Varentec, Inc. v. Gridco, Inc.

VARENTEC, INC., Plaintiff, v. GRIDCO, INC., et al., Defendants.

C. A. No. 16-217-RGA-MPT

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

June 6, 2017

REPORT AND RECOMMENDATION

I. INTRODUCTION

This is a patent case. On April 1, 2016, Varentec, Inc. ("plaintiff") filed this action alleging Gridco, Inc. ("defendant") infringes U.S. Patent Nos. 9,293,922 ("the '922 patent") and 9,014,867 ("the '867 patent").¹ On June 3, 2016, plaintiff filed a Motion for a Preliminary Injunction,² which the court denied on October 3, 2016.³ On November 3, 2016, the court granted plaintiff's Unopposed Motion to Amend the Complaint.⁴ On that same date, plaintiff filed its Amended Complaint for Patent Infringement which includes a claim that defendant also infringes plaintiff's U.S. Patent No. 9,104,184 ("the '184 patent").⁵ On November 21, 2016, defendant filed its Answer to the Amended Complaint for Patent Infringement, Affirmative Defenses, and Counterclaims.⁶ Currentlybefore the court is plaintiff's Motion to Dismiss Defendant's Counterclaims, pursuant to FED. R. CIV. P. 12(b)(6).⁷

II. BACKGROUND

According to the Amended Complaint, plaintiff is a Santa Clara-based company that provides products and solutions that achieve smarter power delivery for its customers.⁸ Those products and solutions focus on "Grid Edge" power optimization and management.⁹ Plaintiff's patented products show an improved operation when there is distributed generation of power at the grid edge, and when there is no distributed generation of power.¹⁰ "Grid Edge" refers to the distribution end of the electrical grid-e.g., where consumers are located.¹¹ Historically, energy distribution systems have been centrally managed, with power generated at central facilities, e.g., a power plant, and distributed via a power grid to points of use, such as a house, factory, or other electricity user.¹² The electrical grid, however, is now undergoing a rapid transition from centralized power generation to smaller distributed power generators that are closer to the consumer.¹³ Examples of distributed power generators include renewable energy sources such as solar and wind.¹⁴ Because of the rapid growth of distributed power generation, new technology is necessary to efficiently manage powergenerated at the "Grid Edge."¹⁵ Plaintiff's patented technology fills this space.¹⁶ Its products may deploy on the secondary, that is the edge side, of distribution transformers to improve management of the power grid.¹⁷ Its products also improve management of the power grid when there is no distributed generation of power.¹⁸ Plaintiff owns by assignment the entire right, title, and interest in the patents-in-suit.¹⁹

Defendant provides products and services focused on power system management.²⁰ Those products are on sale throughout the United States, including in the State of Delaware.²¹ Plaintiff contends defendant's SVC-20 products infringe each of the patents-in-suit.²² Plaintiff alleges defendant has been aware of its patents and products since before this action was initiated and, nevertheless, chose to willfully infringe plaintiff's patents.²³

Defendant's Answer to the Amended Complaint, asserts eleven Causes of Action ("counterclaims").²⁴ Plaintiff seeks dismissal of defendant's second through tenth counterclaims.²⁵ Defendant's second counterclaim alleges plaintiff is engaged in "shamlitigation" in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.²⁶ Defendant's third and fourth counterclaims allege violations of Section 2 of the Sherman Act, 15 U.S.C. § 2,²⁷ and the Robinson-Patman Act, 15 U.S.C. § 13a,²⁸ respectively, by plaintiff's purported below-cost pricing, in an attempt to achieve a monopoly, or eliminate defendant as a competitor, also known as "predatory pricing." Defendant's fifth,²⁹ sixth,³⁰ seventh,³¹ eighth,³² ninth,³³ and tenth³⁴ counterclaims assert claims under the "Unfair Practices" statutes of California, Hawaii, Massachusetts, Maryland, Oklahoma, and Arkansas, respectively, also based on plaintiff's purported below-cost pricing.

III. GOVERNING LAW

Federal Rule of Civil Procedure 12(b)(6) governs a motion to dismiss a complaint for failure to state a claim upon which relief can be granted. The purpose of a motion under Rule 12(b)(6) is to test the sufficiency of the complaint, not to resolve disputed facts or decide the merits of the case.³⁵ "The issue is not whether a plaintiff willultimately prevail, but whether the claimant is entitled to offer evidence to support the claims."³⁶ A motion to dismiss may be granted only if, after "accepting all well-pleaded allegations in the complaint as true, and viewing them in the light most favorable to the plaintiff, plaintiff is not entitled to relief."³⁷ While the court draws all reasonable factual inferences in the light most favorable to a plaintiff, it rejects unsupported allegations, "bald assertions," and "legal conclusions."³⁸

To survive a motion to dismiss, defendant's factual allegations must be sufficient to "raise a right to relief above the speculative level . . . ."³⁹ The defendant is therefore required to provide the grounds of their entitlement to relief beyond mere labels and conclusions.⁴⁰ Although heightened fact pleading is not required, "enough facts to statea claim to relief that is plausible on its face" must be alleged.⁴¹ A claim has facial plausibility when a plaintiff pleads factual content sufficient for the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.⁴² Once stated adequately, a claim may be supported by showing any set of facts consistent with the allegations in the complaint.⁴³ Courts generally consider only the allegations contained in the complaint, exhibits attached to the complaint, and matters of public record when reviewing a motion to dismiss.⁴⁴

IV. DISCUSSION

Defendant contends defendant's third and fourth counterclaims, alleging predatory pricing in violation of § 2 of the Sherman Act, 15 U.S.C. § 2 and the Robinson-Patman Act, 15 U.S.C. § 13(a), are implausible on their face⁴⁵ and that its fifth through tenth counterclaims, alleging violation of several state law unfair practices statutes, are derivative of defendant's federal predatory pricing claims and fail for the same reasons.⁴⁶ Plaintiff also contends defendant's second counterclaim, alleging "sham litigation" in violation of § 2 of the Sherman Act, 15 U.S.C. § 2, violates the First Amendment and is implausible on its face.⁴⁷

A. Predatory Pricing (Counterclaims 3 and 4)

According to plaintiff, defendant's third counterclaim for attempted monopolization under § 2 of the Sherman Act, and fourth counterclaim under the federal Robinson-Patman Act, are both based on defendant's assertion that plaintiff engaged inbelow-cost pricing to harm defendant's business, an antitrust theory referred to as "predatory pricing."⁴⁸

"A claim of attempted monopolization under § 2 of the Sherman Act must allege '(1) that the defendant has engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.'"⁴⁹

[W]hether the claim alleges predatory pricing under § 2 of the Sherman Act or primary-line price discrimination under the Robinson-Patman Act, two prerequisites to recovery remain the same. First a plaintiff seeking to establish competitive injury resulting from a rival's low prices must prove that the prices complained of are below an appropriate measure of its rival's costs. . . . The second prerequisite to holding a competitor liable under the antitrust laws for charging low prices is a demonstration that the competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in below-cost prices.⁵⁰

1. Plausible Allegations that Plaintiff Priced Below Its Cost

"To sufficiently plead the first element of a predatory pricing claim, a plaintiff must allege more than prices that are 'below general market levels or the costs of a firm's competitors.' Instead, a plaintiff must plead something akin to 'what [the defendant's] actual costs were' or, in some situations, 'standard industry cost.'"⁵¹

Plaintiff maintains defendant fails to plausibly allege plaintiff priced below its costs because it fails to allege plaintiff's "actual costs."⁵² Instead, defendant purportedly relies on boilerplate and conclusory assertions that plaintiff is pricing below cost.⁵³

Defendant's counterclaims fail to allege either plaintiff's actual costs or standard industry costs. As it has been noted, "the difficulty of meeting a pleading standard does not provide an excuse for failing to satisfy that standard."⁵⁴ Defendant merely makes conclusory allegations in support of its predatory pricing claims. Defendant alleges:

Varentec has engaged in predatory or anticompetitive conduct by offering discounts on its ENGO-V10 product, or components of its product, to electric utility customers nationwide. . . . Varentec's practice of discounting its ENGO-V10 product, or components of the product in some instances, has resulted in Varentec selling the product, or components of the product, on a below-cost basis.⁵⁵

Varentec has repeatedly offered electric utility customers nationwide substantial percentage discounts on its ENGO-V10 product, or components of its product. In at least one instance, Varentec offered its ENGO-V10 hardware to a [sic] electric utility customer at a 100% discount. . . . Employing percentage discounts to its ENGO-V10 product, orcomponents of the product, has resulted in sales below cost.⁵⁶

Defendant's assertion that plaintiff offered discounts resulting in below-cost pricing are not supported by any factual allegations. Without alleging plaintiff's actual costs, or industry standard cost, it is impossible to plausibly conclude that those alleged discounts resulted in below-cost pricing. Moreover, with exception of "one instance," defendant does not even allege...