Gatan, Inc. v. Nion Company

Northern District of California, cand-4:2015-cv-01862

ORDER by Judge Phyllis J. Hamilton denying {{140}} Plaintiff's Motion to Dismiss Defendant's Counterclaims. (pjhlc2S, COURT STAFF)

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1 2 3 UNITED STATES DISTRICT COURT 4 NORTHERN DISTRICT OF CALIFORNIA 5 GATAN, INC., 6 Case No. 15-cv-01862-PJH Plaintiff, 7 v. ORDER DENYING PLAINTIFF'S 8 MOTION TO DISMISS DEFENDANT'S NION COMPANY, COUNTERCLAIMS 9 Defendant. Re: Dkt. No. 140 10 11 12 Before the court is plaintiff Gatan Inc.'s motion to dismiss defendant Nion Northern District of California United States District Court 13 Company's counterclaims. The matter is fully briefed and suitable for decision without 14 oral argument. Accordingly, the hearing set for August 16, 2017 is VACATED. Having 15 read the parties' papers and carefully considered their arguments and the relevant legal 16 authority, the court hereby DENIES the motion for the following reasons. 17 BACKGROUND 18 A. Factual and Procedural Background 19 This case concerns electron microscopes, which allow imaging at a much higher 20 resolution than light-based microscopes. Plaintiff Gatan, Inc. ("Gatan") is a manufacturer 21 of components used in electron microscopes, including electron energy-loss ("EEL") 22 spectrometers. Defendant Nion Company ("Nion") is an electron microscope 23 manufacturer ("EMM"). Historically, Nion did not manufacture its own spectrometers, but 24 instead would buy spectrometers from Gatan. 25 The dispute centers on a February 2010 Agreement between Gatan and Nion (the 26 "Agreement"). Gatan accuses Nion of misusing confidential information divulged under 27 the terms of the Agreement to develop its own competing spectrometer. Nion claims that 28 it developed its spectrometer independently, and accuses Gatan of using contracts like 1 the Reseller Agreement to monopolize, attempt to monopolize, or otherwise restrain 2 competition in the EEL spectrometer market. 3 Although it is still in the pleading stage, the case has an extensive procedural 4 history. The court has ruled on several motions to dismiss and a motion for leave to file a 5 third amended complaint ("TAC"). See Dkt. 33, 55, 106, 128. Among other things, the 6 court ruled in these orders that paragraph 16 of the Agreement, upon which Gatan 7 formerly relied, was an unenforceable non-compete clause prohibited by California 8 Business and Professions Code section 16600. Gatan's operative TAC brings claims for 9 misappropriation of trade secrets and breach of contract. 10 On April 14, 2017, Nion filed its answer to the TAC. Dkt. 133. Nion's answer 11 asserts seven counterclaims, alleging anticompetitive behavior by Gatan. Gatan now 12 moves to dismiss all of Nion's counterclaims. Dkt. 140. Northern District of California United States District Court 13 B. Nion's Counterclaims 14 Nion's counterclaims allege that Gatan engaged in a "bad faith attempt to drive its 15 smaller and more innovative competitor out of the market." Countercl. ¶ 1. Specifically, 16 Gatan allegedly exploited its dominant position in the EEL spectrometer market to 17 "unilaterally impose" the Agreement on Nion, wrongfully sought to enforce an illegal non- 18 compete clause, and now asserts a "baseless" trade secret claim in bad faith, seeking to 19 stifle competition. Id. Nion alleges that Gatan has imposed contracts similar to the 20 Agreement on other EMMs, to prevent them from entering the market and ensure that 21 Gatan "continues to dominate the market for EEL spectrometers." Countercl. ¶ 2. 22 Gatan manufactures components and software used in electron microscopes, but 23 it is not itself an EMM. Countercl. ¶ 18–20. EEL spectrometers are a component of 24 electron microscopes that are sold "in a global market." Countercl. ¶¶ 19–20. Both the 25 monochromator and spectrometer of an electron microscope work together to determine 26 the overall resolution of the microscope. Countercl. ¶ 24. 27 Nion alleges that Gatan has "a dominant position in the market for EEL 28 spectrometers" because it is "the sole source of EEL spectrometers for EMMs." 2 1 Countercl. ¶ 26. Only a few EEMs—Gatan, Hitachi, JEOL, Zeiss, and "very recently" 2 Nion—offer EEL spectrometers. However, no EMM will sell spectrometers for use in a 3 competitor's microscope. Nion alleges that Gatan has agreements with Hitachi and 4 JEOL that prevent them from making their own spectrometers. Countercl. ¶ 28. Zeiss 5 does offer spectrometers for sale, but only for use in its own microscopes. Countercl. 6 ¶ 30. Thus, in 2010, "Gatan was the only EEL spectrometer manufacturer that sold 7 spectrometers to EMMs." Countercl. ¶ 31. 8 On Nion's account, Gatan only entered the spectrometer marketplace in the 1980s 9 because of Dr. Ondrej Krivanek, Nion's co-founder and a former Gatan employee. 10 Countercl. ¶¶ 34, 38. While at Gatan, Krivanek made several innovations to 11 spectrometer design, and is the sole inventor on a number of Gatan's patents, which 12 protected these inventions but expired in 2005 and 2006. Countercl. ¶¶ 39–45. Northern District of California United States District Court 13 In 1995, Krivanek left Gatan to work with Dr. Niklas Delby at Cavendish Laboratory 14 in the UK. Countercl. ¶ 49. In 1997, the pair demonstrated the first-ever operational 15 aberration corrector in electron microscopy, published their findings, and moved to 16 Seattle to form Nion and commercialize the invention. Countercl. ¶¶ 51–52. By 2008, 17 Nion delivered its first complete electron microscope and introduced a new 18 monochromator design. Countercl. ¶¶ 57–60. 19 An advanced monochromator is "largely useless" unless it is paired with a high- 20 performance spectrometer. Countercl. ¶ 64. Between 2003 and February 2010, Nion 21 used Gatan spectrometers in its microscopes. Countercl. ¶ 66. In 2009, when Nion 22 sought to order its next spectrometer, Gatan refused to deal unless Nion signed the 23 Agreement. Countercl. ¶ 73. Because Gatan was the "only possible source of 24 spectrometers," Nion had "no choice but to sign the Reseller Agreement," which Gatan 25 itself described as a "non-compete agreement." Countercl. ¶¶ 74–75, 77, 86. 26 Nion alleges that the Agreement is part of an anticompetitive pattern by Gatan, 27 who uses "similar or more restrictive non-competition clause[s] in agreements with other 28 EMMs." Countercl. ¶ 94. Gatan relies on these illegal contractual provisions to "broaden 3 1 its patents' duration and scope and to cement its monopoly position" in the EEL 2 spectrometer market, even though its patents have expired. Countercl. ¶ 97. 3 Gatan further uses "restrictive pricing" to maintain/exploit its monopoly position. 4 For example, prior to 2010, Nion bought spectrometers from Gatan for about $170,000; 5 after 2010, Gatan's price to Nion was $400,000, and the "list price" has now risen to 6 around $700,000. Countercl. ¶¶ 97–100. 7 Gatan has also "refused to deal" with Nion. In April 2014, Nion tried to order a 8 spectrometer from Gatan for a microscope that Nion was to deliver to Trinity College 9 Dublin ("TCD"). Countercl. ¶ 104–05. Gatan did not respond to this request for months, 10 and then told Nion that TCD would have to order a spectrometer directly from Gatan. 11 Countercl. ¶ 107. On April 24, 2015—a year after the initial request and the very same 12 day that Gatan filed this suit—Gatan finally agreed to sell to Nion. Countercl. ¶ 113. Northern District of California United States District Court 13 Lastly, Gatan has used lawsuits and the threat of lawsuits to stifle competition. 14 Paragraph 16 of the Agreement—which this court has held to be unenforceable—was 15 used to threaten suit against Nion and had a "chilling effect" on Nion's development of a 16 competing spectrometer. Nion claims that the instant suit is a "bad faith effort to keep 17 Nion embroiled in needless litigation." Contrary to the TAC's trade secret allegations, 18 Nion alleges that "Gatan never delivered a partially assembled or untested spectrometer 19 to Nion" and that Nion reached the desired resolution "on its own, without any Gatan 20 employee involved." Countercl. ¶¶ 126–27. 21 Nion alleges that Gatan's restrictive practices—the non-compete agreements, 22 discriminatory pricing, refusals to deal, and bad faith litigation—operate to prevent 23 competition in the EEL spectrometer market. Nion asserts seven counterclaims: 24 (1) The UCL Claim. Nion alleges that Gatan's use of an illegal non-compete clause (paragraph 16 of the Agreement) is an unfair and/or unlawful business 25 practice in violation of Cal. Bus. and Prof. Code § 17200. 26 (2) Sherman Act Section 1. Nion alleges that Gatan has entered into 27 "agreements. . . in restraint of trade," including conditions "designed to make [Gatan] the only available source of spectrometers." 28 4 (3) "Attempted Monopolization" in Violation of Sherman Act Section 2. Nion 1 alleges that Gatan has engaged in "predatory and anticompetitive" practices 2 and has "a dangerous probability of achieving monopoly power." 3 (4) "Monopolization" in Violation of Sherman Act Section 2. Nion alleges Gatan has "achieved monopoly power" through "restrictive practices with the 4 specific intent to monopolize the global market for the sale of EEL spectrometers to EMMs." 5 (5) Walker Process Claim. Nion alleges that Gatan brought this trade secret suit 6 in bad faith, "with the knowledge that Nion did not misappropriate any actual 7 trade secrets and in furtherance of its unlawful scheme to attempt to monopolize." 8 (6) Cartwright Act Claim. Nion alleges that Gatan violated Cal. Bus. and Prof. 9 Code § 16700 et seq. because Gatan had entered into unlawful agreements in restraint of trade to restrict competition in the EEL spectrometer market. 10 (7) Breach of Implied Covenant of Good Faith and Fair Dealing (the "bad 11 faith" claim). Nion alleges that Gatan breached the Agreement when it 12 refused to deal with Nion, presumably referring to the TCD incident. Northern District of California United States District Court 13 DISCUSSION 14 A. Legal Standard 15 A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the 16 legal sufficiency of the claims alleged in a pleading. Ileto v. Glock, Inc., 349 F.3d 1191, 17 1199–1200 (9th Cir. 2003). To survive a motion to dismiss for failure to state a claim, a 18 pleading generally must satisfy only the minimal notice pleading requirements of Federal 19 Rule of Civil Procedure 8, which requires a "short and plain statement of the claim 20 showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). 21 A claim may be dismissed under Rule 12(b)(6) if the pleader fails to state a 22 cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal 23 theory. Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). While the court is to 24 accept as true all the factual allegations in the pleading, legally conclusory statements, 25 not supported by actual factual allegations, need not be accepted. Ashcroft v. Iqbal, 556 26 U.S. 662, 678–79 (2009). 27 The allegations "must be enough to raise a right to relief above the speculative 28 level", and a motion to dismiss should be granted if the pleader does not proffer enough 5 1 facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 2 U.S. 544, 555, 558–59 (2007) (citations and quotations omitted). "A claim has facial 3 plausibility when the plaintiff pleads factual content that allows the court to draw the 4 reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 5 U.S. at 678 (citation omitted). "[W]here the well-pleaded facts do not permit the court to 6 infer more than the mere possibility of misconduct, the complaint has alleged – but it has 7 not 'show[n]' – 'that the pleader is entitled to relief.'" Id. at 679. 8 B. Analysis 9 Gatan's motion argues that all of Nion's counterclaims must be dismissed for 10 failure to state a claim. Gatan presents seven different arguments for dismissal, 11 asserting that (1) Nion lacks standing to make a UCL claim; (2) Nion has not alleged any 12 fraud on the patent office to support its Walker Process claim; and (3) Gatan did not Northern District of California United States District Court 13 breach the Agreement because the contract was terminated in June 2014, prior to the 14 alleged breach. Grouping the remaining antitrust counterclaims (the second, third, fourth, 15 and sixth claims) together, Gatan further argues that (4) claims 2, 3, and 4 fail to 16 sufficiently allege the relevant market or Gatan's market power; (5) claims 2 and 6 fail to 17 identify "any agreement" in restraint of trade; and that (6) claims 2, 3, and 4 fail to allege 18 an antitrust injury or (7) an unreasonable restraint of trade. 19 Gatan's arguments regarding the UCL claim and the bad faith claim can be 20 dismissed quickly. Nion has alleged several injuries to support standing under the UCL, 21 including litigation costs in defending against Gatan's paragraph 16 claim and paying 22 supracompetitive prices for spectrometers. Countercl. ¶¶ 145, 147, 149; see also Dowell 23 v. Biosense Webster, Inc., 179 Cal. App. 4th 564, 575 (2009) (use of illegal non- 24 competes violates UCL). As to the bad faith claim, the counterclaims clearly allege that 25 Gatan's breach began in April 2014. Countercl. ¶ 105. Thus, even presuming that the 26 Agreement did "self-terminate" in June 2014, Nion alleges that Gatan was already in 27 breach at that time due to its refusal to deal with Nion. 28 6 1 Gatan's motion misunderstands Nion's Walker Process counterclaim. In Walker 2 Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), the 3 Supreme Court held that the enforcement of a patent obtained by fraud could constitute a 4 violation of the Sherman Act. Id. at 174. However, Nion's counterclaim is not based on a 5 fraudulently-procured patent, but instead on bad faith, anticompetitive trade secret 6 litigation. The Ninth Circuit and other courts have recognized this more general type of 7 Walker Process claim: "It is well established as a matter of antitrust law that the use of 8 baseless litigation to drive out competition can amount to an antitrust violation." See Int'l 9 Techs. Consultants, Inc. v. Pilkington PLC, 137 F.3d 1382, 1390 (9th Cir. 1998) (citing 10 CVD, Inc. v. Raytheon Co., 769 F.2d 842 (1st Cir. 1985)). CVD analogized to Walker 11 Process to hold that "the assertion in bad faith of trade secret claims, that is, with the 12 knowledge that no trade secrets exist, for the purpose of restraining competition. . . can Northern District of California United States District Court 13 be a violation of the antitrust laws." 769 F.2d at 851. In reply, Gatan appears to 14 acknowledge that this type of claim is cognizable, but argues that Nion does not allege 15 that its trade secrets suit is "objectively meritless." In fact, Nion alleges that the suit is 16 "objectively baseless" and that "Gatan asserted this cause of action in bad faith, with the 17 knowledge that Nion did not misappropriate any actual trade secrets." Countercl. ¶ 183. 18 Taking these allegations as true, Nion has stated a Walker Process claim. 19 As to the remaining antitrust claims, Gatan's arguments ignore the actual 20 allegations in the counter-complaint. First, Nion has alleged a relevant market and 21 Gatan's market power. Allegation of the relevant market requires identification of "a 22 product market and a geographic market." Newcal Indus., Inc. v. Ikon Office Solution, 23 513 F.3d 1038, 1045 n.4 (9th Cir. 2008). Nion's allegations identify the product (EEL 24 spectrometers) and the geographical scope (global), and allege that Gatan has a 25 "dominant" position in the market because it is "the sole source of EEL spectrometers" for 26 EMMs. See Countercl. ¶¶ 21–31. 27 Second, Gatan's argument that Nion fails to identify an "agreement in restraint of 28 trade" is perplexing. The counter-complaint is quite clear that the Reseller Agreement 7 1 (and "similar" agreements with other EEMs) is the agreement that Nion complains of. 2 The Reseller Agreement is specifically identified, and its terms, parties, and date of 3 signing are alleged. No more specificity is needed. 4 It is true that Nion does not offer the same level of detail on the alleged "similar or 5 more restrictive" non-compete agreements between Gatan and other EMMs. However, 6 Twombly contemplates that the plaintiff may not have a copy of the agreement prior to 7 the filing of an antitrust suit, and need only plead facts that "raise a reasonable 8 expectation that discovery will reveal evidence of illegal agreement." Twombly, 550 U.S. 9 at 556. Here, the counterclaims describe one agreement in detail (the Reseller 10 Agreement), and allege that Gatan's CEO admitted that Gatan had similar restrictive 11 contracts with other EMMs. Countercl. ¶ 94. Moreover, Nion has identified the parties to 12 the other alleged agreements, and their general content (a non-compete clause similar to Northern District of California United States District Court 13 paragraph 16). Countercl. ¶¶ 28–29. The court finds that these allegations meet 14 Twombly's standards. 15 Finally, Nion has alleged that the agreements restrained competition and caused 16 an antitrust injury. Because Nion was both a customer and a potential competitor of 17 Gatan, it is not clear at this stage whether the Agreement should be considered a vertical 18 or horizontal restraint. Cf. Leegin Creative Leather Products v. PSKS, 551 U.S. 877 19 (2007). But the court need not decide whether the rule of reason applies to the 20 Agreement, or weigh its pro- and anti-competitive effects, at the pleading stage. In re 21 High-Tech Employee Antitrust Litig., 856 F. Supp. 2d 1103, 1122 (N.D. Cal. 2012). It is 22 enough that Nion plausibly alleges that the Agreement restrains trade, and a potential 23 competitor's promise not to make a competing product limits competition. Finally, Nion 24 has alleged an antitrust injury because it pleads that Gatan used its monopoly power to 25 charge supracompetitive prices to EMMs, and that Nion paid an inflated price for the 26 spectrometer. See Countercl. ¶¶ 97–103, 135–140. 27 /// 28 /// 8 1 CONCLUSION 2 For the foregoing reasons, Gatan's motion to dismiss Nion's counterclaims is 3 DENIED. The court shall conduct a further case management conference on September 4 21, 2017, at 2:00 p.m. in Courtroom 3, 1301 Clay Street, Oakland, California. The parties 5 shall file a joint case management statement not less than seven days prior to the 6 conference. 7 IT IS SO ORDERED. 8 Dated: August 14, 2017 9 10 _________________________________ PHYLLIS J. HAMILTON 11 United States District Judge 12 Northern District of California United States District Court 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 9