The Hertz Corp. v. Enterprise Rent-a-Car Co.
| Decision Date | 02 June 2008 |
| Docket Number | Civil Action No. 07-11793-RGS. |
| Citation | 557 F.Supp.2d 185 |
| Parties | THE HERTZ CORPORATION and TSD Rental, LLC v. ENTERPRISE RENT-A-CAR COMPANY and The Crawford Group, Inc. |
| Court | U.S. District Court — District of Massachusetts |
J. Anthony Downs, Goodwin Procter, LLP, Lawrence K. Kolodney, Christopher R. Dillon, Fish & Richardson, PC, Boston, MA, for the Hertz Corporation and TSD Rental, LLC.
Michael P. Boudett, Catherine H. Wicker, Foley Hoag LLP, Boston, MA, Michael A. Kahn, Eric M. Lode, Beatrice B. Nguyen, Folger Levin & Kahn LLP, San Francisco, CA, for Enterprise Rent-a-Car Company and the Crawford Group, Inc.
MEMORANDUM AND ORDER ON DEFENDANTS' MOTIONS TO DISMISS
On February 19, 2007, plaintiffs The Hertz Corporation (Hertz) and TSD Rental LLC (TSD) filed a Complaint against competitors Enterprise Rent-a-Car Company (Enterprise) and The Crawford Group, Inc. (Crawford), asserting violations of Section 2 of the Sherman Antitrust Act (the Antitrust Complaint). The Antitrust Complaint took aim at a patent application filed by defendants in the United States Patent and Trademark Office (PTO) in August of 2000.1 Defendants countered with a motion to dismiss for lack of subject matter jurisdiction and failure to state a claim. The court held a hearing on September 7, 2007, and rendered a preliminary opinion that plaintiffs had failed to raise a justiciable case or controversy.
Plaintiffs were then given leave to amend the Complaint. Less than one month later, on September 25, 2007, the PTO issued to Crawford as assignee United States Patent No. 7,275,038 (the '038 Patent), entitled "Web Enabled Business to Business Operating System For Rental Car Services." The same day, plaintiffs filed a separate action against defendants, seeking a declaratory judgment of invalidity, unenforceability, and non-infringement (the Patent Complaint).2 On October 9, 2007, plaintiffs filed a "First Amended and Supplemental Complaint" seeking to cure the defects identified by the court in the original Antitrust Complaint. The court thereafter consolidated the two actions. Now before the court are defendants' motions to dismiss both Complaints in their entirety. A hearing on the motions was held on May 5, 2008.
1. The Antitrust Complaint
The Antitrust Complaint asserts statutory and common-law claims for violations of the Sherman Act, 15 U.S.C. § 2 (Count I); unfair trade practices in contravention of the Massachusetts Consumer Protection Act, Gen. Laws Chapter 93A (Count II); and tortious interference with advantageous business relationships (Count III).3 The fight is over EDiCAR, a software program licensed by Hertz from TSD, its creator. The EDiCAR program offers a method of tracking communications between rental car companies and insurers whose clients are provided replacement vehicles while their cars are being repaired. Enterprise has a patented software program of its own, the Automated Rental Management System (ARMS), that performs a similar task. Crawford is the owner of ARMS by virtue of its ownership of the '038 Patent. Although Enterprise formally licenses the right to use ARMS from Crawford, in reality the interests of the two defendants appear to be aligned.
The Antitrust Complaint alleges that defendants made false and misleading statements to the PTO in a (successful) effort to secure the '038 Patent and with it a monopoly over a choice and lucrative slice of the rental car market. More specifically, plaintiffs allege that Timothy Weinstock and William Tingle, Crawford employees who are also named inventors on the '038 Patent, signed false and misleading declarations to the PTO in an effort to evade the on-sale bar.4 According to plaintiffs on January 11, 2006, Weinstock signed a false declaration purporting to explain why several documents submitted by defendants to the PTO contained inconsistent dates. For example, a promotional document entitled "CIO Magazine 2002 Enterprise Value Awards Application" touted the fact that "ARMS/Web ... was piloted to the first users in July of 1999." This document, according to plaintiffs, makes clear that an ARMS system that embodied one or more of the claims of the '038 Patent had been placed in the market more than one year before the August 18, 2000 filing date of the patent application. According to the sworn declaration submitted by Weinstock to the PTO, the July 1999 date was in error and the first commercial deployment of ARMS did not occur until August 20, 1999.
Plaintiffs' argument is similar with respect to Tingle. On January 11, 2006, Tingle submitted a declaration explaining an article in the summer of 1999 edition of "Free Enterprise" announcing that Tingle declared that the article was incorrect, and that the "rollout" of ARMS did not occur until after August 20, 1999. Tingle also addressed a statement appearing in Value Awards, another Enterprise publication, that "ARMS/Automotive was developed and deployed in April 1999." Tingle stated that the reference was to an entirely different system with the same name as ARMS.
Plaintiffs claim that in addition to Weinstock's and Tingle's perjurious submissions to the PTO, defendants made bad faith statements to insurers who were doing or considering doing business with Hertz. Although the original Complaint gave no factual content to these allegations, the Amended Antitrust Complaint asserts that in October and November of 2006, an Enterprise account representative told Geliene Heilman, an employee of GE Commercial Finance Fleet Services (a Hertz customer), that defendants would soon have a patent on ARMS that would put Hertz's EDiCAR system out of business. (Plaintiffs state upon information and belief that the account representative was Robert Pagliaro, an Enterprise National Sales Manager).
Plaintiffs allege that Pagliaro's statement caused Hertz to lose "potential business" with GE. Plaintiffs additionally allege (on information and belief) that one or more (unnamed) Enterprise representatives told Allstate Insurance (Allstate) that Hertz was or would be infringing the soon to be issued ARMS patent. Plaintiffs base this supposition on a Request for Quotation (RFQ) that Hertz received from Allstate in early 2007.5 On February 5, 2007, after defendants received the Notice of Allowance, Allstate sent Hertz a list of questions with regard to the RFQ, including a request that Hertz "[p]rovide details about any pending or threatened lawsuit or any claim made against your company that' alleges that products or services offered by or on behalf of [your] company— which will also be provided to Allstate should [your] company be a successful bidder pursuant to this RFQ — violate the intellectual property rights (patent, trademark, copyright, trade secret or other similar right) of another party." Plaintiffs claim that such a request is "unusual in this industry." Because Allstate was then under an exclusive contract with Enterprise, plaintiffs allege (again on information and belief) that Enterprise prompted Allstate to propound the question. Hertz informed Allstate that Enterprise had threatened it with litigation should a patent issue on the ARMS system. Thereafter, Allstate decided not to do business with Hertz. Plaintiffs state on information and belief that this was "at least in part as a result of Enterprise's false and bad faith assertions that Hertz was or would be infringing Enterprise's patent rights."
Defendants contend that the court lacks subject matter jurisdiction because each of plaintiffs' claims requires proof of a fraud on the PTO. Defendants maintain that pursuant to Walker Process Equip., Inc. v. Food Mack & Chem. Corp., 382 U.S. 172, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965), where a patent has yet to issue, the issue of fraud on the PTO is not justiciable. Defendants argue in the alternative that plaintiffs have failed to plead actionable claims with respect to all three counts of the Antitrust Complaint.
The essence of defendants' jurisdictional argument is that each cause of action set out in the Antitrust Complaint requires the court to resolve issues pertaining to the '038 Patent's validity and enforceability. Such an analysis is impossible, defendants say, because the action was commenced before the '038 Patent issued. Defendants rely principally on GAF Bldg. Materials Corp. v. Elk Corp. of Dallas, 90 F.3d 479 (Fed.Cir.1996). In that case, GAF, a competitor of Elk, brought an action for declaratory judgment, asserting that Elk's patent was invalid. The action was prompted by a cease and desist letter that Elk sent to GAF after it had received a Notice of Allowance from the PTO. The Federal Circuit affirmed the district court's determination that it lacked subject matter jurisdiction because the patent had not issued at the time the lawsuit was filed. The Circuit Court agreed that the complaint did not present a justiciable Article III case or controversy. It reasoned: Id. at 482 (internal citations omitted). Defendants liken this case to GAF, as the '038...
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