Portney v. Ciba Vision Corp.

• Decision Date: 17 June 2008
• Docket Number: Case No. SACV 07-0854 AG (MLGx).
• Citation: 593 F.Supp.2d 1120
• Court: U.S. District Court — Central District of California
• Parties: Valdemar PORTNEY, an individual, Plaintiff and Counterclaim Defendant, v. CIBA VISION CORPORATION, a Delaware corporation, Defendant and Counterclaim Plaintiff.

Page 1120

593 F.Supp.2d 1120

Valdemar PORTNEY, an individual, Plaintiff and Counterclaim Defendant, v. CIBA VISION CORPORATION, a Delaware corporation, Defendant and Counterclaim Plaintiff.

Case No. SACV 07-0854 AG (MLGx).

United States District Court, C.D. California.

June 17, 2008.

Howard N. Wisnia (argued), James Pak and Tracey Angelopoulos of Baker & McKenzie, San Diego, CA, for Plaintiff, Dr. Valdemar Portney.

Patrick Kelleher (argued), Carrie Beyer of Drinker, Biddle and Reath, Chicago, IL, for Defendant/Counterclaimant, CIBA Vision Corp.

ORDER DENYING IN PART AND GRANTING IN PART DEFENDANT'S MOTION TO DISMISS CIBA'S COUNTERCLAIMS PURSUANT TO FRCP 12(b)(6) OR IN THE ALTERNATIVE TO BIFURCATE ANTITRUST COUNTERCLAIMS PURSUANT TO FRCP 42, AND MOTION TO STRIKE CIBA'S AFFIRMATIVE DEFENSES PURSUANT TO FRCP 12(f)

ANDREW J. GUILFORD, District Judge.

Before the Court is the Motion to Dismiss CIBA's Counterclaims Pursuant to FRCP 12(b)(6), or in the Alternative, to Bifurcate Antitrust Counterclaims Pursuant to FRCP 42, and Motion to Strike CIBA's Affirmative Defenses Pursuant to FRCP 12(f) ("Motion"), filed by Plaintiff and Counterclaim Defendant Valdemar Portney ("Plaintiff"). After considering the moving, opposing, and reply papers, and oral argument from the parties, the Court GRANTS in part and DENIES in part the Motion.

BACKGROUND

Plaintiff filed this action in July 2007, alleging that Defendant and Counterclaim Plaintiff CIBA Vision ("Defendant") is liable for breaching a 1994 licensing agreement between the parties. Plaintiff contends that the parties entered into the licensing agreement to allow Defendant access to patents and other specialized technology related to multifocal contact lenses, and that in exchange Plaintiff was to receive royalties for any contact lenses sold using that knowledge and technology. (Complaint ¶¶ 58-71.) According to Plaintiff, Defendant has developed and sold "hundreds of millions of dollars of multifocal contact lenses using the licensed technology," but has refused to pay the negotiated royalties. (Id. at 1:18-23.)

In the Counterclaim, Defendant concedes that it entered into a licensing agreement with Plaintiff, but asserts that the technology and concepts under the agreement were not commercially viable and that it has never sold products using the licensed technology. The Counterclaim alleges nine claims for relief against Plaintiff, including patent invalidity, patent misuse, fraud, and attempted monopolization. In support of these claims for relief, Defendant alleges that Plaintiff initially procured the patents which were the subject of the licensing agreement through fraud on the patent office, and these patents should be found invalid and unenforceable. (Counterclaims ¶¶ 35-57; ¶¶ 88-110.) Defendant further alleges that Plaintiff knew his patents were unenforceable when entering into the licensing agreement with Defendant, but concealed that fact. (Id. at ¶¶ 124-125.) According to Defendant, Plaintiffs efforts to enforce his invalid patents in this and other lawsuits is an attempted monopolization which violates antitrust law. (Id. at ¶¶ 130-147.)

In this Motion, Plaintiff seeks dismissal of five of the nine counterclaims against him, and alternatively requests bifurcation of the antitrust claims. Plaintiff also requests that four of the affirmative defenses asserted by Defendant be stricken.

LEGAL STANDARD

A complaint must be dismissed when a plaintiff's allegations fail to state a claim upon which relief can be granted. Fed R. Civ. P. 12(b)(6). Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed R. Civ. P. 8(a)(2). "Ordinary pleading rules are not meant to impose a great burden upon a plaintiff." Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 347, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005). "Specific facts are not necessary; the statement need only `give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Erickson v. Pardus, 551 U.S. 89, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007) (per curiam) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007)).

The Court must accept as true all factual allegations in the complaint and must draw all reasonable inferences from those allegations, construing the complaint in the light most favorable to the plaintiff. Westlands Water Dist. v. Firebaugh Canal, 10 F.3d 667, 670 (9th Cir.1993). Dismissal without leave to amend is appropriate only when the Court is satisfied that the deficiencies of the complaint could not possibly be cured by amendment. Jackson v. Carey, 353 F.3d 750, 758 (9th Cir.2003) (citing Chang v. Chen, 80 F.3d 1293, 1296 (9th Cir.1996)); Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir.2000); Polich v. Burlington N., Inc., 942 F.2d 1467, 1472 (9th Cir. 1991).

ANALYSIS

1. THIRD COUNTERCLAIM: PAENT MISUSE

Defendant's Third Counterclaim alleges that certain of Plaintiff's patents have been misused and are therefore unenforceable. The patent misuse alleged by Defendant involves Plaintiff's use of post-expiration royalties to "attempt[] to extend the life of the Portney patents beyond their statutory expiration dates." (Counterclaims ¶¶ 112-115.) Defendant also alleges unlawful efforts by Plaintiff to use the Portney patents for "monopolization of the multifocal contact lens market." (Counterclaims ¶ 116.)

"Patent misuse is an affirmative defense to an accusation of patent infringement, the successful assertion of which requires that the alleged infringer show that the patentee has impermissibly broadened the physical or temporal scope of the patent with anticompetitive effect." Virginia Panel Corp. v. MAC Panel Co., 133 F.3d 860, 868, 869 (Fed.Cir.1997) (internal quotations and citations omitted). As an equitable defense, patent misuse renders the patent unenforceable until the misuse is purged. See C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372 (Fed.Cir.1998) (citing Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488, 62 S.Ct. 402, 86 L.Ed. 363 (1942)).

1.1 Post-Expiration Royalties and Patent Misuse

Defendant contends that the two licensing agreements covering the Portney patents—the AMO/Portney License and the AMO/CIBA Vision Sublicense—call for impermissible post-expiration patent royalties. Each of these licensing agreements provides that it will remain in effect for "the life of the Patent Rights in a country or 10 years from the date of the first sale of a Device in that country, whichever is longer." (Motion Ex. A.) According to Defendant, these agreements calls for post-expiration royalties because if Defendant "first sells a product covered by a patent claim 1 year before expiration of the Patent Rights, then patent royalty payments are due on that product for the 9 years following expiration." (Opposition 6:4-8.) Defendant's reading of the agreements, if correct, would state a claim of patent misuse. But Plaintiff contends that when the agreements are read in their entirety, Defendant's post-expiration royalty theory is not viable.

Plaintiff asserts that the "hybrid" nature of the agreements precludes an interpretation of the agreements which would require post-expiration royalties. A hybrid license distinguishes between royalties paid for the right to use the patents themselves, and royalties paid to use trade secrets and technical knowledge ("Technical Information") not covered by a patent. When an agreement contemplates postexpiration royalties, the distinction between patent-right and Technical Information royalties is critical because "a contract that provides for royalties either when a patent expires or when it fails to issue cannot be upheld unless it provides a discount from the alternative, patent-protected rate." Zila, Inc. v. Tinnell, 502 F.3d 1014, 1021 (9th Cir.2007) (discussing interaction of the U.S. Supreme Court decisions of Brulotte v. Thys, 379 U.S. 29, 85 S.Ct. 176, 13 L.Ed.2d 99 (1964) and Aronson v. Quick Point Pencil Co., 440 U.S. 257, 99 S.Ct. 1096, 59 L.Ed.2d 296 (1979)).

The parties dispute whether, upon expiration of the patent, the agreements call for continued payment of royalties at the higher patent rate. Plaintiff argues that no post-expiration patent royalties are contemplated because the agreements grant only the right to "to make, have made, use and sell Devices, which activity, but for this non-exclusive license, would infringe the valid and enforceable claims of a patent of the Patent Rights." (Motion Ex. A at pp. 7, 27 (emphasis added).) Plaintiffs position here is that because an expired patent can neither be infringed nor described as "valid and enforceable," the agreements do not provide for the payment of patent royalties on expired patents. (Motion 7:1-23.) Defendant contests this interpretation of the licensing agreements, asserting that (1) there is no explicit clause in the agreements providing for a post-expiration discount, and (2) Plaintiff has improperly conflated the concept of an expired patent with an invalid or unenforceable patent. (Opposition 6:23-7:27.) The Court disagrees with Defendant and finds that the agreements do not contemplate post-expiration royalties at the higher patent rate.

Even without an explicit provision in the agreements calling for a discounted post-expiration royalty rate, the correct reading of the agreements precludes payment of post-expiration patent royalties. To avoid this result, Defendant attempts to distinguish expired patents from the "valid and enforceable claims" language of the agreements. (Opposition 7:4-27.) There are no doubt important differences between expired, invalid, and unenforceable patents. But these differences are not relevant to this dispute and are trumped by the primary purpose of the agreements, which is an exchange of royalty payments for the right to engage in activities that "but for the...