United States District Court, S.D. California
(1) GRANTING DEFENDANT ALLMAX'S MOTION FOR
JUDGMENT ON THE PLEADINGS AND DEFENDANT HBS'S MOTION TO
DISMISS WITH PARTIAL LEAVE TO AMEND; AND [DOC. NOS. 43, 44.]
(2) DENYING PLAINTIFF'S MOTION FOR JUDGMENT ON THE
PLEADINGS [DOC. NO. 57.]
MARILYN L. HUFF, UNITED STATES DISTRICT COURT.
April 25, 2017, Defendant Allmax Nutrition, Inc. filed a
motion for judgment on the pleadings pursuant to Federal Rule
of Civil Procedure 12(c), and Defendant HBS International
Corp. filed a motion to dismiss Plaintiff Natural
Alternatives International, Inc.'s first amended
complaint pursuant to Federal Rule of Civil Procedure
12(b)(6). (Doc. Nos. 43, 44.) On May 19, 2017, Plaintiff
filed an opposition to Defendants' motions. (Doc. No.
56.) On June 2, 2017, Defendants filed a reply. (Doc. No.
22, 2017, Plaintiff NAI filed a motion for judgment on the
pleadings pursuant to Federal Rule of Civil Procedure 12(c).
(Doc. No. 57.) On June 12, 2017, Defendants filed an
opposition to Plaintiff's motion. (Doc. No. 61.) On June
19, 2017, Plaintiff filed its reply. (Doc. No. 62.)
Court held a hearing on the matters on June 26, 2017. Richard
J. Oparil, William J. McKeague, and Frederick W. Kosmo
appeared for Plaintiff NAI. Ragesh K. Tangri appeared for
Defendants Allmax and HBS. For the reasons below, the Court
denies Plaintiff's Rule 12(c) motion, and the Court
grants Defendants' Rule 12 motions with partial leave to
following facts are taken from the allegations in
Plaintiff's first amended complaint. Plaintiff NAI is a
formulator, manufacturer, marketer, and supplier of
nutritional supplements. (Doc. No. 11, FAC ¶ 11.)
Plaintiff sells its branded CarnoSyn® beta-alanine
product to customers throughout the United States and in
other countries. (Id. ¶ 1.) Plaintiff alleges
that its CarnoSyn® product is covered by a robust
portfolio of trademark, copyright, and patent rights.
alleges that Defendants Allmax and HBS International Corp.
offer to sell and sell dietary supplements containing
beta-alanine in the United States, including through
retailers located in California. (Id. ¶¶
1, 8-9, 27-31.) Plaintiff further alleges that
Defendants' website utilizes Plaintiff's trademarks
and copyrights in the marketing of Defendants'
beta-alanine products. (Id. ¶¶ 31-55.)
Plaintiff alleges that these acts constitute trademark,
copyright, and patent infringement. (Id.
8, 2016, Plaintiff filed a complaint against Defendant
Allmax, alleging claims for: (1) violation of the Lanham Act
§ 32; (2) copyright infringement; and (3) patent
infringement. (Doc. No 1.) On October 13, 2016, Defendant
Allmax filed a motion to dismiss Plaintiff's complaint
for lack of personal jurisdiction. (Doc. No. 9.) In response
to Allmax's motion to dismiss, on October 19, 2016,
Plaintiff filed a first amended complaint adding HBS as an
additional defendant and alleging the same causes of action
as in the original complaint and adding a claim for civil
conspiracy. (Doc. No. 11.) In light of Plaintiff's first
amended complaint, on October 20, 2016, the Court denied
Defendant Allmax's motion to dismiss Plaintiff's
original complaint as moot. (Doc. No. 13.)
November 16, 2017, Defendant Allmax filed a motion to dismiss
Plaintiff's first amended complaint for lack of personal
jurisdiction. (Doc. No. 18.) On February 21, 2017, the Court
denied Allmax's motion to dismiss for lack of personal
jurisdiction. (Doc. No. 32.) On March 14, 2017, Defendant
Allmax filed counterclaims and an answer to Plaintiff's
first amended complaint. (Doc. No. 33.)
present motions, Defendant Allmax moves for judgment on the
pleadings pursuant to Federal Rule of Civil Procedure 12(c)
and Defendant HBS moves for dismissal pursuant to Federal
Rule of Civil Procedure 12(b)(6) as to Plaintiff's claims
for violation of Lanham Act § 32, patent infringement,
and civil conspiracy. (Doc. Nos. 43-1 at 1, 44-1 at 1.) In
addition, Plaintiff moves for judgment on the pleadings
pursuant to Federal Rule of Civil Procedure 12(c) as to
Defendant Allmax's fourth affirmative defense and second
counterclaim raising invalidity of the patents-in-suit. (Doc.
No. 57-1 at 2.)
Legal Standards for a Rule 12(b)(6) Motion to Dismiss and a
Rule 12(c) Motion for Judgment on the Pleadings
patent cases, a motion to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6) and a motion for judgment on the
pleadings pursuant to Federal Rule of Civil Procedure 12(c)
are both governed by the applicable law of the regional
circuit. K-Tech Telecommunications, Inc. v. Time Warner
Cable, Inc., 714 F.3d 1277, 1282 (Fed. Cir. 2013);
Amdocs (Israel) Ltd. v. Openet Telecom, Inc., 841
F.3d 1288, 1293 (Fed. Cir. 2016). Federal Rule of Civil
Procedure 8(a)(2) requires that a pleading stating a claim
for relief containing “a short and plain statement of
the claim showing that the pleader is entitled to
relief.” The function of this pleading requirement is
to “give the defendant fair notice of what the . . .
claim is and the grounds upon which it rests.” Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A
motion to dismiss under Federal Rule of Civil Procedure
12(b)(6) tests the legal sufficiency of the pleadings and
allows a court to dismiss a complaint if the plaintiff has
failed to state a claim upon which relief can be granted.
See Conservation Force v. Salazar, 646 F.3d 1240,
1241 (9th Cir. 2011).
Rule of Civil Procedure 12(c) provides: “[a]fter the
pleadings are closed- but early enough not to delay trial-a
party may move for judgment on the pleadings.” The
Ninth Circuit has explained that the standard for deciding a
Rule 12(c) motion “is ‘functionally
identical'” to the standard for deciding a motion
to dismiss under Federal Rule of Civil Procedure 12(b)(6).
Cafasso, U.S. ex rel. v. Gen. Dynamics C4 Sys.,
Inc., 637 F.3d 1047, 1055 n.4 (9th Cir. 2011) (quoting
Dworkin v. Hustler Magazine Inc., 867 F.2d 1188,
1192 (9th Cir. 1989)); accord Chavez v. United
States, 683 F.3d 1102, 1108 (9th Cir. 2012).
complaint will survive a Rule 12(b)(6) motion to dismiss if
it contains “enough facts to state a claim to relief
that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “A claim has
facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
“A pleading that offers ‘labels and
conclusions' or ‘a formulaic recitation of the
elements of a cause of action will not do.'”
Id. (quoting Twombly, 550 U.S. at 555).
“Nor does a complaint suffice if it tenders
‘naked assertion[s]' devoid of ‘further
factual enhancement.'” Id. (quoting
Twombly, 550 U.S. at 557). Accordingly, dismissal
for failure to state a claim is proper where the claim
“lacks a cognizable legal theory or sufficient facts to
support a cognizable legal theory.” Mendiondo v.
Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir.
reviewing a Rule 12(b)(6) motion to dismiss, a district court
must accept as true all facts alleged in the complaint, and
draw all reasonable inferences in favor of the plaintiff.
See Retail Prop. Trust v. United Bhd. of Carpenters &
Joiners of Am., 768 F.3d 938, 945 (9th Cir. 2014). But,
a court need not accept “legal conclusions” as
true. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Further, it is improper for a court to assume the plaintiff
“can prove facts which it has not alleged or that the
defendants have violated the . . . laws in ways that have not
been alleged.” Associated Gen. Contractors of Cal.,
Inc. v. Cal. State Council of Carpenters, 459 U.S. 519,
Plaintiff's Rule 12(c) Motion for Judgment on the
answer, Defendant Allmax alleges as its fourth affirmative
defense and second counterclaim that each and every asserted
claim from the patents-in-suit is invalid. (Doc. No. 33 at
31, 35.) Plaintiff moves for judgment on the pleadings as to
Allmax's invalidity affirmative defense and counterclaim.
(Doc. No. 57-1 at 2.) Specifically, Plaintiff argues that
Allmax may not assert this affirmative defense and
counterclaim because the Defendants are parties to two
license agreements with Plaintiff that contain provisions
prohibiting Defendants from contesting the validity of
Plaintiff's patents. (Id. at 4-5.) In response,
Defendants argue that the no-contest provisions contained in
the license agreements are void as against public policy.
(Doc. No. 61 at 3-6.) In reply, Plaintiff argues that the
no-contest provisions are valid and enforceable. (Doc. No. 62
parties agree that they have entered into two license
agreements, one in 2014 and one in 2016. (Doc. No. 57-1 at
2; Doc. No. 61 at 2; see Doc. No. 57-3, Oparil Decl.
Ex. A.) The 2014 agreement contains a provision stating:
“[Defendants] will not contest or aid others in
contesting the validity, enforceability or NAI's
ownership of and/or rights in the Patent Rights and Trademark
Rights.” (Doc. No. 57-3, Oparil Decl. Ex. A at Ex.
1 ¶ 6.) The 2016 agreement similarly contains a
provision stating: “[Defendants] will not contest or
aid others in contesting the validity, enforceability or
NAI's ownership of and/or rights in the Patent Rights and
Trademark Rights.” (Id. at Ex. 2 ¶ 5.)
Circuit law governs the determination of whether an agreement
bars a party from challenging the validity of a patent.
See Baseload Energy, Inc. v. Roberts, 619 F.3d 1357,
1361 (Fed. Cir. 2010); Flex-Foot, Inc. v. CRP, Inc.,
238 F.3d 1362, 1365 (Fed. Cir. 2001). “In Lear,
Inc. v. Adkins, 395 U.S. 653 (1969), the Supreme Court
eliminated the doctrine of ‘licensee estoppel, '
citing the ‘important public interest in permitting
full and free competition in the use of ideas.' Under
Lear, a licensee of a patent is not estopped from
challenging the validity of the licensed patent by virtue of
the license agreement.” Baseload, 619 F.3d at
1361. Nevertheless, the Federal Circuit subsequently has held
that certain “consent decrees and settlement agreements
may at one and the same time provide for a patent license
while barring challenges to patent invalidity and
unenforceability” and that Lear does not
render such agreements void. Baseload, 619 F.3d at
1361; see, e.g., Flex-Foot, 238 F.3d at
argues that the 2016 agreement between the parties qualifies
for the Federal Circuit's settlement agreement exception
to Lear. (Doc. No. 62 at 4-7.) Defendants argue that
the 2016 agreement is unenforceable under Lear
because only a post-litigation settlement can qualify for the
Federal Circuit's exception to Lear. (Doc. No.
61 at 5 n.1) The Court agrees with Defendants.
Rates Tech. Inc. v. Speakeasy, Inc., 685 F.3d 163,
167-74 (2d Cir. 2012), the Second Circuit engaged in an
extensive analysis of Supreme Court and Federal Circuit case
law on this issue and held that a no-contest clause contained
in a pre-litigation settlement agreement is unenforceable
under Lear, regardless of whether the agreement is
styled as a settlement agreement or a license agreement.
Id. at 172; see also Ocean Tomo, LLC v.
PatentRatings, LLC, No. 12 C 8450, 2017 WL 2588430, at
*9 (N.D. Ill. June 14, 2017) (holding same). The Court
acknowledges that Federal Circuit law, not Second Circuit
law, governs the determination of whether an agreement bars a
party from challenging the validity of a patent. See
Baseload, 619 F.3d at 1361; Flex-Foot, 238 F.3d
at 1365. Nevertheless, the Court finds the Second
Circuit's decision in Rates Tech. well-reasoned
and persuasive and, therefore, the Court will apply its
holding to the present case.
asserts that a no-contest clause in a pre-litigation
settlement agreement can be enforceable if the clause
contains clear and unambiguous language barring the
licensee's ability to challenge a patent's validity.
(Doc. No. 62 at 3.) In making this assertion, Plaintiff
relies on the Federal Circuit's decision in
Baseload and the district court decision Ocean
Tomo, LLC v. Barney, 133 F.Supp.3d 1107, 1119 (N.D. Ill.
2015). The Court does not find Plaintiff's reliance on
these two cases persuasive.
in Baseload, the Federal Circuit never held that a
no-contest clause in a pre-litigation settlement agreement
can be enforceable. In Baseload, the Federal Circuit
was faced with a situation where the parties had entered into
a settlement agreement containing a no-contest clause
following prior litigation between the parties, but the
validity of the relevant patent was not at issue during that
prior litigation. See 618 F.3d at 1359-60. In
analyzing the issues in that case, the Federal Circuit
explained that “[i]n the context of settlement
agreements, as with consent decrees, clear and unambiguous
language barring the right to challenge patent validity in
future infringement actions is sufficient, even if invalidity
claims had not been previously at issue and had not been
actually litigated.” Id. at 1363. Here, the
Federal Circuit merely stated that in order for a no-contest
clause in a litigation-settlement agreement to be
enforceable, the validity of the patent-in-suit need not have
been actually litigated by the parties in the prior
litigation. The Baseload decision says nothing about
the situation where there was no litigation at all between
the parties at the time they entered into the relevant
agreement. In addition, the Court notes that in
Baseload, the Federal Circuit ultimately declined to
enforce the no-contest clause at issue. Id. at 1358,
1363-64. Second, although the district court in Ocean
Tomo initially held that a no-contest clause in a
pre-litigation settlement agreement can be enforceable,
Ocean Tomo, 133 F.Supp.3d at 1121, that district
court subsequently revisited that holding and later held,
instead, that a no-challenge clause “as a provision in
a pre-litigation agreement . . . is not enforceable.”
Ocean Tomo, 2017 WL 2588430, at *9. In sum, the
Court agrees with the Second Circuit's analysis in
Rates Tech. and holds that a no-contest clause
contained in a pre-litigation settlement agreement is
unenforceable under Lear.
Defendants assert that the relevant agreements were entered
into prior to any litigation between the parties. (Doc. No.
61 at 5 n.1.) Plaintiff does not contest this assertion and
concedes that the “the 2016 Agreement was a pre-suit
settlement.” (Doc. No. 62 at 6.) Indeed, the Court
notes that Plaintiff states that the 2016 agreement was
executed on June 7, 2016, (id. at 5), but the
present action was not filed until July 8, 2016. (Doc. No.
1.) Thus, both the 2014 agreement and the 2016 agreement are
pre-litigation settlement agreements and, therefore, the
no-contest provisions in those agreements are unenforceable
under Lear. See Rates Tech., 685 F.3d at 172;
Ocean Tomo, 2017 WL 2588430, at *9.
the no-contest clauses contained in the relevant agreements
are unenforceable, Plaintiff is not entitled to judgment on
the pleadings as to Defendant Allmax's invalidity
affirmative defense and counterclaim. Accordingly, the Court
denies Plaintiff's Rule 12(c) motion for judgment on the
Defendants' Rule 12 Motions
Plaintiff's Lahnam Act Claim
FAC, Plaintiff alleges a claim against Defendants for
violation of Lanham Act § 32. (Doc. No. 11, FAC
¶¶ 56-57, 77-83.) Defendants argue that this claim
should be dismissed because Plaintiff has failed to
adequately allege that Defendants are using Plaintiff's
trademark in conjunction with the sale of unauthorized
products. (Doc. No. 43-1 at 5-8; Doc. No. 44-1 at 5-8.)
establish a claim for trademark infringement under the Lanham
Act, a plaintiff must demonstrate: “(1) ownership of a
valid mark (i.e., a protectable interest), and (2) that the
alleged infringer's use of the mark is likely to cause
confusion, or to cause mistake, or to deceive
consumers.” Reno Air Racing Ass'n., Inc. v.
McCord, 452 F.3d 1126, 1134 (9th Cir. 2006);
see 15 U.S.C. § 1114(1)(a). “The core
element of trademark infringement is whether customers are
likely to be confused about the source or sponsorship of the
products.” Reno Air Racing Ass'n., 452
F.3d at 1135. Likelihood of confusion “exists
‘whenever consumers are likely to assume that a mark is
associated with another source.'” Karl Storz
Endoscopy Am., Inc. v. Surgical Techs., Inc., 285 F.3d
848, 854 (9th Cir. 2002). In analyzing likelihood of
confusion, courts utilize the eight-factor test set forth in
AMF Inc. v. Sleekcraft Boats, 599 F.2d 341 (9th
Cir.1979). Multi Time Mach., Inc. v. Amazon.com,
Inc., 804 F.3d 930, 936 (9th Cir. 2015).
their motion, Defendants argue that Plaintiff's
allegations as to its trademark claim are inadequate because
Plaintiff fails to specifically allege in the FAC that the
beta-alanine in Defendants' accused products with
CarnoSyn® on the label came from an unauthorized source,
i.e., a source other than NAI or its authorized seller
Compound Solutions, Inc. (Doc. No. 59 at 3; Doc. No. 43-1 at
6; Doc. No. 44-1 at 6.) In response, at the hearing,
Plaintiff argued that it is able to allege such conduct by
Defendants and that this issue could appropriately be
addressed through amendment of the allegations in the ...