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Champion Laboratories, Inc v. Parker-Hannifin Corporation

May 16, 2011

CHAMPION LABORATORIES, INC,
PLAINTIFF,
v.
PARKER-HANNIFIN CORPORATION, ET AL,
DEFENDANTS.



The opinion of the court was delivered by: Oliver W. Wanger United States District Judge

DEFENDANTS PARKER-HANNAFIN MEMORANDUM DECISION RE: AND PARKER INTANGIBLES LLC'S MOTION TO DISMISS (Doc. 16)

I. INTRODUCTION.

Plaintiff Champion Laboratories, Inc. ("Champion") filed this action on December 20, 2010, alleging two violations of the False Marking Statute, 35 U.S.C. § 292, by Defendants Parker-Hannafin Corp. and Parker Intangibles, LLC (collectively "Parker"). The Complaint also alleges violations of the Lanham Act § 43(a), 15 U.S.C. § 1125(a), and California Business & Professions Code §§ 17200 et seq.

Defendants move to dismiss for lack of subject-matter jurisdiction pursuant to Fed. R. Civ. P. 12(b)(1) and for failure to state a claim pursuant to Fed. R. Civ. P. 12(b)(6). The substance of Parker's challenge is that a "first-to-file" limitation on false patent marking qui tam actions jurisdictionally bars Plaintiff's actions.

II. BACKGROUND.

The following background facts are taken from the parties' submissions in connection with the motions and other documents on file in this case.

Champion is a Delaware corporation that has its principal place of business in Albion, Illinois. Compl. ¶ 1. Parker is a Delaware corporation that has its principal place of business in Cleveland, Ohio. Id. ¶ 2. Parker operates a division of its filter business in Modesto, California (referred to as the "Racor Division"). Id. ¶¶ 3, 22.

Both Champion and Parker are automotive suppliers engaged in the business of producing and selling automobile parts to car manufacturers. Both parties produce fuel filtration products for Ford trucks equipped with the "Powerstroke" diesel engine. Parker was designated as the original equipment supplier for Ford's filtration system and its replacement filter is designated model number "PF-L2016." Id. ¶ 11. Parker owns and licenses a number of patents relevant to the PF-L2016 filter, including Patent No. 7,086,537 ("the '537 Patent") and Patent No. 6,837,993 ("the '993 Patent").*fn1 Parker also designs, makes and sells other components of the filtration system and allegedly "has the ability to control the design of the [filtration] system." Id. ¶ 30.

Champion's replacement filter is designated by the model number "LP-2017." Id. ¶ 29.

This lawsuit presents one more chapter in the litigation between Champion and Parker concerning alleged patent infringement and anti-competitive business practices. A more thorough recitation of the varied disputes between the parties is found in Parker-Hannifin Corp. v. Wix Filtration Corp., Nos. 1:07 CV 1374, 1:07 CV 1375, 2011 WL 976559 (N.D. Ohio Mar. 17, 2011), Parker-Hannifin Corp. v. Champion Laboratories, Inc., No. 1:06-CV-2616, 2008 WL 3166318 (N.D. Ohio Aug. 4, 2011) and Champion Laboratories, Inc. v. Parker-Hannifin Corp., 616 F. Supp. 2d 684 (E.D. Mich. 2009).*fn2

The Complaint, filed on December 20, 2010 at 11:18 p.m. PST, arises out of Champion's claims that Parker marked its product, the Parker 2016 replacement filter, with the '537 and '993 patent designations despite the fact that "the claims of the ['537 and '993] Patent[s] are inapplicable to the Parker 2016 Filter." Compl. ¶¶ 15-16. The complaint accuses Parker of "intentionally includ[ing] the ['537 and '993] Patent[s] in the patent markings of the Parker 2016 Filter in an attempt to deter competitors from attempting to design, produce, market, or sell a competing filter." Id. ¶¶ 59, 74. Champion brings this action as a qui tam proceeding to recover civil fines on behalf of the United States Government.*fn3

Plaintiff's third and fourth claims allege violations of federal and state unfair competition and false advertising laws, predicated on Parker's alleged misrepresentations of the applicability of the '537 and '993 patents to the Parker 2016 filter elements. Id. ¶¶ 85-106.*fn4

Parker moves to dismiss this action based on a provision of the False Claims Act, 31 U.S.C. § 3730(b)(5), which purportedly creates a first--to-file limitation that jurisdictionally bars Plaintiff's action. Parker claims that nearly three weeks before Plaintiff filed the present suit, a different Plaintiff filed a separate false patent marking qui tam action against Parker based on the same material allegations.

Specifically, on December 2, 2010, Tex Pat, LLC ("Tex Pat") filed a qui tam action against Parker as a relator on behalf of the United States in the U.S. District Court for the Eastern District of Texas, Tex Pat, LLC v. Parker-Hannifin Corp., No. 5:10-CV-00202 (E.D. Tex.). Tex Pat's amended complaint, filed on December 20, 2010 at 9:35 p.m. PST, alleged that Parker's 2016 filter element was falsely marked with the '537 and '993 patents. Parker represents that the Tex Pat action was settled on December 21, 2010 and the action was dismissed with prejudice on January 11, 2011.*fn5

Doc. 16-2. Parker submits that the Tex Pat settlement was acknowledged and accepted by Mr. John Fargo of the Commercial Litigation Branch of the Department of Justice.

Champion opposed the motion on March 11, 2011, contending that its false marking claims are not subject to the first-to-file bar. According to Champion, the motion should be denied to "allow discovery into the circumstances surrounding the negotiation of the settlement."

III. LEGAL STANDARD A. Motion to Dismiss

Under Federal Rule of Civil Procedure 12(b)(6), a motion to

dismiss can be made and granted when the complaint fails "to state a claim upon which relief can be granted." Dismissal under Rule 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990).

To sufficiently state a claim to relief and survive a 12(b)(6) motion, a complaint "does not need detailed factual allegations" but the "[f]actual allegations must be enough to raise a right to relief above the speculative level." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Mere "labels and conclusions" or a "formulaic recitation of the elements of a cause of action will not do." Id. Rather, there must be "enough facts to state a claim to relief that is plausible on its face." Id. at 570. "To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, --- U.S. ----, 129

S.Ct. 1937, 1949 (2009) (internal quotation marks omitted). "The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant has acted unlawfully. Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Id. (internal citation and quotation marks omitted).

In deciding whether to grant a motion to dismiss, the court must accept as true all "well-pleaded factual allegations." Iqbal, 129 S.Ct. at 1950. A court is not, however, "required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); see, e.g., Doe I v. Wal-Mart Stores, Inc., --- F.3d ----, 2009 WL 1978730, at *3 (9th Cir. July 10, 2009) ("Plaintiffs' general statement that Wal-Mart exercised control over their day-to-day employment is a conclusion, not a factual allegation stated with any specificity. We need not accept Plaintiffs' unwarranted conclusion in reviewing a motion to dismiss.").

The Ninth Circuit has summarized the governing standard, in light of Twombly and Iqbal, as follows: "In sum, for a complaint to survive a motion to dismiss, the non-conclusory factual content, and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service, 572 F.3d 962 (9th Cir. 2009) (internal quotation marks omitted).

IV. DISCUSSION

A. False Marking Causes of Action (Claims 1 and 2)

1. Constitutionality of Qui Tam Actions Under 35 U.S.C. 292 On February 23, 2011, Judge Polster in the Northern District of Ohio found the qui tam provision of 35 U.S.C. § 292(b) unconstitutional.*fn6 See Unique Product Solutions, Ltd. v. Hy-Grade Valve, Inc., --- F. Supp. 2d ----, No. 5:10-CV-1912, 2011 WL 649998 (N.D. Ohio Feb. 23, 2011). Applying the "sufficient control" analysis set forth in Morrison v. Olson, 487 U.S. 654 (1988) and applied in United States ex rel. Taxpayers Against Fraud v. General Electric Co., 41 F.3d 1032 (6th Cir. 1994), the Court found that the qui tam provision of 35 U.S.C. § 292(b) violated the Appointments and Take Care Clauses of Article II of the United States Constitution by failing to give the Executive Branch sufficient control over the litigation. The Court held that unlike the False Claims Act, "the False Marking statute lacks any of the statutory controls necessary to pass Article II Take Care Clause muster" and represents "a wholesale delegation of criminal law enforcement power to private entities with no control exercised by the Department of Justice [...] [i]t is unlike any statute in the Federal Code with which this Court is familiar."

Since Unique Product Solutions was decided, several federal district courts have held that Section 292(b) is constitutional. See Ford v. Hubbell, Inc., No. 10--CV--513, 2011 WL 1259707, at 3 (S.D. Ill. Mar. 31, 2011); Luka v. The Procter & Gamble Co., No. 10--CV--2511, 2011 WL 1118689, at 5--8 (N.D. Ill. Mar. 28, 2011); Pub. Patent Found., Inc. v. GlaxoSmithKline Consumer, Healthcare, L.P., No. 09--CV--5881, 2011 WL 1142917, at 4 (S.D.N.Y. Mar. 22, 2011); Hy Cite Corp. v. Regal Ware, Inc., No. 10--CV--168, 2011 WL 1206768, at 4 (W.D. Wis. Mar. 15, 2011).

While the weight of the district court case law has found Section 292(b) constitutional, a court need not "decide constitutional questions where other grounds are available and dispositive of the issues of the case." See, e.g., Northwest Austin Mun. Utility Dist. No. One v. Holder, --- U.S. ----, ----, 129 S.Ct. 2504, 2506, 174 L.Ed.2d 140 (2009). Here, the Court must avoid if it can the issue of section 292(b)'s constitutionality, because the complaint is jurisdictionally barred under the "firstto-file" provision.*fn7

2. First-to-File Bar

On December 20, 2010, at 11:18 p.m. PST, Champion filed this qui tam action, alleging Parker marked certain of its filtration product with two inapplicable patent numbers in violation of 35 U.S.C. § 292(a). It is undisputed that Tex-Pat filed an identical lawsuit against Parker in the Eastern District of Texas several weeks before Champion filed this action in the Eastern District of California. Parker argues that because it had already been sued in the Texas case, Champion lacked standing to bring his identical action here.

Section 292(a) prohibits marking unpatented articles as patented for the purpose of deceiving the public; each such false marking offense is punishable by a $500 fine. See Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1303-04 (Fed. Cir. 2009). The statute provides that "[a]ny person may sue for the penalty, in which event one-half shall go to the person suing and the other to the use of the United States." 35 U.S.C. § 292(b).

The false marking statute is one of four qui tam statutes remaining on the books; all were enacted over a century ago. See Vermont Agency of Natural Resources v. U.S. ex rel. Stevens, 529 U.S. 765, 768 n. 1, 120 S.Ct. 1858, 146 L.Ed.2d 836 (2000). Qui tam laws permit private citizens to file enforcement actions on behalf of the government, in return for a bounty. See U.S. ex rel. Hall v. Tribal Dev. Corp., 49 F.3d 1208, 1212 (7th Cir. 1995). "By permitting members of the public to sue on behalf of the government [under 35 U.S.C. § 292], Congress allowed individuals to help control false marking." Forest Group, Inc., 590 F.3d at 1303-04.

Parker argues that only one private individual can assert a cause of action on behalf of the government in a qui tam action under 35 U.S.C. § 292, and that subsequent filers, such as Champion, lack standing to bring the same claims against the same defendant.

The few cases analyzing the false marking statute support Parker's interpretation. On similar facts, Simonian v. Quigley Corp., No. 10-C-1259, 2010 WL 2837180 (N.D. Ill. July 19, 2010) held that the plaintiff lacked standing to assert a qui tam false marking claim because the operative complaint was identical to an earlier-filed action against the same defendant. The district court in Simonian relied on United States v. B.F. Goodrich Co., 41 F. Supp. 574, 575 (S.D.N.Y. 1941), which recognized a first--to-file limitation in an earlier version of the False Claims Act. The court compared § 292(b)'s qui tam provision to the qui tam provision analyzed in B.F. Goodrich, finding the provisions substantially similar, and then applied the B.F. Goodrich reasoning to hold that the plaintiff lacked standing to bring a false marking claim:*fn8

When confronted with multiple similar actions brought against the same defendant, the B .F. Goodrich court noted that "[o]bviously, under the general rule well known and so long adhered to, one plaintiff should not be permitted to bring and maintain at the same time more than one action for the same relief." Id. Because the statute provided for "but one action and one division" of any proceeds, the court concluded that "[t]he first plaintiff has sole control of the action" and "second or subsequent attempts by others can have no standing." Id. Congress later amended the False Claims Act to add an explicit "first-to-file" provision, see 31 U.S.C. ยง 3730(b)(5); the Act's legislative history explains that "[w]hile there are few known instances of multiple parties intervening in past qui tam cases ..., the ...


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