS’s motion to dismiss.
I.
FACTS
KAS initiated these proceedings alleging infringement of
its patent - U.S. Patent No. 5,698,003 (“the ’003 patent”) - by
Eco Agro.
(Complaint (“Compl.”) (Doc. 1) ¶¶ 3, 11.)
KAS
alleges that Eco Agro directly infringed the ’003 patent by
“making, using, selling, offering to sell, and/or importing,
without authority, products including urease inhibitors
comprising n-butyl thiophosphoric triamide (NBPT) in solvents
including propylene glycol and dimethyl sulfoxide.”
(Id. ¶ 11.)
One product that KAS claims infringes the ’003 patent is
“N-YIELD,” an Eco Agro product sold as a liquid that contains
NBPT mixed with other chemicals and can be applied to urea
fertilizers by fertilizer dealers.
(Id. ¶ 12; Eco Agro’s Am.
Answer & Countercls. (“Am. Answer”) (Doc. 25) at 12.)1
The
purpose of such products is to “increase the efficiency of
nitrogen uptake by plant life” and “reduce the amount of
1
All citations in this Memorandum Opinion and Order to
documents filed with the court refer to the page numbers located
at the bottom right-hand corner of the documents as they appear
on CM/ECF.
-2-
nitrogen fertilizer needed for crops.”
(Am. Answer (Doc. 25) at
10-11.)
In its Amended Answer, Eco Agro sets out ten defenses,
including: (1) no infringement of the ’003 patent, (2) the
unenforceability of the patent, (3) the invalidity of the
patent, (4) unclean hands, (5) estoppel, (6) laches,
(7) inequitable conduct, and (8) patent misuse.2
(Id. at 3-9.)
KAS requests that this court strike the inequitable conduct and
patent misuse defenses. (See KAS’s Mots. (Doc. 27).)
Eco Agro spends some time setting out the basis for its
inequitable conduct defense.
Eco Agro points to “material
misleading statements” made to the United States Patent and
Trademark Office (“PTO”) during the prosecution of the ’003
patent that violated KAS’s predecessor’s duty of candor and
“good faith.”
(Am. Answer (Doc. 25) at 4-5.)
Specifically, Eco
Agro explains that, after all claims of the ’003 patent were
originally rejected, co-inventor of the product, Willis L.
2
Eco Agro also asserts as its first defense that KAS has
failed to state a claim upon which relief may be granted. (Am.
Answer (Doc. 25) at 3.) KAS asks that this court strike this
defense as well, but this court will not do so at this time. As
Eco Agro explains, it is not formally making a motion to
dismiss, it is merely preserving the issue. (See Eco Agro’s
Resp. to Pl.’s Renewed Rule 12 Mots. to Strike Affirmative
Defenses & to Dismiss Countercls. (“Eco Agro’s Resp.”) (Doc. 34)
at 37-38.)
-3-
Thornsberry, Jr. prepared an affidavit that asserted that
propylene glycol “unexpected[ly]” provided “excellent long term
stability of NBPT at room temperature and elevated temperature.”
(Id. at 5.)
However, Eco Agro has conducted its own testing and
found that propylene glycol does not provide long-term
stabilization of NBPT.
(See id.)
Based on this testing, Eco
Agro asserts upon information and belief that KAS cannot and
must not dissolve NBPT in propylene glycol in the production of
its product, the process that the ’003 patent protects.
(See
id.)
Moreover, Eco Agro asserts that “it can be reasonably
inferred that [Thornsberry] knew that his statement regarding
the stability of NBPT in propylene glycol was false at the time
he submitted the Affidavit to the PTO” and that the
circumstances suggest he made the statement with intent to
deceive the PTO.
(Id. at 6.)
Eco Agro admits in other parts of
its pleading that KAS did not participate in the prosecution of
the ’003 patent but rather acquired the patent through the
acquisition of Agrotain International (“Agrotain”) in 2011.
(See id. at 12, 15.)
Nonetheless, based on the allegations of
false claims in Thornsberry’s affidavit and KAS’s alleged
knowledge of their falsity due to the physical properties of
-4-
NBPT manifested in Eco Agro’s test results, Eco Agro argues that
KAS has engaged in inequitable conduct and should be barred from
claiming patent infringement by Eco Agro.
(Id. at 4.)
Along with inequitable conduct, Eco Agro asserts patent
misuse by KAS as an affirmative defense to its alleged
infringement.
Eco Agro alleges that KAS is using its patents,
including the ’003 patent, as a means of further monopolizing
the stabilized nitrogen fertilizer market.
(Id. at 21-22.)
Eco
Agro alleges that KAS has engaged in this strategy even though
KAS knows the ’003 patent is invalid due to (1) prior art
protected by a patent issued by Great Britain and discovered
during proceedings in front of the European Patent Office
(“EPO”); and (2) the false statements made by Thornsberry
concerning the stabilizing effects of propylene glycol.
22-25.)
(Id. at
Based on these allegations, Eco Agro claims that
continued enforcement of the ’003 patent is objectively
baseless, as “no reasonable litigant could realistically expect
success on the merits” and continued litigation is merely
another means of monopolizing the market for stabilized nitrogen
fertilizer.
(See id. at 25.)
In addition to asserting defenses, Eco Agro also sets out
twelve counterclaims, which can be categorized into two groups:
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(1) allegations of anticompetitive conduct, including alleged
violations of sections 1 and 2 of the Sherman Act and sections
1, 2, and 3 of the Clayton Act; and (2) allegations of state
tort liability, including alleged unfair and deceptive practices
in or affecting commerce in violation of section 75-1.1 of the
North Carolina General Statutes; tortious interference with
prospective business contracts or relationships; commercial
disparagement; and defamation.
(See id. at 7-37.)3
KAS asks
this court to dismiss each of these counterclaims. (KAS Mots.
(Doc. 27) at 1.)
In support of its claims of anticompetitive conduct, Eco
Agro alleges that KAS:
[H]as attempted, through numerous acquisitions of
companies and their intellectual property, exclusive
supply agreements, and sham patent litigation, to
monopolize the market of stabilized nitrogen
fertilizers in an effort to control the market and
maintain or increase prices of its stabilized
nitrogen fertilizer products by controlling supply
and limiting competition.
(Am. Answer (Doc. 25) at 10.)
Eco Agro asserts that the
relevant product market is “the market for the sale of
stabilized nitrogen fertilizers” and the relevant geographic
3
Eco Agro also asserts counterclaims requesting declaratory
judgments stating that Eco Agro has not infringed the ’003
patent and/or that the patent is invalid, (see Am. Answer (Doc.
25) at 6-7), but KAS has not moved to dismiss these
counterclaims. (See KAS’s Mots. (Doc. 27) at 1.)
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market is the United States.
(Id. at 9.)
Eco Agro alleges that
products sold by KAS “dominate the stabilized nitrogen
fertilizer market and account for over . . . 80% of sales and
market share in stabilized nitrogen fertilizer.”
(Id. at 13.)
Products that contain NBPT as the active ingredient, like those
sold by KAS, dominate the market because NBPT is the most
efficient and cost-effective method for enhancing the efficiency
of nitrogen fertilizer. (See id.)
Eco Agro points to several acts completed by KAS that are
allegedly anticompetitive.
First, KAS acquired Agrotain, which
owned the ’003 patent and sold a urease inhibitor fertilizer.
(Id. at 14.)
Second, KAS entered into an exclusive supply
relationship with Albemarle Corporation (“Albemarle”) - the sole
producer of NBPT in the United States - wherein KAS agreed to
purchase NBPT only from Albemarle and Albemarle agreed to supply
NBPT only to KAS.
(Id. at 16, 19.)
Third, Eco Agro suggests
that KAS has “steered” at least one purchaser from KAS’s
products to that of one of KAS’s competitors, Helena Chemical
Company (“Helena”), in violation of the Sherman Act.
17.)
(Id. at
Helena and KAS had been engaged in litigation, but after
the parties settled their litigation, prices for stabilized
fertilizer products have been stable or risen. (Id.)
-7-
Through
these tactics, Eco Agro alleges that KAS has made “it more
difficult for Eco Agro and others [sic] competitors to enter and
be competitive in the stabilized nitrogen fertilizer market.”
(Id. at 20.)
Along with anticompetitive conduct, Eco Agro claims that
KAS has harmed Eco Agro through its statements, such as a KAS
employee telling a potential Eco Agro customer that Eco Agro’s
CEO, Andrew Semple, “stole the Agrotain technology” - a
statement that Eco Agro maintains is false.
(Id.)
Additionally, KAS employees allegedly:
communicated in the marketplace to at least one Eco
Agro potential customer that Eco Agro would not be
able to supply its product to its customers due to
[KAS’s] patent suit, and that Eco Agro’s customers and
potential customers should instead purchase from [KAS]
as a result of this lawsuit.
(Id. at 21.)
Eco Agro claims these statements were “false and
were made by [KAS] employees with knowledge of the falsity and
with the [sic] bad faith and without justification.”
(Id.)
KAS has now made both a motion to strike Eco Agro’s
affirmative defenses of inequitable conduct and patent misuse
pursuant to Rule 12(f) of Federal Rules of Civil Procedure and a
motion to dismiss Eco Agro’s Counterclaims III-XII for failure
to state a claim pursuant to Rule 12(b)(6) of the Federal Rules
of Civil Procedure.
(Doc. 27.)
KAS disputes many of the
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foregoing facts and presents additional facts not contained in
Eco Agro’s pleading in support of its current motions.
Eco Agro
objects that these facts exceed the permissible scope of a Rule
12 motion.
(See Eco Agro’s Resp. (Doc. 34) at 10-12.)
court agrees and sustains these objections.
This
See E.I. du Pont de
Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 449 (4th Cir.
2011); see also LR 7.6.
However, rather than striking these
factual allegations, this court has disregarded and not
considered facts propounded by KAS when they rely on material
not contained in Eco Agro’s pleading.
See, e.g., infra Part
IV.A; infra note 7.
II.
LEGAL STANDARD
Rule 12(b)(6) of the Federal Rules of Civil Procedure
allows a party to make a motion to dismiss due to the opposing
party’s failure to state a claim upon which relief can be
granted.
Fed. R. Civ. P. 12(b)(6).
Granting a motion under
Rule 12(b)(6) is proper when the complaint’s factual
allegations, read as true, fail as a matter of law to state a
plausible claim for relief.
678 (2009).
Ashcroft v. Iqbal, 556 U.S. 662,
For instance, a party’s Rule 12(b)(6) motion may
assert that a claim is time barred only if the time bar is
apparent from the face of the complaint.
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Farley v. CSX Transp.,
Inc., 144 F. App’x 962, 963 (4th Cir. 2005) (per curiam).
The burden, however, remains on Eco Agro, the Counterclaimant in this case, “to allege facts sufficient to state all
the elements of [its] claim,” see Bass v. E.I. DuPont de Nemours
& Co., 324 F.3d 761, 765 (4th Cir. 2003), and “to raise a
reasonable expectation that discovery will reveal evidence” of
the misconduct alleged. See Bell Atl. Corp. v. Twombly, 550 U.S.
544, 556 (2007).
Thus, in determining if a claim has “facial
plausibility,” a court is not required to accept “[t]hreadbare
recitals of the elements of a cause of action, supported by mere
conclusory statements.”
Iqbal, 556 U.S. at 678.
Rule 12(f) of the Federal Rules of Civil Procedure permits
a district court to “strike from a pleading an insufficient
defense.”
Fed. R. Civ. P. 12(f).
A motion to strike “is the
primary procedure for objecting to an insufficient defense.”
5C Charles Alan Wright, Arthur R. Miller, Mary Kay Kane, Richard
L. Marcus, & Adam N. Steinman, Federal Practice and Procedure
§ 1380 (3d ed. 2014).
The Fourth Circuit has explained that “a
defense that might confuse the issues in the case and would not,
under the facts alleged, constitute a valid defense to the
action can and should be deleted.”
Waste Mgmt. Holdings, Inc.
v. Gilmore, 252 F.3d 316, 347 (4th Cir. 2001),
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III. MOTION TO STRIKE AFFIRMATIVE DEFENSES
KAS first seeks to strike two of Eco Agro’s affirmative
defenses:
misuse.
Eco Agro’s claims of inequitable conduct and patent
This court finds that both defenses are legally
sufficient, and this court will not strike either defense.
A.
Inequitable Conduct
KAS first requests that this court strike Eco Agro’s
inequitable conduct defense.
“To successfully prove inequitable
conduct, the accused infringer must present ‘evidence that the
applicant (1) made an affirmative misrepresentation of material
fact, failed to disclose material information, or submitted
false material information, and (2) intended to deceive the
[PTO].’”
Star Sci., Inc. v. R.J. Reynolds Tobacco Co., 537 F.3d
1357, 1365 (Fed. Cir. 2008) (alteration in original) (quoting
Cargill, Inc. v. Canbra Foods, Ltd., 476 F.3d 1359, 1363 (Fed.
Cir. 2007)).
The Federal Circuit has recently provided guidance
on what is required to sufficiently plead inequitable conduct:
[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. Moreover,
although “knowledge” and “intent” may be averred
generally, a pleading of inequitable conduct under
Rule 9(b) must include sufficient allegations of
underlying facts from which a court may reasonably
infer that a specific individual (1) knew of the
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withheld material information or of the falsity of the
material misrepresentation, and (2) withheld or
misrepresented this information with a specific intent
to deceive the PTO.
Exergen Corp. v. Wal-Mart Stores, Inc., 575 F.3d 1312, 1328-29
(Fed. Cir. 2009).
This court finds that Eco Agro has sufficiently pled the
circumstances of the alleged misrepresentation to the PTO, in
that Eco Agro alleges that the co-inventor of the Agrotain
product now sold by KAS, Willis L. Thornsberry, Jr., prepared an
affidavit claiming that propylene glycol stabilized NBPT and
submitted the affidavit to the PTO in an attempt to rectify any
deficiencies in the patent application that previously caused it
to be rejected.
(See Am. Answer (Doc. 25) at 4-5.)
Furthermore, this court finds that it is reasonable to infer
that Dr. Thornsberry had the required knowledge and intent for
Eco Agro to state a claim for inequitable conduct.
Although the
inference supporting Thornsberry’s knowledge of his affidavit’s
falsity and his specific intent to deceive the PTO is somewhat
tenuous, Eco Agro alleges that it has conducted testing and
knows of the results of a third-party’s tests that show
propylene glycol does not provide long-term stabilization of
NBPT - a result that is contrary to what Thornsberry asserted in
his affidavit.
(See id.)
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As this court construes the pleading, Eco Agro simply
suggests an inference that, because propylene glycol does not
stabilize NBPT under their testing, Thornsberry’s tests could
not show that it did.
As a result, Thornsberry would have known
that propylene glycol does not provide long-term stabilization
of NBPT and would have known that his statements to the PTO were
false.4
Moreover, the prior denial of the ’003 patent provided
circumstances that suggest a deliberate decision to make a
knowingly false misrepresentation - a necessary predicate for
inferring deceptive intent.
See Exergen Corp., 575 F.3d at
1331.
Thus, because Eco Agro’s pleading sets out the specific
who, what, when, where, and how of the material
misrepresentation to the PTO and alleges facts necessary to
support the requisite mental state, this court finds that Eco
4
KAS argues evidentiary matters that may ultimately
disprove Eco Agro’s allegations but are not yet part of the
record. For example, KAS’s brief argues without citation that,
“Eco Agro now alleges that propylene glycol does not stabilize
NBPT . . . despite the fact its own infringing product uses
propylene glycol for that very purpose.” (See KAS’s Mem. of Law
in Supp. of Renewed Rule 12 Mots. to Strike Eco Agro’s
Affirmative Defenses and to Dismiss Eco Agro’s Countercls.
(“KAS’s Mem.”) (Doc. 28) at 18-19.) At this stage, there are no
allegations to support this finding.
-13-
Agro’s inequitable conduct defense is legally sufficient and
will not strike this defense.5
B.
Patent Misuse
KAS also claims that this court should strike Eco Agro’s
patent misuse defense.
The basic rule of patent misuse is that,
although a “patentee may exploit his patent,” the patentee “may
not use it to acquire a monopoly not embraced in the patent.”
Princo Corp. v. Int'l Trade Comm'n, 616 F.3d 1318, 1327 (Fed.
Cir. 2010). “The doctrine of patent misuse is an affirmative
defense to a suit for patent infringement, and requires that the
alleged infringer show that the patentee has impermissibly
broadened the physical or temporal scope of the patent grant
with anticompetitive effect.” Windsurfing Int'l Inc. v. AMF,
5
The Federal Circuit has erected a higher evidentiary
standard for succeeding on the merits of an inequitable conduct
claim, but this barrier does not require a higher pleading
standard. See Exergen Corp., 575 F.3d at 1329 n.5 (“In contrast
to the pleading stage, to prevail on the merits, the accused
infringer must prove both materiality and intent by clear and
convincing evidence.”). KAS relies on a subsequent Federal
Circuit case to argue that the “single most reasonable
inference” standard should govern this court’s consideration of
its motion to strike. (KAS’s Mem. (Doc. 28) at 18-19 (citing
Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290
(Fed. Cir. 2011).) However, the Therasense court was
considering a judgment against the patentee based on inequitable
conduct, rather than considering the sufficiency of the alleged
infringer’s pleading. See Therasense, 649 F.3d at 1282.
Therefore, the heightened standard of Therasense is not
controlling for the purposes of this motion.
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Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986) (citations omitted).
The Federal Circuit has cautioned that the “bringing of a
lawsuit to enforce legal rights does not of itself constitute
. . . patent misuse.”
Glaverbel Societe Anonyme v. Northlake
Mktg. & Supply, Inc., 45 F.3d 1550, 1558 (Fed. Cir. 1995).
However, bringing a lawsuit can be considered patent misuse if
the suit was initiated in bad faith or for some “improper
purpose,” such as when “its goal is not to win a favorable
judgment, but to harass a competitor and deter others from
competition, by engaging in the litigation process itself,
regardless of the outcome.”
Id.
Here, Eco Agro has alleged sufficient facts supporting
patent misuse so that this court will not strike this defense at
this point in the litigation.
Eco Agro makes allegations that,
if proven, show that KAS initiated this lawsuit in bad faith and
for an improper purpose.
Eco Agro asserts that KAS “knows that
its patent is invalid” and that its actions of “using its
patents against . . . competitors has resulted in an unlawful
monopolization of the stabilized nitrogen fertilizer market.”
(Am. Answer (Doc. 25) at 22.)
Eco Agro asserts two bases
through which KAS’s patent could be found invalid: (1) prior art
discovered during the EPO proceedings of which KAS should now be
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aware, (id. at 22-24), and (2) Thornsberry’s alleged
misrepresentations to the PTO discussed previously, (id. at 2425).
Eco Agro alleges:
In light of the misrepresentations made to the [PTO]
that led to the issuance of the ’003 Patent, as well
as the prior art subsequently discovered in the EPO
Patent in prosecution, no reasonable litigant could
realistically expect success on the merits in
litigation alleging infringement of the ’003 Patent.
This litigation is an attempt by [KAS] to interfere
directly with the business relationships of Eco Agro
and to further monopolize the market for stabilized
nitrogen fertilizers.
(Id. at 25.)
These allegations are sufficient to assert the
defense of patent misuse.
Therefore, this court finds the
patent misuse defense pled by Eco Agro to be legally sufficient.
After finding these defenses legally sufficient, this court
is hesitant to strike these defenses for any other reason, as
motions to strike are generally disfavored.
Holdings, 252 F.3d at 347.
See Waste Mgmt.
Moreover, this court also finds that
these defenses do not confuse the issues in this matter, do not
cause some sort of undue prejudice, and are not irrelevant.
Accordingly, this court will not strike these defenses.
IV.
MOTION TO DISMISS ANTICOMPETITIVE COUNTERCLAIMS
KAS requests that this court dismiss the majority of Eco
Agro’s counterclaims.
Eco Agro’s counterclaims can be grouped
into two categories: (1) Eco Agro’s claims of anticompetitive
-16-
conduct by KAS, and (2) Eco Agro’s state law claims based on
disparaging statements made by KAS.
This section addresses
KAS’s motion to dismiss Eco Agro’s claims of anticompetitive
conduct.
Eco Agro identifies several forms of anticompetitive
conduct allegedly completed by KAS, including: (1) KAS’s
“exclusive supply agreement” with Albemarle for NBPT, (Am.
Answer (Doc. 25) at 25-28 (Counterclaims III-IV)); (2) KAS’s
actual and attempted monopolization of the stabilized nitrogen
fertilizer market, (id. at 28-29, 31-32 (Counterclaims V, VII));
(3) KAS’s “steer[ing of] at least one purchaser who sought to
purchase the stabilized nitrogen fertilizer product Agrotain
from [KAS] to instead purchase stabilized nitrogen fertilizer
products from Helena,” (id. at 30 (Counterclaim VI)); and (4)
KAS’s initiation of “sham litigation,” (id. at 36-37
(Counterclaim XII)) - all in violation of the Sherman Act,
codified at 15 U.S.C. §§ 1-7, and the Clayton Act, codified at
15 U.S.C. §§ 12-27.
A.
Relevant Market
KAS first claims that all of Eco Agro’s counterclaims of
anticompetitive conduct are not sufficiently pled based on the
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relevant product and geographic markets that Eco Agro asserts.
This court disagrees.
Market definition is a preliminary inquiry courts use to
determine the potential monopoly’s market power, and as a
threshold matter, a party asserting anticompetitive conduct must
plead the relevant product market and the relevant geographic
market.
E.I. du Pont, 637 F.3d at 441.
Because market
definition is a “deeply fact-intensive inquiry, courts hesitate
to grant motions to dismiss for failure to plead a relevant
product market,” and “dismissals at the pre-discovery, pleading
stage . . . are generally limited to certain types of glaring
deficiencies, such as failing to allege a relevant market.”
Id.
at 443-44. Other bases for dismissal on the pleadings include
“attempts to limit a product market to a single brand,
franchise, institution, or comparable entity that competes with
potential substitutes” or “failure even to attempt a plausible
explanation as to why a market should be limited in a particular
way.”
Id. at 443.
Here, Eco Agro claims that the relevant product market is
the “market for the sale of stabilized nitrogen fertilizers” and
the relevant geographic market is the United States.
Answer (Doc. 25) at 9.)
(Am.
Eco Agro explains that “stabilized
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nitrogen fertilizers” are composed of products that have
“additives that reduce the transformation rate of fertilizer
compounds, resulting in an extended time of nitrogen
availability in the soil.”
(Id. at 11.)
Eco Agro further
pleads that there are no acceptable substitutes for stabilized
nitrogen fertilizers for agricultural use and estimated sales of
stabilized nitrogen fertilizers in the United States were
approximately $90 to $110 million in 2013.
(Id. at 15.)
KAS claims that Eco Agro’s allegations should be dismissed
because they do not encompass all interchangeable substitutes
and therefore draw the relevant market in a deceptively narrow
manner. (KAS’s Mem. (Doc. 28) at 21-23.)6
Eco Agro spends some
time in its Amended Answer explaining the scope of Enhanced
6
KAS attempts to rely on a recent article outside of the
current pleadings to show that more nitrogen applied to the soil
or nitrogen applied in a different manner is a substitute that
is unaccounted for in Eco Agro’s pleading. (See KAS’s Mem.
(Doc. 28) at 14 & n.4.) Eco Agro had cited the same article in
its original answer, but the parties agree that Eco Agro’s
original answer is now void based on the filing of Eco Agro’s
Amended Answer, which does not reference the article. Because
the content of the article is outside of Eco Agro’s current
pleading, this court will not consider contested facts or market
realities expressed in the article until the parties have had a
chance to conduct discovery. See E.I. du Pont, 637 F.3d at 447.
The same holds true for facts outside of the pleadings used by
KAS to attack the United States as being the relevant geographic
market. (See KAS’s Mem. (Doc. 28) at 25.) Therefore, this
court will disregard all references KAS makes to facts outside
of the pleadings.
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Efficiency Fertilizers (“EEF”), of which “stabilized nitrogen
fertilizers” are a “sub-category.”
10-11.)
(Am. Answer (Doc. 25) at
“[S]low-release fertilizers” make up another sub-
category of EEFs, (see id.), and from the face of Eco Agro’s
Amended Answer, it could appear that slow-release fertilizers
are a reasonable substitute to stabilized nitrogen fertilizers,
which would make Eco Agro’s alleged market unreasonably narrow.
However, this court finds that Eco Agro has pled a
plausible relevant product market.
Eco Agro offers sufficient
explanation for why other products outside of the stabilized
nitrogen fertilizer market are not reasonable substitutes for
consumers, particularly those in agriculture.
(See id. at 11-
12, 15 (“Slow release fertilizers are typically two-to-four
times greater in cost that untreated urea, whereas stabilized
nitrogen fertilizers are typically only 10% or 20% greater in
cost than untreated urea.”).)
Based on this explanation, Eco
Agro’s allegations of a relevant market do not suffer from a
glaring deficiency, as the allegations set forth above offer
some explanation of why there are no interchangeable substitutes
to stabilized nitrogen fertilizers.
Additionally, this court
finds that Eco Agro has sufficiently explained that Eco Agro is
a part of the stabilized fertilizer market, even though Eco Agro
-20-
only sells a urease inhibitor that individuals apply to
fertilizer and not the actual fertilizer itself.
(See id. at
23-24.)
Eco Agro has also offered sufficient facts to allege that
the United States is a plausible relevant geographic market,
namely, because of the importance and difficulty in transporting
NBPT.
(See id. at 18.)
Because this motion reviews only the
allegations set forth in Eco Agro’s pleading, this court does
not have sufficient market information or other facts to
determine whether the alleged markets are the relevant markets
for the purposes of Eco Agro’s anticompetitive counterclaims.
Therefore, this court will move on to consider the other
elements of Eco Agro’s claims.
Before addressing these other elements, this court notes
that, in order to succeed on its anticompetitive counterclaims,
Eco Agro will need to prove that the market for stabilized
nitrogen fertilizers is the relevant product market, not that
the market for NBPT is the relevant product market.
As part of
its efforts to show that the United States is the relevant
geographic market, Eco Agro alleges that NBPT is the active
ingredient in the majority of products within the stabilized
nitrogen fertilizer market and that the instability of NBPT
-21-
makes it difficult and expensive to ship NBPT from China and
other countries.
(See id. at 18-20.)
Eco Agro then alleges
that KAS has sought to “control supply of [NBPT].”
19.)
(Id. at 15,
Eco Agro explains that “[b]y controlling the supply of
NBPT in the United States, [KAS] has attempted to foreclose
entry into the market of stabilized nitrogen fertilizers by
competitors, including Eco Agro.”
(Id. at 20.)
By making the
connection between KAS’s alleged efforts to control the NBPT
market and its alleged efforts to control the stabilized
nitrogen fertilizer market, Eco Agro has alleged a plausible
relevant market.
Ultimately, this court notes that because Eco Agro has
clearly pled that the market for stabilized nitrogen fertilizer
is the relevant market on which it bases its allegations, this
court will not permit Eco Agro to proceed on the theory that the
NBPT market is the relevant market as this matter proceeds,
absent a request by Eco Agro to amend its pleadings.
B.
Counterclaim III: Exclusive Dealing under the Sherman
Act
Eco Agro asserts that an exclusive supply agreement formed
between KAS and the sole supplier of NBPT in the United States,
Albemarle, constitutes “exclusive dealing” in violation of
section 1 of the Sherman Act.
Eco Agro contends that the
-22-
agreement “substantially forecloses competition” in the United
States market for stabilized nitrogen fertilizer by controlling
the supply of NBPT, the most effective active ingredient in the
relevant market.
(Id. at 25-27.)
In order to state a claim under section 1 of the Sherman
Act, a plaintiff must plausibly allege “(1) that the conspiracy
produced adverse, anticompetitive effects within the relevant
product and geographic market; (2) that the objects and conduct
pursuant to the conspiracy were illegal; and (3) that the
plaintiff was injured as a proximate result of the conspiracy.”
Advanced Health-Care Servs., Inc. v. Radford Cmty. Hosp., 910
F.2d 139, 144 (4th Cir. 1990). KAS claims that Eco Agro merely
invokes the “magic words” of substantial foreclosure of
competition without stating sufficient facts to support its
allegation, that Eco Agro does not plead that a market was
actually foreclosed, and that Eco Agro does not show that the
market for NBPT is a relevant market.
(KAS’s Mem. (Doc. 28) at
24-26.)
In stating its claim under section 1 of the Sherman Act,
Eco Agro alleges that (1) the stabilized nitrogen fertilizer
market is a relevant market; (2) NBPT is an important ingredient
within the products that make up that market; (3) KAS created an
-23-
exclusive supply agreement with the sole supplier of NBPT in the
United States; (4) NBPT is difficult to transport, making
contracting with other suppliers expensive; and (5) KAS now
controls 80% of the stabilized fertilizer market due, in part,
to the exclusive supply agreement.
25-27.)7
(See Am. Answer (Doc. 25) at
Despite KAS’s arguments, this court finds that these
allegations state a plausible claim of exclusive dealing under
section 1 of the Sherman Act.
Before proceeding with the analysis, this court notes that
KAS’s brief creates significant difficulty for this court in
parsing out the pleadings.
Specifically, KAS’s brief tends to
include factual matters not subject to consideration at this
stage and with citations that do not reflect the asserted facts.
For example, in arguing that Eco Agro’s counterclaim based on
section 1 of the Sherman Act is subject to dismissal, KAS
alleges:
Even were that not the case, [Eco Agro’s] allegations
do not address the obvious question of why Chinese
NBPT - which Eco Agro’s own principals imported into
the United States through another business - is not
reasonably interchangeable with domestic NBPT, given
7
The level of market dominance fact can be found on page
19, paragraph 65 of Eco Agro’s Amended Answer, which is
incorporated by reference into Eco Agro’s counterclaim under
section 1 of the Sherman Act. (See Am. Answer (Doc. 25) at 25,
¶ 96.)
-24-
that it acknowledges that NBPT can be purchased from
China.
(KAS’s Mem. (Doc. 28) at 25 (citing Am. Answer (Doc. 25) ¶¶ 40,
46-47).)
None of the cited paragraphs contain a concession from
Eco Agro that its “own principals imported [NBPT] into the
United States.”
(KAS’s Mem. (Doc. 28) at 25; see also Am.
Answer (Doc. 25) at 13, 15 (providing general information on
NBPT).)
Furthermore, Eco Agro’s counterclaims describe the cost
issues of shipping NBPT from China.
at 19-20.)
(See Am. Answer (Doc. 25)
As noted earlier, this court will disregard all
references KAS makes to facts outside the pleadings.
KAS seems
to be aware of the complexity of the matters at issue and to
further confuse the issues by referring to matters outside of
the pleadings and not in evidence is not an appropriate tactic.
Moving forward, to prevail on the merits of this claim, Eco
Agro will need to establish that the foreclosure was substantial
and that the agreement was unreasonable, with the “unacceptable
level of market foreclosure” not being justified by the
“procompetitive efficiencies” created by the conduct.
See
Chuck's Feed & Seed Co. v. Ralston Purina Co., 810 F.2d 1289,
1294 (4th Cir. 1987).
However, this determination of whether
the foreclosure was substantial and unreasonable “requires a
market analysis of the impact the restraining activity has on
-25-
competition.”
Advanced Health-Care Servs., 910 F.2d at 145.
At
this point, with Eco Agro’s allegations being accepted as true,
summary dismissal is inappropriate because this court cannot
look outside Eco Agro’s pleading to conduct such a market
analysis.
See id.
Therefore, Eco Agro’s counterclaim that
KAS’s exclusive supply agreement violates section 1 of the
Sherman Act will not be dismissed at this time.
C.
Counterclaim IV: Exclusive Dealing under the Clayton
Act
Along with asserting violations of the Sherman Act, Eco
Agro claims that the exclusive supply agreement between KAS and
Albemarle violates section 3 of the Clayton Act.
Answer (Doc. 25) at 28.)
(See Am.
Section 3 of the Clayton Act makes it
unlawful:
for any person engaged in commerce . . . to lease or
make a sale or contract for sale of goods . . . on the
condition, agreement, or understanding that the lessee
or purchaser thereof shall not use or deal in the
goods . . . of a competitor or competitors of the
lessor or seller, where the effect . . . may be to
substantially lessen competition or tend to create a
monopoly in any line of commerce.
15 U.S.C. § 14 (2012); see also Tampa Elec. Co. v. Nashville
Coal Co., 365 U.S. 320, 325-29 (1961) (explaining the
application of section 3 of the Clayton Act).
-26-
KAS claims that Eco Agro has not stated a claim under
section 3 of the Clayton Act because, in the exclusive supply
agreement in question, KAS is the “buyer” and “Section 3 applies
only to sellers.” (See KAS’s Mem. (Doc. 28) at 26).
Based on
KAS’s role as a buyer, KAS asks this court to follow other
courts in finding that section 3 liability only attaches to the
sellers in an exclusive dealing contract.
See McGuire v. CBS,
Inc., 399 F.2d 902, 906 (9th Cir. 1968).
Eco Agro has not persuasively responded to KAS’s argument
or distinguished McGuire.
As a result, this court finds McGuire
persuasive. “The language of the statute defines liability in
terms of a person who makes a sale or contracts for sale and
nowhere provides for liability of the buyer.”
Id. at 906.
In
the alleged exclusive supply agreement between KAS and
Albemarle, KAS is the buyer and, as a result, Eco Agro cannot
state a claim against it under section 3 of the Clayton Act.
As
discussed above, this agreement can serve as the basis for a
claim under section 1 of the Sherman Act, but Eco Agro has not
stated a claim under section 3 of the Clayton Act.
D.
Counterclaims V, VII: Actual & Attempted Monopolization
Eco Agro asserts that, through its conduct, KAS has
actually monopolized or has at least attempted to monopolize the
-27-
stabilized nitrogen fertilizer market in violation of section 2
of the Sherman Act.
(Am. Answer (Doc. 25) at 28-29, 31-32.)
The elements of [actual and attempted monopolization
claims] are very similar. To prevail on a
monopolization claim, a plaintiff must show possession
of monopoly power in a relevant market, willful
acquisition or maintenance of that power in an
exclusionary manner, and causal antitrust injury. To
prove attempted monopolization, the plaintiff must
prove a specific intent to monopolize a relevant
market, predatory or anticompetitive acts, and a
dangerous probability of successful monopolization.
Advanced Health-Care Servs., Inc., 910 F.2d at 147 (citations
omitted); see also E.I. du Pont, 637 F.3d at 450, 453.
To meet the elements of actual monopolization, Eco Agro has
alleged that KAS controls 80% of the stabilized nitrogen
fertilizer market and has acquired and maintained that monopoly
power - causing antitrust injury to all competitors in the
market - through the acquisition of Agrotain, the exclusive
supply agreement with Albemarle, and the bad faith enforcement
of its patent that it allegedly knows to be invalid.
Answer (Doc. 25) at 28-29.)
(See Am.
This court finds that these
allegations are sufficient to state a claim of actual
monopolization under section 2 of the Sherman Act.
KAS makes numerous arguments in an attempt to undercut the
facts underlying Eco Agro’s allegation of actual monopolization,
but this court finds these arguments unpersuasive.
-28-
First, KAS
claims that its Agrotain acquisition cannot serve as a basis for
Eco Agro’s claim of actual monopolization.
KAS argues that,
because it was not producing a urease inhibitor at the time of
its acquisition of Agrotain and because Eco Agro does not claim
Agrotain had a monopoly at the time of the acquisition, KAS
could not have achieved monopoly power through the Agrotain
acquisition alone.
(See KAS’s Mem. (Doc. 28) at 27-28.)
However, this argument does not render Eco Agro’s allegations
defective because Eco Agro has alleged that KAS’s conduct was
used to acquire monopoly power “and maintain[] that power.”
(See Am. Answer (Doc. 25) at 28.)
Maintenance of monopoly power
through exclusionary means, such as acquiring a company to
consolidate control over a market, is prohibited by section 2 of
the Sherman Act, and Eco Agro’s allegation can be read to
proceed on that theory.
Moreover, the acquisition of Agrotain
is only one of several anticompetitive acts alleged by Eco Agro
to have been used to acquire and maintain KAS’s market power.
Because Eco Agro has alleged anticompetitive conduct and alleged
that these actions were used to acquire and maintain monopoly
power, this court will not dismiss Eco Agro’s actual
monopolization claim based on this argument by KAS.
-29-
Second, KAS claims that Eco Agro does not have standing to
assert its Sherman Act claim because it has not suffered
antitrust injury and thus is not entitled to damages under the
Sherman Act.
(See KAS’s Mem. (Doc. 28) at 28-29.)
In examining
whether a party has asserted the appropriate type of antitrust
injury to confer antitrust standing, courts look to “(1) the
causal connection between an antitrust violation and harm to the
[party], and whether that harm was intended; and (2) whether the
harm was of a type that Congress sought to redress in providing
a private remedy for violations of the antitrust laws.”
See
Novell, Inc. v. Microsoft Corp., 505 F.3d 302, 315 (4th Cir.
2007) (quoting Kloth v. Microsoft Corp., 444 F.3d 312, 324 (4th
Cir. 2012)).
Eco Agro has alleged that the anticompetitive conduct set
out above, such as KAS’s exclusive supply relationships and
acquisitions, has “made market entry more difficult for
competitors like Eco Agro.”
(See Am. Answer (Doc. 25) at 29.)
Assuming this allegation is true, the injury that Eco Agro
alleges “is plainly an injury to competition that the anti-trust
laws were intended to forestall. . . . [Thus, Eco Agro] has
alleged harm of the type the antitrust laws were intended to
prevent.”
See Novell, 505 F.3d at 316.
-30-
Moreover, with its
allegations that KAS controlled NBPT supply, Eco Agro has
asserted that KAS effectively thwarted the ability of Eco Agro’s
products to compete with KAS’s products and possibly lower the
barrier to entry in the stabilized nitrogen fertilizer market,
therefore harming competition in that market.
KAS’s conclusion
that Ego Agro was not harmed because competition either
benefited from lower prices or Eco Agro benefited from any
higher prices charged by KAS does not account for the harm to
competition created by KAS’s activity that allegedly raised or
maintained artificially high barriers to competition.
Therefore, Eco Agro’s allegations satisfy the causation
requirement at the pleading stage and establish that Eco Agro
has sufficiently pled antitrust injury.
Third, KAS claims that Eco Agro cannot rely on KAS’s
enforcement of its patent as a form of anticompetitive conduct
because “Eco Agro has not pleaded sufficient facts to show that
KAS’s lawsuit is objectively baseless.”
at 29-30.)
(KAS’s Mem. (Doc. 28)
This court has determined that Eco Agro has stated a
legally sufficient patent misuse defense.
See supra Part III.B.
Eco Agro makes allegations that, if proven, show that KAS
initiated this lawsuit in bad faith and for an improper purpose.
Such allegations of bad faith, taken as true, would indicate
-31-
that “no reasonable litigant could realistically expect success
on the merits.”
See Prof’l Real Estate Inv’rs, Inc. v. Columbia
Pictures Indus., Inc., 508 U.S. 49, 60 (1993).
As a result,
this court finds that KAS’s patent infringement actions can
serve as anticompetitive conduct for the purposes of stating a
claim under section 2 of the Sherman Act.8
For these reasons,
this court finds that Eco Agro has stated a claim for actual
monopolization under section 2 of the Sherman Act, and as such,
this court will not dismiss this counterclaim.
Eco Agro relies on similar allegations to state its claim
for attempted monopolization.
32.)
(See Am. Answer (Doc. 25) at 31-
This court has already determined that Eco Agro pled facts
to establish KAS’s anticompetitive acts, including its exclusive
NBPT supply agreement with Albemarle, its acquisition of
Agrotain, and its improper use of its allegedly invalid patent.
These allegations sufficiently plead the first element of
attempted monopolization.
See E.I. du Pont, 637 F.3d at 453.
To assert that KAS had a specific intent to monopolize, the
second element of an actual monopolization claim, Eco Agro again
8
KAS contends that statements made by Eco Agro to the press
indicate that the current lawsuit is not objectively baseless.
(See KAS’s Mem. (Doc. 28) at 30 & n.12.) However, because these
statements are outside of Eco Agro’s pleading, this court will
not consider those statements at this juncture.
-32-
points to these anticompetitive acts.
32.)
(Am. Answer (Doc. 25) at
The Fourth Circuit has found on multiple occasions that,
at the pleading stage, “[s]pecific intent may be inferred from
the defendant’s anticompetitive practices.”
E.I. du Pont, 637
F.3d at 453 (quoting M & M Med. Supplies & Serv., Inc. v.
Pleasant Valley Hosp., Inc., 981 F.2d 160, 166 (4th Cir. 1992))
(alteration in original).
Thus, the allegations referenced
above lead to a reasonable inference of specific intent to
monopolize.
Finally, the third element, whether KAS’s attempt to
monopolize has a dangerous possibility of success, has been met
at this stage because this court has determined that Eco Agro
has adequately pled actual monopolization.
637 F.3d at 453.
See E.I. du Pont,
Accordingly, this court will not dismiss Eco
Agro’s claims of actual and attempted monopolization under
section 2 of the Sherman Act.
E.
Counterclaim VI: Steering
Eco Agro states another claim under section 1 of the
Sherman Act, alleging that KAS has “steered at least one
purchaser who sought to purchase the stabilized nitrogen product
Agrotain from [KAS] to instead purchase stabilized nitrogen
fertilizer products from Helena,” a competitor.
-33-
(See Am. Answer
(Doc. 28) at 30.)
Eco Agro alleges further, upon information
and belief, that “the purchaser was told it could not purchase
the stabilized nitrogen fertilizer product containing NBPT from
[KAS], but must instead purchase from Helena.”
(Id.)
Eco Agro
maintains that this “steering” of a customer to Helena occurred
after KAS and Helena settled litigation and is another means of
controlling the market in stabilized nitrogen fertilizers and
reducing competition.
(Id.)
KAS argues that this claim is “[u]nprecedented,
[u]nsupported, and [i]llogical,” that it fails to meet the
pleading standard necessary to allege an antitrust conspiracy,
that it contradicts Eco Agro’s claim that KAS is a monopolist,
and that it does not indicate that Eco Agro incurred antitrust
injury based on this alleged steering.
33-34.)
(KAS’s Mem. (Doc. 28) at
This court finds these arguments unpersuasive for the
following reasons.
This court finds that Eco Agro has set out a plausible
claim under section 1 of the Sherman Act.
Section 1 of the
Sherman Act applies to any contract, combination, or conspiracy
“in restraint of trade or commerce.”
15 U.S.C. § 1.
Although
Eco Agro does not use the word “conspiracy” in setting forth
this counterclaim, Eco Agro has set out facts to support a
-34-
reasonable inference of an agreement or conspiracy between KAS
and Helena.
In its statement of facts, which is incorporated
into Eco Agro’s steering claim, Eco Agro states that Helena was
engaged in the stabilized nitrogen fertilizer market, that
Helena “was a company of sufficient size to take market share
from [KAS]” in that market, that Helena’s entrance into the
market caused prices to drop, and that the prices have been
stable or risen since the parties settled their lawsuit and
allegedly began steering customers.
(See Am. Answer (Doc. 25)
at 17.)
Moreover, Eco Agro, in its brief, asserts that “steering”
is a “per se antitrust violation,” akin to “an agreement between
competitors at the same level of the market structure to
allocate territories in order to minimize competition.” (See Eco
Agro’s Resp. (Doc. 34) at 32 (quoting Palmer v. BRG of Georgia,
Inc., 498 U.S. 46, 49 (1990)).)
This court is not able to
determine at this point whether this alleged agreement between
KAS and Helena constitutes a per se antitrust violation.
Yet,
even if this violation is not a per se violation, this court
finds that Eco Agro has pled that the alleged agreement is a
restraint on competition, and this court is unable to evaluate
the reasonableness of such a restraint based simply on Eco
-35-
Agro’s pleading.
See Cont'l Airlines, Inc. v. United Airlines,
Inc., 277 F.3d 499, 508-11 (4th Cir. 2002).
This court finds
that the allegations set forth here are sufficient to state a
claim under section 1 of the Sherman Act, and as a result, this
court will not dismiss this claim.
F.
Counterclaim XII: Sham Litigation
In Eco Agro’s final counterclaim, Eco Agro asserts a claim
of “sham litigation” against KAS.
37.)
(Am. Answer (Doc. 25) at 36-
Eco Agro claims that the current litigation - a lawsuit
Eco Agro alleges is objectively baseless - “is an attempt to
interfere directly with the business relationships of Eco Agro,
a competitor of [KAS], through the use of this suit.”
36.)
(Id. at
Eco Agro asserts that this suit is an attempt to preclude
Eco Agro entirely from the market for stabilized nitrogen
fertilizers, which will result in fewer choices for consumers
and potentially higher prices.
(Id. at 36-37.)
KAS would have this court find that that there is no
independent cause of action for “sham litigation” and that “sham
litigation” is merely an exception to the Noerr-Pennington
immunity that allows alleged patent infringers to make other
antitrust claims against patent holders who initiate objectively
and subjectively baseless patent enforcement litigation.
-36-
(See
KAS Mem. (Doc. 28) at 40 (citing Prof'l Real Estate Investors,
Inc., 508 U.S. at 61).)
However, this court will not so find.
The Supreme Court has long held that alleged enforcement of
a patent procured by fraud states a claim under section 2 of the
Sherman Act.
See Walker Process Equip., Inc. v. Food Mach. &
Chem. Corp., 382 U.S. 172, 174 (1965); see also Glaverbel, 45
F.3d at 1559 (recognizing that a lawsuit, brought in bad faith
and for an improper purpose and in implementation of an illegal
restraint on trade, could serve as a basis for a Sherman Act
violation).
This court has determined that Eco Agro has stated
sufficient facts to allege that the current litigation is
objectively baseless and made in bad faith such that Eco Agro’s
various antitrust and state law claims will not be dismissed
based on Noerr-Pennington or preemption.
infra Part V.A.
See supra Part III.B;
Additionally, this court has found that Eco
Agro has set forth the necessary elements for a claim under
section 2 of the Sherman Act.
See supra Part IV.D.
For the
same reasons, this court finds that Eco Agro has stated a claim
under section 2 of the Sherman Act based on KAS’s initiation and
maintenance of “sham litigation.”
-37-
G.
Counterclaim VIII: North Carolina Unfair and Deceptive
Practices Act
In addition to stating claims under the federal antitrust
laws, Eco Agro claims that KAS’s “actions of anticompetitive and
monopolistic conduct . . . constitute unfair competition and
unfair and deceptive trade practices as defined by the laws of
. . . the State of North Carolina, including but not limited to
N.C.G.S. § 75.1-1 et. seq.”
(Am. Answer (Doc. 25) at 32.)
Section 75-1.1 of the North Carolina General Statutes
declares “unlawful” all “[u]nfair methods of competition in or
affecting commerce” or “unfair or deceptive acts or practices in
or affecting commerce.”
N.C. Gen. Stat. § 75-1.1(a).
To show
that an act or practice violates section 75-1.1, a plaintiff
must demonstrate (1) an unfair or deceptive act or practice meaning that it “offends established public policy;” is
“immoral, unethical, oppressive, unscrupulous, or substantially
injurious to consumers;” or has a tendency to deceive, see
Walker v. Fleetwood Homes of N.C., Inc., 362 N.C. 63, 72, 653
S.E.2d 393, 399 (2007); (2) the act or practice was in or
affecting commerce; and (3) the act or practice proximately
caused the injury to the plaintiff.
See Boyce & Isley, PLLC v.
Cooper, 153 N.C. App. 25, 35, 568 S.E.2d 893, 901 (2002).
-38-
KAS’s only argument relevant to Eco Agro’s claims of
anticompetitive conduct under section 75-1.1 is that “to the
extent that Eco Agro seeks to recast its federal antitrust
claims as claims under North Carolina law, those claims should
be dismissed for the same reasons the Court should dismiss the
federal antitrust claims.”
(See KAS’s Mem. (Doc. 28) at 37.)
However, because this court has found that Eco Agro has stated
several plausible claims under the federal antitrust laws, this
court finds no reason to dismiss Eco Agro’s claims of
anticompetitive conduct in violation of section 75-1.1 of the
North Carolina General Statutes.
V.
MOTION TO DISMISS STATE LAW COUTERCLAIMS
Eco Agro asserts a number of claims under North Carolina
law, including claims that KAS’s recent statements about Eco
Agro and its employees constitute unfair and deceptive
practices, tortious interference with prospective business
contracts or relationships, commercial disparagement, and
defamation.
This court finds that Eco Agro has sufficiently
pled its unfair and deceptive practices claim and its defamation
claim, but for the reasons stated herein, this court finds that
Eco Agro’s tortious interference and commercial disparagement
claims should be dismissed.
-39-
A.
Noerr-Pennington Doctrine and Federal Preemption
KAS first claims that all state law claims should be
dismissed because the underlying conduct is either shielded by
Noerr-Pennington immunity or preempted by federal patent law.
KAS contends that the allegedly tortious statements its
employees made about Eco Agro were made in the process of
protecting its patent rights.
However, at this stage of the
litigation, this court finds that Eco Agro has alleged
sufficient facts to avoid dismissal based on Noerr-Pennington
immunity or federal preemption.
To avoid preemption or dismissal based on the NoerrPennington doctrine, Eco Agro must allege that the underlying
patent litigation was made in “bad faith” and was “objectively
baseless.”
See Matthews Int'l Corp. v. Biosafe Eng'g, LLC, 695
F.3d 1322, 1332 (Fed. Cir. 2012); Globetrotter Software, Inc. v.
Elan Computer Grp., Inc., 362 F.3d 1367, 1374 (Fed. Cir. 2004).
Without reaching the issue of whether KAS making good faith
statements to Eco Agro’s customers would be protected activity
that is shielded by either of these doctrines, this court finds
that Eco Agro has pled sufficient facts to plausibly allege that
the patent at issue is invalid and that the underlying patent
litigation was initiated in bad faith.
-40-
See supra Part III.B.
Therefore, Eco Agro’s claims will not be dismissed based on
Noerr-Pennington immunity or federal preemption at this point.
Accordingly, this court will consider the merits of each of Eco
Agro’s state law claims.9
B.
Counterclaim IX: Tortious Interference with
Prospective Business Contracts or Relationships
Eco Agro alleges that KAS “maliciously prevented the making
of contracts between Eco Agro and potential customers of Eco
Agro,” when in August 2014, KAS “contacted at least one Eco Agro
prospective customer” and “falsely told this customer that Eco
Agro CEO Andrew Semple stole Agrotain’s technology and that Eco
Agro could not supply its stabilized nitrogen fertilizer product
N-Yield to the customer going forward.”
(Am. Answer (Doc. 25)
20-21, 33 (setting forth the factual basis for KAS’s
communication with Eco Agro’s potential customers).)
Eco Agro
asserts that “these statements have harmed Eco Agro’s prospects
of entering into a contract with customers, . . . harmed Eco
9
This case is different from Matthews Int’l Corp., where
the Federal Circuit found state-law claims were properly
dismissed because Matthews made “bald assertions” that Biosafe
had acted in bad faith but asserted no facts except for
allegedly false statements to the PTO made by predecessors of
Biosafe. See Matthews Int'l Corp., 695 F.3d at 1333. In this
case, Eco Agro has asserted that KAS must know that the patent
is invalid because Eco Agro’s tests show that propylene glycol
does not provide long-term stabilization of NBPT. Therefore,
Eco Agro has plausibly asserted that KAS initiated this suit and
made statements about this litigation in bad faith.
-41-
Agro’s opportunity to sell products to these customers in the
future. . . . [, and] harmed Eco Agro’s reputation in the
industry.”
(Id. at 33-34.)
North Carolina recognizes a tort for wrongful interference
with a prospective economic advantage.
To prove such a claim, a
party “must show lack of justification for inducing a third
party to refrain from entering into a contract” and that the
contract “would have ensued but for the interference.”
Cameron
v. New Hanover Mem'l Hosp., Inc., 58 N.C. App. 414, 440, 293
S.E.2d 901, 917 (1982).
If a party claiming tortious
interference does not allege a prospective sale and that it
“would have been consummated but for the malicious
interference,” it is proper for the court to dismiss that claim.
See Spartan Equip. Co. v. Air Placement Equip. Co., 263 N.C.
549, 559, 140 S.E.2d 3, 11 (1965); cf. DaimlerChrysler Corp. v.
Kirkhart, 148 N.C. App. 572, 585, 561 S.E.2d 276, 286 (2002)
(affirming denial of injunction because plaintiff failed to
establish a likelihood of success on the merits by failing to
identify any particular contract that a third party had been
induced to refrain from entering into with plaintiff).
Here, Eco Agro has alleged, upon information and belief,
that KAS has been in contact with at least one “prospective
-42-
customer” and that the statements have damaged Eco Agro’s
reputation and prospects of entering into a contract with
“customers.”
(Am. Answer (Doc. 25) at 33-34.)
However, Eco
Agro has not made any allegation that Eco Agro would have
entered into a contract with specific customers but for KAS’s
statements, and Eco Agro has not pled sufficient facts for this
court to infer that KAS’s statements were the but-for cause of
the unnamed customer’s decision not to purchase N-Yield.
As a result, this court finds that Eco Agro has not set
forth a plausible claim for tortious interference with a
business contract or relationship, and this court will dismiss
this counterclaim.
C.
Counterclaim X: Commercial Disparagement
Based on the same statements that underlie Eco Agro’s
tortious interference claim, Eco Agro asserts that the
statements made by KAS employees constitute “commercial
disparagement.”
(Am. Answer (Doc. 25) at 34-35.)
Eco Agro
claims the statements have caused harmed and were unprivileged,
false, defamatory, and made with a reckless disregard for the
truth.
(Id.)
KAS contends that the claim “should be dismissed because
North Carolina does not recognize a tort of ‘commercial
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disparagement’ independent of a claim under § 75-1.1.”
Mem. (Doc. 28) at 39.)
(KAS’s
This court has conducted its own
research and similarly cannot find a case that recognizes
“commercial disparagement” as a separate, cognizable tort under
North Carolina law.
defamation.
Eco Agro has set out a separate claim for
Accordingly, Eco Agro’s “commercial disparagement”
claim will be dismissed.
D.
Counterclaims VIII, XI: Remaining State Law Claims
This court finds that it would be inappropriate to dismiss
the remaining state law claims of defamation and unfair and
deceptive practices.
KAS makes no argument that Eco Agro’s
allegations as to these claims are deficient on their own,
relying instead on arguments this court has already rejected as
being improper at this stage of the proceedings.
(See KAS’s
Mem. (Doc. 28) at 37-40 (making arguments based on the
insufficiency of Eco Agro’s federal antitrust claims, the NoerrPennington doctrine, and federal preemption).)
Therefore, this
court finds it is not appropriate to dismiss these claims at
this stage.
VI.
CONCLUSION
IT IS THEREFORE ORDERED that Counter-Defendant Koch
Agronomic Services, LLC’s Renewed Rule 12 Motions to Strike Eco
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Agro’s Affirmative Defenses and to Dismiss Eco Agro’s
Counterclaims (Doc. 27) is GRANTED IN PART and DENIED IN PART.
Counterclaim IV (Violation of section 3 of the Clayton Act),
Counterclaim IX (Tortious Interference with Prospective Business
Contracts), and Counterclaim X (Commercial Disparagement) are
DISMISSED.
All other forms of relief requested by Koch
Agronomic Services, LLC, are DENIED.
IT IS FURTHER ORDERED that Koch Agronomic Services, LLC
shall serve its responsive pleading to the remaining
counterclaims within 14 days of the issuance of this Memorandum
Opinion and Order.
This the 29th day of September, 2015.
_____________________________________
United States District Judge
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