UCP Int'l Co. v. Balsam Brands Inc.

• Decision Date: 15 October 2019
• Docket Number: Case No. 3:18-cv-07579-WHO
• Citation: 420 F.Supp.3d 966
• Parties: UCP INTERNATIONAL COMPANY LIMITED, et al., Plaintiffs, v. BALSAM BRANDS INC., et al., Defendants.
• Court: U.S. District Court — Northern District of California

420 F.Supp.3d 966

UCP INTERNATIONAL COMPANY LIMITED, et al., Plaintiffs,

v.BALSAM BRANDS INC., et al., Defendants.

Case No. 3:18-cv-07579-WHO

United States District Court, N.D. California.

Signed October 15, 2019

Patricia L. Peden, Burke Williams & Sorensen, LLP, Oakland, CA, for Plaintiffs.

Michael A. Jacobs, R. Benjamin Nelson, Spencer McManus, Morrison & Foerster LLP, San Francisco, CA, for Defendants.

ORDER ON MOTION TO STRIKE AND DISMISS

Re: Dkt. Nos. 36, 41, 42, 47, 50, 53, 60, 61

William H. Orrick, United States District Judge

The parties before me—competitors in the world of high-end artificial Christmas trees—have brought their dispute into federal court for a third time. Plaintiffs UCP International Company Limited and Global United Enterprises Limited (collectively, "UCP") allege that defendants Balsam Brands Inc. and its founder and CEO Thomas Harman (collectively, "Balsam") engaged in wrongful conduct in 2015 and 2016 when pursuing and settling patent infringement claims against UCP's only U.S. supplier. According to UCP, Balsam brought that case knowing it was objectively baseless and induced the supplier to settle on abusive terms, squeezing UCP's trees out of the market in the process. A second lawsuit in 2016 found UCP as a declaratory judgment plaintiff, and at the end of 2018 UCP filed this suit, now alleging that Balsam violated various state and federal laws during the first litigation.

Before me is UCP's first amended complaint and Balsam's special motion to strike the state law claims and to dismiss the federal claims. As set forth below, I conclude that state and federal litigation privileges shield Balsam's conduct from giving rise to liability. Accordingly, I will grant the motion to strike in part and dismiss the remaining claims.

BACKGROUND

In October 2015, Balsam filed a complaint against Frontgate asserting claims for patent infringement, false marketing and advertising, and violations of California's unfair competition and false advertising laws. 15-cv-4829 Complaint ("Frontgate Compl.") [15-cv-4829¹ Dkt. No. 1]. I denied Balsam's motion for a temporary restraining order, and in September 2016 I issued a claim construction order. See Order Denying Motion for TRO [15-cv-4829 Dkt. No. 42]; Claim Construction Order [15-cv-4829 Dkt. No. 108]. In December 2016, I issued an order dismissing the case with prejudice in response to the parties' stipulation requesting the same. Order of Dismissal [15-cv-4829 Dkt. No. 155].

The day after the parties stipulated to dismissal of the Frontgate litigation, UCP filed a complaint against Balsam seeking a declaratory judgment of non-infringement. Second Complaint [16-cv-7255 Dkt. No. 7² ]. After a brief stint before a different judge on this court,³ the case returned to me and I granted summary judgment in favor of UCP. Order Granting Motion for Summary Judgment [16-cv-7255 Dkt. No. 118]. UCP then moved for attorney fees, seeking to collect not only for the second litigation but also for the Frontgate litigation. I concluded that UCP was not entitled to fees for the Frontgate litigation, to which it was not a party. Order Granting in Part and Denying in Part Motion for Fees ("Fees Order") [16-cv-7255 Dkt. No. 146] 7–11. I granted the motion for some aspects of Balsam's conduct during the second litigation but denied the request under 35 U.S.C. section 285 because "Balsam's litigation positions were not so meritless or objectively unreasonable to justify a finding of exceptionality under Section 285." Id. at 12.

UCP filed the instant action on December 17, 2018, and I found that it was related to the prior cases and should be reassigned to me. See Complaint ("Compl.") [Dkt. No. 1]; Related Case Order [Dkt. No. 16]. Balsam then filed its first anti-SLAPP motion to strike. After hearing my tentative opinion that the commercial speech exemption to the anti-SLAPP law did not apply, UCP urged that I deny the motion and allow it the opportunity to amend to show that the dispute fell within that exemption. Although it seemed the Noerr-Pennington doctrine would protect Balsam's conduct in any event, Balsam had not filed a separate motion to dismiss. On May 6, 2019 I denied Balsam's motion but exercised my discretion to dismiss the complaint with leave to amend. Order Dismissing Complaint [Dkt. No. 31].

On May 28, 2019, UCP filed a first amended complaint including new allegations that, according to UCP, show this dispute falls within the commercial speech exemption to the anti-SLAPP law. First Amended Complaint ("FAC") [Dkt. No. 37]. UCP alleges that Balsam made three distinct statements about UCP trees "to promote sales of its ‘Flip Tree’ and to convince potential customers not to do business with UCP or to buy UCP's trees." FAC ¶ 23. First, Balsam posted on its website an open letter from Harman to potential customers. FAC ¶ 20, Ex. C ("Harman Letter") [Dkt. No. 36-9]. The letter falsely claimed Balsam had patents to a "rotating Christmas tree with collapsible limbs" and called the trees sold by Frontgate an "obvious imitation." Id. Balsam "urg[ed] customers to take into consideration UCP's purported unfair practices and knock-off Chinese product to convince potential customers to ‘purchase [their tree] from Balsam Hill.’ " Id. Second, on October 20, 2016, Balsam posted a YouTube video that displayed a UCP tree and "falsely claimed that ‘some of [Balsam's] competitors [were] selling imitations that cop[ied] the most central elements of our trees." Id. ¶ 21. Third, Balsam operated the website http://fliptrees.com, which claimed that " ‘[t]here [was] a battle occurring in the world of artificial Christmas trees, between a patented original and a bad imitation.’ " Id. ¶ 22.

UCP's amended complaint raises several new reasons why the Frontgate litigation was objectively baseless in response to my Order in an attempt to invoke the sham litigation exception to the Noerr-Pennington doctrine. First, "[N]o reasonable litigant could have realistically expected that Balsam would succeed on the merits" or believed that UCP's trees infringed. FAC ¶¶ 27, 32. Second, Balsam lacked standing to sue. Id. ¶ 28. Third, Balsam engaged in inequitable conduct by asserting the patents despite knowing that individuals involved in their prosecution "failed to supply material information and or supplied false information with intent to deceive the [United States Patent and Trademark Office] to issue Certificates of Correction for the patents-in-suit." Id. ¶ 29. Fourth, the asserted claims were invalid for violating the on-sale bar. Id. ¶ 30. Finally, Balsam pursued past infringement damages from Frontgate despite knowing it was not entitled to them. Id. ¶ 31.

Balsam then moved to strike and dismiss the first amended complaint, and I heard argument on the motion on August 21, 2019. Motion to Strike and Dismiss ("Mot.") [Dkt. No. 42]. Then, on September 19, 2019, the Federal Circuit decided cross-appeals the parties had filed in the second round of their dispute.⁴ The panel reversed my order granting summary judgment in favor of UCP and remanded the case.

LEGAL STANDARD

I. ANTI-SLAPP MOTION TO STRIKE

California Code of Civil Procedure section 425.16 is California's response to "strategic lawsuits against public participation," or SLAPP lawsuits. It was enacted "to provide a procedure for expeditiously resolving nonmeritorious litigation meant to chill the valid exercise of the constitutional rights of freedom of speech and petition in connection with a public issue." Hansen v. California Dep't of Corr. & Rehab. , 171 Cal. App. 4th 1537, 1542-43, 90 Cal.Rptr.3d 381 (2008). It provides that a cause of action against a person "arising from any act of that person in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim." CAL. CIV. PROC. CODE § 425.16(b)(1). An "act in furtherance of the person's right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue" includes:

(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law,

(2) any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law,

(3) any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest, or

(4) any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.

CAL. CIV. PROC. CODE § 425.16(e).

"When served with a SLAPP suit, the defendant may immediately move to strike the complaint under Section 425.16." Hansen , 171 Cal. App. 4th at 1543, 90 Cal.Rptr.3d 381. That motion is known as an anti-SLAPP motion. To determine whether an anti-SLAPP motion should be granted, the trial court must engage in a two-step process. "First, the defendant must make a prima facie showing that the plaintiff's suit arises from an act in furtherance of the defendant's rights of petition or free speech." Mindys Cosmetics, Inc. v. Dakar , 611 F.3d 590, 595 (9th Cir. 2010) (citation and internal quotation marks omitted). "Second, once the defendant has made a prima facie showing, the burden shifts to the plaintiff to demonstrate a probability of prevailing on the challenged claims." Id. "[T]he anti-SLAPP statute cannot be used to strike federal causes of action." Hilton v. Hallmark Cards , 599 F.3d 894, 901 (9th Cir. 2010).

II. MOTION TO DISMISS

Under Federal...