ABS Global, Inc. v. Inguran, LLC
Filing
147
ORDER granting #65 Motion to Intervene; granting #75 Motion for Leave to File reply brief ; granting Genus plc's #79 Motion to Dismiss third-party complaint ;granting #86 Motion to Join; granting in part and denying in part ABS Global's #81 Motion to Dismiss counts I and II of Inguran's counterclaims; Inguran may file for leave to amend counterclaims not later than April 21, 2015. Signed by District Judge William M. Conley on 03/31/2015. (mfh)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
ABS GLOBAL, INC.,
Plaintiff,
OPINION & ORDER
v.
14-cv-503-wmc
INGURAN, LLC,
Defendant,
v.
GENUS PLC,
Counterclaim Defendant.1
In this civil action, defendant Inguran, LLC, is alleged to have used its monopoly
power to engage in anticompetitive conduct, keeping others, including plaintiff ABS Global,
Inc., out of the market for processing “sexed bovine semen” in violation of U.S. and
Wisconsin antitrust laws. One of its allegedly anticompetitive practices is acquisition of
exclusive rights in dozens of third-party patents related to the sexed semen-processing
market in order to prevent competitors from using those technologies to enter the market.
ABS Global seeks various forms of relief, including a permanent injunction that would
require Inguran to license patents owned by Inguran’s subsidiary, XY, LLC, to ABS Global
on reasonable terms and conditions. Unsurprisingly, XY has filed a motion to intervene to
defend its interest in those patents. (Dkt. #65.) Also pending is Inguran’s motion to join
ABS Global’s parent company, Genus plc (dkt. #86), as well as two motions to dismiss
Based on the outcome of the motions pending before the court, the caption should reflect Genus
plc as a counterclaim defendant, not a third-party defendant. The clerk is directed to update the
caption accordingly.
1
Inguran’s counterclaims (dkt. ##79, 81). The court will address each of these motions in
this opinion.
I. XY’s Motion to Intervene
XY moves to intervene as of right, and alternatively by permission, as a party
defendant and counterclaim plaintiff.
Under Rule 24(a)(2), a court must permit
intervention when: “(1) the application is timely; (2) the applicant has an ‘interest’ in the
property or transaction which is the subject of the action; (3) disposition of the action as a
practical matter may impede or impair the applicant’s ability to protect that interest; and
(4) no existing party adequately represents the applicant’s interest.” Sec. Ins. Co. of Hartford
v. Schipporeit, Inc., 69 F.3d 1377, 1380 (7th Cir. 1995). Alternatively, a court may in its
discretion permit an applicant to intervene under Rule 24(b) when the motion is timely and
the applicant “has a claim or defense that shares with the main action a common question
of law or fact.” Fed. R. Civ. P. 24(b)(1)(B).2
A. Facts
XY, LLC (“XY”) is a Delaware limited liability company with its principal place of
business in Navasota, Texas.
Since the mid-1990s, XY has researched, developed and
commercialized technologies for sex selection of non-human mammals, including specialized
machines that can produce sex-selected sperm samples and methods for handling sperm cells
and freezing them for later use to create in vitro or in vivo fertilized embryos.
Throughout its history, XY has licensed its intellectual property to a number of other
companies.
Those licensees use XY’s intellectual property to create and commercialize
After receiving ABS Global’s response, XY filed a motion to file a short reply brief on its motion to
intervene (dkt. #75). That motion will be granted, and the court will consider its reply.
2
2
sperm cell samples with a high likelihood of producing offspring of the chosen sex. For over
a decade, Inguran has also held a non-exclusive license to XY’s intellectual property under
which it sells sex-selection services and sex-selected semen to companies like ABS Global.
In 2007, Inguran, a long-standing minority shareholder in XY, acquired all of XY’s
shares.
According to XY, however, the acquisition did not change the “fundamentally
distinct nature of XY’s and Inguran’s businesses[:] XY owns and licenses out its intellectual
property, while Inguran uses that intellectual property to offer sex-selected goods and
services.”
(Mot. Intervene (dkt. #65) 2-3.)
ABS Global vehemently disputes this
characterization of Inguran and XY’s business arrangement, stating throughout its brief that
Inguran wholly controls XY and can direct it to take any action Inguran wishes with respect
to its various patents. The parties also dispute whether Inguran is currently the sole licensee
of XY’s patents. See discussion infra note 3.
B. Intervention as of Right
i.
Timeliness
“The purpose of the [timeliness] requirement is to prevent a tardy intervenor from
derailing a lawsuit within sight of the terminal.” Reid L. v. Ill. State Bd. of Educ., 289 F.3d
1009, 1018 (7th Cir. 2002) (quoting Sokaogon Chippewa Cmty. v. Babbitt, 214 F.3d 941, 949
(7th Cir. 2000)). In determining whether a motion to intervene is timely, courts consider
“(1) the length of time the intervenor knew or should have known of her interest in the
case, (2) the prejudice caused to the original parties by the delay, (3) the prejudice to the
intervenor if the motion is denied, and (4) any other unusual circumstances.” Id. (citing
Ragsdale v. Turnock, 941 F.2d 501, 504 (7th Cir. 1991)). Given the fact that XY is Inguran’s
wholly-owned subsidiary, XY has almost certainly known of its interest in this litigation
3
since the case was filed in July of 2014. This would mean XY delayed about four months
before seeking to intervene.
Whether or not this would be timely under other
circumstances, XY’s proposed intervention would not appear to prejudice ABS Global in any
way. Indeed, ABS Global does not even attempt to argue that it would be prejudiced. Given
that this case is still in its relatively early stages, with dispositive motions months away and
discovery ongoing until November 20, 2015, and given the likelihood that XY’s discovery
and motion practice will run largely parallel to Inguran’s, the court concludes XY’s motion
to intervene is timely.
ii.
Interest in the Property or Transaction
Intervention as of right “requires a ‘direct, significant[,] and legally protectable’
interest in the question at issue in the lawsuit.” Wis. Educ. Ass’n Council v. Walker, 705 F.3d
640, 658 (7th Cir. 2013) (quoting Keith v. Daley, 764 F.2d 1265, 1268 (7th Cir. 1985)
(alteration in original)).
The interest must be “based on a right that belongs to the
proposed intervenor rather than to an existing party in the suit” and “must be so direct that
the applicant would have ‘a right to maintain a claim for the relief sought.’” Keith, 764 F.2d
at 1268 (quoting Heyman v. Exch. Nat’l Bank of Chi., 615 F.2d 1190, 1193 (7th Cir. 1980)).
The interest must also be “unique to the proposed intervenor.” Wis. Educ. Ass’n Council,
705 F.3d at 658.
ABS Global contends that XY lacks the kind of interest contemplated by Rule 24,
characterizing this case as involving only one issue: whether Inguran violated antitrust laws
by engaging in unlawful monopolization. The court agrees with XY, however, that this is a
considerable oversimplification. A not-insignificant portion of the unlawful conduct ABS
4
Global challenges involves the patents that XY now owns. (See Am. Compl. (dkt. #58)
¶¶ 73-81.)
Thus, contrary to ABS Global’s arguments, it has alleged that XY “engaged
in . . . conduct that violates the antitrust laws” by acquiring and refusing to license patents
relating to the sexed semen processing market to Inguran’s competitors, thus preventing or
dissuading others from entering that market. (Pl.’s Br. Opp’n Mot. Intervene (dkt. #72) 3.)
XY, therefore, appears to have its own “defense to assert against” ABS Global’s claims of
exclusionary conduct, Kamerman v. Steinberg, 681 F. Supp. 206, 211 (S.D.N.Y. 1988), at
least as regards the alleged “scheme of repeatedly acquiring, exclusively licensing, or
otherwise controlling third parties’ patents relating to its monopoly.” (Am. Compl. (dkt.
#58) ¶ 99.)
In response, ABS Global double downs on its position that XY is wholly under the
control of Inguran. That is, in ABS Global’s view, Inguran is not only the moving force
behind XY’s allegedly unlawful conduct, but the only entity that could be held liable for the
allegedly illegal patent-acquisition “scheme.” (Pl.’s Br. Opp’n Mot. Intervene (dkt. #72) 4
(“After buying XY, [Inguran] directed XY to cancel the existing licenses to other U.S.
licensees, and [Inguran] will not permit XY to license a new potential competitor now.”); see
also id. at 6-7 (arguing that XY is “wholly-owned and controlled” by Inguran (emphasis
added).) But there is no evidence in the record presently before the court to support a
finding that Inguran controls XY to such an extent that it can be held liable for its
subsidiary’s conduct, and so the court declines to disregard the separateness of XY’s
corporate form, at least for the purpose of determining whether XY has a sufficient interest
in this litigation to intervene as of right.
5
Even more persuasive, XY rightly points out that as relief, ABS Global expressly
requests that “[t]he Court grant permanent injunctive relief requiring [Inguran] to license to
ABS, on reasonable terms and conditions, any and all U.S. patents relating to Sexed Bovine
Semen.” (Am. Compl. (dkt. #58) 30, ¶ J.) XY undoubtedly has an intellectual property
interest in its own patents, and the parties appear to agree that this interest belongs solely
to XY, not to its parent company. Indeed, one of ABS Global’s arguments against allowing
XY to intervene is that XY should not be permitted to “transform” this litigation by
asserting patent infringement counterclaims, presumably meaning that in ABS Global’s
view, Inguran cannot assert these claims itself.3 (See Pl.’s Br. Opp’n Mot. Intervene (dkt.
#72) 5.)
Assuming that the parties are correct that only XY has a protectable property interest
in the patents, XY also has a “unique” interest in defending them from the injunctive relief
that ABS Global seeks, or at a minimum, in asserting its own position as to what constitutes
“reasonable terms and conditions” for any court-ordered compulsory licenses. Accordingly,
the court concludes that XY also has a direct, significant and legally protectable interest in
this litigation.
It is not clear if ABS Global’s position is correct. Both a patent’s owner and an “exclusive licensee
can have constitutional standing to bring an infringement suit[.]” Spine Solutions, Inc. v. Medtronic
Sofamor Danek USA, Inc., 620 F.3d 1305, 1317 (Fed. Cir. 2010) (quoting Mars, Inc. v. Coin Acceptors,
Inc., 527 F.3d 1359, 1367 (Fed. Cir. 2008)). At least according to ABS Global, Inguran is the only
licensee of XY’s U.S. patents, having forced XY to terminate previously-granted licenses to other
companies sometime after May of 2007. (Am. Compl. (dkt. #58) ¶¶ 74-75.) Admittedly, it is not
enough to be the sole licensee; Inguran must also have the “right to exclude others” from practicing
the patents. Spine Solutions, 620 F.3d at 1317 (quoting Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538,
1553 (Fed. Cir. 1995) (en banc)). Crediting ABS Global’s allegations, this would appear to be the
case. On the other hand, XY argues in its reply that Inguran is actually a non-exclusive licensee.
(XY’s Reply (dkt. #75-1) 4.) Since neither party has raised the possibility of Inguran bringing the
infringement claims on its own behalf, however, the court will not address that possibility further at
this time.
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iii.
Interests May Be Impaired
The third question is whether XY’s ability to protect its interests may be impaired by
the disposition of this action. “Impairment exists when the decision of a legal question . . .
would, as a practical matter, foreclose the rights of the proposed intervenor in a subsequent
proceeding.” Shea v. Angulo, 19 F.3d 343, 347 (7th Cir. 1994) (alteration in original). ABS
Global does not raise a separate challenge to this factor, and the court agrees that XY’s
interests could be impaired in this proceeding. Specifically, XY may be found liable for
antitrust violations based on its business operations without ever having a chance to defend
those operations.
Alternatively, XY may find itself ordered to license its intellectual
property to ABS Global without having the chance to argue, at least directly, against that
course of action or provide evidence as to what would constitute reasonable terms and
conditions for such licenses. See United States v. Glaxo Grp. Ltd., 410 U.S. 52, 64 (1973)
(“Mandatory selling on specified terms and compulsory patent licensing at reasonable
charges are recognized antitrust remedies.”).
Accordingly, XY has established the third
factor for intervention as of right.
iv.
No Existing Party Adequately Protecting Those Interests
XY’s main obstacle to establish intervention as of right is the fourth step of the
inquiry: whether an existing party adequately protects its interests.
While intervention
“requires only a ‘minimal’ showing of inadequate representation,” Wis. Educ. Ass’n Council,
705 F.3d at 659 (citing Trbovich v. United Mine Workers of Am., 404 U.S. 528, 538 n.10
(1972)), “[w]here a prospective intervenor has the same goal as the party to a suit, there is a
presumption that the representation in the suit is adequate.” Shea, 19 F.3d at 347. “The
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prospective intervenor then must rebut that presumption and show that some conflict
exists.” Wis. Educ. Ass’n Council, 705 F.3d at 659.
Here, XY and Inguran share essentially the same goal -- defending their business
arrangement against ABS Global’s antitrust claims, including the challenged acquisition and
non-licensing of patents related to sorted semen.
Indeed, should Inguran prevail, XY’s
interests are also vindicated, and its patents remain unaffected. This conclusion is further
strengthened by the fact that Inguran and XY are represented by the same counsel, strongly
suggesting that there is no real (or even foreseeable) conflict of interests between Inguran
and its wholly-owned subsidiary XY. See, e.g., Southmark Corp. v. Cagan, 950 F.2d 416, 419
(7th Cir. 1991) (“Here petitioner’s interests in defeating foreclosure are adequately
represented by the receiver, who has the same interests and who is represented by
petitioner’s own counsel.”); Clorox Co. v. S.C. Johnson & Son, Inc., 627 F. Supp. 2d 954, 962
(E.D. Wis. 2009) (noting that the parties “share[] the same counsel” in denying motion to
intervene); Carroll v. Am. Fed. of Musicians of U.S. & Can., 33 F.R.D. 353, 353 (S.D.N.Y.
1963) (“Inadequate representation can hardly be claimed as the same attorney represents
both the original plaintiffs and the proposed intervenors.”).
XY posits a few weak examples of possible conflict, but none is persuasive.
For
instance, XY contends that as a corporate entity separate from its parent Inguran, XY has
license-related information to which Inguran lacks access.
This strikes the court as
disingenuous, given that XY does not explain why, as a wholly-owned subsidiary, it could
not simply provide that information to its parent company.4 XY also argues that a conflict
Perhaps XY has entered into a confidentiality agreement with a third party that prevents such
disclosure, but XY offers no evidence of that.
4
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of interest could arise if Inguran, as XY’s licensee, must litigate the question of which
patents should be licensed to ABS Global as part of its requested relief and under what
terms. This vague prediction of a potential conflict, however, is not enough to overcome the
presumption of adequate representation.
Indeed, XY offers no reason why its parent
company’s wishes might diverge from its own in terms of negotiating a favorable licensing
arrangement. Accordingly, the court cannot conclude on this record that XY’s interests will
not be adequately represented by its parent company. XY’s failure to meet its burden on
this point requires that court deny its request to intervene as of right.
See Vollmer v.
Publishers Clearing House, 248 F.3d 698, 705 (7th Cir. 2001) (noting that “the lack of one
element requires that the motion to intervene be denied”).
C. Permissive Intervention
XY has better luck with its motion for permissive intervention, however.
“[P]ermissive intervention may be allowed ‘when an applicant’s claim or defense and the
main action have a question of law or fact in common.’”
(quoting Fed. R. Civ. P. 24(b)(2)).
Schipporeit, 69 F.3d at 1381
Before a court may grant intervention under Rule
24(b)(2), the proposed intervenor must demonstrate only that “there is (1) a common
question of law or fact, and (2) independent jurisdiction.”
Id.
Beyond those two
requirements, permissive intervention is entrusted to the discretion of the district court,
although in exercising that discretion courts are instructed to consider “whether the
intervention will unduly delay or prejudice the adjudication of the rights of the original
parties.” Id. (quoting Fed. R. Civ. P. 24(b)(2)).
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There is no question that this court has independent jurisdiction over XY’s proposed
patent infringement counterclaims. See 28 U.S.C. § 1338(a) (“The district courts shall have
original jurisdiction of any civil action arising under any Act of Congress relating to
patents[.]”). Additionally, XY’s defense to the antitrust claims against it shares common
questions with Inguran’s defense overall. As XY points out, ABS Global claims that Inguran
has unlawfully stifled competition in part through XY, which has carried out the accused
patent acquisition and U.S. licensing practices.
Furthermore, Inguran has already brought a patent infringement counterclaim of its
own. (See Counterclaims (dkt. #63) ¶¶ 231-240.) As such, this lawsuit now necessarily
involves inquiry into the details of ABS Global’s laser-based sorting technology, as will XY’s
proposed patent infringement counterclaims, which are premised on that same technology.
Additionally, both sides’ claims in this lawsuit will require at least some inquiry into the
details of XY’s patents, given the factual development required in crafting a patent-related
antitrust remedy.
See generally Lawrence Schlam, Compulsory Royalty-Free Licensing as an
Antitrust Remedy for Patent Fraud: Law, Policy and the Patent-Antitrust Interface Revisited, 7
Cornell J.L. Pub. Pol’y 467, 487-92 (1998). There will, therefore, be common questions of
fact and law that arise between the antitrust action as currently pled and XY’s proposed
defenses and counterclaims.
ABS Global argues that allowing XY to intervene will serve only to complicate and
delay this case. But again, ABS Global itself has put XY’s patents at issue by challenging its
acquisition and management of those patents and seeking compulsory licenses in order to
clear the way for ABS Global to commercialize its own technology. While this lawsuit will
admittedly become somewhat more complex by virtue of including additional patents and
10
patent claims, it would be inefficient to require the parties to litigate patent infringement
claims that are all premised on ABS Global’s allegedly infringing laser-based sorting
technology in two separate lawsuits. There is also the potential for inconsistent results
between cases should the court refuse to permit intervention. For example, the questions of
validity and infringement of XY’s patents could arise in this lawsuit (in the context of the
compulsory license inquiry), as well as in any separate lawsuit XY brings. Accordingly, the
court will grant XY’s motion for permissive intervention, subject to XY causing no delay in
the prosecution of this case.
II. Joinder of Genus plc
Inguran initially sought to add Genus as a third-party defendant under Federal Rule
of Civil Procedure 14, submitting a third-party complaint concurrently with its answer and
counterclaims against ABS Global. (See dkt. #63.) Against Genus specifically, Inguran
asserted claims for fraudulent inducement, breach of contract, promissory estoppel, and
induced patent infringement. (Id.) Soon after, Genus moved to dismiss the third-party
complaint. (Dkt. #79.)
As an initial matter, Genus argues that the claims should be dismissed in their
entirety as improper under Fed. R. Civ. P. 14, since that rule only allows for derivative
claims. Additionally, Genus asserted separate bases for dismissal of Counts I (fraudulent
inducement) and VI (induced patent infringement), arguing that:
(1) Inguran failed to
plead fraudulent inducement with particularity as required by Fed. R. Civ. P. 9(b); and (2)
Inguran failed to plead sufficient facts to support a plausible claim of induced infringement.
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Inguran has since conceded that its invocation of Rule 14 was improper. (See Def.’s
Br. Opp’n (dkt. #92) 1-2 (“Inguran acknowledges that Rule 14 does not apply (since
Inguran does not seek to hold Genus derivatively liable for Plaintiff ABS Global, Inc.’s . . .
claims).”).)
This proved a small concession indeed, as Inguran proceeded to file a new
motion to join Genus as a counterclaim defendant under Rules 19 and 20, governing
required and permissive joinder respectively.5 (Dkt. #86.)
Genus and ABS Global concede that Genus can be properly joined under Rule 20,
which permits joinder of multiple defendants if:
(A) any right to relief is asserted against them jointly, severally,
or in the alternative with respect to or arising out of the
same transaction, occurrence, or series of transactions or
occurrences; and
(B) any question of law or fact common to all defendants will
arise in the action.
Fed. R. Civ. P. 20(a)(2). The court agrees.
Inguran’s counterclaims center on the joint conduct of Genus and ABS Global in
negotiating and performing the contract, as well as pursuing development and
commercialization of the laser-based semen sorting method. Inguran not only seeks to hold
Genus jointly liable, common questions of law and fact exist. Indeed, according to Inguran,
the evidence and testimony offered will be essentially the same against the two counterclaim
defendants. Since Genus is a proper counterclaim defendant under Rule 20, the court need
not address Inguran’s arguments that Genus must be joined under Rule 19. Accordingly,
Genus’s motion to dismiss the original, improper third-party complaint is granted, as is
Inguran’s subsequent motion to join Genus properly as a counterclaim defendant.
Pursuant to Fed. R. Civ. P. 13(h), “Rules 19 and 20 govern the addition of a person as a party to a
counterclaim or crossclaim.”
5
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III. Motion to Dismiss Counts I, II and VI of Counterclaims
Because the revised counterclaims against Genus are essentially the same as those in
the defunct third-party complaint, the court still must address the alternative arguments
raised in Genus’s motion to dismiss. Accordingly, the court now turns to whether Inguran
has adequately pled Counts I and VI of its counterclaims. Because the analysis overlaps
with ABS Global’s other remaining motion, which seeks to dismiss Counts I and II of the
counterclaims, the court considers them in tandem.
A. Count I: Fraudulent Inducement
First, ABS Global moves to dismiss the claim of fraudulent inducement for failure to
plead fraud with particularity.
Fed. R. Civ. P. 9(b).
The parties agree that Texas law
governs the contract. (See Pl.’s Br. Supp. Mot. Dismiss (dkt. #82) 2; Def.’s Br. Resp. (dkt.
#91) 1.) A claim of fraudulent inducement under Texas law requires a plaintiff to establish
“the elements of ‘a simple fraud claim.’” Fletcher v. Edwards, 26 S.W.3d 66, 77 (Tex. App.
2000) (quoting Balogh v. Ramos, 978 S.W.2d 696, 701 (Tex. App. 1998)). Those elements
are: “a material misrepresentation; which was false; which was known to be false when
made or was made recklessly as a positive assertion without knowledge of its truth; which
was intended to be acted upon; which was relied upon; and which caused injury.” Id. (citing
Ins. Co. of N. Am. v. Morris, 981 S.W.2d 667, 674 (Tex. 1998)). Here, ABS Global argues
that Inguran has failed to allege with particularity that: (1) ABS made any material
misrepresentation; (2) Inguran relied on the misrepresentation; and (3) Inguran suffered an
injury.
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i.
Material Misrepresentations
Inguran’s counterclaim for fraudulent inducement relies primarily on ABS Global
and Genus’s alleged misrepresentations that they “wanted a long-term deal, as well as a
significant increase in the volume of Inguran’s sex-sorting services.” (Counterclaims (dkt.
#63) ¶ 196.) Specifically, Inguran alleges that John Worby, a senior executive of both ABS
Global and Genus, wrote to Inguran expressing interest in a longer-term extension or
renewal of the contract and an increased purchase quantity. (Id. at ¶ 190.) Worby also
allegedly explained that ABS Global viewed the contract as “fair” and was “fine” with a fiveyear term, a liquidated damages clause and a $1.5 million early termination penalty. (Id. at
¶ 191.) According to Inguran, however, ABS Global and Genus “never intended to perform
the 2012 Agreement’s full period, and knew as much when they falsely represented to
Inguran that they would.” (Id. at ¶ 200.)
“A promise of future performance constitutes an actionable misrepresentation if the
promise was made with no intention of performing at the time it was made.” Aquaplex, Inc.
v. Rancho La Valencia, Inc., 297 S.W.3d 768, 774 (Tex. 2009) (quoting Formosa Plastics Corp.
v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998)). Nevertheless, ABS
Global and Genus argue that these statements cannot support a claim for fraudulent
inducement because they have turned out to be true: that is, the parties have a long-term
renewal in place, with the 2012 Agreement continuing in force until August 31, 2017. (See
id. at ¶ 196.)
As Inguran points out, however, this view of the claim fails to account for the fact
that ABS Global has sued Inguran to avoid performing some of the provisions of the 2012
Agreement. In its complaint, ABS Global asks this court to find unenforceable a number of
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the 2012 Agreement’s provisions, including the liquidated damages provisions; any and all
research restrictions; all restrictions on ABS Global’s use, marketing and sale of sexed semen
that it develops via its own technology; all evergreen provisions that make the 2012
Agreement of perpetual duration unless terminated; and the take-or-pay provision requiring
ABS Global to pay for a prescribed minimum quantity of processed semen regardless of
whether it can make use of that quantity. (See Am. Compl. (dkt. #58) 29 (Prayer for
Relief).) Inguran’s counterclaims also allege that ABS Global has attempted to invalidate
portions of the 2012 Agreement. (See Counterclaims (dkt. #63) ¶ 194.) Assuming for
purposes of ABS Global and Genus’s motion to dismiss only that, as alleged, both
companies made false statements during negotiations that they planned to perform for the
2012 Agreement’s full period and that they found its terms acceptable and fair, and that the
present lawsuit is part of ABS Global’s and Genus’s execution of their pre-existing,
fraudulent scheme to renege on that agreement, then Inguran may have pled just enough
facts to get over Rule 9(b), albeit with a tale of Machiavellian proportions that may or may
not pass Rule 56 review.
Inguran also points to an allegedly material omission that purportedly supports its
fraud in the inducement claim: plaintiffs’ failure to inform Inguran of their research and
development program and laser-based technology.
In response, Genus points out that
under Texas law, a duty to disclose arises in four distinct situations:
The existence of a confidential relationship is but one of the
bases for imposing a duty to disclose information. A duty to
speak may arise in at least three other situations: First, when
one voluntarily discloses information, he has a duty to disclose
the whole truth. Second, when one makes a representation, he
has a duty to disclose new information when he is aware the new
information makes the earlier representation misleading or
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untrue. Finally, when one makes a partial disclosure and
conveys a false impression, he has a duty to speak.
Anderson, Greenwood & Co. v. Martin, 44 S.W.3d 200, 212-13 (Tex. App. 2001) (internal
citations omitted).
In this case, plaintiffs argue that no confidential relationship was pled, nor does
Inguran allege facts suggesting that plaintiffs made a misleading partial disclosure. To this
argument, Inguran has no response, thereby waiving any opposition. See Bonte v. U.S. Bank,
N.A., 624 F.3d 461, 466 (7th Cir. 2010) (“Failure to respond to an argument – as the
Bontes have done here – results in waiver.”). Accordingly, the court will dismiss Inguran’s
fraud in the inducement claims to the extent they are premised on material omissions.
ii.
Reliance
Plaintiffs next argue that Inguran has failed to plead reliance plausibly, as required by
Ashcroft v. Iqbal, 556 U.S. 662 (2009). Under Texas law, demonstrating reliance requires
“evidence that the claimant would not have entered into the contract but for the alleged
misrepresentation or fraudulent nondisclosure.”
Williams v. Dardenne, 345 S.W.3d 118,
126 (Tex. App. 2011). There is no dispute that Inguran has facially pled reliance, alleging
that “Inguran would not have entered into the 2012 Agreement, or provided the
preferential pricing, but for Genus’s and ABS’s false representations regarding the term of
the agreement.” (Counterclaims (dkt. #63) ¶ 201.) Rather, plaintiffs contend that the
allegation is simply not plausible in light of the parties’ longstanding contractual
relationship. (See Pls.’ Br. Support (dkt. #82) 4.)
“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
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alleged.” Ashcroft, 556 U.S. at 678. Importantly, “[t]he plausibility standard is not akin to
a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has
acted unlawfully.” Id.; see also Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007) (“[A]
well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of
those facts is improbable, and that a recovery is very remote and unlikely.”) (internal
quotation marks and citation omitted). Thus, the court cannot dismiss the fraud in the
inducement claim simply because Inguran’s allegation of but-for reliance seems unlikely.
What plaintiffs are really arguing is that by alleging that the parties have been in an
amicable contractual relationship for over a decade (Counterclaims (dkt. #63) ¶¶ 172-73),
and that ABS Global is one of the largest bull stud companies in the country (id. at ¶ 188),
Inguran has pled itself out of an allegation of but-for reliance. While a closer question than
it might be, given the somewhat dubious inferences that must be made as to ABS Global’s
and Genus’s unstated motives, the court disagrees. A party certainly can plead itself out of a
claim, but it must do so “by pleading facts that establish an impenetrable defense to its
claims.” Tamayo v. Blagojevich, 526 F.3d 1074, 1086 (7th Cir. 2008). Said another way, a
party “pleads himself out of court when it would be necessary to contradict the complaint in
order to prevail on the merits.” Id. (quoting Kolupa v. Roselle Park Dist., 438 F.3d 713, 715
(7th Cir. 2006)). That is not the case here.
The parties’ longstanding relationship and the profitability of having ABS Global as a
customer may well make it more difficult for Inguran to prove it would not have entered into
the 2012 Agreement but for ABS Global’s misrepresentations as to its true intent, but those
factors do not establish an impenetrable defense to that element. Accordingly, the court
leaves the question of reliance for summary judgment or trial. See Celanese Corp. v. Coastal
17
Water Auth., 475 F. Supp. 2d 623, 638 (S.D. Tex. 2007) (“Reliance is ordinarily a question
for the fact-finder.”)
iii.
Injury
Finally, plaintiffs argue that Inguran fails to allege facts showing how it was injured
by entering into the 2012 Agreement. Looking to Inguran’s counterclaims, it has alleged
the following with respect to damages:
Genus’s and ABS’s false representations and omissions directly
and proximately caused Inguran injury. These injuries include,
but are not limited to, that Inguran is now locked into an
agreement with ABS whereby ABS receives all the benefits but
refuses to accept many of its burdens, including the fact that
Inguran provided ABS preferential pricing and other beneficial
terms in view of the volume and purported length of the 2012
Agreement; providing ABS an increase in volume of Inguran’s
sex-sorting services which wastes and strains Inguran’s limited
resources and production capacity, and limits Inguran’s ability
to provide these services to other potential and actual customers;
and the loss of the protection and misuse of Inguran’s
confidential information, which ABS has improperly
appropriated and used to develop and implement its own
technology.
(Counterclaims (dkt. #63) ¶ 204.)
Plaintiffs argue that these allegations are insufficient to demonstrate the “concrete,
pecuniary harm” necessary to support a claim for fraud.
Arisma Grp., LLC v. Trout &
Zimmer, Inc., No. 3:08-CV-1268-L, 2009 WL 3573418, at *6 (N.D. Tex. Oct. 30, 2009).
The court again disagrees. Inguran alleges that due to the 2012 Agreement, it has had to
forego other opportunities to sell its services that would have been more profitable than its
sales to ABS Global. Inguran also alleges that it provided ABS Global with “preferential
pricing and other beneficial terms” in reliance on ABS Global’s commitment to perform for
the contract’s full term.
Supported with evidence, this could give rise to the kind of
18
concrete pecuniary harm required to state a claim for fraudulent inducement under Texas
law.
Plaintiffs similarly argue that Inguran has not identified a specific business
opportunity it has missed or customer that it has been unable to serve as a result of the
2012 Agreement. That level of detail is simply not necessary at the motion to dismiss stage,
even in light of the heightened pleading standard of Rule 9(b). Numerous courts have held
that Rule 9(b)’s heightened standard does not extend to allegations regarding damages
based on fraud, because those allegations do not bear on the “circumstances constituting
fraud.” Fed. R. Civ. P. 9(b) (emphasis added); see, e.g., Bear Ranch, LLC v. HeartBrand Beef,
Inc., No. 6:12-CV-00014, 2013 WL 6190253, at *2 (S.D. Tex. Nov. 26, 2013) (Rule 9(b)
does not extend heightened pleading requirements to damages allegations in fraud case);
Andrews Farms v. Calcot, Ltd., 527 F. Supp. 2d 1239, 1252 (E.D. Cal. 2007) (“While Rule
9(b) requires pleading the circumstances of fraud with particularity, defendants cite no case
law, and the Court finds none, requiring that fraud damages be pled with more specificity
than required under normal notice pleading.”); Williams v. Sabin, 884 F. Supp. 294, 297
(N.D. Ill. 1995) (“Rule 9(b) does not require any greater detail in pleading damages unless
the information is necessary to give the defendant notice of the claims against him.”).
Here, plaintiffs are on notice of the financial injury that Inguran has allegedly
suffered and can obtain through discovery the specific facts related to those injuries. If
Inguran is unable to provide any factual support for its allegations at that time, then
plaintiffs will be able to obtain summary judgment on that basis.
For now, however,
Inguran has stated a plausible claim of fraud, including damages, and so the motion to
dismiss Count I of its counterclaims will be denied.
19
B. Count II: Anticipatory Breach/Repudiation
Next, Inguran purports to plead a claim for anticipatory breach of contract solely
against ABS Global. Inguran bases this counterclaim entirely on a letter that ABS Global
sent on August 25, 2014. According to Inguran, the 2012 Agreement provides in Section
4(b) that ABS Global must pay Inguran $1.5 million in liquidated damages upon exercising
its contractual right to terminate the contract after the end of its current term.
(Counterclaims (dkt. #63) ¶ 209.) Allegedly, ABS Global’s August 25 letter triggered that
provision by indicating that it had decided “not to extend the Term of the Agreement” (id.
at ¶ 210), and (2) went on to say that ABS Global refused to pay the liquidated damages on
the grounds that the provision in Section 4(b) is “unenforceable” (id. at ¶ 211).
Without more, ABS Global argues that these facts do not state a claim for
anticipatory breach. Under Texas law, “[t]o constitute repudiation, a party to a contract
must absolutely and unconditionally refuse to perform the contract without just excuse.”
Bans Props., L.L.C. v. Hous. Auth. of City of Odessa, 327 S.W.3d 310, 315 (Tex. App. 2010).
To support its argument that Inguran failed to plead a plausible repudiation claim, ABS
Global provides the letter itself, which reads in relevant part:
For reasons stated in the Federal Court Complaint filed by ABS
on July 14, 2014, ABS maintains that the liquidated damages
provision of Section 4(b) of the Agreement is unenforceable.
Accordingly, ABS intends to seek judicial relief requiring ST to
reimburse the uncredited portion of the $1,500,000 Advance for
liquidated damages that was paid under the fourth sentence of
Section 4(b) and, in the meantime, expects ST to continue to
credit the Advance against invoices for Sorted Semen in
accordance with Section 4(b).
(Steven J. Horowitz Decl. Ex. A (dkt. #83-1).) According to ABS Global, its stated position
by no means constitutes the unconditional refusal to perform required to state a claim for
20
repudiation under Texas law.
On the contrary, ABS Global contends that the letter
confirms its an intent to continue to perform under Section 4(b), even as it sought judicial
relief from what it contends is an illegal contract provision.
Inguran objects that the court cannot consider the full text of the letter because it is
outside the pleadings, but “[d]ocuments that a defendant attaches to a motion to dismiss
are considered part of the pleadings if they are referred to in the plaintiff’s complaint and
are central to [its] claim.” Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431
(7th Cir. 1993). Since the letter forms the sole basis for Inguran’s repudiation claim here,
the court may consider it in resolving the motion to dismiss without converting it into a
motion for summary judgment.
Read in its proper context, the letter alone does not support a claim for repudiation,
which under Texas law must be “absolute, positive, unretracted, unretractable, and
unconditional.” Dudley v. Born, 710 S.W.2d 638, 644 (Tex. App. 1986). Here, the letter is
by no means unequivocal. On the contrary, it simply memorializes ABS Global’s belief that
the liquidated damages provision is unenforceable, as well as its intent to seek judicial relief
from that provision. At best, the court can infer a conditional refusal to perform on ABS
Global’s part -- that is, ABS Global will refuse to pay the liquidated damages if the provision
requiring it is invalidated by the court -- but that is not an unequivocal repudiation. See
David R. Dow & Craig Smyster, 49 Tex. Practice Series, Contract Law § 9.11 (“A party’s
refusal to perform that is based in good faith on a mistake or misunderstanding relating to
the party’s obligations under the contract does not constitute an anticipatory repudiation.”);
cf. Cont’l Cas. Co. v. Boerger, 389 S.W.2d 566, 568 (Tex. Civ. App. 1965) (in insurance cases,
“doctrine of anticipatory breach is not applicable where insurer ‘merely denies liability or
21
claims defenses under the terms of the policy’”) (quoting Univ. Life & Accident Ins. Co. v.
Sanders, 102 S.W.2d 405, 407 (Tex. Comm’n App. 1937)). Indeed, if it were enough, a
defendant could conceivably bring a counterclaim for anticipatory breach every time it is
sued or threatened with suit to invalidate an allegedly unlawful contract provision, which is
not only at odds with the Texas requirement that the refusal be “clear and unequivocal,” but
also with the requirement that the refusal “apply to the entire contract.” Dow & Smyster,
supra, at § 9.11.
Inguran’s only other argument is that ABS Global’s letter “inherently” demonstrates
an unconditional intent to repudiate by stating that Inguran was required to continue to
apply the advance on liquidated damages to ABS Global’s own unpaid invoices. (Def.’s Br.
Opp’n (dkt. #91) 8.) This is not a reasonable inference, however, given that ABS Global’s
request is actually consistent with the terms of the 2012 Agreement itself. (See dkt. #88-1.)
Essentially, reading the letter in full, ABS Global does no more than: (1) indicate it believes
the liquidated damages provision in Section 4(b) is unenforceable; (2) state its intent to
request judicial relief from that provision; and (3) request that Inguran continue to comply
with the 2012 Agreement’s terms in the meantime. It would hardly be reasonable to infer
unconditional refusal to pay the liquidated damages from ABS Global’s commitment to
continue to comply with the terms of the agreement pending judicial review.
At first glance, this conclusion may seem inconsistent with the court’s earlier finding
that Inguran has adequately pled its fraudulent inducement claim, since that result depends
in part on the finding that it is plausible to infer that plaintiffs falsely represented they
intended to perform the 2012 Agreement. In contrast, the court is dismissing Inguran’s
repudiation claim for failing to adequately plead that ABS Global refused to perform. The
22
distinction is both legal and factual. First, the legal requirement of an absolute, unconditional
refusal to perform is the basis for the court’s dismissal of the repudiation claim. Second, on
the face of the pleading and based on the precise language of the letter, which expressly
forms the sole basis for the repudiation claim, there is no factual dispute as to the nature of
ABS Global’s actions.
In contrast, seeking judicial relief from a contract may be consistent with a party
having actually intended from the outset not to perform under the contract (though
corroborating evidence will likely be necessary to prove such a claim), even though it does
not make plausible an absolute refusal to perform regardless of the outcome. Without any
factual allegations that rise to this level, Inguran has not pled a plausible repudiation claim,
and so ABS Global’s motion to dismiss Count II of the counterclaims will be granted.
C. Count VI: Induced Patent Infringement
Finally, Inguran pleads a claim solely against Genus, which alleges that it induced
ABS Global to infringe U.S. Patent No. 8,206,987 (“the ‘987 patent”), entitled “PhotoDamage Method for Sorting Particles.”6
According to plaintiffs, Inguran’s claim does
nothing more than repeat the legal elements of an induced infringement claim, without
providing the supporting facts required to pass the plausibility test articulated by the
Supreme Court’s decisions in Twombly and Iqbal. See In re Bill of Lading Transmission &
Processing Sys. Patent Litig., 681 F.3d 1323, 1336-37 (Fed. Cir. 2012) (Supreme Court
precedent controls pleading requirements for claims of indirect infringement). Of course,
bare legal conclusions “contribute nothing to the plausibility analysis,” McCauley v. City of
Count V, which plaintiffs do not challenge in their motion to dismiss, is a corresponding direct
infringement claim of the ‘987 patent against ABS Global.
6
23
Chi., 671 F.3d 611, 618 (7th Cir. 2011), and plaintiffs contend that once the court
disregards those conclusions, Inguran cannot meet the plausibility test.
To survive the motion to dismiss, Inguran’s counterclaims must “contain facts
plausibly showing that [Genus] specifically intended [ABS Global] to infringe the . . . patent
and knew that the . . . acts constituted infringement.” In re Bill of Lading, 681 F.3d at 1339.
For the most part, Inguran’s allegations are mere recitations of the black-letter law of
induced infringement. For instance, Inguran alleges that Genus induced infringement by
“actively and knowingly aiding, abetting and encouraging the laser based sorting of genderselected sperm by others, including ABS, with the specific intent to induce others to, among
other things, directly make, use, sell, offer to sell, or import into the U.S., without authority
or license from Inguran, laser-based methods for the sorting of gender-selected sperm.”
(Counterclaims (dkt. #63) ¶ 245.) This allegation parrots the legal standard for induced
infringement articulated in cases like Water Technologies Corporation v. Calco, Ltd., 850 F.2d
660, 668 (Fed. Cir. 1988), and the statutory description of direct infringement articulated in
35 U.S.C. § 271(a).
Disregarding
Inguran’s
legal
conclusions
and
conclusory
statements,
the
counterclaims allege only that Genus “instructed” ABS Global in the commercialization of
its semen-sorting technology (although it is still somewhat unclear as to what exactly Genus
has directed ABS Global to do with respect to commercialization) and that Genus directed
ABS Global to sort semen into gender-selected sperm. (Counterclaims (dkt. #63) ¶ 245.)
Assuming that this is enough to place Genus on notice of its alleged role in encouraging
ABS Global to infringe the ‘987 patent, the court agrees with plaintiffs that Inguran has not
adequately alleged the corresponding intent to cause infringement.
24
The “mere knowledge of possible infringement by others does not amount to
inducement; specific intent and action to induce infringement must be proven.” DSU Med.
Corp. v. JMS Co., 471 F.3d 1293, 1305 (Fed. Cir. 2006) (quoting Warner-Lambert Co. v.
Apotex Corp., 316 F.3d 1348, 1364 (Fed. Cir. 2003)).
“[I]nduced infringement under
§ 271(b) requires knowledge that the induced acts constitute patent infringement.” GlobalTech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2068 (2011). Furthermore, it is not
enough to intend to “cause the acts that produce direct infringement.” DSU Med. Corp.,
471 F.3d at 1306. Rather, Genus must have affirmatively intended to cause the infringement
itself. Id.
Inguran’s current counterclaims do not meet this standard. The only facts it pleads
that bear on Genus’s intent are: (1) Genus had actual knowledge of the ‘987 patent’s
existence; and (2) ABS Global submitted a petition for inter partes review of the ‘987 patent
on October 1, 2014 (a few months after this lawsuit was filed on July 14, 2014).7
(Counterclaims (dkt. #63) ¶ 246.) Taking these allegations as true, Inguran has pled only
facts that are consistent with knowledge that ABS Global’s activities were infringing and
specific intent to cause that infringement.
At most, Genus knew that the ‘987 patent
existed, so the court can infer that it also knew ABS Global’s laser-sorting method could
potentially infringe that patent. This does not meet the standard for induced infringement.
Facts like these, which are merely consistent with liability, do not “nudge[] . . . claims across
The date is relevant because “[t]he weight of authority addressing the knowledge required for
indirect infringement, especially following the Supreme Court’s decision in Global-Tech, requires a
plaintiff to allege that defendant had pre-suit knowledge of the patents-in-suit.” Brandywine
Commc’ns Techs., LLC v. Casio Computer Co., 912 F. Supp. 2d 1338, 1345 (M.D. Fla. 2012) (collecting
cases). The allegedly “detailed interpretation of the claim language and scope of the ‘987 patent”
contained in the petition for inter partes review, therefore, is of limited value in assessing whether
Inguran has adequately pled knowledge and intent with respect to Genus’s pre-suit activity.
7
25
the line from conceivable to plausible.”
Twombly, 550 U.S. at 570.
Without alleging
something more with respect to Genus’s knowledge and intent, Inguran has not pled a
plausible claim of induced infringement. Accordingly, Genus’s motion to dismiss Count VI
of the counterclaims will be granted.8
D. Leave to Amend
Inguran has requested that the court grant it leave to amend its counterclaims to add
additional facts in the event that the court grants plaintiffs’ motion to dismiss in whole or in
part. ABS Global indicates in its reply that it “does not object to letting [Inguran] have one
last try” at pleading plausible counterclaims, arguing at the same time that Inguran cannot
actually add enough facts to render its claims legally sufficient. (Pl.’s Br. Reply (dkt. #98)
6.) Inguran has not filed proposed amended counterclaims with the court, however, and so
it is premature at best to assess their sufficiency.
In light of ABS Global’s willingness to give Inguran another chance, and because the
defects identified in this opinion as requiring dismissal do not appear to be incurable, the
court will dismiss defendant’s anticipatory breach and induced infringement counterclaims
without prejudice at this time. See Fed. R. Civ. P. 15(a)(2) (party may amend its pleading
“with the opposing party’s written consent” or the court’s leave, which should be freely
given “when justice so requires”). Should Inguran wish to amend its counterclaims, it will
Inguran also points to its allegation that Genus sought the safe harbor provision in Section 18(b) of
the 2012 Agreement based on its knowledge that the laser-based sorting method infringed the ‘987
patent. Section 18(b) does not, however, appear to provide a “safe harbor” from potential liability
for patent infringement. Rather, it merely allows ABS Global and its affiliates to continue its R&D
program without marketing or selling the results, notwithstanding provisions of the 2012 Agreement
that preclude ABS Global from “creat[ing], develop[ing], sell[ing] or market[ing]” any technology
that competes with Inguran’s own technology. (See 2012 Agreement (dkt. #88-1) §§ 18(a), (b).)
Thus, as best the court can discern, the safe harbor provision has no impact on what plaintiffs knew
or did not know regarding the ‘987 patent.
8
26
need to file a motion for leave to amend with its proposed pleading, so that ABS Global has
the chance to oppose the amendment should it believe that the proposed counterclaims fail
to cure the deficiencies of the original pleading or are “futile.” Perkins v. Silverstein, 939 F.2d
463, 472 (7th Cir. 1991) (leave to amend should be denied if the proposed pleading “could
not survive a second motion to dismiss”) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)).
In order to keep this case moving and avoid delay, Inguran shall have 21 days to file any
proposed amended counterclaims.
ORDER
IT IS ORDERED that:
1) XY, LLC’s motion to intervene (dkt. #65) is GRANTED. The clerk of court is
directed to update the caption of this case accordingly.
2) XY, LLC’s motion for leave to file a reply brief on the motion to intervene (dkt.
#75) is GRANTED.
3) Counterclaim defendant Genus plc’s motion to dismiss the third-party complaint
(dkt. #79) is GRANTED.
4) Plaintiff ABS Global’s motion to dismiss Counts I and II of Inguran’s
counterclaims (dkt. #81) is GRANTED IN PART and DENIED IN PART. The
claim for anticipatory breach/repudiation and the claims for fraud in the
inducement premised on material omissions are DISMISSED without prejudice.
5) Defendant Inguran, LLC’s motion to join Genus plc (dkt. #86) is GRANTED.
Inguran may not, however, proceed with its induced patent infringement claim
against Genus as currently pled; although that claim is DISMISSED without
prejudice consistent with the opinion above.
27
6) Inguran has until April 21, 2015, to file a motion for leave to amend its
counterclaims along with a proposed pleading.
Entered this 31st day of March, 2015.
BY THE COURT:
/s/
________________________________________
WILLIAM M. CONLEY
District Judge
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