Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Natural Alternatives International, Inc. v. Allmax Nutrition, Inc.

United States District Court, S.D. California

June 26, 2017

NATURAL ALTERNATIVES INTERNATIONAL, INC., Plaintiff,
v.
ALLMAX NUTRITION, INC.; HBS INTERNATIONAL CORP.; and DOES 1-100, Defendants.

          (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.

         On 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. 59.)

         On May 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.)

         The 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 amend.

         Background

         The 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. (Id.)

         Plaintiff 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. ¶¶ 77-95.)

         On July 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.)

         On 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.)

         By the 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.[1] (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.)

         Discussion

         I. Legal Standards for a Rule 12(b)(6) Motion to Dismiss and a Rule 12(c) Motion for Judgment on the Pleadings

         In 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).

         Federal 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).

         A 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. 2008).

         In 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, 526 (1983).

         II. Plaintiff's Rule 12(c) Motion for Judgment on the Pleadings[2]

         In its 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 at 2-7.)

         The parties agree that they have entered into two license agreements, one in 2014 and one in 2016.[3] (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.”[4] (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.)

         Federal 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 1370.

         Plaintiff 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.

         In 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.

         Plaintiff 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.

         First, 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.

         Here, 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.[5] See Rates Tech., 685 F.3d at 172; Ocean Tomo, 2017 WL 2588430, at *9.

         Because 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 pleadings.[6]

         III. Defendants' Rule 12 Motions

         A. Plaintiff's Lahnam Act Claim

         In the 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.)

         To 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).

         In 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 ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.