Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-3_06-cv-04693/USCOURTS-cand-3_06-cv-04693-9/pdf.json

Nature of Suit Code: 830
Nature of Suit: Patent
Cause of Action: 35:271 Patent Infringement

---

United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

REID-ASHMAN MANUFACTURING, INC.,

Plaintiff,

v.

SWANSON SEMICONDUCTOR SERVICE,

L.L.C.,

Defendant.

_____________________________________/

No. C-06-4693 JCS

ORDER GRANTING IN PART AND

DENYING IN PART MOTION TO

STRIKE AFFIRMATIVE DEFENSES

AND TO DISMISS COUNTERCLAIMS

FROM SWANSON’S “SECOND

AMENDED ANSWER TO COMPLAINT; 

AFFIRMATIVE DEFENSES;

COUNTERCLAIMS” [Docket No. 67]

I. INTRODUCTION

Plaintiff Reid-Ashman Manufacturing, Inc. (“Reid-Ashman”) filed this action against

Defendant Swanson Semiconductor Service, L.L.C. (“Swanson”), alleging that Swanson offers for

sale and sells test head manipulators that infringe Reid-Ashman’s patent rights. Swanson, in turn,

has asserted various affirmative defenses and counterclaims. Before the Court is Reid-Ashman’s

Motion to Strike Affirmative Defenses and to Dismiss Counterclaims from Swanson’s “Second

Amended Answer to Complaint; Affirmative Defenses; Counterclaims” (“the Motion”). In the

Motion, Reid-Ashman asks that the Court strike several of Swanson’s affirmative defenses on the

basis that they do not, as currently pled, provide adequate notice under Rules 8 and 9(b) of the

Federal Rules of Civil Procedure. Reid-Ashman further asserts that the counterclaims should be

dismissed, both under Rules 8 and 9(b) and under Rule 12(b)(6) for failure to state a claim. A

hearing on the Motion was held on Friday, May 4, 2007, at 9:30 a.m. For the reasons stated below,

the motion is GRANTED IN PART and DENIED IN PART.

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 1 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

 A detailed description of the allegations in Reid-Ashman’s complaint is set forth in the Court’s

November 13, 2006 Order in this case. The Court, therefore, addresses here only Swanson’s affirmative

defenses and counterclaims.

2

II. BACKGROUND1

A. The Second Amended Answer to Complaint; Affirmative Defenses;

Counterclaims

In its Second Amended Answer to Complaint; Affirmative Defenses; Counterclaims

(“Answer and Counterclaims”), Swanson asserts four affirmative defenses, all “on information and

belief.” First, Swanson asserts that the patent in suit, U.S. Patent No. 6,766,996 (“the ‘996 Patent”),

is “invalid for failing to meet one or more of the conditions for patentability specified in Title 35 of

the United States Code, including but not limited to 35 U.S.C. §§ 102, 103, 112 and 132.” Answer

and Counterclaims at 4, ¶ 1. Second, Swanson asserts that damages are barred based on ReidAshman’s failure to properly mark its goods pursuant to 35 U.S.C. § 287(a). Third, Swanson asserts

that the ‘996 Patent is unenforceable because Reid-Ashman engaged in inequitable conduct before

the PTO when it obtained the ‘996 Patent. Id., ¶ 3. Fourth, Swanson asserts that Reid-Ashman is

“guilty of unclean hands so as to render the ‘996 Patent unenforceable against Swanson in this

action.” Id. at 5, ¶ 4.

In support of the inequitable conduct affirmative defense, Swanson alleges that ReidAshman:

. . . engaged in inequitable conduct before the [PTO] when it obtained

the ‘996 Patent, as [Reid-Ashman] withheld material information

known to [Reid-Ashman] from the [PTO], with an intent to deceive

the [PTO] into issuing the ‘996 Patent. More specifically, [ReidAshman] failed to disclose its own [Reid-Ashman] US 1004 Test Head

Manipulator Brochure for the LTX TH90/TH91 Test Head (copyright

1985) . . . and the [Reid-Ashman] OH 1510 Product Manual (dated

February 4, 2000) . . . and their related products, to the [PTO]. This

failure to disclose [Reid-Ashman’s] own known prior art, which was

more pertinent than any other prior art of record, constitutes a fraud on

the [PTO], which renders [Reid-Ashman’s] ‘996 Patent invalid and/or

unenforceable against Swanson. Further, to the extent that [ReidAshman] filed a large number of prior art references in its attempts to

obfuscate and hide the most relevant references (U.S. Patent Nos.

5,606,262 and 5,931,048), such actions also render [Reid-Ashman’s]

‘996 Patent invalid and/or unenforceable.

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 2 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

Id. at 4-5, ¶ 3. 

In support of the unclean hands affirmative defense, Swanson alleges that Reid-Ashman is:

. . . attempting to enforce the patent beyond the scope of the patent to

obtain a monopoly in the test head manipulator industry by claiming

patent infringement against a product that is not even in the same class

as that patented by [Reid-Ashman]. Swanson’s manipulator product

handles much lighter test head loads. [Reid-Ashman] is well aware of

that fact. [Reid-Ashman] also initiated this litigation without adequate

investigation whether Swanson’s product infringes [Reid-Ashman’s]

patent; indeed, [Reid-Ashman] did not even contact Swanson about

the patent or the subject matter of this litigation prior to serving a copy

of the Complaint on Swanson. [Reid-Ashman] then communicated its

invalid claims outside the litigation to intimidate and confuse

Swanson’s existing and potential customers, so as to eliminate this

source of revenue to Swanson.

Id. at 5, ¶ 4.

Swanson also asserts a counterclaim for a declaratory judgment of invalidity,

noninfringement and unenforceability and patent misuse as to the ‘996 Patent, alleging that ReidAshman’s patent infringement claims against Swanson are “a sham, are frivolous, and are an

obvious attempt to drive legitimate competition from the marketplace by improper assertion of the

‘966 Patent.” Id. at 5, ¶ 1. In support of this allegation, Swanson repeats the key allegations of the

affirmative defenses discussed above, namely, that Reid-Ashman obtained the patent through

inequitable conduct, that it is guilty of unclean hands, and that the ‘996 Patent is “invalid for failing

to meet one or more of the conditions for patentability specified in Title 35 of the United States

Code, specifically 35 U.S.C. §§ 102, 103, 112, and 132.” Id. at 6-7, ¶¶ 3-6.

In addition to Swanson’s counterclaim for declaratory relief, Swanson asserts four additional

counterclaims: 1) product disparagement, false advertising and unfair competition in violation of

§ 43(a) the Lanham Act (“the Lanham Act Counterclaim”); 2) tortious interference with ongoing

business relations and prospective economic advantage; 3) slander; and 4) trade libel and business

disparagement. 

The Lanham Act claim is based on the allegation that Reid-Ashman, in an effort to prevent

Swanson’s sale of test head manipulators to Texas Instruments and to sell its own manipulators to

Texas Instruments, told Texas Instruments that Swanson had “stolen” Reid-Ashman’s manipulator

design. Id. at 13, ¶ 39. Specifically, Swanson alleges that on July 27, 2007, it was informed that

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 3 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

4

“[Reid-Ashman] principals were claiming that ‘Swanson stole manipulator designs of [ReidAshman] . . . and that [Reid-Ashman] was in the process of legal action against Swanson.’” Id. at

10, ¶ 26. Swanson further alleges that in September 2006, when a third party stated to ReidAshman’s president, Steve Reid, that he understood Reid-Ashman was suing Swanson, Reid

responded, “We . . . do not need another competitor.” Id. Elsewhere in the Answer and

Counterclaims, Swanson alleges that at a July 2003 trade show in San Jose, principals of ReidAshman, including Claire Buchanan, said that Reid-Ashman would “crush” Swanson. Id. at 8, ¶ 13.

The counterclaim for tortious interference is based on the allegation that Reid-Ashman has

been contacting and continues to contact Swanson customers, including Texas Instruments, claiming

that Swanson has infringed Reid-Ashman’s patent and making “veiled threats” to sue these

prospective customers if they purchase Swanson’s manipulator. Id. at 14- 15, ¶¶ 50-51. According

to Swanson, these threats are made in bad faith and with malice, and without a good faith intent to

actually initiate litigation against these potential customers. Id., ¶ 52. Swanson alleges further that

in making these threats, Reid-Ashman has interfered with Swanson’s relationships with prospective

customers, including Texas Instruments, that Reid-Ashman was aware of the relationship with Texas

Instruments, and Reid-Ashman’s intentional interference has resulted in actual damage to Swanson. 

Id. Swanson alleges that the tortious interference is not privileged because it is “composed at least

in part of communications to third parties not made in the course of, and/or not made in conjunction

with, pending or reasonably anticipated litigation.” Id., ¶ 55.

Swanson’s counterclaims for slander and for trade libel or business disparagement are based

on the allegation that Reid-Ashman told Texas Instruments that Swanson stole Reid-Ashman’s

manipulator design. Id. at 16-17, ¶¶ 57, 62. Swanson asserts that the alleged slander and trade libel

or business disparagement, like the alleged tortious interference, is not privileged because it is

“composed at least in part of communications to third parties not made in the course of, and/or not

made in conjunction with, pending or reasonably anticipated litigation.” Id at 16-17, ¶¶ 60, 68.

B. The Motion

Reid-Ashman asserts that all of Swanson’s affirmative defenses, except the affirmative

defense for failure to mark in violation of 35 U.S.C. § 287(a), and all of Swanson’s counterclaims

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 4 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

5

fail as a matter of law because they are supported by insufficient factual allegations. Reid-Ashman

makes the following specific arguments:

Invalidity Affirmative Defense: Swanson’s invalidity affirmative defense is based entirely

on the allegation that the claims of the ‘996 Patent are invalid because they fail to meet “one or more

of conditions for patentability” specified in §§ 102, 103, 112, and 113. In failing to allege any

specific facts or identify which of the requirements of these sections have been violated, Swanson

fails to provide Reid-Ashman with adequate notice of the defense asserted.

Inequitable Conduct Affirmative Defense: Swanson’s inequitable conduct affirmative

defense is based on allegations that Reid-Ashman failed to provide the PTO with two documents

revealing prior art and that it obfuscated the most relevant prior art by listing too much prior art in

its application. As to the first theory, Reid-Ashman asserts that the allegations fail because they do

not meet the particularity requirements of Rule 9(b) of the Federal Rules of Civil Procedure, which

Reid-Ashman asserts is the applicable standard. Specifically, Swanson must identify not only the

documents that allegedly were not disclosed but also the precise content of the alleged fraudulent

omissions as well as how the omissions were material. Reid-Ashman further asserts that Swanson

must allege facts showing that Swanson intended to mislead the PTO. As to the second theory,

Reid-Ashman asserts that court’s have routinely rejected claims of inequitable conduct based on

disclosure of too much prior art. 

Unclean Hands Affirmative Defense: Swanson’s unclean hands affirmative defense is

based on the allegation that Reid-Ashman has attempted to monopolize the marketplace. This

affirmative defense, Reid-Ashman argues, is really an attempt to bring a claim for attempted

monopolization under Section 2 of the Sherman Act, 15 U.S.C. § 2. Reid-Ashman asserts that

Swanson has not alleged key elements of such a claim, including a relevant market or a “dangerous

probability of success.” Therefore, Reid-Ashman argues, the affirmative defense should be stricken. 

Even if the unclean hands is construed as an allegation of patent misuse, such a claim could only be

successful if Swanson were first to establish that it was not infringing Reid-Ashman’s patent.

Declaratory Relief Counterclaim: The declaratory relief counterclaim is based on the three

affirmative defenses discussed above and should be dismissed for the reasons discussed above.

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 5 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

6

Lanham Act Counterclaim: Reid-Ashman asserts that a Lanham Act claim for unfair trade

practices may only be brought in the context of patent infringement where there is bad faith and

further, that bad faith must be pleaded with particularity. Reid-Ashman argues further that Swanson

has not pleaded bad faith with particularity because it has not identified the speaker or the time and

place of the various statements which allegedly show bad faith, and most of the specific allegations

were made on information and belief.

The State Law Tort Claims for Tortious Interference with Ongoing Business Relations

and Prospective Economic Advantage, Slander and Trade Libel or Business Disparagement:

With respect to all three of the state law tort claims, Reid-Ashman asserts that they are preempted to

the extent that Reid-Ashman’s assertion of the patent and warnings about litigation are made in good

faith. Reid-Ashman asserts that Swanson’s allegations of bad faith are insufficient (as discussed in

connection with the Lanham Act counterclaim) and further asserts that Swanson cannot “plead

around” the federal preemption until the infringement claims are resolved. Reid-Ashman also

argues that all of the state law tort claims fail because they are based on statements that are

absolutely privileged under California’s litigation privilege, Cal. Civ. Code § 47(b). Further, to the

extent the state law claims are based on the statement made in 2003 that Reid-Ashman would

“crush” Swanson, the claims are, Reid-Ashman asserts, barred by the relevant statutes of limitations. 

Finally, as to the claims for intentional interference with ongoing business relations and with

prospective economic relations, Reid-Ashman asserts the claim fails as a matter of law because there

is no contract alleged and because the alleged interference – Reid-Ashman’s enforcement of its

patent rights – is not independently wrongful. 

C. The Opposition

In its Opposition, Swanson argues the inequitable conduct affirmative defense and the

declaratory relief counterclaim based on inequitable conduct are legally sufficient. First, Swanson

argues that its allegations of inequitable conduct are sufficient because this affirmative defense and

counterclaim is governed by Rule 8 of the Federal Rules of Civil Procedure, requiring only notice

pleading, rather than Rule 9(b). Further, Swanson asserts that even if Rule 9(b) applies, its

allegations are sufficiently specific. With respect to the sufficiency of the bad faith allegations,

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 6 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

Swanson asserts that its allegations were sufficiently detailed and specific. As to the tortious

interference claim, Swanson asserts that it has alleged an existing relationship between itself and

Texas Instruments and further, that the alleged interference is independently wrongful because it

constitutes a violation of § 43(a) of the Lanham Act. 

With respect to the Litigation Privilege, Swanson asserts that it does not apply because the

communications at issue were not made “in a judicial proceeding” as required under Cal. Civ. Code

§ 47(b) but rather, were made about the judicial proceeding to third parties. Swanson asserts that

under these circumstances, the only privilege that might apply is the interested person privilege of

Cal. Civ. Code § 47(c), which requires that communications be made without malice. Here,

however, malice is alleged, depriving Reid-Ashman of any privilege. Finally, as to the 2003

statement that Reid-Ashman would “crush” Swanson, Swanson states that this statement was not

alleged to be the basis of any of the claims and thus, its timeliness is not at issue. Rather, this

allegation was merely intended to show Reid-Ashman’s long-standing bad faith as to Swanson. 

III. ANALYSIS

A. Legal Standard

A claim should not be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) unless it appears

beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle

him to relief. Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Dismissal

can be based on the lack of cognizable legal theory or the absence of sufficient facts alleged under a

cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). On

a motion to dismiss, the court accepts the facts alleged in the complaint as true. Id. Where a court

dismisses for failure to state a claim pursuant to Rule 12(b)(6), it “should grant leave to amend . . .

unless it determines that the pleading could not possibly be cured by the allegation of other facts.” 

Cook, Perkiss & Liehe v. N. Cal. Collection Serv., 911 F.2d 242, 247 (9th Cir. 1990).

Under Rule 12(f) of the Federal Rules of Civil Procedure, the court may strike from any

pleading “any insufficient defense or any redundant, immaterial, impertinent or scandalous matter.” 

“The key to determining the sufficiency of pleading an affirmative defense is whether it gives

plaintiff fair notice of the defense.” Wyshak v. City Nat’l Bank, 607 F.2d 824, 827 (9th Cir. 1979). 

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 7 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

A. Invalidity Affirmative Defense

Swanson alleges that the ‘996 Patent is “invalid for failing to meet one or more of the

conditions for patentability specified in Title 35 of the United States Code, including but not limited

to 35 U.S.C. §§ 102, 103, 112 and 132.” Answer and Counterclaims at 4, ¶ 1. Even under the

minimal notice pleading requirements of Fed. R. Civ. P. 8(a), which requires only a “short and plain

statement of the claim showing that the pleader is entitled to relief,” this allegation is insufficient

because it does not provide Reid-Ashman with sufficient notice of the defense being asserted. See

Advanced Cardiovascular Sys., Inc. v. Medtronic, 41 U.S.P.Q.2d 1770, 1773 (N.D. Cal. 1996)

(holding that where affirmative defense of invalidity was based on allegation that patent holder

failed to “satisfy the requirements of patentability contained in Title 35 [of the] United States Code,

including but not limited to, sections 101, 102, 103, and/or 112,” it did not give the plaintiff fair

notice of the defense because the sections identified “provide numerous grounds for finding a patent

invalid”). Accordingly, Swanson’s affirmative defense is stricken without prejudice and Swanson is

given leave to amend its invalidity affirmative defense.

B. Inequitable Conduct Affirmative Defense

1. The Alleged Failure to Reveal Two Publications

Swanson alleges inequitable conduct based on Reid-Ashman’s failure to provide the PTO

with two, specifically identified publications with an intent to deceive. However, Swanson does not

explain how these omissions were material – an element that it will be required to prove in order to

prevail on this defense. See Allen Eng’g Corp. v. Bartell Indus., Inc., 299 F.3d 1336, 1351 (Fed. Cir.

2002) (to prevail on unclean hands affirmative defense, defendant was required to show that plaintiff

“withheld material information from the PTO with intent to deceive the PTO”). Reid-Ashman

asserts that the affirmative defense is, therefore, insufficiently pleaded, because Rule 9(b), requiring

that fraud be pleaded with particularity, applies to allegations of inequitable conduct. Swanson, on

the other hand, asserts that Rule 9(b) does not apply to inequitable conduct and that the many district

courts that have held to the contrary have erred. The Court concludes that inequitable conduct must

be pleaded with specificity under Rule 9(b) and that Swanson’s allegations of inequitable conduct

fail to meet that standard.

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 8 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

9

In its Opposition, Swanson addressed whether inequitable conduct allegations are governed

by Rule 9(b) or Rule 8, an issue that had not been resolved by the Federal Circuit. After Swanson

filed its Opposition, however, the Federal Circuit squarely held in Central Admixture Pharmacy

Services, Inc. v. Advanced Cardiac Solutions that: 1) the law of the Federal Circuit applies to the

question of whether inequitable conduct has been adequately pleaded; and 2) inequitable conduct

must be pled with particularity. 2007 WL 967936 (Fed. Cir. April 3, 2007). This Court is bound by

the ruling in Central Admixture and therefore applies Rule 9(b) in evaluating Swanson’s allegations

of inequitable conduct. Applying that standard, the Court determines that Swanson’s allegations are

insufficient because Swanson has failed to identify with particularity facts showing that the alleged

omissions were material or that Reid-Ashman’s omission was done with an intent to deceive. See 

Energy Absorption Sys., Inc. v. Roadway Safety Servs., Inc., 1993 WL 389014 ( N.D. Ill. Sept. 16,

1993) (holding that inequitable conduct affirmative defense was not adequately pled under Rule 9(b)

because the defendant failed to explain how omission was material). Therefore, this affirmative

defense is stricken without prejudice to the extent it is based on the alleged omissions discussed

above and Swanson is given leave to amend.

2. Obfuscation through Provision of Too Much Prior Art

Reid-Ashman also argues that Swanson’s inequitable conduct affirmative defense should be

stricken because it fails as to the allegation that the most pertinent references were buried among too

much prior art in order to hide it from the PTO. Reid-Ashman cites a single case, in which the

district court declined to find inequitable conduct in similar circumstances. See Litton Sys., Inc. v.

Honeywell, Inc., 1995 WL 366 468 (C.D. Cal. Jan. 6, 1995). In that case, however, the court

decided the issue based on the evidence, not the pleadings. Id. at * 37. Further, the court

acknowledge that inequitable conduct may be established based on such allegations:

Some cases have held that it was inequitable conduct to bury the most

pertinent references within a large list of less pertinent references,

particularly if the circumstances are such that the examiner would not

carefully examine the art in the list. e.g. Golden Valley Microwave

Foods Inc. v. Weaver Popcorn Co. Inc., 24 U.S.P.Q.2d (BNA) 1801,

1827 (N.D. Ind. 1992), aff'd w'out op., 11 F.3d 1072 (Fed Cir. 1993),

cert. denied, 114 S. Ct. 2136 (1994) (“it is ... a violation of the duty of

candor and fair dealing with the Patent Office for an applicant or its

attorney to disclose a pertinent prior art patent reference to the

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 9 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10

examiner in such a way as to ‘bury’ it or its disclosures in a series of

disclosures of less relevant prior art references, so that the examiner

would be likely to ignore the entire list and permit the application to

issue.”); Penn Yan Boats, Inc. v. Sea Lark Boats, Inc., 175 U.S.P.Q.

(BNA) 260, 272 (S.D. Fla. 1972), aff'd 178 U.S.P.Q. (BNA) 577 (5th

Cir. 1973), cert. denied, 414 U.S. 874 (1973) (applicant who submitted

list citing non-pertinent prior art patents while omitting most pertinent

known prior art patent misled the examiner to an extent sufficient to

justify a finding of unenforceability).

Id. Therefore, at this early stage of the case, the Court declines to strike Swanson’s allegation that

Reid-Ashman is guilty of inequitable conduct before the PTO based on its provision of too many

prior art references. 

C. Unclean Hands Affirmative Defense

Reid-Ashman asserts that Swanson’s unclean hands defense is really a claim for attempted

monopolization in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2 and that such a claim is

insufficiently pleaded. At oral argument, Swanson stipulated that it does not seek to assert an

affirmative defense under the Sherman Act and on that basis, the Court strikes the unclean hands

affirmative defense, without leave to amend, to the extent it could be construed as being based on

the a Sherman Act violation. The remaining question is whether Swanson has adequately asserted

an unclean hands affirmative defense on a theory of patent misuse. The Court concludes that it has.

The Federal Circuit has held that in order to establish patent misuse based on a patent

infringement action, it is necessary to establish bad faith and an improper purpose. See Glaverbel

Societe Anonyme v. Northlake Mktg. & Supply, 45 F.3d 1550, 1558 (Fed. Cir. 1995); see also In re

Indep. Serv. Orgs. Antitrust Litig., 964 F. Supp. 1479, 1484 (D. Kan. 1997) (holding that 35 U.S.C.

§ 271(d)(3) precludes a misuse defense based on litigation only when the patent infringement suit is

brought in good faith) (citing Glaverbel). In addition, in order to avoid the immunity that is afforded

antitrust litigants under the Noerr-Pennington doctrine, it is necessary to establish that the litigation

is a “sham,” i.e., that it is objectively baseless. Glaverbel, 45 F.3d at 1558 (citing Prof’l Real Estate

Investors, Inc. v. Columbia Pictures Indus., 508 U.S. 49, 60 (1993). The Court concludes that this is

what Swanson is alleging as the basis for its unclean hands affirmative defense, although the various

“magic words” of “bad faith,” “improper purpose” and “objectively baseless” do not appear in the

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 10 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

 These rulings, of course, are without prejudice to further consideration of the matter in

connection with the trial – either by adjusting the order and manner of proof or by bifurcation.

11

defense itself. As discussed below, the Court concludes that Swanson has adequately alleged that

Reid-Ashman’s lawsuit was brought in bad faith and is objectively baseless.

Finally, Reid-Ashman cites to several cases in which judges have not permitted

counterclaims for tortious interference based on an allegedly sham lawsuit until the defendant has

established that the infringement claims in the underlying lawsuit are objectively baseless, ie., the

defendant has already prevailed as to non-infringement. See Elantech Devices Corp. v. Synaptics,

Inc., 2006 U.S. Dist. LEXIS 48756 (N.D. Cal. July 7, 2006) (tortious interference claim based on

patent infringement lawsuit premature); Visto Corp. v. Sproqit Tech., 360 F. Supp. 2d 1064, 1072

(N.D. Cal. Mar. 17, 2005) (tortious interference claim based on patent infringement lawsuit

premature); Formula One Licensing, B.V. v. Purple Interactive Ltd., 2001 U.S. Dist. LEXIS 2968

(N.D. Cal. Feb. 6, 2001) (tortious interference claim based on trademark infringement lawsuit

premature). Reid-Ashman suggests that under these cases, Swanson’s affirmative defense of

unclean hands – to the extent its defense is based on a theory of patent misuse – cannot be asserted

until Swanson has defeated the infringement claims. The Court rejects this argument. To the extent

Swanson asserts misuse as a defense to infringement, it makes little sense to hold that it cannot be

asserted until after Swanson has already prevailed on the question of infringement. Further, in light

of the fact that this issue will be litigated as part of the affirmative defense, it makes little sense to

dismiss the state law counterclaims on this basis pending a determination on infringement.2

D. Declaratory Relief Counterclaim

Reid-Ashman asserts that the declaratory relief counterclaim should be dismissed for the

same reasons that the affirmative defenses fail, invoking the rule that “if any affirmative defense is

stricken, then the counterclaim cannot state a claim based on that defense.” Advanced

Cardiovascular Sys., Inc. v. Medtronic, 41 U.S.P.Q.2d at 1775. The Court’s holding as to this claim

incorporates the rulings discussed above, that is, the declaratory relief counterclaim fails to the

extent that the affirmative defenses on which it is based fail and survives to the extent that the Court

has found those affirmative defenses to be adequately pleaded. Swanson is given leave to amend.

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 11 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

12

E. Lanham Act Counterclaim

Reid-Ashman asserts that Swanson’s counterclaim for violation of the Lanham Act fails

because such counterclaims, when asserted in the context of an action for patent infringement, are

barred unless a defendant can establish that the patent infringement action is brought in bad faith. 

Reid-Ashman further asserts that bad faith must be pleaded with particularity and that Swanson has

failed to do so. The Court concludes that while bad faith is a necessary element of Swansons

Lanham Act Counterclaim, Swanson has sufficiently alleged bad faith to survive Reid-Ashman’s

motion.

In Zenith Electronics Corp. v. Exzec, Inc., the Federal Circuit addressed the tension between

the Lanham Act and the patent laws and concluded that to balance this tension, a requirement of bad

faith should be read into claims brought under § 43 of the Lanham Act based on actions for patent

infringement or related statements:

Though the differences between the Lanham Act and the patent laws

may not appear as sharp as those between the patent and antitrust laws,

there is a tension. We have on several occasions recognized that a

patentee's statements regarding its patent rights are conditionally

privileged under the patent laws, so that such statements are not

actionable unless made in bad faith. . . .This privileged right of a

patentee to notify the public of its patent rights is statutorily rooted in

the patent laws at 35 U.S.C. § 287, which authorizes patent holders to

“give notice to the public” of a patent by marking its patented articles

and makes marking or specific notice to the accused infringer a

prerequisite to the recovery of damages. . . . Accordingly, we

conclude that, before a patentee may be held liable under § 43(a) for

marketplace activity in support of its patent, and thus be deprived of

the right to make statements about potential infringement of its patent,

the marketplace activity must have been undertaken in bad faith. This

prerequisite is a function of the interaction between the Lanham Act

and patent law, and is in addition to the elements required by § 43(a)

itself, as § 43(a) alone does not require bad faith

182 F.3d 1340, 1352 (Fed. Cir. 1999). 

 In Zenith, the defendant brought a counterclaim under § 43(a) of the Lanham Act based on

statements by the plaintiff that the defendant’s product infringed the plaintiff’s patents and

moreover, that the defendant could not manufacture a noninfringing product. Id. at 1354. The

Federal Circuit held that both statements, if made in bad faith, could be reached by § 43(a) of the

Lanham Act. Id. In addressing the bad faith requirement, the court noted that “what constitutes bad

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 12 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

3

 Because the Court concludes that Swanson’s allegations of bad faith are specific enough to

satisfy Rule 9(b), it need not reach the question of whether that is the appropriate standard. The Court

notes, however, that there is some authority suggesting that Rule 9(b) does not apply to allegations of

bad faith. See Xilinx, Inc. v. Altera Corp., 33 U.S.P.Q.2d 1149 (N.D. Cal. 1993) (noting that the

defendant’s affirmative defense of unclean hands was based on the allegation that the plaintiff brought

the patent infringement action in bad faith and thus, “Rule 9(b) does not technically apply”); but see

Formula One Licensing, 2001 U.S. Dist. LEXIS at 2968 at * 5 (holding that antitrust claims based on

filing sham patent litigation must be pleaded with particularity to show that the Noerr-Pennington

doctrine does not apply). 

13

faith remains to be determined on a case by case basis . . . [but that] [o]bviously, if the patentee

knows that the patent is invalid, unenforceable, or not infringed, yet represents to the marketplace

that a competitor is infringing the patent, a clear case of bad faith representations is made out.” Id.

Swanson alleges that Reid-Ashman told Texas Instruments that Swanson was infringing

Reid-Ashman’s patent even though it knew that the patent was not being infringed. This allegation

is supported by specific allegations that Swanson asserts show that Reid-Ashman acted in bad faith,

including the allegation that: 1) Reid-Ashman “had never adequately inspected Swanson’s

manipulators prior to suit;” 2) the pictures Reid-Ashman took of Swanson’s allegedly infringing

product where unauthorized and were of the prototype rather than of the product; and 3) the product

Reid-Ashman was offering in competition with Swanson’s product “does not appear to be the same

product which [Reid-Ashman] patented.” Answer and Counterclaims at 10-11, ¶ 28. Swanson also

alleges that Reid-Ashman principal Claire Buchanan stated in 2003 that Reid-Ashman would

“crush” Swanson. Id. at 8, ¶ 14. This latter statement, while not itself actionable (as Swanson

concedes), may, in combination with the other allegations, support a finding of subjective bad faith.3

The fact that many of Swanson’s allegations are pleaded on information and belief does not

persuade the court that a contrary result is justified. Although Reid-Ashman asserts that there is a

bright line rule that allegations made on information and belief do not satisfy Rule 9(b), the Ninth

Circuit case to which Reid-Ashman cites in support of this contention does not support its position. 

See Moore v. Kayport Package Express, Inc., 885 F.2d 531, 540 (9th Cir. 1989). In Moore, the

Ninth Circuit held that the plaintiff failed to adequately plead claims of fraud asserted under Section

10(b) and Rule 10(b)(5) of the Securities Act of 1934. Id. at 540. The Court noted that many of the

allegations in the complaint were made on information and belief and stated that “allegations of

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 13 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

14

fraud based on information and belief usually do not satisfy the particularity requirements under

Rule 9(b).” The Court went on to explain, however, that the rule may be relaxed “as to matters

within the opposing party’s knowledge.” Id. “In such cases, the particularity requirement may be

satisfied if the allegations are accompanied by a statement of the facts on which the belief is

founded.” Id. (citing Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir. 1987)). That

standard is met here. 

F. State Law Claims

1. Preemption by Federal Patent Law

Reid-Ashman asserts that Swanson’s state law claims are preempted by patent law because

Swanson has not adequately alleged bad faith. The Court disagrees.

The Federal Circuit has held that “state tort claims, including tortious interference claims,

based on publicizing a patent in the marketplace are not preempted by the patent laws if the claimant

can show that the patent holder acted in bad faith in its publication of the patent.” Zenith, 182 F.3d

at 1355. As discussed above, the Court concludes that Swanson has adequately alleged bad faith

and therefore, its state law claims are not preempted as pleaded. 

2. Litigation Privilege

Reid-Ashman asserts that all of Swanson’s state law counterclaims are barred under

California’s litigation privilege because these counterclaims are based on statements by ReidAshman that are related to its patent action against Swanson. The Court concludes that statements

made after this lawsuit was initiated are subject to the litigation privilege but that fact questions

remain as to the prelitigation statements.

California’s litigation privilege is set forth in Cal. Civ. Code § 47(b), which provides as

follows:

A privileged publication or broadcast is one made: 

. . .

(b) In any (1) legislative proceeding, (2) judicial proceeding, (3) in any

other official proceeding authorized by law, or (4) in the initiation or

course of any other proceeding authorized by law and reviewable

pursuant to Chapter 2 (commencing with Section 1084) of Title 1 of

Part 3 of the Code of Civil Procedure . . . .

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 14 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

15

Cal. Civ. Code § 47(b). The litigation privilege is absolute and applies to “any communication

(1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by

law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation

to the action.” Silberg v. Anderson, 50 Cal. 3d 205, 212 (1990).

California courts have held that the litigation privilege may apply to prelitigation

communications, see Lerette v. Dean Witter Org., Inc., 60 Cal. App. 3d 573, 577 (1976), so long as

the communications are made “in good faith and actual contemplation of litigation.” Visto, 360 F.

Supp. 2d at 1070 (citing Newman v. Checkrite Cal., Inc., 912 F. Supp. 1354, 1374 (E.D. Cal. 1995). 

As the court in Visto explained, this may turn on a factual determination. For example, in Visto, the

court found that there were factual questions as to whether prelitigation demand letters fell under the

litigation privilege because the defendant’s allegations raised the possibility that at the time the

threats of litigation were made, the plaintiff was not seriously contemplating litigation in good faith

but was instead using the threats for strategic reasons. Id. 

The litigation privilege also may apply to communications to third parties with an interest in

the litigation. See, e.g., Sharper Image Corp. v. Target Corp. 425 F. Supp. 2d 1056, 1077-78 (N.D.

Cal. 2006) (holding that litigation privilege barred counterclaims asserted against plaintiff pursuing

patent and trademark claims where the counterclaims were based on e-mails from plaintiff’s

attorneys to third parties who purchased the allegedly infringing product from the defendant

informing them of the lawsuit and asking them not to carry the defendant’s product). 

Here, the statements at issue were allegedly made to Texas Instruments by Reid-Ashman,

warning Texas Instruments that Reid-Ashman intended to sue Swanson, and possibly Texas

Instruments as well, for patent infringement as to a product Texas Instruments was considering

purchasing from Swanson. Answer and Counterclaims at 10, ¶¶ 26-27. Some of the statements that

allegedly form the basis of the state law claims were made in late July, 2006, just before ReidAshman sued Swanson. See id. at ¶ 26. Other statements were made after the lawsuit was initiated. 

Id, ¶¶ 26-27. It is clear that the litigation privilege applies to the statements made after the lawsuit

was initiated. As the court in Sharper Image explained, where a third party purchases a product that

is the subject of an infringement action, a communication to that party informing it of the action has

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 15 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

16

a logical relation to the action because the third party clearly has an interest in the litigation. 425 F.

Supp. 2d at 1079. In particular, the third party’s supply of the product may be interrupted if the

action is successful, and the third party may itself face legal liability if the product is found to

infringe. Id. There remains a factual question, however, as to whether Reid-Ashman was seriously

and in good faith contemplating litigation at the time it made the prelitigation statements on which

Swanson’s state law claims are based, as in Visto.

3. Sufficiency of Tortious Interference Allegations

Reid-Ashman asserts that Swanson’s claim for tortious interference with ongoing business

relations and prospective economic relations also fails on the grounds that Swanson had no existing

contract and Swanson has not alleged that Reid-Ashman’s conduct is independently wrongful. The

first argument fails as it is evident from the Answer and Counterclaims that Swanson is not asserting

a claim for intentional interference with contract but rather, a claim for intentional interference with

prospective economic advantage. The remaining question is whether Swanson has adequately

pleaded a claim for intentional interference with prospective economic advantage. The Court finds

that it has.

In order to prevail on a claim for intentional interference with prospective economic

advantage, a plaintiff must establish the following elements:

1) an economic relationship between the plaintiff and third party

containing the probability of future economic benefit to the plaintiff,

2) knowledge by the defendant of the existence of the relationship,

3) intentional acts on the part of the defendant designed to disrupt the

relationship, 4) actual disruption of the relationship, and 5) damages to

the plaintiff proximately caused by the acts of the defendant.

Visto, 360 F. Supp. 2d at 1067 (citing Della Penna v. Toyota Motor Sales USA, Inc., 11 Cal. 4th 376,

389 (1995). In addition, “a plaintiff seeking to recover for an alleged interference with prospective

contractual or economic relations must plead and prove as part of its case-in-chief that the defendant

not only knowingly interfered with the plaintiff's expectancy, but engaged in conduct that was

wrongful by some legal measure other than the fact of interference itself.” Della Penna, 11 Cal. 4th

at 393. California courts have held that independently wrongful conduct includes “actions which are

independently actionable, violations of federal or state law or unethical business practices, e.g.,

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 16 of 17
United States District Court

For the Northern District of California

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

17

violence, misrepresentation, unfounded litigation, defamation, trade libel or trade mark

infringement.” PMC, Inc. v. Saban Entm’t, Inc., 45 Cal. App. 4th 579, 602 (1996).

 Here, Reid-Ashman does not dispute that the four basic elements for a tort of intentional

interference with prospective economic advantage has been alleged. The only question remaining is

whether the alleged conduct is “independently wrongful.” The Court concludes that by alleging that

Reid-Ashman has engaged in sham litigation, it has met this requirement. First, if proven, sham or

baseless litigation would constitute a violation of the Lanham Act, as discussed above. Second, as

noted above, unfounded litigation has been held by California courts to be independently wrongful. 

Therefore, this counterclaim is sufficiently pleaded.

IV. CONCLUSION

The Motion is GRANTED in part as follows: 1) Swanson’s invalidity affirmative defense is

stricken with leave to amend to identify the specific basis for the defense; 2) Swanson’s inequitable

conduct affirmative defense is stricken to the extent that it is based on an alleged failure to disclose

prior art to the PTO; Swanson shall be granted leave to amend to allege facts showing materiality

and intent to deceive; 3) Swanson’s unclean hands affirmative defense is stricken, without leave to

amend, to the extent it could be construed to assert a claim for attempted monopolization under the

Sherman Act; 4) the declaratory judgment claim is stricken to the extent it is based on affirmative

defenses that have been inadequately pleaded, namely, the invalidity affirmative defense and the

inequitable conduct affirmative defense based on failure to disclose prior art to the PTO, with leave

to amend; 5) the state law claims are dismissed with prejudice only to the extent they are based on

alleged statements by Reid-Ashman to Texas Instruments or others made after this lawsuit was

initiated regarding this lawsuit on the basis that these statements are protected under California’s

litigation privilege. In all other respects, the Motion is DENIED.

IT IS SO ORDERED.

Dated: May 10, 2007

__________________________

JOSEPH C. SPERO

United States Magistrate Judge

Case 3:06-cv-04693-JCS Document 79 Filed 05/10/07 Page 17 of 17