Lyden v. Nike Inc.

Filing 18

OPINION & ORDER: Defendant's motion to dismiss 8 is granted in part and denied in part as follows: claim three for negligent interference with economic relations is dismissed with prejudice; claims two, five and six for intentional int erference with economic relations, fraud, and unjust enrichment are dismissed; and claim four for conversion may proceed. Additionally, the motion to strike 8 is denied as moot, and motion to stay 9 is denied. Plaintiff may file an amended complaint within 30 days of this order. See 13-page opinion & order attached. Signed on 10/22/2013 by Judge Marco A. Hernandez. (mr)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF OREGON

ROBERT M. LYDEN,
No. 3:13-cv-00662-HZ
Plaintiff,
OPINION & ORDER
v.
NIKE INC., an Oregon corporation,
Defendant.

Robert M. Lyden, Pro Se
18261 SW Fallatin Loop
Aloha, OR 97007
Nathan C. Brunette
Per A. Ramfjord
Stoel Rives LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204
Attorneys for Defendant
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1 - OPINION & ORDER

HERNANDEZ, District Judge:
Plaintiff Robert Lyden brings this action for patent infringement and several common law
violations against Defendant Nike, Inc. Plaintiff Lyden alleges that Defendant Nike has
infringed his U.S. Patent No. 8,209,883, “Custom Article of Footwear and Method of Making the
Same,” and interfered with his ability to market his footwear patents. Nike moved to dismiss
Lyden’s common law claims and strike allegations regarding the use of performance enhancing
drugs by athletes supported by Nike. Nike additionally moved to stay the case pending
reexamination of the patent. I grant in part and deny in part the motion to dismiss. With the
exception of the conversion claim, Lyden’s common law claims fail to state a claim and do not
comply with Rule 8’s requirement for a short and plain statement. I also deny the motion to stay.
BACKGROUND
Lyden worked for Nike as a “Patents and Inventions Assistant” from 1990 to 1996.
Compl. ¶ 16. He is a named inventor on several design and utility patents assigned to Nike. Id.
at ¶ 30. Lyden alleges that Nike did not recognize him as a named inventor for other utility
patents related to the “FREE athletic shoe.” Id. at ¶ 36.
From 1996 to 1998, Lyden worked as an independent consultant to Nike. Id. at ¶ 42.
Nike did not renew Lyden’s contract at the end of 1998. Id. at ¶ 67. Lyden continued to share
information about his pending patent applications with Nike. Id. at ¶ 76. Nike declined to
license or buy Lyden’s intellectual property. Id. at ¶ 77.
Lyden is the inventor of U.S. Patent No. 8,209,883 (“‘883 patent”), “Custom Article of
Footwear and Method of Making the Same”. Id. at ¶ 134. Lyden alleges that Nike’s Flyknit
shoe infringes on the ‘883 patent. Id. at ¶ 136-39. The ‘883 patent is currently under
reexamination by the U.S. Patent and Trademark Office (“PTO”). Id. at ¶ 143.

2 - OPINION & ORDER

The complaint also includes various allegations of performance enhancing drug use,
Nike’s fraudulent conduct before the PTO, and patent infringement by Adidas.
STANDARDS
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency
of the claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “All allegations of material
fact are taken as true and construed in the light most favorable to the nonmoving party.” Am.
Family Ass’n, Inc. v. City & Cnty. of S.F., 277 F.3d 1114, 1120 (9th Cir. 2002). However, the
court need not accept conclusory allegations as truthful. Warren v. Fox Family Worldwide, Inc.,
328 F.3d 1136, 1139 (9th Cir. 2003) (“[W]e are not required to accept as true conclusory
allegations which are contradicted by documents referred to in the complaint, and we do not
necessarily assume the truth of legal conclusions merely because they are cast in the form of
factual allegations.”) (quotation and citations omitted).
A motion to dismiss under Rule 12(b)(6) will be granted if plaintiff alleges the “grounds”
of his “entitlement to relief” with nothing “more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action[.]” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
555 (2007). “Factual allegations must be enough to raise a right to relief above the speculative
level…on the assumption that all the allegations in the complaint are true (even if doubtful in
fact)[.]” Id. (citations and footnote omitted).
To survive a motion to dismiss, the complaint “must contain sufficient factual matter,
accepted as true, to state a claim to relief that is plausible on its face[,]” meaning “when the
plaintiff pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)
(quotation omitted). Additionally, “only a complaint that states a plausible claim for relief

3 - OPINION & ORDER

survives a motion to dismiss.” Id. at 679. The complaint must contain “well-pleaded facts”
which “permit the court to infer more than the mere possibility of misconduct.” Id.
DISCUSSION
Plaintiff Lyden alleges the following claims: infringement of the ‘883 patent, intentional
interference with prospective economic advantage, negligent interference with prospective
economic advantage, conversion, fraud, and unjust enrichment. Defendant Nike moves to
dismiss only the state common law claims. Nike also moves to strike allegations that Nike has
promoted the use of performance enhancing drugs. With respect to the patent infringement
claim, Nike moves to stay the case pending the outcome of the reexamination of the ‘883 patent.
I.

Motion to Dismiss
Nike argues that Lyden’s state law claims are preempted by federal patent law, or

alternatively, Lyden has failed to state a claim.
A.

Preemption

Nike argues that all of Lyden’s state law claims are preempted by federal patent law
because the bases of those claims relate to allegations that Nike has infringed on the ‘883 patent
or has acted fraudulently before the PTO.
“Federal preemption takes three basic forms: First, Congress may explicitly preempt
state law; second, a federal scheme may occupy a given field and thus preempt state law in that
field; and third, when compliance with both state and federal law is impossible, the conflicting
state law is preempted.” Univ. of Colo. Found., Inc. v. Am. Cyanamid Co., 342 F.3d 1298, 1305
(Fed. Cir. 2003). Regardless of the type of preemption, the key issue is whether the state law
“‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives
of Congress.’” Id. (quoting Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 479 (1974). Patent

4 - OPINION & ORDER

law’s three purposes are to “(1) to foster and reward invention, (2) to stimulate further
innovation, and (3) to ensure free use of ideas in the public domain.” Univ. of Colo., 342 F.3d at
1306 (citing Aronson v. Quick Point Pencil Co., 440 U.S. 257, 262 (1979)). Thus, to determine
if preemption applies, the relationship between the state law claim and patent law must be
analyzed, including the conduct that forms the basis for the claim and the remedy sought.
Nike argues that the state law claims are preempted because all the claims are based on
allegations regarding Nike’s misconduct before the PTO or infringement of the ‘883 patent.
Def.’s Mem. 6. In support of this argument, Nike provides a string cite of cases, the majority of
which are from other district court jurisdictions. Id. at 6-7. Nike fails to explain how each state
law claim would be preempted. Because of the lack of analysis for the preemption argument, I
decline to address this argument.
B.

Failure to State a Claim

Nike next argues that the state law claims should be dismissed because Lyden has failed
to state a claim under 12(b)(6) of the Federal Rules of Civil Procedure. Def.’s Mem. 8.
1.

Second Claim: Intentional Interference with Economic Relations

Lyden phrases his claim as “Intentional Interference With Prospective Economic
Advantage.” Compl. 60. I will refer to the claim as “intentional interference with economic
relations” (“IIER”). To state an IIER claim, Lyden must allege “(1) the existence of a
professional or business relationship (which could include, e.g., a contract or a prospective
economic advantage); (2) intentional interference with that relationship or advantage; (3) by a
third party; (4) accomplished through improper means or for an improper purpose; (5) a causal
effect between the interference and the harm to the relationship or prospective advantage; and (6)

5 - OPINION & ORDER

damages.” Allen v. Hall, 974 P.2d 199, 202 (Or. 1999) (citing McGanty v. Staudenraus, 901
P.2d 841, 844 (Or. 1995)).
The following allegations are relevant to this claim:
In October, 2000, and extending until June 30, 2001, Lyden entered into an
“Option Agreement” and also an “Option Agreement: Negotiation Period
Extension” with FILA, Inc.….However, the company went up for sale and a more
comprehensive intellectual property license agreement was not concluded.
On January 17, 2007, Lyden entered into the first phase of an exclusive license
agreement regarding his footwear patents with Dash America, Inc., which does
business as Pearl Izumi, a Colorado corporation which was then owned by a
parent company, Nautilus, Inc.….However, Nautilus, Inc. suffered business
reverses soon afterwards, and then sold Pearl Izumi to Shimano, Inc. in order to
cover their financial debts. As a result, the second phase of the patent license
agreement with Pearl Izumi which would have entailed the commercialization of
footwear product did not take place, and the “Patent License Agreement,”…was
terminated on July 16, 2007.
Compl. ¶¶ 74, 95. Neither of these allegations supports a claim for IIER. Lyden does not
allege how Nike interfered with Lyden’s agreements with FILA or Dash America. In
fact, the allegations indicate that the agreements dissolved because the companies were
sold, not because Nike interfered with the relationship. Nike also argues that the twoyear statute of limitations for IIER would preclude both of these agreements from serving
as the basis for Lyden’s IIER claim. Def.’s Mem. 10. I agree.
Lyden also alleges that Nike harmed his ability to secure investors, license his
intellectual property, or sell his intellectual property to prospective buyers. Id. at ¶¶ 156,
190, 208. These allegations are insufficient to support a claim for IIER. “[P]laintiff must
establish first that there was a contractual or business relationship between plaintiff and a
third party in which defendant interfered.” Oregon Life & Health Ins. Guar. Ass’n v.
Inter-Regional Fin. Group, Inc., 967 P.2d 880, 887 (Or. Ct. App. 1998). “[T]he tort does
not protect the business expectations of a single entity.” Id. Lyden merely alleges that
6 - OPINION & ORDER

his ability to secure investors and buyers were harmed. Lyden does not specify that he
had a business relationship with specific investors or buyers; that Nike interfered with
these relationships; and that the investors and buyers discontinued their relationship with
Lyden because of Nike. The claim for IIER is dismissed.
2.

Third Claim: Negligent Interference with Economic Relations

There is no such cause of action for negligent interference with economic relations.
Numrich v. Ntekpere, No. 3:12-cv-01594-HU, 2013 U.S. Dist. LEXIS 14792 (D. Or. Feb. 4,
2013) (“Oregon has never recognized the tort of ‘negligent interference with economic
expectation.’”). This claim is dismissed with prejudice.
3.

Fourth Claim: Conversion

“Conversion is an intentional exercise of dominion or control over a chattel which so
seriously interferes with the right of another to control it that the actor may justly be required to
pay the other the full value of the chattel.” Mustola v. Toddy, 456 P.2d 1004, 1007 (Or. 1969).
Lyden alleges that
Nike, Inc. intended to wrongfully obtain false title to the intellectual property, and
take public goodwill, company valuation, and potential profit away from Lyden,
and to instead claim it for Nike, Inc.’s own benefit. The desired and practical
effect has been to simultaneously harm Lyden’s intellectual property and business
efforts, and to improve Nike, Inc.’s own. In this regard, Nike, Inc.’s actions
resemble those of an intellectual property “cattle rustler” which has succeeded in
converting the intellectual property of Lyden and using it to make and sell
products under the Nike, Inc. “Swoosh” brand and trademark.
Compl. ¶ 222. In other words, Lyden alleges that Nike converted his patent rights when Nike
obtained patent protection in its name for Lyden’s intellectual property. As a result of this
conversion, Lyden alleges that he has suffered “loss of profits associated with the launch of a
company…and/or alternatively, the sale or license of Lyden’s footwear patents.” Id. at ¶ 226.

7 - OPINION & ORDER

Nike argues that conversion claims do not apply to intangible assets such as patents.
Def.’s Mem. 11 (citing Vigilante.com, Inc. v. ArgusTest.com, Inc., No. CV04-413-MO, 2005
U.S. Dist. LEXIS 45999 (D. Or. Sept. 6, 2005). In Vigilante, a decision from this district, the
court relied on Black’s Law Dictionary to define chattel as a “‘moveable or transferable
property; personal property; esp. a physical object capable of manual delivery.’” Id. at *44-45.
The court concluded that plaintiff could not state a conversion claim for the source code itself,
but that a claim for the disks that stored the source code would be viable. Id. at *45.
More recently, another court in this district held that “a license or contractual right to
receive a transmitted signal; to rebroadcast the signal; and to determine when, where, and by
whom the program contained within the signal can be displayed or exhibited, constitutes a
chattel that can be converted.” Joe Hand Promotions, Inc. v. Jacobson, 874 F. Supp. 2d 1010,
1019 (D. Or. 2012). In Joe Hand, the court had examined how the Oregon Court of Appeals and
district courts in other jurisdictions have addressed whether intangible rights could be chattel. Id.
at 1020-21. The court concluded that it is likely that Oregon courts would not limit chattel to
tangible property.
The Vigilante court limited its analysis to the definition of “chattel.” However, under the
definition of “chattel,” there are specific types of chattel, including “chattel personal” and
“chattel real.” Black’s Law Dictionary 268 (9th ed. 2009). A “chattel personal” is “[a] tangible
good or an intangible right (such as a patent).” Id. (emphasis added). Given that “chattel
personal” is a type of chattel and that patent rights are an example of chattel personal, I am
persuaded by the reasoning in Joe Hand that chattel is not limited to tangible property.
Therefore, I do not agree with Nike’s argument that Lyden failed to state a claim for conversion
because patents are intangible property rights, and therefore are not chattel.

8 - OPINION & ORDER

4.

Fifth Claim: Fraud

The elements of a fraud claim are: “(1) a representation; (2) its falsity; (3) its materiality;
(4) the speaker’s knowledge of its falsity or ignorance of its truth; (5) his intent that it should be
acted on by the person and in the manner reasonably contemplated; (6) the hearer’s ignorance of
its falsity; (7) his reliance on its truth; (8) his right to rely thereon; and (9) his consequent and
proximate injury.” Rice v. McAllister, 519 P.2d 1263, 1265 (Or. 1974). While a mere omission
is not actionable in the absence of a duty to speak, no such duty is required where a plaintiff
alleges a defendant actively concealed a material fact. Paul v. Kelley, 599 P.2d 1236, 1238
(1979). “Any words or acts which create a false impression covering up the truth,…or which
remove an opportunity that might otherwise have led to the discovery of a material fact…are
classed as misrepresentations, no less than a verbal assurance that the fact is not true.” Id. at 66
(quoting Prosser, Law of Torts § 106, at 695 (4th ed. 1971)).
A claim for fraud must be pled with particularity. Fed. R. Civ. P. 9(b) (“In alleging
fraud…, a party must state with particularity the circumstances constituting fraud….”). Lyden
alleges that Nike has committed fraud by filing patents for Lyden’s intellectual property under
Nike’s name and failing to disclose relevant prior art to the PTO. Compl. ¶¶ 106, 153, 155.
Lyden also alleges that Nike’s “athlete promotions, advertising, marketing and sales
efforts…have been improper and associated with fraud because they have been aided
by…performance enhancing drugs[.]” Id. at ¶ 160.
There are no allegations that Nike made a misrepresentation to Lyden, that Lyden relied
on that misrepresentation, and that he was harmed because he relied on that misrepresentation.
Lyden alleges only that Nike made misrepresentations to the PTO and the general public. The
claim for fraud is dismissed.

9 - OPINION & ORDER

5.

Sixth Claim: Unjust Enrichment

“The elements of the quasi-contractual claim of unjust enrichment are (1) a benefit
conferred, (2) awareness by the recipient that she has received the benefit, and (3) it would be
unjust to allow the recipient to retain the benefit without requiring her to pay for it.” Cron v.
Zimmer, 296 P.3d 567, 577 (Or. Ct. App. 2013) (citing Jaqua v. Nike, Inc., 865 P2d 442, 445
(1993)). For the last element, an action would be unjust if “(1) the plaintiff had a reasonable
expectation of payment; (2) the defendant should reasonably have expected to pay; or (3)
society’s reasonable expectations of security of person and property would be defeated by nonpayment.” Id. at 578.
The following allegations are relevant to this claim:
Nike, Inc. has been and now is directly infringing the ‘883 patent in Oregon…by,
among other things, manufacturing, using, selling, importing and/or offering for
sale footwear that infringe one or more claims of the ‘883 patent, to the injury of
Lyden.
Nike, Inc. has filed numerous patents substantially directed to the same subject
matter as the earlier filed and/or issued footwear patents of Lyden, and then
committed fraud and inequitable conduct, and violated its duty of disclosure with
the U.S. Patent Office. Nike, Inc.’s actions were intended to wrongfully obtain
false title to the same intellectual property and take public goodwill and profits
away from Lyden with the intent to injure Lyden’s business and instead improve
its own.
Compl. ¶¶ 244-45. There are two bases for Lyden’s unjust enrichment claim. Nike argues that
an unjust enrichment claim based on the infringement of the ‘883 patent is preempted by patent
law. Def.’s Mem. 14. I agree. Patent law states that “whoever without authority makes, uses,
offers to sell, or sells any patented invention, within the United States or imports into the United
States any patented invention during the term of the patent therefor, infringes the patent.” See 35
U.S.C. § 271. Lyden alleges these same acts as the basis for his unjust enrichment claim.

10 - OPINION & ORDER

Compl. ¶ 244. Lyden cannot state a claim for unjust enrichment based on the same acts which
would constitute patent infringement.
The second basis for Lyden’s unjust enrichment claim involves an allegation that Nike
has patented subject matter that Lyden has already patented. This allegation does not state a
claim for unjust enrichment. There are no allegations that Lyden gave Nike a benefit for which
Lyden expected payment. The claim for unjust enrichment is dismissed.
C.

Failure to Comply with Rule 8

Lyden filed a 72-page complaint, which contains allegations that begin in 1990.
Plaintiff’s complaint fails to comply with Rule 8, which requires that a pleading contain a “short
and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2) (emphasis added). “[T]he pleading standard Rule 8 announces does not require detailed
factual allegations, but it demands more than an unadorned, the-defendant-unlawfully-harmedme accusation.” Iqbal, 556 U.S. at 678 (quotation omitted).
Many of the allegations in the complaint have no bearing on the claims pled. Nike
moved to strike allegations involving performance enhancing drug use within its motion to
dismiss. Because I am dismissing the state law claims, I deny Nike’s motion to strike as moot.
If Lyden wishes to file an amended complaint to cure the deficiencies previously stated, the
complaint must also comply with Rule 8.
II.

Motion to Stay
Nike moved to stay consideration of Lyden’s claim for infringement of the ‘883 patent.

A stay is within the discretion of the court. See Ethicon, Inc. v. Quigg, 849 F.2d 1422, 1426-27
(Fed. Cir. 1988) (“Courts have inherent power to manage their dockets and stay proceedings,
including the authority to order a stay pending conclusion of a PTO reexamination.”). A court

11 - OPINION & ORDER

may grant a motion to stay “in order to avoid inconsistent results, narrow the issues, obtain
guidance from the PTO, or simply to avoid the needless waste of judicial resources, especially if
the evidence suggests that the patents-in-suit will not survive reexamination.” MercExchange,
L.L.C. v. eBay, Inc., 500 F.Supp.2d 556, 563 (E.D. Va. 2007).
“In deciding whether to stay litigation pending reexamination, courts typically consider:
(1) whether a stay will unduly prejudice or present a clear tactical disadvantage to the
nonmoving party, (2) whether a stay will simplify the issues in question and trial of the case, and
(3) whether discovery is complete and whether a trial date has been set.” Soverain Software
LLC v. Amazon.com, Inc., 356 F. Supp. 2d 660, 662 (E.D. Tex. 2005) (citing Xerox Corp. v.
3Com Corp., 69 F. Supp. 2d 404, 406 (W.D.N.Y. 1999)).
Here, a first office action has issued in the reexamination and all of the claims in the ‘883
patent have been rejected. Brunette Decl. Ex. 2 at 4. Lyden concedes that a stay of the patent
infringement claim is not “unreasonable.” Pl.’s Resp. 2. Lyden has not argued that a stay would
be unduly prejudicial or present a tactical disadvantage. However, I disagree that a stay at this
point in the case would be prudent because the pleading have not been finalized.
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12 - OPINION & ORDER

CONCLUSION
Based on the foregoing, Defendant’s motion to dismiss (#8) is granted in part and denied
in part as follows: claim three for negligent interference with economic relations is dismissed
with prejudice; claims two, five and six for intentional interference with economic relations,
fraud, and unjust enrichment are dismissed; and claim four for conversion may proceed.
Additionally, the motion to strike (#8) is denied as moot, and motion to stay (#9) is denied.
Plaintiff may file an amended complaint within 30 days of this order.
IT IS SO ORDERED.

Dated this

day of October, 2013.

MARCO A. HERNANDEZ
United States District Judge

13 - OPINION & ORDER