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Natural Alternatives International, Inc. v. Creative Compounds, LLC

United States District Court, S.D. California

September 5, 2017

NATURAL ALTERNATIVES INTERNATIONAL, INC., Plaintiff,
v.
CREATIVE COMPOUNDS, LLC;, Defendants. NATURAL ALTERNATIVES INTERNATIONAL, INC., Plaintiff,
v.
HI-TECH PHARMACEUTICALS, INC. doing business as ALR Industries, APS Nutrition, Innovative Laboratories, Formutech Nutrition, LG Sciences and Sports 1; and DOES 1-100, Defendants.

          ORDER GRANTING DEFENDANT'S MOTION FOR JUDGMENT ON THE PLEADINGS Doc., 83., 57.

          MARILYN L. HUFF, DISTRICT JUDGE

         On July 10, 2017, Defendant Hi-Tech Pharmaceuticals, Inc. filed a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) in Case No. 16-cv-2343. (16-cv-2343-Doc. No. 57.) On July 19, 2017, Defendant Creative Compounds, LLC filed a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) in related Case No. 16-cv-2146. (16-cv-2146-Doc. No. 83.) On August 14, 2017, Plaintiff Natural Alternatives International, Inc. filed its response in opposition to the two motions. (16-cv-2146-Doc. No. 85; 16-cv-2343-Doc. No. 59.) On August 21, 2017, the Defendants each filed a reply. (16-cv-2146-Doc. No. 86; 16-cv-2343-Doc. No. 60.)

         The Court held a hearing on the matters on September 5, 2017. Scott A.M. Chambers, Kevin M. Bell, Richard J. Oparil, William J. McKeague, and Frederick W. Kosmo appeared for Plaintiff NAI. Kevin J. O'Shea appeared for Defendant Creative Compounds. Gregory L. Hillyer appeared for Defendant Hi-Tech. For the reasons below, the Court grants Defendants' motions for judgment on the pleadings.

         Background

         The following facts are taken from the allegations in Plaintiff's pleadings. Plaintiff NAI is a formulator, manufacturer, marketer, and supplier of nutritional supplements. (16-cv-2146-Doc. No. 48, FAC ¶ 14; 16-cv-2343-Doc. No. 21, FAC ¶ 8.) Plaintiff sells its branded CarnoSyn® beta-alanine product to customers throughout the United States and in other countries. (16-cv-2146-Doc. No. 48, FAC ¶ 1; 16-cv-2343-Doc. No. 21, FAC ¶ 1.) Plaintiff alleges that its CarnoSyn® product is covered by a robust portfolio of patent and trademark rights. (Id.)

         Plaintiff NAI alleges that Defendant Creative Compounds is a global importer, supplier, and distributor of raw ingredients, including beta-alanine, to manufacturers of nutritional supplements. (16-cv-2146-Doc. No. 48-FAC ¶¶ 36-39.) Plaintiff alleges that Defendant Hi-Tech creates, manufactures, offers to sell, and sells dietary supplement products, including one or more products containing beta-alanine. (16-cv-2343-Doc. No. FAC ¶ 34.) Plaintiff NAI alleges that Defendants' activities infringe Plaintiff's patents. (16-cv-2146-Doc. No. 48, FAC ¶¶ 45-46, 127-31; 16-cv-2343-Doc. No. 21, FAC ¶¶ 56-193, 206-11.)

         On August 24, 2016, Plaintiff NAI filed a complaint against Defendant Creative Compounds. (16-cv-2146-Doc. No. 1.) Subsequently, Plaintiff filed a first amended complaint against Defendant Creative Compounds and others, alleging a single claim for patent infringement against Defendant Creative Compounds. (16-cv-2146-Doc. No. 48 ¶¶ 127-31.) In its claim for patent infringement against Defendant Creative Compounds, Plaintiff alleges infringement of U.S. Patent Nos. 5, 965, 596, 7, 825, 084, 7, 504, 376, 8, 993, 610, and 8, 470, 865. (Id. ¶¶ 20-47, 127-31.)

         On September 16, 2016, Plaintiff NAI filed a complaint against Defendant Hi-Tech. (16-cv-2343-Doc. No. 1.) Subsequently, Plaintiff filed a first amended complaint against Defendant Hi-Tech, alleging claims for: (1) breach of contract; (2) patent infringement; and (3) violation of the Lanham Act § 32. (16-cv-2343-Doc. No. 21, FAC ¶¶ 197-217.) In its claim for patent infringement against Defendant Hi-Tech, Plaintiff alleges infringement of U.S. Patent Nos. 5, 965, 596, 7, 825, 084, RE45, 947, 8, 993, 610, and 8, 470, 865. (Id. ¶¶ 10-29, 56-193, 206-11.)

         By the present motions, Defendants Creative Compounds and Hi-Tech move for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) as to Plaintiff's claims for patent infringement against them. (16-cv-2146-Doc. No. 83-1; 16-cv-2343-Doc. No. 57-1.) Specifically, Defendants Creative Compound and Hi-Tech argue that the Court should dismiss Plaintiff's patent infringement claims because the patents-in-suit fail to claim patent-eligible subject matter and, thus, are invalid under 35 U.S.C. § 101.[1] (16-cv-2146-Doc. No. 83-1 at 6-14; 16-cv-2343-Doc. No. 57-1 at 6-14.)

         Discussion

         I. Legal Standards

         A. Standards for a Rule 12(c) Motion for Judgment on the Pleadings

         In patent cases, a motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) is governed by the “the procedural law of the regional circuit.” Amdocs (Israel) Ltd. v. Openet Telecom, Inc., 841 F.3d 1288, 1293 (Fed. Cir. 2016). Under Federal Rule of Civil Procedure 12(c), “[a]fter the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings.” “‘Judgment on the pleadings is properly granted when[, accepting all factual allegations in the complaint as true, ] there is no issue of material fact in dispute, and the moving party is entitled to judgment as a matter of law.'” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012). 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, 683 F.3d at 1108.

         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).

         B. Standards for Patent Eligibility under § 101

         Section 101 of the Patent Act defines patent-eligible subject matter as “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. § 101. The Supreme Court has “‘long held that this provision contains an important implicit exception[:] Laws of nature, natural phenomena, and abstract ideas are not patentable.'” Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107, 2116 (2013). “The concern underlying these judicial exclusions is that ‘patent law not inhibit further discovery by improperly tying up the future use of these building blocks of human ingenuity.'” Rapid Litig. Mgmt. Ltd. v. CellzDirect, Inc., 827 F.3d 1042, 1047 (Fed. Cir. 2016).

         “The Supreme Court has devised a two-stage framework to determine whether a claim falls outside the scope of section 101.” Affinity Labs of Texas, LLC v. DIRECTV, LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016); see Alice Corp. Pty. v. CLS Bank Int'l, 134 S.Ct. 2347, 2355 (2014). “The prescribed approach requires a court to determine (1) whether the claim is directed to a patent-ineligible concept, i.e., a law of nature, a natural phenomenon, or an abstract idea, and if so, (2) whether the elements of the claim, considered both individually and as an ordered combination, add enough to transform the nature of the claim into a patent-eligible application.” Affinity Labs, 838 F.3d at 1257 (internal quotation marks omitted) (citing Alice, 134 S.Ct. at 2355).

         The first step of the Alice inquiry requires courts “to look at the ‘focus of the claimed advance over the prior art' to determine if the claim's ‘character as a whole' is directed to excluded subject matter.” Id. at 1257. “The [second] step requires [courts] to look with more specificity at what the claim elements add, in order to determine ‘whether they identify an “inventive concept” in the application of the ineligible subject matter' to which the claim is directed. Id. at 1258. “This inventive concept must do more than simply recite ‘well-understood, routine, conventional activity.'” FairWarning IP, LLC v. Iatric Sys., Inc., 839 F.3d 1089, 1093 (Fed. Cir. 2016). “The accused infringer bears the burden of proof on both steps.” InsideSales.com, Inc. v. SalesLoft, Inc., No. 2:16CV859DAK, 2017 WL 2559932, at *2 (D. Utah June 13, 2017); see Microsoft Corp. v. i4i Ltd. P'ship, 564 U.S. 91, 95 (2011).

         The Federal Circuit has expressly recognized that “it is possible and proper to determine patent eligibility under 35 U.S.C. § 101 on a Rule 12(b)(6) motion [or a Rule 12(c) motion].”[2] Genetic Techs. Ltd. v. Merial L.L.C., 818 F.3d 1369, 1373 (Fed. Cir. 2016); see, e.g., Amdocs, 841 F.3d at 1293 (reviewing eligibility under § 101 on an appeal from a grant of judgment on the pleadings under Rule 12(c)); see also Bascom Glob. Internet Servs., Inc. v. AT&T Mobility LLC, 827 F.3d 1341, 1347 (Fed. Cir. 2016) (“Courts may . . . dispose of patent-infringement claims under § 101 whenever procedurally appropriate.”). Further, the Federal Circuit has explained that where there is “no claim construction dispute relevant to the eligibility issue, ” evaluation of a patent claim's subject matter eligibility under § 101 can proceed before claim construction.[3] Genetic Techs., 818 F.3d at 1373; see Cleveland Clinic Found. v. True Health Diagnostics LLC, 859 F.3d 1352, 1360 (Fed. Cir. 2017) (“[W]e have repeatedly affirmed § 101 rejections at the motion to dismiss stage, before claim construction or significant discovery has commenced.”); see also Bancorp Servs., L.L.C. v. Sun Life Assur. Co. of Canada (U.S.), 687 F.3d 1266, 1273 (Fed. Cir. 2012) (“[C]laim construction is not an inviolable prerequisite to a validity determination under § 101.”).

         II. Analysis

         Defendants Creative Compounds and Hi-Tech argue that Plaintiff's claims for patent infringement should be dismissed with prejudice because the patents-in-suit fail to claim patent-eligible subject matter and, thus, are invalid under 35 U.S.C. § 101. (16-cv-2146-Doc. No. 83-1 at 6-14; 16-cv-2343-Doc. No. 57-1 at 6-14.) In response, Plaintiff argues that the patents-in-suit are directed to patent-eligible subject matter. (16-cv-2146-Doc. No. 85 at 9-21; 16-cv-2343-Doc. No. 59 at 9-21.)

         A. The '084 Patent, the '947 Patent, the '376 Patent, and the '596 Patent

         In the related case Natural Alternatives International, Inc. v. Allmax Nutrition, Inc., No. 3:16-v-01764-H-AGS, this Court held that the '084 patent, the '947 patent, the '376 patent, and the '596 patent are all invalid under 35 U.S.C. § 101 for claiming ineligible subject matter, and the Court dismissed Plaintiff's claims for patent infringement in that case with prejudice. (16-cv-1764-Doc. No 64 at 10-21, 23.) In addition, the Court denied Plaintiff's motion for reconsideration of that order. (16-cv-1764-Doc. No. 73.)

         Defendant Creative Compounds argues that in light of the Court's order in Case No 16-cv-1764, the Court should grant its motion and hold that the '084 patent, the '596 patent, and the '376 patent are invalid under § 101 in its case. (16-cv-2146-Doc. No. 83-1 at 6.)

         Defendant Hi-Tech also argues that in light of the Court's order in Case No. 16-cv-1764, the Court should grant its motion and hold that the '084 patent, the '947 patent, and the '596 patent are invalid under § 101 in its case. (16-cv-2343-Doc. No. 57-1 at 6.) In response, Plaintiff NAI argues that these patents are valid and incorporates by reference its briefing from Case No. 16-cv-1764, specifically its opposition to the Defendants' Alice motions and its motion for reconsideration that it filed in that case. (16-cv-2146-Doc. No. 85 at 12-13; 16-cv-2343-Doc. No. 59 at 13.)

         The Court holds that the '084 patent, the '947 patent, the '376 patent, and the '596 patent are all invalid under 35 U.S.C. § 101 for claiming ineligible subject matter, and the Court incorporates by reference the analysis set forth in its June 26, 2017 order and its August 28, 2017 order in Case No. 16-cv-1764. (16-cv-1764-Doc. Nos. 64, 73.) In addition, the Court sets forth that analysis below.

         i. The '084 Patent

         Claim 1 of the '084 patent[4] claims: “A human dietary supplement, comprising a beta-alanine in a unit dosage of between about 0.4 grams to 16 grams, wherein the supplement provides a unit dosage of beta-alanine.” U.S. Patent No. 7, 925, 084 at 22:26-29 (filed Nov. 2, 2010). The Court begins its analysis of this claim with step one of the Alice inquiry. “The step one inquiry focuses on determining ‘whether the claim at issue is ‘directed to' a judicial exception, such as an abstract idea.'” Apple, Inc. v. Ameranth, Inc., 842 F.3d 1229, 1241 (Fed. Cir. 2016). This inquiry requires courts “to look at the ‘focus of the claimed advance over the prior art' to determine if the claim's ‘character as a whole' is directed to excluded subject matter.” Affinity Labs, 838 F.3d at 1257.

         Here, claim 1 of the '084 patent claims a human dietary supplement containing beta-alanine in a unit dosage of 0.4 to 16 grams. Beta-alanine is the only ingredient of the supplement referenced in the language of claim 1. See '084 Patent at 22:26-29. Thus, beta-alanine is the focus of the claim.[5] In its specification, the '084 patent explains that beta-alanine is an amino acid, id. at 3:3-6, and is “present in the muscles of humans and other vertebrates.” Id. at 2:21-26; see id. at 8:49-53 (“These precursors[, beta-alanine and L-histidine], can be generated within the body or are made available via the diet.”). (See also 16-cv-1764-Doc. No. 11, FAC ¶ 12; Doc. No. 56 at 16.) Thus, the '084 patent acknowledges that beta-alanine is a natural occurring phenomenon.[6] Accordingly, claim 1 of '084 patent is directed to excluded subject matter - specifically beta-alanine, a natural phenomenon - thereby satisfying step one of the Alice inquiry. See, e.g., Ariosa Diagnostics, Inc. v. Sequenom, Inc., 788 F.3d 1371, 1376 (Fed. Cir. 2015), cert. denied, 136 S.Ct. 2511 (2016) (finding step one of the Alice inquiry satisfied where the claims were directed to cffDNA, a naturally occurring phenomenon).

         Plaintiff argues that a human dietary supplement containing beta-alanine is not a natural phenomenon, and, therefore, the claim is directed to patent-eligible subject matter. (16-cv-1764-Doc. No. 56 at 17-18, 19-20, 21-22.) But in making this argument, Plaintiff misconstrues the step one analysis for determining subject matter eligibility under § 101. Step one of the § 101 inquiry does not simply look to whether the overall claimed invention is itself a natural phenomenon. Rather, step one of the inquiry requires a court to look at what the claim is specifically directed to and whether what it is directed to is a natural phenomenon, law of nature, or abstract idea. See Affinity Labs, 838 F.3d at 1257. For example, a computer is a physical machine and is not itself an abstract idea. Nevertheless, in Alice, the Supreme Court found that the claims at issue were directed to an abstract idea - specifically, “the concept of intermediated settlement” - even though all of the claims were implemented using a computer. See 134 S.Ct. at 2352-53, 2355; see also id. at 2358 (“The fact that a computer ‘necessarily exist[s] in the physical, rather than purely conceptual, realm, ' is beside the point.”). Similarly, here, claim 1 is directed to the natural phenomenon beta-alanine even though the claim is implemented using a “human dietary supplement.”[7] Because claim 1 is directed to a natural phenomenon, the Court will now turn to step two of the Alice inquiry.

         In step two, the reviewing court “examine[s] the elements of the claims to determine whether they contain an inventive concept sufficient to transform the claimed naturally occurring phenomena into a patent-eligible application.” Cleveland Clinic, 859 F.3d at 1361. The court “must consider the elements of the claims both individually and as an ordered combination to determine whether additional elements transform the nature of the claims into a patent-eligible concept.” Id. at 1361-62. Further, the inventive concept contained in the claim “must do more than simply recite ‘well-understood, routine, conventional activity.'” FairWarning IP, 839 F.3d at 1093; see Intellectual Ventures I LLC v. Symantec Corp., 838 F.3d 1307, 1313 (Fed. Cir. 2016) (“‘[S]imply appending conventional steps, specified at a high level of generality, ' which are ‘well known in the art' and consist of ‘well-understood, routine, conventional activit[ies]' previously engaged in by workers in the field, is not sufficient to supply the inventive concept.”).

         Here, the inventive concept described in claim 1 of the '084 patent is placing a specific dosage of beta-alanine into a human dietary supplement. See '084 Patent at 22:26-29. The '084 patent acknowledges that placing a natural substance into a dietary supplement to increase the function of tissues is conventional activity. The background section of the specification of the '084 patent provides:

Natural food supplements are typically designed to compensate for reduced levels of nutrients in the modern human and animal diet. In particular, useful supplements increase the function of tissues when consumed. It can be particularly important to supplement the diets of particular classes of animals whose normal diet ...

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