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Digital Sun, A California Corporation v. the Toro Company

March 22, 2011

DIGITAL SUN, A CALIFORNIA CORPORATION
PLAINTIFF,
v.
THE TORO COMPANY, A DELAWARE CORPORATION
DEFENDANT.



The opinion of the court was delivered by: Lucy H. Koh United States District Judge

ORDER GRANTING DEFENDANT'S MOTION TO DISMISS WITH LEAVE TO AMEND

Plaintiff Digital Sun Corporation (Digital Sun) brings suit against Defendant Toro Company (Toro) seeking damages for antitrust violations, fraud, and unfair competition. Toro 18 moves to dismiss Plaintiff's complaint for failure to state a claim pursuant to Fed. R. Civ. P. 19 12(b)(6) (See Dkt. No. 21, Mot.). Pursuant to Local Civil Rule 7-1(b), the Court concludes that 20 this motion is appropriate for determination without oral argument and VACATES the motion 21 hearing scheduled for May 5, 2011. Based on the parties' stipulation requesting a continuance of 22 the May 5, 2011 case management conference, the case management conference is continued to Wednesday, June 8 at 2 p.m. For the reasons set forth below, Toro's motion to dismiss is GRANTED with leave to amend.

I. BACKGROUND 26

Digital Sun began selling its S Sense wireless sprinkler system in 2003. Compl. ¶ 15. The S Sense system utilized wireless sensors to activate a watering system based on the dampness of the soil. Compl. ¶¶ 14-16. Digital Sun claims that the S Sense system significantly improves the 2 efficiency of landscape irrigation by watering only when necessary, thereby reducing water waste.

Id. Digital Sun has applied for or obtained patents on the technology embodied in the S Sense 4 system. Compl. ¶¶ 16, 22. Toro, a leading international provider of turf, landscape, and irrigation 5 equipment, contacted Digital Sun in 2003 regarding its S Sense technology. Compl. ¶¶ 1, 17. In 6 Compl. ¶ 18. A Letter of Interest ("LOI")*fn1 was executed regarding this potential acquisition, which 8 required exclusive negotiations between Toro and Digital Sun for three months, with , the loan was to be repaid by March 1, 2005.*fn2 See Dkt. 13 2004, Toro and Digital Sun entered into negotiations regarding acquisition of Digital Sun by Toro.

No. 21 (Defs.' Req.for Judicial Notice (RJN)), Ex. 1 at 1, Ex. A. A second LOI extended the 14 period of negotiation to May 31, 2005,. This loan was to be repaid by December 1, 2005. If Toro did 18 not purchase Digital Sun, all of the loans were to be repaid by December 1, 2005. RJN, Ex. 2.

On May 17, 2006, Digital Sun and Toro entered into a Manufacture, Design and Supply Agreement ("MSA"). Compl. ¶ 21. Under the MSA, Toro gained exclusive rights to sell Digital 22 Sun's products through five major home improvement retailers. RJN, Ex. 3. In exchange, Toro 23 paid Digital Sun .

Toro terminated the LOI. Compl. ¶ 19.

Id. The MSA included a product specification which Digital Sun's product did not meet until the summer of 2008. Compl. ¶ 24. Meanwhile, Digital Sun was in default of its loans from Toro.

Compl. ¶ 22. The parties entered into a license agreement on December 4, 2007, granting Toro an 3 exclusive license to Digital Sun's patents in the golf and sports fields of use in exchange for the 4 cancellation of Digital Sun's debt to Toro. RJN, Ex. 4. Shortly thereafter, Toro acquired a 5 company named Turf Guard, which also manufactured wireless soil moisture sensors. Compl. ¶ 6 Toro a nonexclusive license to Digital Sun's patents in all fields of use other than the golf and 8 sports fields XXXXXX XXXXXXXXXX XXXXXXXXXXXX. RJN, Ex. 8. Between 2009 and 23. On December 23, 2009, Digital Sun and Toro entered into another license agreement granting 2010, after Toro conducted field tests on Digital Sun's recently completed S Sense product, the 10 parties negotiated twice regarding acquisition of Digital Sun by Toro. Compl. ¶ 26; RJN, Ex. 5; RJN, Ex. 7. However, these negotiations were both terminated by Toro. Compl. ¶¶ 28-31. Digital Sun filed its complaint on October 8, 2010 alleging antitrust violations, fraud, and unfair 13 competition.

A motion to dismiss for failure to state a claim under Rule 12(b)(6) tests the legal sufficiency of a complaint. To withstand a motion to dismiss, a plaintiff must "plead enough facts 17 to state a claim to relief that is plausible on its face." Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007). "On a motion to dismiss in an antitrust case, a court must determine whether an antitrust 19 claim is 'plausible' in light of basic economic principles." Coalition for ICANN Transparency, Inc. v. VeriSign, Inc., 611 F.3d 495, 501 (9th Cir. 2010) (citing Twombly, 550 U.S. at 556). All 21 allegations of material fact are taken as true and interpreted in a manner most favorable to the non-22 moving party. Simon v. Hartford Life and Accident Ins. Co., 546 F.3d 661, 664 (9th Cir. 2008).

However, the court is not required to accept as true "allegations that are merely conclusory, 24 unwarranted deductions of fact, or unreasonable inferences." In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008). Leave to amend should be granted unless it is clear that the 26 complaint's deficiencies cannot be cured by amendment. Lucas v. Dep't of Corr., 66 F.3d 245, 248 (9th Cir. 1995). If amendment would be futile, a dismissal may be ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir. 1996).

II. LEGAL STANDARDS15

III. ANALYSIS 2

4 ruling on a 12(b)(6) motion to dismiss for failure to state a claim. Lee v. City of Los Angeles, 250 5 F.3d 668, 688 (9th Cir. 2001). However, a court may consider "material which is properly 6 submitted as part of the complaint." Id. at 688 (internal quotations omitted). Such consideration 7 may extend to documents "whose contents are alleged in a complaint and whose authenticity no 8 party questions, but which are not physically attached to the [plaintiff's] pleading." Parrino v.

a. Judicial Notice

As a general rule, a district court may not consider any material beyond the pleadings in FHP, Inc., 146 F.3d 699, 706 (9th Cir.1998) (internal quotation marks omitted), superseded by 10 statute on other grounds as recognized in Abrego Abrego v. Dow Chem. Co., 443 F.3d 676, 681(9th Cir. 2006).

Interest dated December 22, 2004; (2) Parties' executed Letter of Interest dated April 12, 2005; (3) Here, Toro requests that the Court take judicial notice of: (1) Parties' executed Letter of Parties' executed Design, Manufacture, and Supply Agreement dated May 17, 2006; (4) Parties' 15 executed License ...


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