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Boydstun Equipment Manufacturing, LLC v. Cottrell, Inc.

United States District Court, D. Oregon

October 24, 2017

BOYDSTUN EQUIPMENT MANUFACTURING, LLC, an Oregon limited liability company Plaintiff,
v.
COTTRELL, INC., a Georgia corporation, Defendant.

          Stephen J. Joncus, Joncus Law PC, Andrew E. Aubertine, Aubertine Law Group PC, Philip S. Van Der Weele, K&L Gates LLP, Of Attorneys for Plaintiff.

          Thomas R. Johnson, Perkins Coie LLP, Portland, OR; Shylah Alfonso, Ryan J. McBrayer, Cori G. Moore, and Kyle M. Amborn, Perkins Coie LLP, J. Peter Staples and Jack R. Scholz, Chernoff Vilhauer LLP, Of Attorneys for Defendant.

          OPINION AND ORDER ON MOTION TO DISMISS

          Michael H. Simon, District Judge.

         Plaintiff Boydstun Equipment Manufacturing (“Boydstun”) brings this action against Defendant Cottrell, Inc. (“Cottrell”), seeking a declaratory judgment of non-infringement of Cottrell's U.S. Patent No. 7, 585, 140 (the “'140 Patent”). Boydstun also asserts a claim of unlawful monopolization in violation of Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2, and Oregon's equivalent state law, Oregon Revised Statutes (“ORS”) § 646.730. Boydstun also alleges bad faith enforcement of patents in violation of ORS § 646A.810. Cottrell moves to dismiss Boydstun's Sherman Act and state-law causes of action for failure to state a claim. ECF 78 (redacted); ECF 81 (unredacted; filed under seal). Cottrell's motion to dismiss is granted in part and denied in part as set forth below. Cottrell also requests judicial notice. ECF 79. That request is granted.

         STANDARDS

         A. Motion to Dismiss

         A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In evaluating the sufficiency of a complaint's factual allegations, the court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir. 2012); Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a presumption of truth, allegations in a complaint “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). All reasonable inferences from the factual allegations must be drawn in favor of the plaintiff. Newcal Indus. v. Ikon Office Solution, 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). The court need not, however, credit the plaintiff's legal conclusions that are couched as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

         A complaint must contain sufficient factual allegations to “plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.” Starr, 652 F.3d at 1216. “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.” Iqbal, 556 U.S. at 678 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).

         B. Monopolization

         Section 2 of the Sherman Act prohibits monopolization, attempts to monopolize, and conspiracies to monopolize. 15 U.S.C. § 2. To state a civil claim of monopolization under Section 2, an antitrust plaintiff must allege: “(a) the possession of monopoly power in the relevant market; (b) the willful acquisition or maintenance of that power; and (c) causal antitrust injury.” Somers v. Apple, Inc., 729 F.3d 953, 963 (9th Cir. 2013) (quoting Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp LP, 592 F.3d 991, 998 (9th Cir. 2010)). The offense of monopolization “requires, in addition to the possession of monopoly power in the relevant market, ‘the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'” Verizon Commc'ns., Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004) (quoting United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)). “To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.” Id. (emphasis in original). The conduct element involves “the use of monopoly power ‘to foreclose competition, to gain a competitive advantage, or to destroy a competitor.'” Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1208 (9th Cir. 1997)) (quoting Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 482-83 (1992)).[1]

         BACKGROUND

         The following facts come largely from the Third Amended Complaint (ECF 77) (“Complaint”). The alleged relevant product market is the manufacture and sale of commercial car haulers. The relevant geographic market is the United States. Boydstun and Cottrell are competitors in the relevant market. Commercial car haulers, of which there are about fifteen thousand currently in use in the United States, are used to transport throughout the country up to ten automobiles, with one car often riding above another. Nearby drivers may wonder just how all of those cars remain in place. The answer, in part, is the subject of this lawsuit.

         A. The Commercial Car Haulers Industry

         Boydstun has participated in the relevant market since late 2014. Boydstun's founder and President, Rob Boydstun, previously also was involved in the business of making and selling commercial car haulers as founder and President of Boydstun Metal Works. Boydstun Metal Works manufactured and sold commercial car haulers from 1989 until 2009, when that company filed for Chapter 7 bankruptcy protection.[2] At the urging of former and prospective customers who wanted increased choices and competition in the market, Rob Boydstun re-entered the business in late 2014 with Boydstun Equipment Manufacturing. By the end of 2015, Boydstun had sold about 50 commercial car haulers. That reflects approximately three percent of the market based on annual sales.

         Cottrell has been in the business of making and selling commercial car haulers to customers in the United States for several decades. Twenty five years ago, there were at least ten manufacturers of car haulers in the market, including Cottrell and Boydstun Metal Works. In 1996, Cottrell acquired Bankhead Manufacturing, one of Cottrell's primary competitors. At the time of this acquisition, Boydstun Metal Works had a market share of between ten and fifteen percent. By 2008, Cottrell's market share was approximately 50 percent, and the market share of Boydstun Metal Works was approximately 45 percent. Boydstun Metal Works left the market in 2009, leaving Cottrell to be almost the only supplier of commercial car haulers in the country. As of 2010, and at all times relevant to this lawsuit, Cottrell holds a market share of approximately 95 percent.

         To build a commercial car hauler, manufacturers like Boydstun and Cottrell first obtain “truck chassis”-essentially a frame-from truck chassis manufacturers. This occurs in one of two ways. First, a truck chassis may be purchased from a chassis dealer and promptly delivered to the car hauler manufacturer. Alternatively, a truck chassis may be purchased from a chassis dealer but held by the dealer and only sent to the car hauler manufacturer when needed. After receiving a chassis, car hauler manufacturers, like Boydstun and Cottrell, customize the chassis by building and attaching the car hauler trailer to the chassis.

         Commercial car haulers generally are sold and distributed to customers through dealers. Dealers showcase, market, and promote the car haulers made by manufacturers, typically receiving compensation in return for a sale. Commercial car haulers are sold primarily to two types of customers: larger transport companies that use their own fleet of commercial car haulers (“Fleet Owners”), or smaller companies that own and drive one or more commercial car haulers (“Owner-Operators”). Owner-Operators can work either independently or with a Fleet Owner.

         A commercial car hauler can sell for up to $300, 000. They are part of a $260 million per year industry. In the three years comprising 2014, 2015, and 2016, approximately 2, 000 commercial car haulers were made and sold in the United States.

         B. Relevant Patents

         The process of converting a truck chassis to a commercial car hauler involves specialized components that are built into the chassis and trailer and are part of the commercial car hauler design. Some of these components involve patented features. Two components of commercial car haulers relevant to this case are a tie-down component for fastening cars and a ratcheting winch for use in the tie-down system.

         1. The '917 Patent

         The first Cottrell patent relevant to the parties' dispute is U.S. Patent Number 7, 484, 917 (“'917 Patent” or “Cottrell soft-tie patent”). On May 17, 2005, Cottrell filed a provisional application for a “Strap Tie Down Apparatus and System”-which would become the '917 Patent.[3] Eight days later, May 25, 2005, Boydstun Metal Works filed a utility application, [4] titled “Vehicle Support and Retention System for a Vehicle Transporter.” Cottrell filed its utility application on January 18, 2006. On October 3, 2006, the U.S. Patent and Trademark Office (“PTO”) issued the Boydstun Metal Works soft-tie patent, U.S. Pat. No. 7, 114, 897, (“'897 Patent”). On February 3, 2009, the PTO issued the Cottrell soft-tie patent, the '917 Patent.

         On the same day that the PTO issued the Boydstun Metal Works soft-tie patent ('897 Patent), and while Cottrell was still prosecuting its '917 Patent, Boydstun Metal Works sued Cottrell for infringement of the '897 Patent, alleging that the subject of the '917 Patent infringed on Boydstun Metal Works' '897 Patent. The parties ultimately settled that dispute, and Cottrell acquired, as part of the settlement, a license to the Boydstun Metal Works soft-tie patent (the '897 Patent) as well as another patent held by Boydstun Metal Works.

         After Boydstun entered the market in 2014, it began selling its own soft-tie system with a sliding spool. On November 2, 2015, Cottrell sent a cease and desist letter to Boydstun, demanding that Boydstun stop advertising, manufacturing, and selling commercial car haulers with a sliding spool feature in the soft-tie system. Cottrell threatened to sue Boydstun for infringement of the '917 Patent. Boydstun responded that Cottrell's '917 Patent was invalid. Cottrell neither replied to Boydstun's responsive letter nor withdrew its original cease and desist demand.

         2. The '140 Patent

         The second patent relevant to this dispute is the Cottrell '140 Patent (“ratcheting winch patent”).[5] Cottrell applied for the '140 Patent for a ratcheting winch on March 27, 2008, seeking expedited review by the PTO.[6] In its application, Cottrell cited two prior art references: U.S. Patent. Pub. No. 2006/0013667, to Bu Qin Ruan (“Ruan”), and U.S. Patent No. 5, 101, 537, to David S. Cummings. Cottrell's '140 ratcheting winch patent issued on September 8, 2009.

         In February 2016, Boydstun introduced its Rapid Ratchet™ winch, which helps drivers more quickly and easily tie down vehicles. On previous models, drivers had to remove a tie-down bar with each quarter-turn of a ratchet. The Rapid Ratchet™ winch allows drivers to insert the tie-down bar just once to tighten the straps enough to secure a vehicle. On March 31, 2016, Cottrell sent Boydstun a demand letter, asserting that Boydstun's Rapid Ratchet™ winch infringed on Cottrell's '140 Patent. In its letter, Cottrell explained that it based its assertion on information available on Boydstun's website. After Boydstun responded, asserting its belief that the Rapid Ratchet™ winch did not infringe the '140 Patent, Cottrell further explained that its infringement allegation was based in part on viewing a video available on Boydstun's website.

         On February 21, 2017, Boydstun filed a petition for Inter Partes Review (“IPR”) with the U.S. Patent Trial and Appeal Board (“PTAB”), asserting that all claims in Cottrell's '140 Patent are obvious over Ruan and one of Cottrell's own prior patents, U.S. Patent No. 5, 314, 275 (“'275 patent”). Boydstun also asserted that the claims of the '140 Patent are obvious over Ruan and U.S. Patent No. U.S. 6, 824, 121. On August 30, 2017, the PTAB granted the petition on both grounds and instituted an IPR proceeding, after finding a reasonable likelihood that Boydstun would prevail in at least some of its claims.[7] Boydstun Equip. Mfg., LLC, 2017 WL 3835954 (Aug. 30, 2017).

         DISCUSSION

         Boydstun alleges that Cottrell has monopoly power in the U.S. market for commercial car haulers, which Plaintiff and Defendant agree is the relevant market; Cottrell does not dispute that fact for purposes of this motion. Boydstun also alleges that Cottrell has engaged in exclusionary conduct, including bad faith enforcement of patents, “scare-the-customer-and-run” tactics, supply chain restrictions, and interference with suppliers. Boydstun further alleges that it has suffered antitrust injury. Cottrell moves to dismiss Boydstun's monopolization claims on the grounds that: (1) based on the Noerr-Pennington doctrine of antitrust immunity, Cottrell is not subject to antitrust liability for enforcing its patents;[8] (2) Boydstun fails to allege sufficient facts to show other exclusionary conduct; and (3) Boydstun fails sufficiently to allege causal antitrust injury. Boydstun responds that Cottrell's conduct is subject to both the “sham” and “Walker Process fraud”[9] exceptions to Noerr-Pennington immunity and that Boydstun has alleged sufficient facts to show other exclusionary conduct and antitrust injury. Cottrell also moves to dismiss Boydstun's state claim under ORS § 646A.810, arguing preemption under federal law. Boydstun responds that this claim is not preempted because Cottrell engaged in objectively baseless patent enforcement conduct.

         A. Monopolization

         1. Cottrell's Patent Enforcement Practices

         Boydstun alleges that Cottrell acted in bad faith in enforcing two invalid patents and that Cottrell is now using those patents to block and attempt to block Boydstun's ability to compete with Cottrell by threatening to bring patent infringement actions against Boydstun based on invalid patents. Specifically, Boydstun alleges that Cottrell's threatened enforcement of the '917 Patent and the '140 Patent was done in bad faith and constitutes anticompetitive conduct.

         a. Noerr-Pennington Immunity

         Patent law and antitrust law are at odds. “The point of antitrust law is to encourage competitive markets to promote consumer welfare. The point of patent law is to grant limited monopolies as a way of encouraging innovation.” F.T.C. v. Actavis, Inc., 133 S.Ct. 2223, 2238 (2013). A patent, in essence, “provides an exception to the antitrust law, and the scope of the patent . . . forms the zone within which the patent holder may operate without facing antitrust liability.” Id.

         “Under the Noerr-Pennington doctrine . . . defendants are immune from antitrust liability for engaging in conduct (including litigation) aimed at influencing decisionmaking by the government.” Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S.Ct. 1749, 1757 (2014). This includes patent infringement litigation. See Handargds, Inc. v. Ethicon, Inc., 601 F.2d 986, 993 (9th Cir. 1979) (“Patentees must be permitted to test the validity of their patents in court through actions against alleged infringers.”). The Ninth Circuit has extended Noerr-Pennington immunity to “litigation-related activities preliminary to the formal filing of the litigation, ” such as presuit demand letters and other “conduct incidental to prosecution of the suit.” Sosa v. DIRECTV, Inc., 437 F.3d 923, 934-37 (9th Cir. 2006). Plaintiff and Defendant do not dispute that Cottrell's actions, in sending cease and desist letters and threatening patent infringement litigation, constitute conduct within the prima facie scope of the Noerr-Pennington doctrine.

         There are, however, exceptions to Noerr-Pennington immunity. First, under the “sham exception, ” “activity ostensibly directed toward influencing government action does not qualify for Noerr immunity if it is a mere sham to cover an attempt to interfere directly with the business relationships of a competitor.” Octane Fitness, 134 S.Ct. at 1757 (quotation marks and alterations omitted). Second, under the “Walker Process fraud exception, ” enforcement of a patent obtained by fraud on the PTO is not entitled to Noerr-Pennington immunity. Boydstun argues that both the sham exception and the Walker Process fraud exception apply, and, thus, Cottrell may be subject to antitrust liability based on its patent enforcement actions.

         b. The Sham Exception

         “[W]hile genuine petitioning is immune from antitrust liability, sham petitioning is not.” BE & K Constr. Co. v. N.L.R.B., 536 U.S. 516, 525-26 (2002). A bad faith patent enforcement may form the basis for antitrust liability under Section 2. In order “to qualify as a ‘sham, ' a lawsuit must be objectively baseless and must conceal an attempt to interfere directly with the business relationships of a competitor.” Octane Fitness, 134 S.Ct. at 1757 (quotation marks and alterations omitted). The Supreme Court has articulated a two-part definition of sham antitrust litigation:

[F]irst, it “must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits”; second, the litigant's subjective motivation must “conceal an attempt to interfere directly with the business relationships of a competitor through the use of the governmental process-as opposed to the outcome of that process-as an anticompetitive weapon.” BE & K, 536 U.S. at 526 (quoting Prof'l Real Estate Inv'rs., Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 60-61 (1993)) (emphasis in original) (first alteration added, original alterations omitted). “For a suit to violate the antitrust laws . . . it must be a sham both objectively and subjectively.” Id. ...

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