United States District Court, N.D. California, San Jose Division
October 24, 2005.
Marathon Coach, Inc., Plaintiff,
Phase Four Industries, Inc., et al., Defendants.
The opinion of the court was delivered by: JAMES WARE, District Judge
ORDER GRANTING MARATHON'S MOTION TO DISMISS COUNTERCLAIMS
Marathon Coach, Inc. ("Marathon" or "Plaintiff") filed a patent
infringement action against Phase Four Industries, Inc. ("Phase
Four"), and Monaco, Inc. ("Monaco") (collectively "Defendants"),
in November 2004. Currently before this Court is Marathon's
Motion to Dismiss Defendants' Counterclaims for failure to state
a claim upon which relief may be granted pursuant to Rule
12(b)(6) of the Federal Rules of Civil Procedure. This Court
deemed Plaintiff's motion submitted pursuant to Civil Local Rule
7-1(b). Based on the briefs filed to date, this Court GRANTS
Plaintiff's Motion to Dismiss Counterclaims.
Marathon is an Oregon corporation with its principal place of
business in Coburg, Oregon. Marathon is involved in the business
of producing hand built, high-end RV's from the chassis up.
Marathon is the owner-by-assignment of the U.S. Patent No.
6,607,009 (hereinafter '009), entitled "Sewage Systems for
Vehicles." The patent was issued on August 19, 2003. Phase Four
is a California corporation with its principal place of business in Hollister, California.
Phase Four is also involved in the RV industry. In October 2002,
Phase Four filed a provisional application for an automatic sewer
hose. Monaco is an Oregon corporation with its principal place of
business in Oregon. Monaco is a developer and manufacturer of
RVs. Pursuant to a business relationship with Phase Four, Monaco
purchases RV parts from Phase Four and incorporates them into its
This case essentially involves the technology development of
the RV waste disposal system. RV waste disposal is typically done
manually, through the manipulation of valves and a sewer hose.
The user must manually connect a sewer hose from the RV to a
sewer receptacle. After the waste has been emptied from the RV,
the hose is manually disconnected and stored within the RV. This
process is generally thought to be an unpleasant experience. Both
Marathon and Phase Four have developed and claim inventorship to
automated waste disposal systems that use a pre-attached sewer
hose that extends and retracts without the need for manual
manipulation of the hose.
Marathon contends that Defendants manufacture, use, sell and or
offer to sell the "Waste Master" sewage system, which infringes
on Marathon's '009 patent. On October 29, 2004, Marathon sent a
"cease and desist" letter to Monaco. The letter informed Monaco
that the "Waste Master" product infringed on Marathon's patents
and requested an accounting of sales. In late November 2004,
Marathon filed a patent infringement suit against Defendants in
the District Court in Oregon. The lawsuit was later transferred
to the Northern District of California and is currently before
this Court. Defendants have filed separate counterclaims against
Marathon's infringement claims. Specifically, Phase Four's
counterclaims include (1) intentionalinterference with business
relationships, (2) intentionalinterference with existing
contractualrelations, (3) intentional interference with
prospective contractual relations, (4) defamation, and (5) libel.
Monaco has asserted only one counterclaim for intentional
interference with business relationship against Marathon.
Marathon now moves to dismiss all of Defendants' counterclaims
pursuant to Rule 12(b)(6). Fed.R.Civ.P. 12(b)(6).
Anticipating that Marathon would sue it for patent
infringement, on November 11, 2004, Phase Four filed a preemptive
action against Marathon in the Northern District of California,
seeking a declaratory judgment that it does not infringe the '009
patent and that the '009 patent is invalid. (See C 04-4801-JW.)
Two of the bases for claimed invalidity urged by Phase Four are
priority of inventorship and derivation. On October 20, 2005, this Court granted Marathon's Motion for Partial Summary
Judgment as to the affirmative defenses of invalidity based on
priority of inventorship and derivation and orders these
affirmative defenses dismissed. (See C 04-4801-JW, Docket Item
A. Dismissal under Rule 12(b)(6)
A complaint may be dismissed for failure to state a claim upon
which relief can be granted. FED. R. CIV. P. 12(b)(6). A claim
may be dismissed as a matter of law for: "(1) lack of a
cognizable legal theory or (2) insufficient facts under a
cognizable legal theory." Robertson v. Dean Witter Reynolds,
Co., 749 F.2d 530, 534 (9th Cir. 1984). "A complaint should not
be dismissed for failure to state a claim unless it appears
beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief." Conley
v. Gibson, 355 U.S. 41, 45-46 (1957). The court "must presume
all factual allegations of the complaint to be true and draw all
reasonable inferences in favor of the nonmoving party." Usher v.
City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). In
determining the propriety of a FED. R. CIV. P. 12(b)(6)
dismissal, a court may not look beyond the complaint. Schneider
v. California Dept. of Corrections, 151 F.3d 1194, 1197 (9th
Cir. 1998) ("The focus of any Rule 12(b)(6) dismissal . . . is
the complaint"). A court may dismiss a case without leave to
amend if the Plaintiff is unable to cure the defect by amendment.
Lopez v. Smith, 203 F.3d 1122, 1129 (9th Cir. 2000).
B. Choice of Law
Title 28 U.S.C. § 1404(a) permits a party to a litigation to
request transfer of any civil action to any other district court
or division where it might have been brought.
28 U.S.C. § 1404(a). The United States Supreme Court has, however, held that
a transfer of venue under § 1404(a) should effect only a change
of court and not a change of law. Van Dusen v. Barrack,
376 U.S. 612 (1964). Thus, the transferee court should apply the law
that the transferor court would have applied if the case had not
been transferred. Hence, this Court will apply the law that the
Oregon court would have applied, had the case not been
transferred to California. IV. DISCUSSION
As a preliminary matter, the Court finds that Marathon, the
owner of the '009 Patent, has a statutory right to enforce its
patent by contacting possible infringers and advising them of
possible infringement suits. A patentee who has a good faith
belief that its patents are being infringed violates no protected
right when it notifies infringers. Mallinckrodt, Inc. V.
Mediapart, Inc., 976 F.2d 700, 709 (Fed. Cir. 1992). Patents
would be of little value if infringers of them could not be
notified of the consequences of infringement or proceeded against
in the courts. Id. Marathon is the owner of the U.S. Patent No.
6,607,009 (the '009 Patent), describing a novel automatic sewer
hose for RVs. As the owner of this Patent, Marathon is granted a
statutory presumption of validity and therefore has the right to
enforce its Patent. 35 U.S.C. § 282. The federal circuit has held
that "threatening alleged infringers with suit" is contained
within a patent owner's right to enforce his patent. Concrete
Unlimited, Inc. V. Cementcraft, Inc., 776 F.2d 1537, 1539 (Fed.
Cir. 1985). Thus, Marathon clearly had a right to send an
infringement letter to Monaco, informing them of a possible
lawsuit. The letter was sent from the law firm of Chernoff,
Vilhauer, McClung & Stenzel, LLP, and addressed to Mr. John
Nepute, President, CEO of Monaco. The letter reads, in pertinent
We represent Marathon Coach, Inc., in its
intellectual property mattes. It has come to our
attention that Monaco Coach equips its coaches with
Waste Master products from Phase Four Industries. The
Waste Master product infringes U.S. Patent No.
6,607,009, assigned to Marathon Coach. Accordingly,
your resale of this product constitutes patent
We note that Phase Four Industries owns two pending
patent applications concerning the Waste Master.
These applications do not shield Phase Four from
infringement. Marathon's patent predates Phase Four's
applications. We fully anticipate that the pending
Phase Four applications will be rejected by the U.S.
Patent Office because of Marathon's issued patent.
(See Docket Item No. 21.)
Nonetheless, Defendants contend that Marathon had no absolute
right to send the letter because Marathon lacked a "good faith
belief" that Defendants infringed the '009 patent. "Federal
patent law bars the imposition of liability for publicizing a
patent in the marketplace unless the claimant can show that the
patent holder acted in bad faith." Concrete Unlimited, Inc.,
776 F.2d 1539. While the Federal Rules of Civil Procedure merely
requires notice pleading, Defendants have not pled sufficient
facts the support a claim of bad faith apart from a general
conclusory statement that Marathon acted in bad faith. However,
even if the Court were to give Defendants leave to amend their
allegation of bad faith, as discussed below, any claims arising out of the letter sent to Monaco are barred
because the letter falls within the litigation privilege.
A. Marathon's letter to Monaco falls within the litigation
privilege and therefore all the counterclaims arising from this
communication are barred.
Defendants' Counterclaims arise out of the single letter
Marathon sent to Monaco upon learning of Monaco's sales of the
"Waste Master," advising them of possible infringement suits.
Marathon contends that all of Defendants' counterclaims are
barred by the California litigation privilege. Under California
Civil Code section 47(b), any publication made in a judicial
proceeding is privileged. Cal. Civ. Code section 47(b). The
privilege is absolute and applies to any communication (1) made
in a judicial or quasi judicial proceeding, (2) by litigants or
other participants authorized by law, (3) to achieve the objects
of litigation, (4) and which has some connection or logical
relation to the action. Visto Corp. V. Sproqit Tech., Inc.,
360 F.Supp.2d 1064 (N.D. Cal. 2005). Marathon contends that since the
letter was sent 20 days before litigation, the letter bears a
logical relationship to the litigation and is therefore
Defendants contend that since the case was transferred from
Oregon to California, Oregon law should apply. Although Oregon
does not have a counterpart to California Civil Code section
47(b), Oregon law treats as privileged all communications made as
part of a judicial proceeding. Schmitz v. Mars, Inc.,
261 F.Supp.2d 1226, 1230-31 (D. Or. 2003) The court in Schmitz held
that "The law recognizes the absolute privilege accorded a party
in a judicial proceeding when the communications are in the
institution of or during the course and as a part of a judicial
proceeding in which the party participates, if the matter has
some relation thereto." Id. Communications made "preliminary
to" but "related to" a proposed judicial proceeding have also
been afforded such absolute privilege. Ramstead v. Morgan,
347 P.2d 594, 594 (Or. 1959).
Marathon's letter of October 29, 2004, to Monaco simply stated
that the "Waste-Master" product infringed Marathon's patent and
requested an accounting of sales. It further suggested that the
parties try to avoid litigation by working something out. (Motion
at 2:24.) On November 19, 2004, twenty days after sending the
letter, Marathon actually filed an infringement suit against the
Defendants. This Court finds that Marathon's letter is related to
the infringement suit and constitutes "communication that is
either in the institution of or during the course and as a part
of a judicial proceeding." Schmitz, 261 F. Supp. 2d 1226 (D. Or. 2003). Therefore, Marathon's letter to Monaco is
protected under the litigation privilege and the Defendants are
barred from asserting any counterclaims based on the letter.
B. Defendants' Counterclaims for intentional interference
with business relationship are without merit because Marathon did
not engage in any independent wrongful conduct.
Even if the letter to Monaco is not protected as litigation
privilege, Defendants' Counterclaims for intentional interference
with business relationship are without merit because Marathon did
not engage in any independent wrongful conduct. In order to state
a claim for intentional interference with business relationship
under Oregon law, claimant must establish: (1) contract or
reasonable expectancy of economic advantage, (2) knowledge of
such contract or expectance, (3) intentional interference with
contract or expectancy, (4) improper means or motive wrongful by
some measure beyond fact of interference itself, and (5) damage
as a result. Fuller Bros., Inc. V. International Marketing,
Inc., 858 F. Supp. 142 (D. Or. 1994); Visto Corp. V. Sproqit
Tech., Inc., 360 F. Supp.2d 1064 (N.D. Cal. 2005). Under both
Oregon and California law, "wrongful interference" or "wrongful
conduct" must be pled as a separate threshold element to allow
for a recovery. Thompson v. Tel. & Data Sys. Inc.,
881 P.2d 819, 826 (Or.App. 1994); Visto, 360 F. Supp.2d 1064 (N.D. Cal.
2005). The pleading must specifically identify an independent
wrongful act beyond the intentional interference in the business
Defendants do not meet the "wrongful conduct" threshold for a
claim of intentional interference with business relations.
Defendants' claim of intentional interference is based solely on
the infringement letter Marathon sent to Monaco. This is the only
"wrongful conduct" alleged by the Defendants. (Opp'n. at 5, 6.)
The law requires a "wrongful conduct" independent of the
interference itself. Since the alleged interference is caused by
the letter and Defendants do not plead any other "wrongful
conduct", the threshold for independent "wrongful conduct" is not
Defendants contend that Marathon's letter to Monaco is
defamatory and defamation constitutes independent wrongful
conduct. (Opp'n. at 6.) Defendants rely on Visto, where the
court held that the independent wrongful conduct requirement of a
claim for intentional interference with business relations is
fulfilled, at-least in theory, when defamation is alleged. Visto
Corp, 360 F. Supp.2d 1064 (N.D. Cal. 2005). Visto relies on
multiple California cases where defamation is commonly construed
as an independently wrongful conduct in an intentional
interference with business relationship claim. While an allegation of defamation may be sufficient to make an
intentional interference with business relationship claim,
Defendants have failed to allege facts sufficient to maintain a
defamation action. The tort of defamation consists of the
publication of a false and defamatory statement that is
communicated to a third party. Brown v. Gatti, 99 P.3d 299,
305-06 (Or.App. 2004). A statement is not published unless a
third party, independent of the parties to the lawsuit, heard or
saw the defamatory statement. Id. To be defamatory, a statement
must damage the targeted party's reputation, goodwill, respect,
or the like. Id. In this case, there is no publication.
Although Marathon's letter was sent to Monaco, it was not
published because Monaco is the sole recipient of the letter and
is a party to the current litigation. Monaco's incorporation of
Phase Four's "Waste-Master," which is the alleged infringing
product, into its RVs creates a potential claim of contributory
infringement. Since Defendants have failed to identify a
non-party to the litigation to whom the letter was sent,
Defendants' claims for defamation are dismissed.
For the reasons set forth above, the Court GRANTS Plaintiff's
Motion to Dismiss Counterclaims with prejudice as all of
Defendants' Counterclaims arise out of a single letter Marathon
sent to Monaco and that letter falls within the litigation
The parties shall appear at the case management conference
scheduled for October 31, 2005.
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