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DAW Industries, Inc. v. Proteor Holdings

January 29, 2008


The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court


Presently before the Court is Defendant's*fn1 Motion to Dismiss Plaintiff's Complaint. For the following reasons, the Court GRANTS the motion.


A. Factual Background

The "incorporation by reference" doctrine permits district courts to consider, in connection with a motion to dismiss, documents whose contents are alleged in the Complaint and whose authenticity no party questions, but which are not physically attached to plaintiff's pleading. In re Seracare Life Sciences, Inc., 2007 WL 935583, *4 (S.D. Cal. March 19, 2007) (citing In re Silicon Graphics Inc. Securities Litigation, 183 F.3d 970, 986 (9th Cir.1999)); see also Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994) (holding that documents not physically attached to the complaint may nonetheless be considered by the court on a 12(b)(6) motion to dismiss if the complaint refers to such documents, the documents are "central" to plaintiff's claim, and no party questions the authenticity of the copy attached to the 12(b)(6) motion).

In this case, the Complaint makes reference to a letter dated June 4, 2007 (D's Mem. ISO Motion, Ex. G), a letter dated July 25, 2007 (D's Mem. ISO Motion, Ex. H), and a contract executed September 2005 (D's Mem. ISO Motion, Ex. B). Neither the letters nor the contract were physically attached to the Complaint but these documents have been offered as exhibits to Defendant's Motion to Dismiss and neither party challenges the authenticity of the documents. Thus, in addition to the Complaint, the Court looks to these documents in its recount of the factual background.

Defendant claims ownership of United States patent 6,869,560 ("the '560 patent") which is directed to a process for manufacturing a flexible sleeve for a prosthesis or an orthopedic appliance made with, among other materials, polyolefin foam. (Compl. ¶ 14; Def. Mem ISO Mot., Ex. H.) Plaintiff and Defendant have had a business relationship for many years, with Plaintiff serving as the exclusive distributor of Defendant's products from January 1, 1987 until March 31, 2006. (Def. Mem. ISO Mot., Ex. B.) More recently, after a legal dispute that is unrelated to this case, the two companies entered into a settlement agreement, signed in September of 2005, which provides a basis for a continued distribution agreement on a non-exclusive basis:

3.8 After March 31, 2006, [Defendant] will continue to sell [Defendant] products to [Plaintiff] on a non-exclusive basis at the current terms and conditions that [Defendant] currently sells its products to [Plaintiff], in order that [Plaintiff] may continue to provide after-sales service, support and warrant to its clients who had purchased [Defendant] products from [Plaintiff] before March 31, 2006.

(See id.)

Sometime in 2007, Defendant became aware that Plaintiff, in addition to distributing and selling certain flexible sleeves manufactured and supplied by Defendant, was also distributing and selling a similar product under the EVERFLEX brand name. In a July 25, 2007 letter, Defendant accused Plaintiff of infringing Defendant's '560 patent through the sale of the EVERFLEX product. (Def. Mem. ISO Mot., Ex. H.) The basis for Defendant's claim was the result of tests performed by Defendant on the EVERFLEX material which revealed the product was made using the material mentioned in the Defendant's '560 patent: polyolefin foam.*fn2 Two days after receiving this letter from Defendant, on July 27, 2007, Plaintiff filed the instant lawsuit.

The Complaint asserts Defendant has alleged Plaintiff infringes the '560 patent "without having provided sufficiently specific facts to support the allegation" and further asserts Plaintiff "does not have sufficient information to know that it infringes the '560 patent and, accordingly denies [Defendant's] allegations that it infringes the '560 patent." Plaintiff goes on to allege that "on information and belief and after a reasonable opportunity for further investigation and discovery, [Plaintiff] believes that the '560 patent is invalid." (Compl. at ¶ 16.)

In addition, the Complaint also alleges Defendant has engaged in a scheme to fix prices in interstate commerce in the United States for its "Keasy" product,*fn3 in violation of the United States antitrust laws. (Compl. at ¶ 17.) The Complaint alleges this scheme is evidenced by a June 4, 2007 letter. (Id. (referencing Def. Mem ISO Mot., Ex. G).) In that letter, Defendant informs Plaintiff that it needs to reduce the purchasing discount that Plaintiff, as a distributor, receives for certain products trading under the name "Keasy." The letter also states Defendant recommends all resellers avoid price battles and threatens action if one distributor prices Defendant's products much lower than other distributors. (See id.) The Complaint goes on to allege Defendant is using the '560 patent as an anticompetitive device. (Compl. ¶ 19.)

Finally, the Complaint references the September 2005 settlement agreement, alleging it contains a provision which mandates Defendant sell products to Plaintiff. It also alleges Plaintiff has placed orders with Defendant for the Keasy product and that, in violation of the agreement, Defendant has refused to sell the Keasy product to Plaintiff. (Compl. ¶ 20-22.)

Based on these allegations, the Complaint asks for (1) a declaratory judgment concerning whether Plaintiff infringes the '560 patent and whether the patent is valid; (2) money damages and injunctive relief arising from Defendant's alleged violations of the antitrust laws; and (3) money damages for Defendant's breach of contract.

Defendant filed a motion to dismiss, arguing (1) Plaintiff's request for a declaratory judgment of non-infringement and invalidity should be dismissed because there is no actual controversy within the meaning of the Declaratory Judgment Act; (2) the antitrust portion of the Complaint should be dismissed because it fails to allege enough specific facts to state a claim of relief; and (3) the ...

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