XP Innovations Inc v. BLACK RAPID, INC.

Filing 16

MEMORANDUM OPINION AND ORDER GRANTING 7 MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM .(Signed by Judge Gray H. Miller) Parties notified.(rkonieczny, 4)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
XP INNOVATIONS INC.,
Plaintiff,
v.
BLACK RAPID , INC.,

Defendant.

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CIVIL ACTION NO . H-13-1856

MEMORANDUM OPINION & ORDER
Pending before the court is defendant Black Rapid, Inc.’s (“Black Rapid”) motion to dismiss
plaintiff XP Innovations, Inc.’s (“XP Photo”) complaint. Dkt. 7. After considering the complaint,
the motion, and the applicable law, the court is of the opinion that Black Rapid’s motion to dismiss
should be GRANTED.
I. BACKGROUND
Millionway International, Inc. (“Millionway”) and Black Rapid are competitors in the camera
strap market. (Millionway Int’l, Inc. v. Black Rapid, Inc., 4:13-CV-01780, Dkt. 1). XP Photo sells
Millionway’s products. Dkt. 1 ¶ 17 (Original Complaint). On November 1, 2011, the United States
Patent and Trademark Office (“Patent Office”) granted Black Rapid a utility patent on a camera
transport system and method, known as the ‘729 Patent. Dkt. 1 ¶ 10. The Patent Office issued a
reexamination certificate confirming the validity of the ‘729 Patent on March 5, 2013. Id. On March
6, 2013, Black Rapid filed suit against Millionway in the United States District Court for the Central
District of California (“California Court”) for infringement of the ‘729 Patent. Id. ¶ 12. Millionway
did not answer, and Black Rapid filed a motion for default judgment on April 5, 2013. Dkt. 7,

Ex. F.1 The California Court entered default judgment against Millionway on June 10, 2013, and
additionally permanently enjoined Millionway and its agents from infringing the ‘729 Patent. Dkt.
7, Ex. B (granting Black Rapid’s motion for default judgment). Therefore, the California Court
deemed Black Rapid’s factual allegations in its original complaint as true, including a determination
that Millionway’s camera straps including the “Carry Speed” line of products, infringed the ‘729
Patent. Id.
On June 25, 2013, XP Photo filed its original complaint against Black Rapid seeking a
declaratory judgment invalidating the ‘729 Patent. Dkt. 1. XP Photo alleges that Black Rapid’s ‘729
Patent is invalid and unenforceable because Black Rapid allegedly failed to provide material
information to the Patent Office while the ‘729 Patent was being reexamined. Id. XP Photo also
asserts claims for unfair competition and tortious interference with business relations. Id. On
August 19, 2013, Black Rapid filed its motion to dismiss XP Photo’s claims, arguing that they are
barred by res judicata and that XP Photo fails to state a claim upon which relief can be granted.
Dkt. 7. XP Photo did not file a response.
II. LEGAL STANDARD
A. Rule 12(b)(6) Motion to Dismiss
A complaint must plead “enough facts to state a claim to relief that is plausible on its face.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955 (2007). A claim has facial
plausibility when the plaintiff “pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,

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When deciding a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),
“a court may permissibly refer to matters of public record.” Cinel v. Connick, 15 F.3d 1338, 1343
n.6 (5th Cir.1994).
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677, 129 S. Ct. 1937 (2009). Though a complaint does not need detailed factual allegations, the
“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).” Twombly, 550 U.S. at 555.
As part of the Twombly-Iqbal analysis, the court proceeds in two steps. First, the court
separates legal conclusions from well-pled facts, as legal conclusions are not entitled to the
presumption of truth. Iqbal, 556 U.S. at 678–80. Second, the court then reviews the well-pled
factual allegations, assumes that they are true, and then determines whether they “plausibly give rise
to an entitlement to relief.” Id. at 679.
B. Res Judicata
Generally, a res judicata contention “cannot be brought in a motion to dismiss” but must
instead “be pleaded as an affirmative defense.” Test Masters Educ. Servs., Inc. v. Singh, 428 F.3d
559, 570 n.2 (5th Cir. 2005). However, when it is “apparent on the face of the pleadings, res judicata
may be an appropriate grounds for dismissal.” Ray v. Kindred Hosp., No. 4:12-CV-1033, 2013 WL
4041334, at *2 (S.D. Tex. Aug. 6, 2013) (citation omitted); see also Clark v. Amoco Prod. Co., 794
F.2d 967, 970 (5th Cir. 1986) (“[A] claim may . . . be dismissed if a successful affirmative defense
appears on the face of the pleadings.”). Additionally, when the court reviews a Rule 12(b)(6) motion
to dismiss, “the court may consider documents attached to or incorporated in the complaint and
matters of which judicial notice may be taken.” U.S. ex rel. Willard v. Humana Health Plan of Tex.
Inc., 336 F.3d 375, 379 (5th Cir. 2003).
III. ANALYSIS
The validity and infringement of the ‘729 Patent were the central claims in the previous
California suit. The affirmative defense of res judicata is apparent on the face of XP Photo’s
pleadings, which discuss the California litigation. It is clear from the complaint that both cases
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involve enforcement of the same patent. The doctrine of res judicata bars claims that either were
litigated or should have been litigated in an earlier suit. See Test Masters, 428 F.3d at 571. For res
judicata to apply, four elements must be established: “(1) the parties are identical or in privity; (2) the
judgment in the prior action was rendered by a court of competent jurisdiction; (3) the prior action
was concluded by a final judgment on the merits; and (4) the same claim or cause of action was
involved in both actions.” Id.
A. Identity of Parties
Res judicata bars litigation by parties that are identical to those in a prior action or those that
are in privity with the parties of the private action. See Meza v. Gen. Battery Corp., 908 F.2d 1262,
1266 (5th Cir. 1990). The Fifth Circuit has held that privity exists when the non-party’s interests
were adequately represented by a party to the original suit.2 Id. at 1266. Courts treat adequate
representation as synonymous with virtual representation. See id. at 1267 (“[T]he concept of
‘adequate representation’ does not refer to apparently competent litigation of an issue in a prior suit
. . . ; rather, it refers to the concept of virtual representation, by which a nonparty may be bound.”
(quoting Freeman v. Lester Coggins Trucking, Inc., 771 F.2d 860, 864 (5th Cir.1985))). A party may
be bound by a judgment even though not a party to the judgment “if one of the parties to the suit is
so closely aligned with his interests as to be his virtual representative.” Aerojet-Gen. Corp. v. Askew,
511 F.2d 710, 719 (5th Cir. 1975). A party may be found in “privity” for res judicata purposes if
“the relationship between the one who is a party on the record and the non-party is sufficiently close
to afford application of the principle of preclusion.” Sw. Airlines Co. v. Tex. Int’l Airlines, Inc., 546
F.2d 84, 95 (5th Cir. 1977).

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“Federal law determines the res judicata effect of a prior federal court judgment.” Russell
v. SunAmerica Sec., Inc., 962 F.2d 1169, 1172 (5th Cir. 1992).
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XP Photo brings this lawsuit against Black Rapid in its capacity as a distributor of the
Millionway products that the California Court determined infringes the ‘729 Patent. XP Photo has
no other apparent interest or claim in this case. Therefore, XP Photo’s interests were represented
by Millionway in the previous suit. XP Photo’s relationship is considered sufficiently close to be
in privity with Millionway, thus satisfying the first element of res judicata. Dkt. 1 at 2 ¶ c.
B. Final Judgment on the Merits by a Court of Competent Jurisdiction
For purposes of res judicata, a default judgment operates as a final judgment on the merits.
See Weaver v. Tex. Capital Bank N.A., 660 F.3d 900, 906 (5th Cir. 2011) (citation omitted). On June
10, 2013, the California Court, a court of competent jurisdiction, entered final judgment enjoining
Millionway and its agents and all persons acting under Millionway’s permission and authority from
infringing the ‘729 Patent. Dkt. 7, Ex. C. Therefore, the second and third elements of res judicata
are satisfied.
C. Same Cause of Action
The fourth element is determined by the transactional test, which states that “a prior
judgment’s preclusive effect extends to all rights of the plaintiff with respect to all or any part of the
transaction, or series of connected transactions, out of which the original action arose.” Test
Masters, 428 F.3d at 571. The inquiry under the transactional test focuses on whether the two cases
are based on “the same nucleus of operative facts . . . rather than the type of relief requested,
substantive theories advanced, or types of rights asserted.” U.S. v. Davenport, 484 F.3d 321, 326
(5th Cir. 2007).
In this case, XP Photo primarily seeks declaratory judgment invalidating and precluding
enforcement of the ‘729 Patent. Dkt. 1 at 5–6. The focal point of the previous suit was the validity
and infringement of the ‘729 Patent, which necessarily involves the same nucleus of operative facts
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as a complaint for a declaratory judgment precluding enforcement of that same patent. The
California Court entered judgment, finding the following: (1) Black Rapid owns the ‘729 Patent;
(2) the Patent Office confirmed the validity of the patent following the reexamination; (3)
Millionway infringed the ‘729 Patent by making, importing, using, selling, and offering to sell
camera straps under the name “Carry Speed.” Dkt. 7, Ex. D ¶ 13. Millionway was enjoined from
further infringement. See Dkt. 7, Exs. A–D. Therefore, the fourth element is satisfied.
D. Rule 12(b)(6) Motion to Dismiss
XP Photo also asserts common law claims for unfair competition and tortious interference
with business relations. Dkt. 1. It is unclear whether Texas or Washington law applies, but the
elements to establish unfair competition and tortious interference claims in Texas and Washington
are similar.3 In both states, an unfair competition claim requires that a plaintiff show an illegal or
deceptive act by the defendant that interfered with the plaintiff’s ability to conduct business. See
Taylor Publ’g Co. v. Jostens, Inc., 216 F.3d 465, 486 (5th Cir. 2000) (citing Schoellkopf v. Pledger,
778 S.W.2d at 897, 904–05 (Tex. App.—Dallas 1989, writ denied)); Hangman Ridge Training
Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 533 (Wash. 1986). Similarly, both states require
that a plaintiff allege an independently tortious, improper, or unlawful act by the defendant that
prevented the business relationship from occurring to properly assert a claim for tortious interference
with business relations. See Wal-Mart Stores, Inc. v. Sturges, 52 S.W.3d 711, 726 (Tex. 2001);
Leingang v. Pierce Cnty. Med. Bureau, Inc., 930 P.2d 288, 300 (Wash. 1997).

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“In a diversity action, a federal court must apply the choice-of-law rules from the state in
which it sits.” De Aguilar v. Boeing Co., 47 F.3d 1404, 1413 (5th Cir. 1995). “Texas state courts
use a choice-of-law formula borrowed from sections 6 and 145 of the Restatement (Second) of
Conflict of Laws, and will apply the law of the state with the most significant relationship to a
particular substantive issue.” Coghlan v. Wellcraft Marine Corp., 240 F.3d 449, 452 (5th Cir. 2001)
(citing Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex.1984)).
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1. Unfair Competition
XP Photo asserts a claim for unfair competition, alleging that Black Rapid intimidated
Millionway’s suppliers, distributors, and customers with the threat of litigation to enforce the ‘729
Patent. Dkt. 1 ¶ 24. On June 12, 2013, Black Rapid sent a letter to notify XP Photo of the injunction
issued by the California Court regarding the ‘729 Patent and “Carry Speed” products. Dkt. 1, Ex. B.
Black Rapid’s letter merely seeks to enforce the lawful judgment of the California Court. Without
factual allegations of an independent tort or other illegal conduct by Black Rapid, XP Photo fails to
state a claim for unfair competition. Black Rapid’s motion to dismiss this claim is therefore
GRANTED.
2. Tortious Interference
XP Photo also asserts a claim for tortious interference with business relations, alleging that
Black Rapid intimidated Millionway’s suppliers, distributors, and customers with the threat of
litigation to enforce the ‘729 Patent. Dkt. 1 ¶ 26. XP Photo alleges that the June 12, 2013 injunction
notification letter is tortious interference meant to destroy Millionway’s business agreements.
Dkt. 1, Ex. B. XP Photo does not plead facts alleging an independently tortious, improper, or
unlawful act on behalf of Black Rapid that prevented a business relationship. Black Rapid’s conduct
to enforce the lawful judgment of the California Court is not tortious interference. See Prudential
Ins. Co. of Am. v. Fin. Review Servs. Inc., 29 S.W.3d 74, 80 (Tex. 2000) (holding that enforcing a
party’s legal rights is not considered tortious interference). Without factual allegations of an
independent tort or unlawful conduct by Black Rapid, XP Photo fails to state a claim for tortious
interference with business relations. Black Rapid’s motion to dismiss this claim is therefore
GRANTED.

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IV. CONCLUSION
Black Rapid’s motion to dismiss XP Photo’s claims is GRANTED. XP Photo’s claims are
hereby DISMISSED WITH PREJUDICE.
It is so ORDERED.
Signed at Houston, Texas on December 2, 2013.

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Gray H. Miller
United States District Judge

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