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Ojmar US, LLC v. Security People, Inc.

United States District Court, N.D. California

November 16, 2017

OJMAR US, LLC, Plaintiff,
v.
SECURITY PEOPLE, INC., et al., Defendants.

          ORDER DENYING DEFENDANTS' MOTION TO DISMISS THE SECOND AMENDED COMPLAINT RE: DKT., 120

          HAYWOOD S GILLIAMJR UNITED STATES DISTRICT JUDGE

         On September 20, 2017, Defendants Security People, Inc. (“Digilock”) and Asil Gokcebay moved to dismiss the second amended complaint filed by Plaintiff Ojmar U.S., LLC (“Ojmar”). Dkt. No. 120 (“Mot.”); see also Dkt. No. 117 (“SAC”). On October 4, 2017, Plaintiff opposed the motion. Dkt. No. 125 (“Opp.”). On October 11, 2017, Defendants replied. Dkt. No. 128 (“Reply”). On October 26, 2017, the Court held a hearing on the motion. See Dkt. No. 129. After careful consideration, the Court DENIES the motion to dismiss.

         I. BACKGROUND

         The SAC sets forth the following eight causes of action: (1) monopolization and (2) attempted monopolization under the Sherman Act, 15 U.S.C. § 2; (3) combination to monopolize under the Cartwright Act, Cal. Bus. & Prof. Code §§ 16720, et seq.; (4) false advertising under the Lanham Act § 43(a), 15 U.S.C. § 1125; (5) trade libel; (6) intentional interference with economic relationship; (7) unfair competition, Cal. Bus. & Prof. Code §§ 17200, et seq.; and (8) inequitable conduct. SAC ¶¶ 114-210. Plaintiff stated these same causes of action in a first amended complaint, along with an additional cause of action for exclusive dealing under the Clayton Act, 15 U.S.C. § 14. See Dkt No. 14-4 (“FAC”) ¶¶ 88-93.

         On August 2, 2017, the Court granted in part and denied in part Defendants' motion to dismiss the FAC. Dkt. No. 104 (“Dismissal Order”).[1] In so doing, the Court found that Plaintiff failed to adequately plead all claims against Mr. Gockebay, except for claim 9 seeking a declaration of inequitable conduct. See Id. at 3-9. The Court also dismissed Plaintiff's antitrust claims against Digilock, finding that Plaintiff failed to adequately plead a viable product market or submarket under the Sherman Act, and antitrust injury as required by the Cartwright Act and the Clayton Act. Id. at 11-12. On September 19, 2017, Plaintiff filed the SAC. Dkt. No. 117.

         II. DISCUSSION

         Defendants move to dismiss the SAC on three bases: (1) claims 1-2 fail to allege a plausible market or submarket; (2) claim 3 does not plausibly allege antitrust injury; and (3) claims 4-7 do not adequately set forth causes of action for false advertising, trade libel, intentional interference with economic relationship, and unfair competition. Defendants argue that if the Court dismisses all of Plaintiff's other causes of action, it should decline to exercise permissive jurisdiction over claim 8, which seeks a declaration of inequitable conduct.

         A. Claims 1-3

         While the Dismissal Order set forth the relevant legal standards governing the SAC's antitrust claims, the following two principles bear repeating. First, an alleged product market must be sustainable on its face to survive a motion to dismiss. Newcal Indus., Inc. v. Ikon Office Sol., 513 F.3d 1038, 1045 (9th Cir. 2008). Second, the relevant product market must include “the product at issue as well as all economic substitutes for the product.” Id. The question of economic substitution is determined by “reasonable interchangeability of use” or “cross-elasticity of demand.” Id. As alleged, a product market must include all sellers who have “actual or potential ability to deprive each other of significant levels of business.” Thurman Indus., Inc. v. Pay ‘N Pak Stores, Inc., 875 F.2d 1369, 1374 (9th Cir. 1989). “If a plaintiff ‘alleges a proposed relevant market that clearly does not encompass all interchangeable substitute products even when all factual inferences are granted in plaintiff's favor, the relevant market is legally insufficient and a motion to dismiss may be granted.'” Hicks v. PGA Tour, Inc., 165 F.Supp.3d 898, 908 (N.D. Cal. 2016) (quoting Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 436 (3d Cir. 1997)).

         i. The Alleged Product Market and Submarket

         The Court turns first to whether Plaintiff adequately alleges a plausible product market. Plaintiff defines the relevant product market as “electronic keypad operated locks with electrically actuated bolts for shared-use lockers” (“EKLs”). SAC ¶ 61. Plaintiff asserts that EKLs are distinct from other lock systems, including (1) shared-use mechanical locks, SAC ¶¶ 73-74; (2) shared-use mechanical locks with electronic keypads, SAC ¶ 75; and (3) electronic radio-frequency identification (“RFID”) locks, which are electronic locks without keypads, SAC ¶ 76. Plaintiff asserts that EKLs are not substitutable with shared-use mechanical locks because EKLs possess “significant additional capabilities and a premium image.” SAC ¶¶ 73-75, 80-89. According to Plaintiff, these additional capabilities or features include (1) auto-unlock capability, generally unavailable in “manually operated mechanical locks;” (2) additional lock management features; (3) a significantly higher price point; (4) decreased battery life; and (5) convenience and user-friendliness because electric bolts require less “manual dexterity.” See id.

         Even viewed in the light most favorable to Plaintiff, these allegations fail to show that lock purchasers would forgo other types of shared-use lock systems if EKLs experienced a “small but significant nontransitory increase in price (SSNIP).” See Theme Promotions, Inc. v. News Am. Mktg. FSI, 546 F.3d 991, 1002 (9th Cir. 2008) (analyzing purchaser reaction to a SSNIP as a measure of cross-elasticity) (quotation omitted). The SAC's allegations suggest, at best, that EKLs possess certain desirable traits and features. Such allegations fail as a matter of law to demonstrate the absence of economic substitutability, the benchmark for a facially sustainable product market. See Thurman Indus., Inc., 875 F.2d at 1374; In re Super Premium Ice Cream Distribution Antitrust Litig., 691 F.Supp. 1262, 1268 (N.D. Cal. 1988), aff'd sub nom. Haagen-Dazs Co. v. Double Rainbow Gourmet Ice Creams, Inc., 895 F.2d 1417 (9th Cir. 1990) (“Courts have repeatedly rejected efforts to define markets by price variances or product quality variances. Such distinctions are economically meaningless where the differences are actually a spectrum of price and quality differences.”) (emphasis in original). Other California district courts have found similar trait-focused allegations inadequate as a matter of law. See Streamcast Networks, Inc. v. Skype Techs., S.A., 547 F.Supp.2d 1086, 1095 (C.D. Cal. 2007) (dismissing antitrust allegations because the product, despite possessing “some unique attributes and components that make it more attractive and efficient, ” allowed users to “accomplish the same basic task”); Stubhub, Inc. v. Golden State Warriors, LLC, No. C 15-1436 MMC, 2015 WL 6755594, at *3 (N.D. Cal. Nov. 5, 2015) (finding non-cognizable alleged markets for primary and secondary admission tickets because the tickets accomplished the same purpose: obtaining entry into a basketball game); cf. TYR Sport Inc. v. Warnaco Swimwear Inc., 679 F.Supp.2d 1120, 1129-30 (C.D. Cal. 2009) (sustaining the alleged market for “high-end competitive swimwear” because “elite athletes” likely would not abandon performance wear for casual swimsuits if faced with a small price increase in the former).

         In finding Plaintiff's alleged product market implausible, the Court is particularly persuaded by the reasoning in Hicks v. PGA Tour, Inc., 165 F.Supp. at 908-10. In Hicks, professional golf caddies alleged that the PGA Tour violated Sections 1 and 2 of the Sherman Act by requiring them to wear “bibs” bearing advertisements. Id. at 902, 908. The caddies stated two relevant product markets: “the Endorsement Market and the Live Action Advertising Market.” Id. at 909 (quotation omitted). The court held that these markets were “so narrowly defined” that it rendered implausible the allegation that an increase in the price of one marketing type would not affect the demand for other marketing types. Id. at 910. The court found insufficient as a matter of law allegations raising the differences between, and benefits of, certain advertising types. See Id. (“To be sure, not all forms of advertising are the same, and some forms have benefits that others don't. . . . However, it's not enough to allege that these forms of advertising have differences.”). Likewise here, the SAC's detailed description of different lock technologies relates only to the respective systems' peculiar features. These allegations do not show that lock purchasers would eschew less expensive lock systems equally capable of accomplishing an EKL's same basic purpose: securing property. As in Hicks, the Court accordingly concludes that Plaintiff's alleged EKL product market is “not natural, ” and is instead “contorted to meet [Plaintiff's] litigation needs.” 165 F.Supp.3d at 910.

         Though Plaintiff fails to define a plausible product market, a cognizable antitrust claim may be premised on an economically distinct submarket-i.e. a “small part of the general market of substitutable products.” Newcal Indus., Inc., 513 F.3d at 1045. These submarkets, “in themselves, constitute product markets for antitrust purposes.” Brown Shoe Co. v. U.S., 370 U.S. 294, 325 (1962). “In order to establish the existence of a legally cognizable submarket, the plaintiff must be able to show (but need not necessarily establish in the complaint) that the alleged submarket is economically distinct from the general product market.” Newcal Indus., Inc., 513 F.3d at 1045. The indicia of a valid submarket include: “industry or public recognition of the submarket as a separate economic ...


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