Ancestry.com Operations Inc. et al v. DNA Diagnostic Center, Inc.

Filing 69

ORDER granting in part and denying in part #51 Motion to Dismiss for Failure to State a Claim. Ancestry's motion to dismiss is GRANTED IN PART AND DENIED IN PART. Ancestry's motion to dismiss is GRANTED as to Count V of DDCs counterclaim and the portions of Count VI and VIII that are based on Ancestry's litigation activities such as filing the lawsuit and complaining to Groupon about alleged infringement by DDC. Those claims are DISMISSED WITH PREJUDICE. Ancestry's motion to dismiss is DENIED as to that part of Count VI that covers other modes of unfair competition, and that part of Count VIII that is based on Ancestry's alleged disparaging comments about DDC. Signed by Judge Sandra S Beckwith on 7/26/16. (mb) Modified on 7/27/2016 (mb).

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
WESTERN DIVISION
Ancestry.com Operations, Inc.,
et al..

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Plaintiffs,
vs.
DNA Diagnostics Center, Inc.,
Defendant.

Case No. 1:15-CV-737

ORDER
This matter is before the Court on Plaintiffs’ (“Ancestry”) Motion (Doc. No.
51) to Dismiss Counts V, VI and VIII from Defendant’s (“DDC”) First Amended
Counterclaims (Doc. No. 46). For the reasons that follow, Ancestry’s motion to
dismiss is GRANTED IN PART AND DENIED IN PART.
I. Background
Defendant DNA Diagnostics Center, Inc. is a “DNA testing business”
based in Fairfield, Ohio. Counterclaim, Doc. No. 46 ¶ 11. Since incorporating in
1995, DDC has offered various DNA testing products and services, including
“forensic DNA testing, relationship testing using DNA methodology, DNA testing
for medical purposes, and ancestry testing.” Id. ¶ 12. DDC’s ancestry testing is
called

AncestrybyDNA,

and

has

been

sold

since

2001

under

the

ANCESTRYBYDNA mark. Id. ¶¶ 13-14. In 2008, the United States Patent and
Trademark

Office

(“USPTO”)

granted

trademark

registration

for

ANCESTRYBYDNA on the principal register. Id. ¶ 20. The mark has since

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become incontestable. Id. ¶ 24. While originally operating under an exclusive
license from DNA Print, DDC obtained full ownership of the AncestrybyDNA test
in 2012. Id. ¶¶ 21-22.
Conversely, Ancestry.com allows customers to research their ancestry
“through historical records such as birth, death, and marriage certificates and
census data.” Id. ¶ 26. In 2007, as its third ancestry DNA testing product,
Ancestry launched “AncestryDNA” which operates under the ANCESTRYDNA
trademark. Id. ¶¶ 30-31.

DDC alleges that the ANCESTRYDNA mark is

confusingly similar to DDC’s “preexisting and registered ANCESTRYBYDNA
mark.” Id. ¶ 33. Further, prior to selecting the ANCESTRYDNA mark, Ancestry
had “at least constructive knowledge of DDC’s ANCESTRYBYDNA mark based
on the federal registration of that mark in 2008.” Id. ¶ 35). When Ancestry began
using the ANCESTRYDNA mark for the first time in 2012, consumer confusion
commenced between that mark and DDC’s preexisting ANCESTRYBYDNA
mark. Id. ¶ 36.

As a result, “DDC has suffered and will continue to suffer

significant harm to its reputation and goodwill, and to its sales and revenues,
among other things.” Id. ¶ 39.
In 2015, Ancestry filed this action alleging that DDC’s use of the
ANCESTRYBYDNA mark infringes Ancestry’s trademark rights. Id. ¶ 43. In its
counterclaim, however, DDC asserts that Ancestry’s claims are “objectively
baseless” for four main reasons: (1) DDC’s ANCESTRYBYDNA trademark
predates Ancestry’s ANCESTRYDNA mark by more than ten years, and
therefore it is Ancestry’s mark that infringes DDC’s trademark rights; (2) DDC’s

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mark cannot infringe upon Ancestry’s purported rights, as there is no likelihood of
confusion; (3) DDC’s use of Ancestry is protected by fair use, and thus “such use
cannot constitute trademark infringement under 15 U.S.C. §1115(b)(4); and (4)
Ancestry’s ANCESTRY mark is generic and not protectable. Id. ¶ 44.
DDC asserts that Ancestry, as the junior mark registrant, is actually
responsible for the marketplace confusion, and likewise filed this lawsuit “with the
bad faith intent of using the filing and allegations in its complaint to create the
false appearance that DDC is to blame for the confusion that Ancestry has
caused, which is contrary to law and fact, with the bad faith intent of damaging
DDC’s reputation, goodwill, and business.” Id. ¶ 45. Further, DDC alleges that
Ancestry submitted a complaint to Groupon “which falsely accused DDC of
infringing the ANCESTRYDNA mark, caus[ing] Groupon to cease offering deals
for DDC’s AncestrybyDNA test to Groupon customers” and causing a “significant
loss of sales and revenue.” Id. ¶ 46.
DDC filed a number of counterclaims against Ancestry, including claims of
unfair competition through malicious litigation (Count V), common law unfair
competition (Count VI), and tortious interference with business relationships
(Count VIII).

Ancestry now moves to dismiss these claims pursuant to Rule

12(b)(6) of the Federal Rules of Civil Procedure.
II. Standard of Review
A motion to dismiss for failure to state a claim operates to test the
sufficiency of the complaint. The court must construe the complaint in the light
most favorable to Plaintiff, and accept as true all well-pleaded factual allegations.

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See Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Roth Steel Products v.
Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir. 1983). The court need not
accept as true legal conclusions or unwarranted factual inferences. Lewis v. ACB
Business Servs., Inc., 135 F.3d 389, 405 (6th Cir. 1998).
The complaint, however, must contain more than labels, conclusions, and
formulaic recitations of the elements of the claim. Sensations, Inc. v. City of
Grand Rapids, 526 F.3d 291, 295 (6th Cir. 2008) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)). The factual allegations of the complaint
must be sufficient to raise the right to relief above the speculative level. Id.
Nevertheless, the complaint is still only required to contain a short, plain
statement of the claim indicating that the pleader is entitled to relief. Id. (citing
Erickson v. Pardus, 551 U.S. 89, 93 (2007)). Specific facts are not necessary
and the pleader is only required to give fair notice of the claim and the grounds
upon which it rests. Id.
To withstand a motion to dismiss, “a complaint must contain 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) (internal quotation marks
omitted). Mere conclusions, however, are not entitled to the assumption of truth.
Id. at 678-89. A claim is facially plausible if it contains content which allows the
court to draw the reasonable inference that the defendant is liable for the
misconduct alleged. Id. at 678. Plausibility is not the same as probability, but the
complaint must plead more than a possibility that the defendant has acted

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unlawfully. Id. If the complaint pleads conduct that is only consistent with the
defendant’s liability, it fails to state a plausible claim for relief. Id.
For the purposes of this Order, all well-pleaded factual allegations from
DDC’s counterclaim are accepted as true.
III. Analysis
A. Noerr-Pennington Immunity
Ancestry argues that Counts V, VI and VIII of DDC’s counterclaim should
be dismissed pursuant to the Noerr-Pennington Doctrine. The Noerr-Pennington
Doctrine provides immunity from liability from claims based on a party’s efforts to
petition governmental agencies for official action. VIBO Corp., Inc. v. Conway,
669 F.3d 675, 683-84 (6th Cir. 2012). The Noerr-Pennington Doctrine is “based
on the right to seek redress in the courts,” and ensures that a party will “not be
subjected to liability for its attempt to have its rights protected by the courts
unless that attempt is shown to have been a mere ‘sham.’” Melea Ltd. v. Quality
Models, Ltd., 345 F. Supp. 2d 743, 758 (E.D. Mich. 2004); see also Harvey v.
Great Seneca Fin. Corp., 453 F.3d 324, 326 (6th Cir. 2006) (Noerr-Pennington
“protects litigants who seek redress of wrongs through judicial proceedings”). The
sham litigation exception to the Noerr-Pennington Doctrine withholds immunity
from suit when petitioning conduct is a “mere sham to cover what is actually
nothing more than an attempt to interfere directly with the business relationships
of another.” Eastern R. Presidents Conference v. Noerr Motor Freight, Inc., 365
U.S. 127, 144 (1961). “Sham litigation,” while ostensibly instituted to influence

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governmental action, is really an “attempt to interfere directly with the business
relationships of a competitor.” Id.
The sham litigation exception has an objective component and a
subjective component. Professional Real Estate Inv., Inc. v. Columbia Pictures
Ind., Inc., 508 U.S. 49, 60-61 (1993).

First, the lawsuit must be objectively

baseless. Id. at 60. A lawsuit is objectively baseless if “no reasonable litigant
could realistically expect success on the merits.” Id. If a reasonable litigant
could reasonably expect success on the merits, the suit will be immunized under
the Noerr-Pennington Doctrine. Id. If the court concludes that the lawsuit is
objectively baseless, it may then, and only then, proceed to the second step of
the inquiry to examine the litigant’s subjective intent in filing the lawsuit. Id. at 61.
This second step focuses on whether the plaintiff filed the lawsuit with the
subjective intent to directly interfere with the business relationships of a
competitor. Id.
Once the doctrine is implicated, courts have required the plaintiff to plead
specific facts to show that the opponent’s activities are not protected by NoerrPennington. Cf. Kottle v. Northwest Kidney Ctrs., 146 F.3d 1056, 1063 (9th Cir.
1998) (stating that “when a plaintiff seeks damages for conduct which is prima
facie protected by the First Amendment, the danger that the mere pendency of
the action will chill the exercise of First Amendment rights requires more specific
allegations than would otherwise be required”) (internal quotation marks and
ellipses omitted); Otsuka Pharm. Co., Ltd. v. Torrent Pharm. Ltd, Inc., 118 F.
Supp.3d 646, 655-57 (D.N.J. 2015) (denying Rule 12(b)(6) motion on the

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grounds that in its counterclaim defendant plausibly alleged facts sufficient to
overcome plaintiff’s Noerr-Pennington immunity); In re Skelaxin (Metaxalone)
Lit., No. 1:12-md-2343, 2013 WL 2181185, at **18-19 (E.D. Tenn. May 20, 2013)
(denying defendant’s Rule 12(b)(6) motion on the grounds that plaintiff plausibly
pled facts establishing sham litigation exception).
1. Count V: Unfair Competition Through Malicious Litigation
Count V of DDC’s counterclaim alleges that Ancestry engaged in unfair
competition by filing an objectively baseless lawsuit against it with the intent to
injure its ability to be competitive.
While unfair competition generally occurs when one person falsely
represents that his goods are the goods of another, it also covers lawsuits filed
with the purpose of gaining an unfair advantage over a competing business.
Microsoft Corp. v. Action Software, 136 F. Supp. 2d 735, 739-40 (N.D. Ohio
2001).

Unfair competition extends to unfair commercial practices such as

malicious litigation, and occurs when “the litigation was not founded upon good
faith, but was instituted with the intent and purpose of harassing and injuring a
rival producing and selling the same commodity.” Id. at 740 (quoting Henry
Gehring Co. v. McCue, 154 N.E. 171, 171 (Ohio Ct. App. 1926)). Additionally,
“unfair competition may also extend to the circulation of false rumors, or
publication of statements, all designed to harm the business of another.” Molten
Metal Equip. v. Metaullics Sys., Co. L.P., No. 76407, 2000 Ohio App. LEXIS
2538, at *15 (Ohio Ct. App. June 8, 2000).

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In order to establish a claim of unfair competition through malicious
litigation, the plaintiff must plead facts establishing the sham exception to Noerr
Pennington, i.e., that the opposing party filed an objectively baseless lawsuit with
the subjective intent to injure the party’s ability to be competitive.

American

Chem. Society v. Leadscope, Inc., 978 N.E.2d 832, 839 (Ohio 2012). In this
case, DDC has not pled sufficient facts to plausibly infer that Ancestry’s
trademark infringement lawsuit is objectively baseless. Accordingly, Ancestry is
entitled to dismissal of DDC’s unfair competition by malicious litigation claim.
After reading the complaint and DDC’s counterclaim, the Court concludes
that Ancestry had a good faith basis to file a suit for trademark infringement.
Ancestry alleges a plethora of facts that suggest an objective basis for the
lawsuit, including Ancestry’s belief that DDC was using its registered mark
“AncestryDNA” in advertisements, and that, as a result, customer confusion has
occurred, damaging Ancestry and its brand. Amended Complaint ¶¶ 19, 38. 1
DDC has not pled facts sufficient to plausibly infer that a reasonable litigant
would not expect success on the merits of a trademark infringement suit based
on these allegations. Indeed, as Ancestry accurately observes, DDC’s failure to
move for dismissal of its trademark infringement claims lends additional support
to the conclusion that these claims are not objectively baseless. Doc. No. 51 at
7.

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Indeed, the preliminary injunction hearing established actual customer
confusion between Ancestry’s product and DDC’s product. While the Court did
indicate that it was more likely than not a case of reverse confusion,
responsibility for the source of confusion has not been conclusively established.
Doc. No. 60, at 6.
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Additionally, the Noerr-Pennington Doctrine “provides that litigation activity
(including pre-litigation cease-and-desist letters) cannot form the basis of liability
unless the litigation is a ‘sham.’” Rock River Commc’n., Inc. v. Universal Music
Group, Inc., 745 F.3d 343, 347 n.1 (9th Cir. 2014); In re Cardizem CD Antitrust
Litig., 105 F. Supp. 2d 618, 637 (E.D. Mich. 2000) (“Noerr-Pennington immunity
has been extended to non-sham, pre-litigation threats of suit, demand letters,
and communications about pending suits.”). As long as there is an “objectively
reasonable effort to litigate,” a lawsuit “cannot be a sham regardless of subjective
intent.” Prof'l Real Estate Inv’rs, Inc. v. Columbia Pictures Indus., 508 U.S. 49,
57 (1993). Consequently, to the extent that DDC alleges that Ancestry engaged
in unfair competition by filing a complaint with Groupon about alleged
infringement by DDC, this activity is also protected by Noerr-Pennington.
Finally, DDC’s conclusory allegation that Ancestry filed its trademark
infringement claims in bad faith is insufficient to overcome Noerr-Pennington
immunity. Cf. DIRECTV, Inc. v. Rayborn, No. 5:03-CV-59, 2003 U.S. Dist. LEXIS
19680, at *21 (W.D. Mich. Oct. 20, 2003) (“[I]f a bare allegation of bad faith
litigation were sufficient to defeat the Noerr-Pennington bar, every claimant would
be able to avoid the intent of the Supreme Court merely by alleging bad faith on
the part of the party seeking to enforce [its rights].”).
Since DDC’s counterclaim fails to establish that Ancestry’s trademark
infringement claims are objectively baseless, the Court need not consider
Ancestry’s subjective intent in filing suit against DDC. Professional Real Estate
Inv., 508 U.S. at 61.

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In summary, DDC has not alleged facts sufficient to plausibly conclude
that Ancestry engaged in unfair competition by filing its trademark infringement
suit against DDC. Accordingly, Ancestry is entitled to dismissal of DDC’s unfair
competition by malicious litigation claim.
2. Common Law Unfair Competition: Count VI
In Count VI of its counterclaim, DDC alleges common law unfair
competition by Ancestry and incorporates by reference “all allegations in all
preceding paragraphs of this pleading.” Counterclaim ¶ 73.
Common law unfair competition covers many kinds of unlawful or
deceptive business practices, from filing malicious lawsuits in order to gain a
competitive advantage to trademark infringement. Leadscope, 978 N.E.2d at
389; Lavanty v. Nicolinni’s Ristorante I & II, LLC, ___N.E.3d___, No. 12 MA 151,
2015 WL 9461347, at *3 (Ohio Ct. App. Dec. 22, 2015). As stated above, DDC’s
counterclaim fails to plausibly indicate that Ancestry is not entitled to NoerrPennington immunity for its litigation-related activities.

Consequently, to the

extent that Count VI could be construed to include or overlap the malicious
litigation claim asserted in Count V, Ancestry is entitled to dismissal of Count VI.
To the extent, however, that Count VI covers common law trademark
infringement and other non-litigation-related forms of unfair competition, those
activities are not protected by Noerr-Pennington.
Ancestry is not entitled to dismissal of Count VI.

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To that extent, therefore,

3. Tortious Inference With Business Relationships: Count VIII
In Count VIII, DDC alleges that Ancestry “submitted a false claim of
trademark infringement against DDC to Groupon” with the “specific intent that
DDC’s prospective business relationships with Groupon and Groupon customers
would terminate and not materialize.” Counterclaim ¶¶ 80-82.

Further, DDC

alleges that, upon information and belief, Ancestry “tortiously interfered with
DDC’s prospective business relationships with DNA testing customers . . .
through a publicity campaign which has resulted in public statements, including
online statements published by third-party bloggers, that incorrectly blame DDC
for the confusion that Ancestry’s trademark infringement has caused and falsely
portray DDC as an unethical company.” Id. ¶ 83. In summary, DDC concludes
that Ancestry “tortiously interfered with DDC’s business relationships with actual
malice and by wrongful means.” Id. ¶ 84. DDC’s tortious inference claim appears
to have two facets: 1) that Ancestry interfered with its existing business
relationship with Groupon; and 2) that Ancestry interfered with its prospective
business relationships in the form of consumers who would have purchased its
DNA testing kit but for Ancestry’s actions.
Under Ohio law, to recover for a claim of tortious interference with a
contractual relationship, “one must prove (1) the existence of a contract, (2) the
wrongdoer’s knowledge of the contract, (3) the wrongdoer’s intentional
procurement of the contract’s breach, (4) the lack of justification, and (5) resulting
damages.” Kenty v. Transamerica Premium Ins. Co., 650 N.E.2d 863, 866 (Ohio
1995). The “torts of interference with business relationships and contract rights

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generally occur when a person, without a privilege to do so, induces or otherwise
purposely causes a third person not to enter into or continue a business relation
with another, or not to perform a contract with another.” Barilla v. Patella, 760
N.E.2d 898, 904 (Ohio Ct. App. 2001).
In this case, Noerr-Pennington applies to Ancestry’s alleged tortious
interference with DDC’s relationship with Groupon. As already noted, NoerrPennington covers a party’s actions in sending cease-and-desist letters unless
the threatened suit is a sham. Rock River Commc’n., 745 F.3d at 351; In re
Cardizem CD Antitrust Litig., 105 F. Supp. 2d at 637 (“Noerr-Pennington
immunity has been extended to non-sham, pre-litigation threats of suit, demand
letters, and communications about pending suits.”).

Thus, Ancestry’s pre-

litigation filing of a complaint with Groupon is protected by the Noerr-Pennington
doctrine.

And, as previously discussed, there are no factual allegations to

indicate that Ancestry’s trademark infringement lawsuit is a sham. Therefore,
even taking DDC’s allegations as true, Ancestry is entitled to immunity as to this
aspect of DDC’s tortious interference claim.
DDC also claims that Ancestry tortiously interfered with its business
relationships with potential buyers of its DNA testing kit by publicly blaming it for
confusion in the marketplace and by falsely portraying it as an unethical
company.

DDC alleges that Ancestry’s statements have caused prospective

customers to not purchase its test kits.

The tortious interference doctrine is

broad enough to protect a party’s prospective business relationship with the
general public. Akron-Canton Waste Oil, Inc. v. Safety-Kleen Oil Serv., Inc., 611

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N.E.2d 955, 960-61 (Ohio Ct. App. 1992); see also id. at 960 (“[T]he common law
right of action protects all advantageous business relations, real or potential, from
improper interference.”). In its motion to dismiss, however, Ancestry argues that
DDC has failed to state essential facts such as “what the alleged publicity
campaign consisted of or how it was conducted.” Doc. No. 51 at 14. Ancestry
argues further that it is not liable for the conduct of third-party internet bloggers
who made negative statements about DDC without any prompting by Ancestry.
Doc. No. 51 at 14.
A claim for tortious interference with a prospective business relationship
requires a showing that the defendant wrongfully caused a third person not to
enter into a prospective business relationship with the plaintiff or prevented the
plaintiff from acquiring the business relationship. Dryden v. Cincinnati Bell Tel.
Co., 734 N.E.2d 409, 413 (Ohio Ct. App. 1999). Otherwise, the elements of the
two interference claims are the same. Diamond Wine & Spirits, Inc. v. Dayton
Heidelberg Distrib. Co., 774 N.E.2d 775, 780-81 (Ohio Ct. App. 2002). A claim
for tortious inference can be based on the defendant’s disparaging comments
about the plaintiff’s goods, services, or business if the plaintiff establishes that
the defendant made the statements with actual knowledge that the statements
were false or that the defendant made the statements with reckless disregard as
to their truth or falsity. A&B-Abell Elev. Co. v. Columbus/Cent. Ohio Bldg &
Constr. Trade Council, 651 N.E.2d 1283, 1294-95 (Ohio 1995).

Noerr-

Pennington does not apply to this kind of tortious interference because the
doctrine only protects a party’s attempt to defend its rights through litigation or

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pre-litigation activities—not through alleged disparaging publicity campaigns. Cf.
MCI Commc’n Corp. v. American Tel. & Tel. Co., 708 F.2d 1081, 1160 (7th Cir.
1983)(“The Noerr-Pennington doctrine is concerned solely with the right to
attempt to influence government action. It thus immunizes only those actions
directed toward government agencies or officials.”).

Accordingly, in order to

withstand Ancestry’s motion to dismiss, DDC only needs to have sufficiently pled
a claim for tortious interference with prospective business relations.
Here, while the Court agrees that Ancestry cannot be held liable for the
disparaging comments of third parties, DDC has alleged that Ancestry, with
actual malice, falsely blamed it for confusion in the market place and falsely
characterized it as being an unethical company, and these statements caused
prospective customers to forego purchasing its DNA kit.

Counterclaim ¶ 83.

These allegations are sufficient to state a claim for tortious interference with
prospective business relationships.

A&B Abell, 651 N.E.2d at 1295; Akron-

Canton, 611 N.E.2d at 960-61; Fed. R. Civ. P. 9(b) (providing that malice may be
pled generally).
Accordingly, to the extent that Count VIII is based on Ancestry filing a
complaint with Groupon, the motion to dismiss is well-taken and is GRANTED; to
the extent that Count VIII is based on Ancestry’s alleged tortious interference
with prospective purchasers of DDC’s DNA testing kit, Ancestry’s motion to
dismiss is not well-taken and is DENIED.

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Conclusion
For the reasons stated above, Ancestry’s motion to dismiss is GRANTED
IN PART AND DENIED IN PART. Ancestry’s motion to dismiss is well-taken and
is GRANTED as to Count V of DDC’s counterclaim and the portions of Count VI
and VIII that are based on Ancestry’s litigation activities such as filing the lawsuit
and complaining to Groupon about alleged infringement by DDC. Those claims
are DISMISSED WITH PREJUDICE. Ancestry’s motion to dismiss is not welltaken and is DENIED as to that part of Count VI that covers other modes of
unfair competition, and that part of Count VIII that is based on Ancestry’s alleged
disparaging comments about DDC.

IT IS SO ORDERED
Date July 26, 2016

s/Sandra S. Beckwith
Sandra S. Beckwith
Senior United States District Judge

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