Opinion
Civil Action No. 18-cv-1391-RGA
03-23-2020
INGEVITY CORPORATION and INGEVITY SOUTH CAROLINA, LLC, Plaintiffs, v. BASF CORPORATION, Defendant.
MEMORANDUM ORDER
The United States Magistrate Judge made a Report and Recommendation. (D.I. 147). Both parties filed objections. (D.I. 158, 159). Both parties responded. (D.I. 174, 175).
The Magistrate Judge recommended that Plaintiffs' motion to dismiss Defendant's counterclaims (D.I. 71) be denied and that the Court bifurcate Defendant's counterclaims. (D.I. 147 at 21, 27). The Magistrate Judge also recommended that Defendant's motion for leave to amend its first amended answer, affirmative defenses, and counterclaims (D.I. 99) be denied. (Id.). I will review the objections to each motion in turn.
I. MOTION TO DISMISS
Magistrate Judges have authority to make recommendations for the disposition of case-dispositive motions pursuant to 28 U.S.C. § 636(b)(1)(B). See Beazer E., Inc. v. Mead Corp., 412 F.3d 429, 444 (3d Cir. 2005). Both sides agree that my review of any objections to this part of the report is de novo. (D.I. 159 at 1; D.I. 174 at 3); see Fed. R. Civ. P. 72(b)(3).
A. Tying
The Magistrate Judge recommended that I deny Plaintiffs' motion to dismiss Defendant's Sherman Act tying counterclaim. (D.I. 147 at 9). Plaintiffs object that the Magistrate Judge's opinion misconstrued Defendant's pleading and overlooked governing law. (D.I. 159 at 1). Plaintiffs argue that Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176 (1980) controls here. (Id.). Plaintiffs rely on the Supreme Court's explanation of 35 U.S.C. § 217(d) to grant patentees "a statutory right to control nonstaple goods that are capable only of infringing use in a patented invention, and that are essential to that invention's advance over prior art." Rohm & Haas, 448 U.S. at 213. Plaintiffs claim that the situation in the instant case is the same as in Rohm & Haas and therefore Plaintiffs have not unlawfully extended control over unpatented goods. (D.I. 159 at 2). Plaintiffs continue that, because the Rohm & Haas standard means that Plaintiffs' conduct does not amount to patent misuse, then that same conduct cannot be the basis for antitrust claims. (Id. at 2-3).
Rohm & Haas, however, is not controlling in the instant case. As Defendant noted, "Rohm & Haas was before the Supreme Court on appeal from summary judgment on a stipulated record." (D.I. 174 at 5) (emphasis omitted). The parties in Rohm & Haas stipulated to the validity of the patent at issue and that the tied product was a nonstaple good. 448 U.S. at 185-86. In the instant case, validity of the patent at issue is contested and Defendant's counterclaims allege, "There is distinct demand for honeycomb scrubbers, separate and apart from demand for licenses to the" patent at issue. (D.I. 65 at 23). "Whether an item is a staple or not is a question of fact." Jac USA, Inc. v. Precision Coated Prods., Inc., 2003 WL 1627043, at *14 (N.D. Ill. Mar. 25, 2003). Under the Rule 12(b)(6) standard, I accept as true Defendant's allegation that the honeycomb scrubbers are a staple good with a distinct demand in the marketplace separate from that of the patent at issue. See Umland v. Planco Fin. Servs., Inc., 542 F.3d 59, 64 (3d Cir. 2008). Rohm & Haas, which only pertains to nonstaple goods, therefore does not apply to Defendant's antitrust counterclaims. I thus overrule Plaintiffs' objection to the Magistrate Judge's recommendation regarding Defendant's tying counterclaim.
B. Exclusive dealing
The Magistrate Judge recommended that I deny Plaintiffs' motion to dismiss Defendant's exclusive dealing counterclaim for the Denso, KFTC, and MAHLE license agreements. (D.I. 147 at 13). The Magistrate Judge also recommended that I deny Plaintiffs' motion to dismiss Defendant's exclusive dealing counterclaim for the Delphi Agreement. (Id. at 15). Plaintiffs object to both recommendations. (D.I. 159 at 6-8).
First, Plaintiffs again argue that Rohm & Haas applies and that Plaintiffs therefore have "a statutory right to control" the goods during the term of the patent at issue. 448 U.S. at 213; (D.I. 159 at 6-7). Thus, Plaintiffs argue that they are able to control the market and eliminate competitors without violating antitrust laws. (D.I. 159 at 7). As previously stated, I find that Defendant's pleading sufficiently establishes that the honeycomb scrubbers are a staple product with separate market demand from the patent at issue. The fact that the honeycomb scrubbers are a staple product is taken as true, and therefore Rohm & Haas does not apply.
Second, Plaintiffs object that the Magistrate Judge erred in concluding "that whether the Delphi Agreement alone constitutes a substantial foreclosure is an issue of fact." (Id. at 8). Plaintiffs argue that because Defendant alleged only that the three license agreements and the Delphi Agreement combined foreclose at least 50% of the market, Defendant has not sufficiently alleged that the Delphi Agreement alone forecloses enough of the market. (Id.). I disagree. Defendant has clearly pled that Delphi is "one of the largest Tier 1 manufacturers of fuel vapor canisters in the world," and that the Delphi Agreement could constitute a substantial foreclosure of the relevant market. (D.I. 65 at ¶ 32). Whether or not it does is a fact-intensive inquiry that is not properly disposed of before fact discovery.
I thus overrule Plaintiffs' objection to the Magistrate Judge's recommendation regarding Defendant's exclusive dealing counterclaim.
C. Tortious interference with prospective business relations
The Magistrate Judge recommended that I deny Plaintiffs' motion to dismiss Defendant's counterclaim for tortious interference with business relations under Delaware law. (D.I. 147 at 19). Plaintiffs object, relying on Lipson v. Anesthesia Servs., P.A., 790 A.2d 1261, 1287 (Del. Super. 2001). (D.I. 159 at 8-9). Plaintiffs argue that the Magistrate Judge did not "acknowledge that Plaintiffs must employ improper means or improperly interfere with Defendant's prospective business relations in order for its alleged conduct to be found tortious." (Id.) (cleaned up). Regardless of what the Magistrate Judge did or did not acknowledge, the counterclaim makes allegations of improper means and interference. (D.I. 61 at 36). Thus, I overrule Plaintiffs' objection to the Magistrate Judge's recommendation regarding Defendant's counterclaim for tortious interference with business relations under Delaware law.
II. MOTION FOR LEAVE TO AMEND
The Third Circuit has held that a motion for leave to amend is a nondispositive motion because it does "not dispose of the lawsuit or a claim." Cont'l Cas. Co. v. Dominick D'Andrea, Inc., 150 F.3d 245, 251 (3d Cir. 1998). A Magistrate Judge may determine nondispositive pretrial matters pursuant to 28 U.S.C. § 636(b)(1)(A). See Patel v. Meridian Health System, Inc., 666 F.App'x. 133, 135-36 (3d Cir. 2016). Thus, Plaintiffs argue that my review of any objections to this part of the report is also pursuant to § 636(b)(1)(A): "A judge of the court may reconsider any pretrial matter under this subparagraph (A) where it has been shown that the magistrate judge's order is clearly erroneous or contrary to law." (D.I. 175 at 1); see Fed. R. Civ. P. 72(a). Under that standard, findings of fact are set aside only when the court is "left with the definite and firm conviction that a mistake has been committed." Green v. Fornario, 486 F.3d 100, 104 (3d Cir. 2007). "A Magistrate Judge's order is contrary to law when the magistrate judge has misinterpreted or misapplied the applicable law." Masimo Corp. v. Philips Elec. N. Am. Corp., 62 F. Supp. 3d 368, 388 (D. Del. 2014) (cleaned up). Defendant does not argue for any other standard of review. (See D.I. 158). I will therefore review any findings of fact for clear error and review legal conclusions de novo. See Cornell University v. Illumina, Inc., 2017 WL 89165, at *8 (D. Del. Jan. 10, 2017).
A. Inequitable conduct
The Magistrate Judge recommended that I deny Defendant's motion to amend to add an inequitable conduct affirmative defense. (D.I. 147 at 24). Defendant objects, arguing that it could not have brought the inequitable conduct counterclaims earlier because it did not have the specific facts necessary to do so until after June 2019. (D.I. 158 at 5). This is an objection to the Magistrate Judge's factual findings. Thus, I will review for clear error.
The Magistrate Judge concluded that the record showed that, "prior to the deadline for amended pleadings, [Defendant] had sufficient information to allege inequitable conduct." (D.I 147 at 24). The Magistrate Judge reviewed Defendant's own statements which demonstrated that Defendant had notice long before the deadline for amended pleadings of Delphi's involvement with the patent at issue and the relationship between Delphi and Plaintiffs. (See D.I. 147 at 24-25). The Magistrate Judge reviewed Defendant's October 12, 2018 opposition to Plaintiffs' motion for a preliminary injunction (D.I. 21). (D.I. 147 at 24). The opposition clearly shows that, as of October 12, 2018, Defendants had knowledge of "conception and reduction to practice by Delphi employees." (Id. at 24-25). Defendants thus had ample time to pursue that information and determine the "who, what, when, where, and how" required to plead an inequitable conduct defense before the pleading deadline. The Magistrate Judge did not clearly err in determining that Defendant could have brought the inequitable conduct defense prior to the April 30, 2019 deadline for amended pleadings. Defendant's objection is thus overruled.
B. Unclean hands
The Magistrate Judge recommended that I deny Defendant's motion to amend its affirmative defense of unclean hands. (D.I. 147 at 25). Defendant objects for the same reasons as for the inequitable conduct defense. (D.I. 158 at 5). Thus, I overrule Defendant's objection for the same reasons.
C. Walker Process & Sham Litigation
The Magistrate Judge recommended that I deny Defendant's motion to amend its Walker Process and sham litigation counterclaims. (D.I. 147 at 26). Defendant objects for the same reasons as for the inequitable conduct defense. (D.I. 158 at 7). Thus, I overrule Defendant's objection for the same reasons.
III. CONCLUSION
The Magistrate Judge's Report and Recommendation (D.I. 147) is ADOPTED. Plaintiffs' motion to dismiss (D.I. 71) is DENIED. Defendant's counterclaims are BIFURCATED. Defendant's motion for leave to amend (D.I. 99) is DENIED. Entered this 23rd day of March, 2020
Inasmuch as the Magistrate Judge's Report and Recommendation (D.I. 147) is a judicial opinion that I am adopting, IT IS HEREBY ORDERED that it is UNSEALED in full. --------
/s/ Richard G. Andrews
United States District Judge