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Abbyy USA Software House, Inc. v. Nuance Communications Inc.

November 6, 2008

ABBYY USA SOFTWARE HOUSE, INC., PLAINTIFF,
v.
NUANCE COMMUNICATIONS INC, DEFENDANT.



The opinion of the court was delivered by: Jeffrey S. White United States District Judge

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS CLAIMS SIX THROUGH NINE OF THE FIRST AMENDED COMPLAINT

Now before the Court is the motion to dismiss claims six through nine of Abbyy USA Software House Inc.'s ("Abbyy") amended complaint filed by Defendant Nuance Communications Inc. ("Nuance"). Nuance moves to dismiss the antitrust causes of action from the amended complaint. Having carefully reviewed the parties' papers, considered their arguments and the relevant legal authority, the Court hereby GRANTS Nuance's motion to dismiss claims six through nine of the amended complaint.

BACKGROUND

On June 4, 2008, Abbyy filed its amended complaint for declaratory judgment for noninfringement and invalidity of certain patents covering OCR software technology owned by Nuance. In its amended complaint, Abbyy added antitrust claims alleging that Nuance engaged in a series of practices that constitute monopolization in violation of Section 2 of the Sherman Act (Claim Six), attempted monopolization in violation of Section 2 of the Sherman Act (Claim Seven), exclusive dealing in violation of Section 1 of the Sherman Act (Claim Eight), and a substantial lessening of competition in violation of Section 7 of the Clayton Act (Claim Nine). By its current motion, Nuance seeks to dismiss the antitrust claims only. The Court will address other facts as relevant in the analysis.

ANALYSIS

A. Legal Standard on Motion to Dismiss

A motion to dismiss is proper under Federal Rule of Civil Procedure 12(b)(6) where the pleadings fail to state a claim upon which relief can be granted. The complaint is construed in the light most favorable to the non-moving party and all material allegations in the complaint are taken to be true. Sanders v. Kennedy, 794 F.2d 478, 481 (9th Cir. 1986). The court, however, is not required to accept legal conclusions cast in the form of factual allegations, if those conclusions cannot reasonably be drawn from the facts alleged. Clegg v. Cult Awareness Network,18 F.3d 752, 754-55 (9th Cir. 1994) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). Conclusory allegations without more are insufficient to defeat a motion to dismiss for failure to state a claim upon which relief may be granted. McGlinchy v. Shell Chemical Co., 845 F.2d 802, 810 (9th Cir. 1988). Even under the liberal pleading standard of Federal Rule of Civil Procedure 8(a)(2), a plaintiff must do more than recite the elements of the claim and must "provide the grounds of [its] entitlement to relief." Bell Atlantic v. Twombly, 127 S.Ct. 1955, 1959 (2007) (citations omitted). In addition, the pleading must not merely allege conduct that is conceivable, but it must also be plausible. Id. at 1974.

B. Count Six -- Actual Monopolization in Violation of Sherman Act Section Two

Plaintiff's sixth claim alleges monopolization under Section 2 of the Sherman Act. In the complaint, Plaintiff sets out five separate predatory acts, which Abbyy alleges Nuance engaged in with "the purpose of stabilizing prices and/or excluding competition." (FAC ¶ 38.) Abbyy alleges that Nuance: (a) entered into exclusive contracts with retail outlets in an attempt to foreclose the number of outlets available to competitors' products; (b) sought to reach agreement with competitors on pricing so that Nuance could raise prices without regard to market pressure; (c) acquired and sought to acquire competitors to reduce supply and raise prices; (d) threatened competitors and customers of competitors with increased litigation; and (e) acquired patents covering OCR technology, with the purpose of substantially lessening competition in software markets. (Id.)

In moving to dismiss the complaint, Nuance argues that each predatory act is insufficiently pled as a basis to state a cause of action for violation of Section 2 of the Sherman Act.

a. Exclusive Dealing

The first predatory act Abbyy alleges is that Nuance entered into exclusive contracts with retail outlets in an attempt to foreclose the number of outlets available to competitors' products. (Id. ¶ 38(a).) Abbyy fails to allege with specificity any information regarding the types of contracts, the contracting parties, the degree of the market allegedly foreclosed as a result of these contracts, or whether alternative channels for marketing were available to Abbyy or its competitors. Under an exclusive distributorship theory, Plaintiff must allege more than simply the existence of an exclusive contract. See Kingray, Inc. v. National Basketball Ass'n, 188 F. Supp. 2d 1177, 1196-97 (S.D. Cal. 2002); see also Rutman Wine Co. v. E. & J. Gallo Winery, 829 F.2d 729, 735 (9th Cir. 1987) (holding that "an exclusive distributorship is not, standing alone, a violation of antitrust laws"). "For an antitrust violation to occur, the exclusive agreement must intend to or actually harm competition in the relevant market." Id. (citations omitted).

Although the complaint generally alleges that Nuance engaged in exclusive contracts, for "the purpose of stabilizing prices and/or excluding competition," thereby suggesting an intent to harm competition, the allegations are conclusory and insufficient to withstand the motion to dismiss. The only injury Abbyy alleges in the complaint is that "certain retail outlets" were foreclosed to competitors. (Id. ¶ 43.) Abbyy does not allege that the dominance over certain retail outlets has the effect of restricting competition in the relevant market. Virtually every contract forecloses the market or excludes other sellers from some portion of the market. See Omega Environmental, Inc. v. Gilbarco, Inc., 127 F.3d 1157, 1162 (9th Cir. 1997) (citing Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 236 (1st Cir. 1983)). Even accepting as true the allegation that Abbyy is foreclosed from "certain retail outlets," this fails to constitute an allegation of harm to the market generally or specific harm suffered by Abbyy. Abbyy does not allege that it has been foreclosed from selling its products and, in fact, has alleged that direct sales and licensing agreements are alternative distribution channels for the same software products. (FAC ΒΆΒΆ 33-35.) Therefore, Abbyy has failed to state an antitrust claim based upon the predatory act of exclusive dealing. Absent well-pleaded allegations of anticompetitive conduct, ...


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