Opinion
DOCKET NO. 3:10-cv-00439-W
03-29-2012
LENDINGTREE, LLC, a Delaware limited liability company, Plaintiff, v. ZILLOW, INC., a Washington corporation; NEXTAG, INC., a Delaware corporation; QUINSTREET, INC., a Delaware corporation; QUINSTREET MEDIA, INC., a Nevada corporation; ADCHEMY, INC., a Delaware corporation; and LEADPOINT, INC. D/B/A SECURERIGHTS, a Delaware corporation, Defendants.
ORDER
(UNDER SEAL)
THIS MATTER is before the Court on Plaintiff's Motion to Dismiss Defendants' Walker Process Counterclaims (Doc. No. 109) and the Magistrate Judge's Memorandum and Recommendation ("M&R") recommending Plaintiff's motion be denied (Doc. No. 164). Plaintiff timely filed Objections to the M&R (Doc. No. 166), and Defendants submitted their Response to the Objections (Doc. No. 173). This matter has been fully briefed and is ripe for review. For the reasons that follow, the Court ACCEPTS and ADOPTS the M&R (Doc. No. 164) and DENIES Plaintiff's Motion to Dismiss (Doc. No. 109).
I. BACKGROUND AND STANDARD OF REVIEW
The M&R properly and succinctly summarized the relevant background and standard of review (Doc. No. 164, pp.1-3). Neither party has asserted error in the M&R's discussion in these two sections, and the Court hereby adopts and incorporates them by reference as if fully set forth herein.
Plaintiff's Complaint alleges Defendants infringed upon its patents by operating various websites that match Internet borrowers and mortgage brokers. Defendants deny these allegations and have asserted counterclaims, also known as Walker Process claims, pursuant to the case of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965). In these Walker Process claims, Defendants contend that Plaintiff has violated the Sherman Antitrust Act, 15 U.S.C. § 2, by bringing this action in an unlawful attempt to monopolize the market for Internet loan lead generation. Plaintiff moved to dismiss these counterclaims, and, after considering the pleadings and conducting a hearing, the Magistrate Judge issued an M&R recommending the motion to dismiss be denied. Plaintiff timely submitted its objections, which are now before this Court.
Defendant NexTag has not asserted a Walker Process counterclaim and is therefore not a party to the instant motion.
II. ANALYSIS
A. Applicable Law
The Federal Magistrate Act provides that "a district court shall make a de novo determination of those portions of the report or specific proposed findings or recommendations to which objection is made." 28 U.S.C. § 636(b)(1); Camby v. Davis, 718 F.2d 198, 200 (4th Cir. 1983). "By contrast, in the absence of a timely filed objection, a district court need not conduct a de novo review, but instead must 'only satisfy itself that there is no clear error on the face of the record in order to accept the recommendation.'" Diamond v. Colonial Life & Acc. Ins. Co., 416 F.3d 310, 315 (4th Cir. 2005) (quoting Fed. R. Civ. P. 72 advisory committee's note). De novo review is also not required "when a party makes general or conclusory objections that do not direct the court to a specific error in the magistrate judge's proposed findings and recommendations." Orpiano v. Johnson, 687 F.2d 44, 47 (4th Cir. 1982) (citations omitted). Where a party fails to object to the Magistrate Judge's M&R, the district court may accept, reject, or modify the M&R without explanation. Camby, 718 F.2d at 199.
In its review of a Rule 12(b)(6) motion, "the court should accept as true all well-pleaded allegations and should view the complaint in a light most favorable to the plaintiff." Mylan Labs, Inc. v. Matakari, 7 F.3d 1130, 1134 (4th Cir. 1993), and should grant the motion only where "it appears certain that the plaintiff can prove no set of facts which would support its claim and would entitle it to relief." Id.; see also Eastern Shore Markets, Inc v. J.D. Assoc. Ltd. Partnership, 213 F.3d 175, 180 (4th Cir. 2000) (a motion to dismiss tests the "legal sufficiency of the complaint"). A complaint will survive if it contains "enough facts to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1960 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Robinson v. American Honda Motor Co., Inc., 551 F.3d 218, 222 (4th Cir. 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." Iqbal, 129 S.Ct. at 1949. "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id.
The M&R succinctly and correctly summarized the relevant case law setting forth the elements of a claim for a violation of Section 2 of the Sherman Act in a patent case. In sum, the alleged infringer must prove either:
(1) that the asserted patent was obtained through knowing and willful fraud within the meaning of Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965), or (2) that the infringement suit was a mere sham toNobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1068 (Fed. Cir. 1998) (citations omitted). The alleged infringer must also allege "the basic elements of an antitrust violation defined by the regional circuit's law . . . ." Dippin' Dots, Inc. v. Mosey, 476 F.3d 1337, 1348 (Fed. Cir. 2007). A party asserting an antitrust violation must allege "(1) the use of anticompetitive conduct; (2) with specific intent to monopolize; and (3) a dangerous probability of success." E.I. duPont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 441 (4th Cir. 2011) (citations omitted). "[D]emonstrating the dangerous probability of monopolization in an attempt case also requires inquiry into the relevant product and geographic market and the defendant's economic power in that market." Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 459 (1993). In the Fourth Circuit, courts "begin with a preliminary inquiry into market definition, which serves as a tool to determine the defendant's market power." E.I. duPont de Nemours & Co., 637 F.3d at 441 (citations omitted). This requires a consideration of both the relevant product market and the relevant geographic market, both of which must be alleged. Id. (citations omitted).
cover what is actually nothing more than an attempt to interfere directly with the business relationships of a competitor.
B. Objections
Here, Plaintiff specifically lodges four objections: (1) objection to the M&R's conclusion that the allegations support an inference of a dangerous probability of monopolization; (2) objection to the M&R's conclusion that, without any limitation, a weak allegation of market share can be overcome by other factors; (3) objection to the M&R's conclusion that allegations regarding scope of market are sufficient to define the relevant market; and (4) objection to the M&R's conclusion that the counterclaims sufficiently plead a lack of substitutes outside the relevant market by pointing to Plaintiff's lost profits claim. Because objections two, three, and four generally relate to the overall determination of a dangerous probability of monopolization, which is the heart of objection one, the Court will address all four objections collectively.
As an initial matter, although Plaintiff sets forth specific objections referencing the M&R's conclusions, the Court notes that the bulk of arguments in support of the objections generally appear to be the same arguments made before the Magistrate Judge. To the extent Plaintiff's objections merely restate its earlier arguments, they are overruled. See Robinson v. North Carolina Employment Sec. Com'n, 2009 WL 3526495 (W.D.N.C. 2009) ("'A general objection, or one that merely restates the arguments previously presented is not sufficient to alert the court to alleged errors on the part of the magistrate judge. An 'objection' that does nothing more than state a disagreement with a magistrate's suggested resolution, or simply summarizes what has been presented before, is not an 'objection' as that term is used in this context.'") (quoting Aldrich v. Bock, 327 F.Supp.2d 743, 747 (E.D.Mich.2004); see also Jones v. Hamidullah, 2005 WL 3298966, at *3 (D.S.C.2005) (noting a petitioner's objections to a magistrate's report were "on the whole without merit in that they merely rehash [the] general arguments and do not direct the court's attention to any specific portion of the [report].")).
Generally, the Counterclaims contain sufficient allegations to assert a cause of action for Plaintiff's alleged attempt to monopolize the market for Internet loan lead generation. The Counterclaims allege Plaintiff procured the patents by fraud and subsequently filed this suit, as well as others before, to interfere with Defendants' (and others') competing business. See Nobelpharma AB, 141 F.3d at 1068. The Court finds the allegations also satisfactorily indicate "(1) the use of anticompetitive conduct; (2) with specific intent to monopolize; and (3) a dangerous probability of success." E.I. duPont de Nemours, 637 F.3d at 441.
Turning to the objections more specifically, Plaintiff first challenges the conclusion that the Counterclaims sufficiently allege a dangerous probability of success on monopolization, which is an element to sufficiently plead an antitrust violation. In support of this objection, Plaintiff reiterates its arguments before the Magistrate Judge that Counterclaimants have not sufficiently alleged market share, which is but one way to demonstrate a dangerous probability of monopolization. See M&M Medical Supplies and Service, Inc. v. Pleasant Valley Hospital, Inc., 981 F.2d 160 (4th Cir. 1992). Here, as explained in the M&R, Counterclaimants have set forth sufficient allegations of market share to survive a motion to dismiss. Although Plaintiff points out that the allegations relied on in the M&R are rebutable or are unsupported by the evidence, such arguments are not appropriate at this stage.
Following the M&M Medical case, the M&R alternatively ruled that even if Counterclaimants have alleged a weak showing of market power, the Counterclaims sufficiently allege, for purposes of surviving a motion to dismiss, that Plaintiff fraudulently procured its patents and, by continuing to enforce those patents, is attempting to eliminate Defendants from the market. Put another way, the Counterclaims sufficiently plead an intent to monopolize and anticompetitive conduct by Plaintiff. In fact, M&M Medical makes clear, "Market share is relevant, but its relevance is tempered by evidence of the other two elements of the claim. Compelling evidence of an intent to monopolize or of anticompetitive conduct reduces the level of market share that need be shown." Id. That case further explains, "the showing of market share that [the party alleging monopolization] will need to establish depends in part on its proof of the other two elements." Id.
Plaintiff's second objection disagrees with this conclusion and argues that M&M Medical requires a threshold showing of at least thirty percent market share in order to rely on an intent to monopolize or anticompetitive conduct as sources of proof of attempted monopolization. Plaintiff concedes that M&M Medical dealt with a motion for summary judgment and not a motion to dismiss. Instead, for purposes of this stage of the litigation, the Court finds persuasive Counterclaimants' argument that an exact market share is likely to be unknown at the pleading stage and requires discovery to determine. See Scooter Store, Inc. v. Spinlife.com, 777 F. Supp. 2d 1102, 1117 (S.D. Oh. 2011) ("At the motion to dismiss stage, with discovery still to be completed, the plaintiff does not have to allege an exact, percentage-based market share."); see also Rescue Phone, Inc. v. Enforcement Technology Group, Inc., 2007 WL 2045514 *4 (E.D.Va. 2007) ("[I]t is clear no minimum market share is absolutely required to evidence an Attempted Monopolization claim as long as other evidence supports the claim, such as anticompetitive acts, unjustified exclusionary conduct and intention to monopolize, which have been alleged in this case.") (citation omitted). Accordingly, this objection is also overruled.
Turning to the third objection, Plaintiff contends Counterclaimants have not sufficiently alleged a relevant market. "[D]emonstrating the dangerous probability of monopolization in an attempt case also requires inquiry into the relevant product and geographic market and the defendant's economic power in that market." Spectrum Sports, 506 U.S. at 459. The relevant market is shown by alleging (1) the relevant product and (2) geographic markets. Satellite Television & Associated Res., Inc. v. Cont'l Cablevision of Virginia, Inc., 714 F.2d 351, 355 (4th Cir.1983); see also Consul, Ltd. v. Transco Energy Co., 805 F.2d 490, 493 (4th Cir.1986) ("Proof of a relevant market is the threshold for a Sherman Act § 2 Claim. The plaintiff must establish the geographic and product market that was monopolized."). The relevant market product concerns "commodities reasonably interchangeable by consumers for the same purposes." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395 (1956).
Here, the M&R carefully detailed the allegations that sufficiently provide a plausible relevant product market. Noting that the allegations could have been more specific, the M&R correctly points out that most courts recognize that "market definition is a deeply fact-intensive inquiry, courts hesitate to grant motions to dismiss for failure to plead a relevant product market." E.I. du Pont, 637 F.3d at 444 (collecting cases). Here, the Counterclaims satisfactorily, albeit minimally, allege a relevant market. Accordingly, this objection is also overruled.
As to the final objection, Plaintiff contends the M&R erroneously considered Plaintiff's claim for lost profits as an indicator that Plaintiff's products within the alleged market are not interchangeable with products outside the alleged market. Plaintiff contends that its claim for lost profits does not require it to establish that there are no non-infringing substitutes for its products in some relevant market. Instead, Plaintiff contends that it can use a market share analysis to demonstrate lost profits. Reserving opinion on Plaintiff's claim for lost profits, the Court agrees with the M&R's conclusion that it is plausible at this stage that Plaintiff's claim for lost profits could reasonably imply that there are no acceptable non-infringing substitutes in the relevant market. Therefore, this objection is overruled.
III. CONCLUSION
Similar to the M&R, this Court recognizes the fact-intensive nature of the issues raised in the instant motion to dismiss. As such, the Court has carefully reviewed the M&R, the parties' pleadings, and the applicable law. For the reasons stated above, as well as in the M&R, the Counterclaimants' allegations sufficiently, albeit minimally, set forth a claim for attempted monopolization. Upon careful examination of the entire record in this case, the Court finds the findings of fact and conclusions of law in the M&R are correct and deserving of adoption by this Court.
IT IS THEREFORE ORDERED that the Memorandum and Recommendation (Doc. No. 164) is ADOPTED. Plaintiff's Objections to the M&R (Doc. No. 166) are OVERRULED, and Plaintiff's Motion to Dismiss the Counterclaims (Doc. No. 109) is DENIED.
IT IS SO ORDERED.
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Frank D. Whitney
United States District Judge
SEALED DOCUMENT with access to All Parties/Defendants