Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_07-cv-03117/USCOURTS-cand-5_07-cv-03117-4/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 28:1331 Fed. Question

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28 This disposition is not designated for publication and may not be cited. 1

Case No. C07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

** E-Filed 10/17/2007 **

NOT FOR CITATION

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

DESTINY TOOL, 

 Plaintiff,

 v.

SGS TOOLS COMPANY; DAUFINE

PRECISION TOOL, LLC; and

WELDON TOOL COMPANY

 Defendants.

Case Number C 07-03117 JF

ORDER GRANTING DEFENDANTS’ 1

MOTION TO DISMISS WITHOUT

LEAVE TO AMEND

[re: docket no. 15]

Defendants SGS Tools Company and Dauphin Precision Tool, LLC (“SGS and

Dauphin”) move to dismiss or alternatively to transfer the venue of this action. For the reasons

set forth below, the Court will grant the motion to dismiss, rendering the motion to transfer

venue moot.

I. BACKGROUND

The parties are competitors in the manufacturing, marketing, and selling of metal cutting

tools. Complaint at ¶¶2-4. SGS and Dauphin are the owners of U.S. Patent No. 5,049,009 (“the

Case 5:07-cv-03117-JF Document 40 Filed 10/17/07 Page 1 of 9
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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

‘009 Patent”) for an “Improved Cutting Tool.” Id. at ¶6. For a period of time, the parties

engaged in discussions regarding the ‘009 patent. Id. at ¶78. On July 12, 2004, SGS and

Dauphin brought an action against Destiny for patent infringement in Ohio. See SGS Tools

Company and Dauphin Precision Tool, LLC v. Step Tools Unlimited Inc d/b/a Destiny Tool,

N.D. Ohio Case No. 5:04 CV 1315 (“the Ohio Action”). Destiny responded to the Ohio

complaint by denying infringement and asserting a counterclaim for a declaratory judgment that

the ‘009 patent is invalid as a result of SGS’s and Dauphin’s alleged fraud on the United States

Patent and Trademark Office (“PTO”). Id. at ¶82. Destiny did not assert any other

counterclaims.

On September 15, 2005, Destiny moved for summary judgment on its invalidity

counterclaim in the Ohio Action, arguing that SGS and Dauphin failed to disclose certain

information to the PTO during the prosecution of the ‘009 Patent. Id. at ¶89. At the same time,

SGS and Dauphin moved to dismiss voluntarily the entire action. On September 29, 2006, the

Ohio court granted the motion to dismiss and denied Destiny’s motion for summary judgment

concluding that in light of the dismissal it lacked jurisdiction. Id. at ¶91. The Ohio court also

denied Destiny’s request for attorneys’ fees and costs. 

Destiny subsequently commenced the instant action in this Court. In this action, Destiny

asserts claims for relief for abuse of process, malicious prosecution, antitrust violations, and

attorneys’ fees arising from the Ohio action. SGS and Dauphin seek dismissal or, in the

alternative, to transfer venue to Ohio. The Court heard oral argument on September 28, 2007.

II. LEGAL STANDARD

For purposes of a motion to dismiss, the plaintiff’s allegations are taken as true, and the

Court must construe the complaint in the light most favorable to the plaintiff. Jenkins v.

McKeithen, 395 U.S. 411, 421 (1969). Leave to amend must be granted unless it is clear that the

complaint’s deficiencies cannot be cured by amendment. Lucas v. Department of Corrections,

66 F.3d 245, 248 (9th Cir. 1995). When amendment would be futile, however, dismissal may be

ordered with prejudice. Dumas v. Kipp, 90 F.3d 386, 393 (9th Cir. 1996). 

A motion for transfer pursuant to § 1404(a) lies within the discretion of the Court. Jones

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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

v. GNC Franchising, Inc., 211 F.3d 495, 498 (9th Cir. 2000). The decision whether to grant such

a motion turns on the facts of the particular case. Id. The factors to be weighed in deciding a

motion for transfer include: (1) the location where the relevant agreements were negotiated and

executed; (2) the state that is most familiar with the governing law; (3) the plaintiff's choice of

forum; (4) the respective parties’ contacts with the forum; (5) the contacts relating to the

plaintiff’s cause of action in the chosen forum; (6) the differences in the costs of litigation in the

two forums; (7) the availability of compulsory process to compel attendance of unwilling

non-party witnesses; (8) the ease of access to sources of proof; (9) the presence of a forum

selection clause; and (10) the relevant public policy of the forum state, if any. Id. at 498-99. 

III. DISCUSSION

1. Whether Federal Patent Law Preempts Destiny’s Abuse of Process Claim

Count II of Destiny’s complaint asserts a claim for abuse of process. Destiny alleges that

SGS and Dauphin had no reasonable belief in the merits of the Ohio litigation because they

allegedly knew that the ‘009 patent had been procured through fraud and thus was invalid. 

Complaint at ¶¶111, 112. 

SGS and Dauphin contend that Count II fails to state a claim because federal patent law

preempts claims for abuse of process arising out of a patentee’s conduct before the PTO. Destiny

responds that while an abuse of process claim arising out of administrative proceedings may be

preempted, state-law malicious prosecution and abuse of process claims arising from bad faith

patent infringement actions are not. 

In Abbott Laboratories v. Brennan, 952 F.2d 1346, 1355 (Fed. Cir. 1991), the Federal

Circuit was presented with the question of “whether the state tort action for abuse of process can

be invoked as a remedy for inequitable or other unsavory conduct of parties to proceedings in the

Patent and Trademark Office.” In Abbott, during prosecution of certain patent applications, the

plaintiff and defendant disputed the priority of inventorship claimed in the applications. Id. at

1348. The Board of Appeals and Interferences awarded priority to defendant Brennan as a result

of Abbott’s conduct before the PTO, which the Board found to be inequitable. Id. Abbott

subsequently filed suit against Brennan seeking to set aside the Board’s award of priority to

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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

Brennan. Id. Brennan counterclaimed for, inter alia, abuse of process and violations of the

Sherman Act. Id. The district court dismissed several of Brennan’s counterclaims, including its

claim under the Sherman Act. Id. However, Brennan’s counterclaim for abuse of process

proceeded to trial. Id. The jury awarded a judgment in Brennan’s favor, and Abbott appealed. 

Id. at 1349. 

The Federal Circuit reversed, finding that a “patent grant is within the exclusive purview

of federal law. Although certain traditional state concerns may properly be raised when patent

rights are litigated, the issue at bar relates directly to administrative proceedings before the PTO

Board of Patent Appeals and Interferences.” Id. at 1356. The Federal Circuit further observed

that “the federal administrative process of examining and issuing patents, including proceedings

before the PTO’s boards, is not subject to collateral review in terms of the common law tort of

abuse process . . . .An additional state action would be an inappropriate collateral intrusion of the

regulatory procedures of the PTO ‘under the guise of a complaint sounding in tort’. . .and is

contrary to Congress’ preemptive regulation in the area of patent law.” Id. At 1357.

However, in Dow Chem. Co. v. Exxon Corp., 139 F.3d 1470, 1477 (Fed. Cir. 1998), the

Federal Circuit held that “a state law tort claim is not preempted by the federal patent law, even if

it requires the state court to adjudicate a question of federal patent law, provided the state law

cause of action includes additional elements not found in the federal patent law cause of action

and is not an impermissible attempt to offer patent-like protection to subject matter addressed by

federal law.” Thus, a state law intentional interference claim based on bad faith which included

proof of acts before the PTO was allowed because that conduct was “merely evidence of a

patentee’s bad faith.” Dow, 139 F.3d at 1477. 

Here, Destiny argues that Abbott is distinguishable because the state law claim in Abbott

was based entirely on the patentee’s inequitable conduct in obtaining a patent. Destiny contends

that this case is more like Dow, because while SGS and Dauphin procured a patent by fraud (as

in Abbott), they then went on to bring an infringement action against Destiny in federal court. 

Put differently, Destiny argues that its claim “is based upon [SGS’s and Dauphin’s] institution of

a patent infringement lawsuit in bad faith, for anticompetitive reasons” rather than upon conduct

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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

before the PTO. Memo. In Opp. at 8-9.

SGS and Dauphin argue that Destiny’s abuse of process claim is based explicitly on the

assertion that SGS and Dauphin knew that the ‘009 Patent was procured by fraud, and that the

alleged fraud took place entirely before the PTO. However, while abuse of process claims

arising out of administrative proceedings will be rejected as within the scope of the patent law,

state abuse of process claims arising from bad faith patent infringement actions are not

preempted by federal patent law. See U.S. Aluminum Corp. v. Alumax, Inc., 831 F.2d 878, 881

(9 Cir. 1987). The Court concludes that Destiny’s Count II is not preempted. th

2. Whether Ohio Law or California Law Applies to the State Law Claims

The parties next dispute whether Ohio law or California law applies to Count I (malicious

prosecution) and Count II (abuse of process). Ohio law is more restrictive than California’s as to

both claims. Destiny argues that California law should apply because SGS and Dauphin directed

their conduct into California causing damage here when they instituted and later dismissed a

meritless patent infringement lawsuit against a California company. 

SGS and Dauphin contend that because there is a conflict between Ohio and California

law, the Court must conduct a “comparative impairment” analysis to determine “which state’s

interest would be more impaired if its policy were subordinated to the policy of the other state.” 

SGS and Dauphin concede that California has a vested interest in protecting its citizens from

baseless lawsuits. However, they argue that this Court should not allow Destiny to circumvent

Ohio’s more restrictive laws simply by filing its action in California rather than in Ohio. 

 The choice-of-law analysis in this case is a difficult one. In Engel v. CBS Incorporated,

981 F.2d 1076, 1080 (9th Cir. 1992), the Ninth Circuit concluded that New York’s interest in

having its malicious prosecution standards applied to cases being litigated within its boundaries

was more compelling than California’s general interest in protecting its citizens and in allowing

recovery for legal claims under California law. The Engel court noted that “[t]he state would

certainly have an interest in applying California law if the litigation upon which the malicious

prosecution claim were based had been filed in California. Here, however, where another state’s

litigation process has allegedly been perverted, California’s interest is far less than if the

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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

litigation process in California were subject to misuse.” Id. at 1081. 

At the same time, as Destiny points out, in Engel the plaintiffs also had “availed

themselves of the New York forum by agreeing that the CBS record contract would be governed

by New York law.” Id. at 1081. While SGS and Dauphin argue that Engel compels the

conclusion that the law of the state where an underlying action is litigated is controlling, Engel

cannot be read so broadly. Rather, Engel appears to be in line with other cases in which the law

of the foreign state is applied because the plaintiff has availed itself of the benefits of the foreign

state. See Paulo v. Bepex Corp., 792 F.2d 894, 896 (9th Cir. 1986) (Ontario law applied to a

California worker who worked, lived and injured himself in Ontario); Offshore Rental Co. v.

Continental Oil Co., 22 Cal.3d 157, 148 (1978) (Louisiana law applied to a California

Corporation whose key employee was injured at a Louisiana site). 

The principal case relied on by Destiny, Bernhard v. Harrah’s Club, 16 Cal.3d 313

(1976) also is distinguishable. In Bernhard, a California resident was injured in California in an

automobile accident caused by another California driver who had been provided alcoholic

beverages at the defendant’s establishment in Nevada after he already was obviously intoxicated. 

Bernhard sued the Nevada tavern owner in California under the California Business and

Professions Code, which, unlike Nevada, established a duty of care for such establishments. The

California Supreme Court determined that California law should apply because if California were

unable to extend its regulation to out-of-state tavern keepers in places where persons were likely

to return to California in an intoxicated state, it could not reasonably effectuate its policy

interests. The public policy in Bernhard clearly was stronger and more specific than that asserted

here. 

However, even assuming arguendo that California law applies, Destiny still fails to state

a claim for malicious prosecution or abuse of process. Even under California law, a party

bringing a claim for malicious prosecution must allege that the prior action terminated in its

favor. In this case, the Ohio court dismissed all of the parties’ claims and counterclaims as a

matter of law over Destiny’s express objection and opposition. Complaint at ¶¶ 91, 100. The

Ohio Action did not end in Destiny’s favor, and Destiny did not appeal the Ohio Court’s

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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

decision. Although Destiny argues that “the Court’s findings have nothing to do with the actual

merits of the action and everything to do with the Court’s procedural inability to act since SGS

and Dauphin had divested the Court of jurisdiction to hear [Destiny’s] requests,” Memo. in Op.

at 16, the fact remains that Destiny cannot show that the prior action ended in its favor.

As to the abuse of process claim, the Ninth Circuit has held that such a claim is a

compulsory counterclaim in the action alleged to be abusive. See Pochiro v. The Prudential Ins.

Co., 827 F.2d 1246 (9 Cir. 1987); Competitive Technologies v. Fujitsu Limited, 286 F.Supp.2d th

1118, 1140 (N.D.Cal. 2003). Because Destiny failed to assert abuse of process as a counterclaim

in the Ohio Action, the claim is barred under Fed. R. Civ. Pro. 13(a). Accordingly, Counts I and

II must be dismissed.

4. Whether Destiny’s Monopolization and Attempted Monopolization Claims must be 

Dismissed

Counts III and IV of the complaint assert claims for monopolization and attempted

monopolization in violation of Section 2 of the Sherman Antitrust Act. SGS and Dauphin filed

suit against Destiny for patent infringement on July 13, 2004. Complaint at ¶81. Destiny

responded to the complaint in the Ohio Action by denying the material allegations therein. In

addition, Destiny asserted a counterclaim in the Ohio Action seeking declaratory judgment that

the ‘009 patent was invalid due to SGS’s and Dauphin’s alleged fraud on the patent office. Id. at

¶¶ 82, 93, 98. As noted previously, Destiny did not assert counterclaims for alleged antitrust

violations in the Ohio action.

SGS and Dauphin argue that such counterclaims were compulsory pursuant to Fed. R.

Civ. Pro. 13(a) and were logically related to the claims in the Ohio Action. Relying on

Hydranautics v. FilmTec Corp., 70 F.3d 533 (9th Cir. 1995), Destiny argues that the

counterclaims are permissive and thus not subject to dismissal. In Hydranautics, a prior

judgment of patent infringement had been reversed because of a defect in inventorship. 

Hydranautics then instituted an antitrust suit against FilmTec based on the prior unsuccessful

patent infringement suit. FilmTec moved to dismiss the antitrust claim, arguing that it was a

compulsory counterclaim that should have been brought during the first litigation. The district

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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

court granted the motion to dismiss. The Ninth Circuit reversed, holding that “[a] claim for

patent infringement litigation violated an antitrust statute is a permissive, not mandatory,

counterclaim in a patent infringement case, and is not barred in a subsequent suit by failure to

raise it in an infringement suit.” Id. at 536. Thus, Destiny argues since the instant action has

been brought in a court of the Ninth Circuit, Destiny may go forward with the claim. 

The Court disagrees. In Hydranautics, the underlying patent infringement litigation was

filed in California; here, the subject litigation was filed in Ohio. Thus, as SGS and Dauphin

argue, Sixth Circuit law applies. Under Sixth Circuit law, antitrust claims arising out of patent

litigation are considered logically related and therefore compulsory. See USM Corp v. SPS

Technologies, Inc. 39 Fed. R. Serv 2d 42 (N.D. Ill. 1984)(district court ruling that an antitrust

counterclaim that was predicated on alleged fraudulent conduct of the patent applicant before the

PTO was barred because the claim was a compulsory counterclaim to a prior infringement

action.) Because the underlying infringement action was filed in a court of the Sixth Circuit and

the law of that circuit requires that a claim that a patentee’s infringement suit constitutes an

antitrust violation be brought as a compulsory counterclaim, Destiny’s claims for monopolization

and attempted monopolization must be dismissed.

SGS and Dauphin also assert that Destiny’s antitrust counterclaims are barred by the

statute of limitations and by res judicata. Because it finds that Destiny waived its antitrust

claims by failing to raise them in the Ohio Action, the Court does not reach these arguments.

IV. ORDER

Good cause therefor appearing, Defendants’ motion to dismiss is GRANTED. Because

Defendants are entitled to dismissal as a matter of law on the basis of undisputed facts, leave to

amend is not warranted. The motion to transfer venue is terminated as moot.

IT IS SO ORDERED. 

DATED: October 17, 2007

 

JEREMY FOGEL

United States District Judge

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Case No. C 07-03117 JF

ORDER GRANTING DEFENDANTS’ MOTION TO DISMISS WITHOUT LEAVE TO AMEND

(JFLC3)

This Order has been served upon the following persons:

 

Robert P. Andris

randris@ropers.com 

H. Alan Rothenbuecher

hrothenbuecher@szd.com 

 

Case 5:07-cv-03117-JF Document 40 Filed 10/17/07 Page 9 of 9