Zaxcom, Inc. v. Lectrosonics, Inc.

ZAXCOM, INC., Plaintiff, v. LECTROSONICS, INC., Defendant.

No. CIV 19-0109 RB/JFR

United States District Court, D. New Mexico

February 17, 2023

MEMORANDUM OPINION AND ORDER

ROBERT C. BRACK, SENIOR U.S. DISTRICT JUDGE

This matter is before the Court on three motions: Defendant Lectrosonics, Inc.'s Motion for Summary Judgment (Doc 89); Plaintiff Zaxcom, Inc.'s Motion to Dismiss Its Complaint as Moot or, in the Alternative, to Voluntarily Dismiss without Prejudice or, in the Alternative, for Leave to Amend (Doc. 90); and Zaxcom's Motion to Dismiss Defendant's Counterclaims and to Strike Defendant's Affirmative Defenses (Doc. 91).

The parties to this patent infringement action agree that the claims at issue in the First Amended Complaint are moot, and both parties seek dismissal. They cannot, however, decide on the form of dismissal. After considering the parties' arguments and relevant authority from the United States Court of Appeals for the Federal Circuit and elsewhere, the Court finds that this lawsuit should be dismissed without prejudice as moot for lack of jurisdiction. Accordingly, it will grant Zaxcom's motion to dismiss (Doc. 90) and deny Lectrosonics's motion for summary judgment (Doc. 89). It further finds that Lectrosonics fails to adequately state its counterclaims and will grant in part Zaxcom's motion to dismiss. (Doc. 91.) Given that this lawsuit will be dismissed, the Court otherwise denies as moot Zaxcom's request to strike Lectrosonics's affirmative defenses. (See id.)

I. Factual and Procedural Background

Zaxcom designs and manufactures professional audio equipment. (Doc 33 ¶ 73.) Zaxcom filed a complaint for patent infringement against Lectrosonics in the Eastern District of New York on June 6, 2017, and a First Amended Complaint on November 16, 2017. (See Docs. 1; 33.) The matter was transferred to the District of New Mexico in 2019. (See Doc. 54.)

Zaxcom owns three patents^[1]-the ‘902 patent, the ‘814 patent, and the ‘307 patent-for a “Virtual Wireless Multitrack Recording System.” (See Doc. 33 ¶¶ 74-78.) Zaxcom alleges that Lectrosonics manufactures, promotes, and sells a product (the PDR and its related accessories) that infringes on Zaxcom's patents. (Id. ¶¶ 80-82.) In 2018, Lectrosonics filed three petitions with the U.S. Patent and Trademark Office (USPTO) for inter partes review (IPR) of the patents by the Patent Trial and Appeal Board (PTAB). (See Doc. 68 at 8.^[2]) “The purpose of inter partes review is to create a more efficient, cost-effective alternative to litigation.” Dentsply Sirona, Inc. v. Edge Endo, LLC, No. 1:17-cv-01041 WJ/SCY, 2018 WL 4773369, at *1 (D.N.M. Oct. 3, 2018) (citation omitted). Lectrosonics sought a determination that Zaxcom's patent claims were invalid. (See Doc. 89 at 2.) The Court stayed this matter pending the PTAB decisions. (See Doc. 71 at 2.) Shortly thereafter, Zaxcom was issued a fourth patent that is related to this lawsuit but is not part of the First Amended Complaint. (See Docs. 90-1 at 7-8; 90-4.)

On November 7, 2019, the PTAB issued its Final Written Decision for the ‘307 patent, finding some of the challenged claims unpatentable. (See Doc. 89-1 at 1, 65.) The PTAB also granted Zaxcom's motion to amend, cancelled the original unpatentable claims, and replaced them with the substitute claims. (See id. at 65.) On January 15, 2020, counsel for Lectrosonics emailed counsel for Zaxcom and stated that Lectrosonics had decided to “discontinue manufacturing its PDR effective the first week of [2020].” (Doc. 97-1 at 6.) The PTAB issued Final Written Decisions for the ‘814 and ‘902 patents on January 24, 2020, finding some of the challenged claims unpatentable, granting Zaxcom's motions to amend, cancelling the original claims and replacing them with the substitute claims. (See Docs. 89-2 at 1, 64; 89-3 at 1, 73-74.) The parties agree that the substituted claims are not a part of this lawsuit. (See, e.g., Doc. 97-1 at 16 (IPR Certificate cancelling original claims and substituting amended claims for one of the three patents); see also Docs. 89 at 3 (noting that the “substituted patent claims are not part of, or of relevance to, the current lawsuit”); 97 at 6 (noting that “substitute claims have been issued for each and every one of the cancelled claims, but an amendment of the Complaint is required to assert these substitute claims against [Lectrosonics]”).)

Zaxcom appealed the PTAB's decisions, and the Court of Appeals for the Federal Circuit affirmed the decisions. See Zaxcom, Inc. v. Lectrosonics, Inc., No. 2020-1350, 2022 WL 499843 (Fed. Cir. Feb. 18, 2022) (affirming decision on the ‘307 patent); No. 2020-1921, 2022 WL 499848 (Fed. Cir. Feb. 18, 2022) (affirming decisions on the ‘814 and ‘902 patents). The parties agree that as a result of these final decisions, the claims Zaxcom asserted in its First Amended Complaint, as well as Lectrosonics's defenses thereto, are moot. (See Docs. 97 at 16; 100 at 1 n.1.)

The Court lifted the stay in this lawsuit on July 21, 2022. (Doc. 80.) The parties have engaged in extensive discussions regarding dismissal of this matter but are unable to agree on a form of dismissal. (See Doc. 97 at 10.) Zaxcom seeks to dismiss the First Amended Complaint as moot. (See Doc. 90 at 1.) Alternatively, Zaxcom asks the Court to dismiss the matter without prejudice under Federal Rule of Civil Procedure 41(a)(2) or to allow Zaxcom to file a Second Amended Complaint. (See id.) Zaxcom also moves to dismiss Lectrosonics's counterclaims for failure to state a claim and to strike its affirmative defenses. (Doc. 91.) Lectrosonics seeks to dismiss the lawsuit with prejudice on the merits. (See Doc. 89 at 1.) The Court will begin by analyzing Zaxcom's motion to dismiss the counterclaims.

II. Legal Standards

A. Motions to Dismiss under Rule 12(b)(6)

“To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Emps.' Ret. Sys. of R.I. v. Williams Cos., 889 F.3d 1153, 1161 (10th Cir. 2018) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (quotation omitted). The Court will “accept as true ‘all well-pleaded factual allegations in a complaint and view these allegations in the light most favorable to the plaintiff.'” Schrock v. Wyeth, Inc., 727 F.3d 1273, 1280 (10th Cir. 2013) (quotation omitted).

B. Dismissals under Rule 41(a)(2)

“Federal Rule of Civil Procedure 41(a)(2) permits a district court to dismiss an action without prejudice ‘upon such terms and conditions as the court deems proper.'” Brown v. Baeke, 413 F.3d 1121, 1123 (10th Cir. 2005) (quoting Am. Nat'l Bank & Trust Co. v. Bic Corp., 931 F.2d 1411, 1412 (10th Cir. 1991)). “The rule is designed primarily to prevent voluntary dismissals which unfairly affect the other side, and to permit the imposition of curative conditions.” Id. (quoting Phillips USA, Inc. v. Allflex USA, Inc., 77 F.3d 354, 357 (10th Cir. 1996)). “These matters fall within the district court's discretion and ‘[r]eversal requires a clear abuse of discretion.'” Id. (quoting Am. Nat'l Bank & Trust Co., 931 F.2d at 1412). “But ‘[a]bsent “legal prejudice” to the defendant, the district court normally should grant such a dismissal.'” Id. (quoting Ohlander v. Larson, 114 F.3d 1531, 1537 (10th Cir. 1997)).

III. The Court dismisses the counterclaims without prejudice.

Zaxcom moves to strike Lectrosonics's affirmative defenses and to dismiss its counterclaims for failure to state a claim. (See Doc. 91.) Lectrosonics asserts counterclaims for (Count I) tortious interference with prospective contractual relations, (Count II) business defamation, (Count III) violation of the New Mexico Unfair Practices Act, and (Count IV) prima facie tort. (See Doc. 58.) As discussed below, Lectrosonics fails to state a claim as to Counts I, II, or IV, and the Court dismisses those claims without prejudice.^[3]Lectrosonics filed a Notice of Voluntary Dismissal of Count III (see Doc. 94); thus, the Court denies as moot the motion to dismiss Count III.

A. Facts according to the Answer and Counterclaim

Lectrosonics offers a brief recitation of facts in support of its counterclaims. (See Doc. 58 at 11-12 ¶¶ 3-10.) It asserts that the parties “have been competitors in the sale of professional audio equipment” and that Zaxcom has attempted to disrupt Lectrosonics's relationship with its customers. (Id. at 11 ¶¶ 5-6.) Specifically, Zaxcom has allegedly contacted Lectrosonics's customers to “falsely denigrat[e] the quality of Lectrosonics'[s] products and” to “accus[e] Lectrosonics of misrepresenting its products and engaging in dishonesty with its customers and the market ” (Id. at 11-12 ¶ 7.)

B. Tortious Interference with Contractual Relations

In Count I, Lectrosonics alleges that Zaxcom intentionally interfered with Lectrosonics's relationships with its customers with the intent to cause it harm. (Id. at 12-13 ¶¶ 10-12.) Although Lectrosonics references only prospective relations in the title of this count, the allegations discuss “current and prospective customers.” (Id. ¶ 11.) Tortious interference with “existing contracts” and “prospective business relations” are two distinct claims under New Mexico law. See, e.g., Guidance Endodontics, LLC v. Dentsply Int'l, Inc., No. CV 08-1101 JB/RLP, 2009 WL 10699130, at *5-6 (D.N.M. Sept. 11, 2009) (outlining elements of each claim). Lectrosonics fails to allege facts sufficient to plead either claim.

To sustain a claim of tortious interference with existing contractual relations under New Mexico law,

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