Natural Alternatives International, Inc. v. Allmax Nutrition, Inc.
Docket: Case No.: 16-cv-01764-H-AGS
Court: District Court, S.D. California; June 26, 2017; Federal District Court
The Court orders the following: (1) Defendant Allmax Nutrition, Inc.'s motion for judgment on the pleadings and Defendant HBS International Corp.'s motion to dismiss are granted, with partial leave to amend; (2) Plaintiff Natural Alternatives International, Inc.'s motion for judgment on the pleadings is denied. The Court's decision follows motions filed by Allmax and HBS on April 25, 2017, and responses from Plaintiff on May 19, 2017. A hearing was held on June 26, 2017, where Plaintiff NAI represented by attorneys Richard J. Oparil, William J. McKeague, and Frederick W. Kosmo, and Defendants represented by Ragesh K. Tangri, presented their cases.
Plaintiff NAI, a supplier of nutritional supplements, claims that its CarnoSyn® product is protected by extensive intellectual property rights, and alleges that Defendants are infringing on these rights by selling beta-alanine supplements that utilize NAI's trademarks and copyrights. The initial complaint filed by NAI against Allmax on July 8, 2016, included claims for violations of the Lanham Act, copyright infringement, and patent infringement. After Defendants' motions and various responses, the Court found that Allmax's motion to dismiss based on lack of personal jurisdiction had been previously denied, and the current motions address specific claims against both Allmax and HBS, including a civil conspiracy claim added in the first amended complaint. The Court granted the motions to dismiss specific claims while allowing for partial amendments.
Legal standards for a Rule 12(b)(6) motion to dismiss and a Rule 12(c) motion for judgment on the pleadings in patent cases are governed by the regional circuit's law. Under Federal Rule of Civil Procedure 8(a)(2), pleadings must provide a "short and plain statement" of the claim to give defendants fair notice. A Rule 12(b)(6) motion tests the legal sufficiency of pleadings, allowing dismissal if the plaintiff fails to state a claim upon which relief can be granted. The Ninth Circuit equates the standard for Rule 12(c) motions with Rule 12(b)(6) motions. A complaint survives a motion to dismiss if it includes enough factual content to support a plausible claim. Plausibility arises when the facts allow a reasonable inference of the defendant's liability. Merely providing labels, conclusions, or naked assertions without factual enhancement is insufficient. Dismissal is warranted if the claim lacks a cognizable legal theory or adequate supporting facts. In considering a Rule 12(b)(6) motion, courts accept all factual allegations as true and draw reasonable inferences in the plaintiff's favor, but they do not accept legal conclusions as true. Furthermore, courts cannot assume unalleged facts can be proven or that defendants violated laws not specified in the claims.
In the case at hand, the Plaintiff has moved for judgment on the pleadings concerning Defendant Allmax's assertion that the claims of the patents-in-suit are invalid, as stated in Allmax’s fourth affirmative defense and second counterclaim.
Plaintiff contends that Defendants cannot invoke their affirmative defense and counterclaim due to no-contest provisions in two license agreements that prevent contesting the validity of Plaintiff's patents. Defendants counter that these provisions are void on public policy grounds. In response, Plaintiff maintains the provisions are valid and enforceable. Both parties acknowledge the existence of the 2014 and 2016 license agreements, which include identical no-contest clauses prohibiting Defendants from challenging Plaintiff's patent rights.
Federal Circuit law governs the enforceability of such agreements. The Supreme Court's ruling in Lear, Inc. v. Adkins eliminated the doctrine of licensee estoppel, allowing licensees to challenge patent validity despite license agreements. However, the Federal Circuit has recognized that certain consent decrees and settlement agreements can allow for patent licenses while also barring challenges to patent validity. Plaintiff argues that the 2016 agreement falls under this exception, while Defendants assert that only post-litigation settlements qualify.
The Court agrees with Defendants, referencing the Second Circuit's decision in Rates Tech. Inc. v. Speakeasy, which ruled that no-contest clauses in pre-litigation settlement agreements are unenforceable under Lear. Although Federal Circuit law applies, the Court finds the Second Circuit's reasoning persuasive and applies it to this case. Plaintiff claims that a clear and unambiguous no-contest clause in a pre-litigation agreement can be enforceable, citing Baseload and Ocean Tomo decisions, but the Court does not find this argument convincing.
In Baseload, the Federal Circuit did not establish that a no-contest clause in a pre-litigation settlement agreement is enforceable. The case involved a settlement agreement with a no-contest clause following previous litigation where patent validity was not contested. The Court indicated that such clauses could be enforceable if clearly stated, even if validity claims were not previously litigated. However, the enforcement of a no-contest clause was ultimately declined in Baseload.
In Ocean Tomo, a district court initially ruled that a no-contest clause in a pre-litigation settlement could be enforceable, but later reversed this decision, stating such clauses are not enforceable. The Court aligns with the Second Circuit’s view in Rates Tech, concluding that no-contest clauses in pre-litigation agreements are unenforceable under Lear. In this case, both relevant agreements were executed before any litigation, as acknowledged by the Plaintiff, confirming their status as pre-litigation settlements, thus rendering the no-contest provisions unenforceable.
Consequently, the Plaintiff cannot obtain a judgment on the pleadings regarding Defendant Allmax’s invalidity defense and counterclaim, leading to the denial of the Plaintiff's Rule 12(c) motion. Additionally, the Plaintiff's claim under the Lanham Act is challenged by Defendants for inadequate allegations concerning the use of Plaintiff's trademark with unauthorized products. To succeed under the Lanham Act, the Plaintiff must prove ownership of a valid mark and demonstrate that the Defendants' use is likely to confuse consumers, with the core issue being the likelihood of confusion regarding the source of products.
In assessing the likelihood of confusion regarding trademark claims, courts apply an eight-factor test established in AMF Inc. v. Sleekcraft Boats and Multi Time Mach. Inc. v. Amazon.com. Defendants contend that Plaintiff's allegations in the First Amended Complaint (FAC) are insufficient, as Plaintiff does not specify that the beta-alanine in Defendants' products labeled with CarnoSyn® originated from an unauthorized source. Plaintiff asserts it can amend the FAC to include such allegations. Consequently, the Court dismisses Plaintiff's trademark claim without prejudice, allowing for amendments.
Regarding the patent infringement claim, Plaintiff alleges infringement of several patents. Defendants argue for dismissal on the grounds that the patents do not claim patent-eligible subject matter, rendering them invalid under 35 U.S.C. § 101. Plaintiff counters that the patents are indeed directed to eligible subject matter. Section 101 outlines patent-eligible subject matter as including new and useful processes, machines, or compositions, but excludes laws of nature, natural phenomena, and abstract ideas. The Supreme Court employs a two-stage framework to assess patent eligibility: first, determining if the claim pertains to a patent-ineligible concept, and second, evaluating whether the claim elements, individually and in combination, constitute a sufficient transformation into a patent-eligible application. This process requires courts to focus on the claimed advance over prior art and the inventive concept of the claim.
An inventive concept must exceed the recitation of "well-understood, routine, conventional activity" to qualify for patent eligibility, as established in FairWarning IP, LLC v. Iatric Sys. Inc. and Intellectual Ventures I LLC v. Symantec Corp. Merely appending conventional steps, described generally and recognized as routine in the field, does not satisfy this requirement. In the case of claim 1 of the ’084 patent, the specific dosage of beta-alanine in a dietary supplement is deemed conventional, as the patent acknowledges that incorporating natural substances into dietary supplements is standard practice. The background of the ’084 patent states that natural food supplements aim to address nutrient deficiencies in modern diets, particularly for certain animals. Consequently, using a dietary supplement to deliver beta-alanine, a natural phenomenon, does not render the claim patent eligible.
The document cites precedents such as Ariosa, Alice, and Mayo Collaborative Services, which reinforce that routine methods or the introduction of a general-purpose computer to implement abstract ideas do not confer patent eligibility. It concludes that claim 1 of the ’084 patent pertains to patent-ineligible subject matter under 35 U.S.C. § 101, thus invalidating it.
Regarding the ’947 patent, claim 34 describes a dietary supplement for enhancing muscle tissue strength, comprising creatine, a carbohydrate, and beta-alanine, with specific dosage parameters. The court's analysis begins with step one of the Alice framework, focusing on the claim's elements.
Beta-alanine, creatine, and carbohydrates are identified as naturally occurring phenomena in the ’947 Patent, leading to the conclusion that claim 34, which involves a mixture of these substances in a dietary supplement, constitutes patent-ineligible subject matter under 35 U.S.C. § 101, as per the Alice inquiry and the precedent set in Funk Bros. Seed Co. v. Kalo Inoculant Co. The same reasoning applies to claim 6 of the ’376 Patent, which involves a mixture of beta-alanine and glycine, both natural phenomena, rendering it also patent-ineligible. Furthermore, claim 1 of the ’596 Patent involves a method for regulating hydronium ion concentrations in human tissue by administering beta-alanine, which is categorized as a natural phenomenon. Thus, the Court finds that all three claims are directed to patent-ineligible subject matter, confirming their invalidity based on established legal principles.
The Court finds that claim 1 of the ’596 patent is directed to a law of nature, specifically the natural phenomenon that ingesting beta-alanine increases carnosine concentration in tissue, which helps regulate hydronium ion concentration. This is in line with precedents set in Mayo and Ariosa, which establish that claims based solely on laws of nature are not patent-eligible. In the second step of the Alice inquiry, the Court concludes that the claim does not present an inventive concept that transforms the law of nature into a patent-eligible application. The language in claim 1 merely states the natural law and instructs its application to human tissue, which is insufficient for patentability. The Plaintiff's assertion that the method involves a non-natural process or achieves unnatural levels of carnosine is unsubstantiated, as the claim does not specify such requirements. Even if the method were considered useful, mere utility does not meet the criteria for patent eligibility, as highlighted in the Supreme Court's decisions, including Myriad Genetics. Ultimately, the Court determines that claim 1 is invalid under 35 U.S.C. § 101 for claiming ineligible subject matter.
The Court has granted Defendants’ Rule 12 motions, resulting in the dismissal of Plaintiffs' patent infringement claim with prejudice. Regarding the civil conspiracy claim, the Court finds it should be dismissed as it does not constitute a separate tort under California law. Conspiracy merely serves as a legal doctrine imposing liability on those who share a common plan with tortfeasors, and without an underlying tort, such as trademark or patent infringement—which have both been dismissed—there can be no conspiracy claim. Furthermore, claims based on conspiracy to infringe patents and copyrights are preempted by federal law, specifically the Patent Act and Copyright Act, respectively. Nonetheless, the Court allows Plaintiffs the opportunity to amend their civil conspiracy claim due to the granted leave to amend the trademark infringement claim. Consequently, the civil conspiracy claim is dismissed without prejudice, and Plaintiffs are permitted to make amendments. The Court also denies Plaintiffs' Rule 12(c) motion for judgment on the pleadings.
The Court dismisses the Plaintiff's patent infringement claim with prejudice due to the patents being invalid under 35 U.S.C. § 101 for lack of patent-eligible subject matter. The claims for trademark infringement and civil conspiracy are dismissed without prejudice, allowing the Plaintiff to amend these claims. The Plaintiff is granted 14 days to file a second amended complaint. The Court also notes that the Defendants did not seek to dismiss the copyright infringement claim. It prioritizes the Plaintiff's motion addressing the invalidity arguments over the Defendants' motions, as it addresses the threshold issue of those arguments being raised. The Court permits the consideration of two license agreements referenced in the pleadings, as their authenticity is not disputed. The license agreement defines "Patent Rights" broadly, covering various patent-related rights. The Court rejects the Plaintiff's assertion that Delaware law governs contract enforcement, clarifying that Federal Circuit law is applicable regarding the no-contest clause that allegedly prevents challenges to patent validity. The Court finds these no-contest clauses unenforceable, thus denying the Plaintiff's motion to strike the invalidity arguments. The Plaintiff's assertion that the no-contest clauses preclude the Defendants from contesting patent validity is invalidated, as these clauses are void under Lear. Lastly, the Court finds the Plaintiff's reliance on a district court case regarding patentable subject matter unpersuasive, as it contradicts Federal Circuit precedent.
Plaintiff contends that claim construction disputes may be relevant to the Court's assessment of the patents' eligibility under § 101, but Defendants counter that they will accept Plaintiff's proposed claim constructions for this motion. This agreement allows the Court to address the § 101 issues without waiting for claim construction, as no relevant disputes exist. In the First Amended Complaint (FAC), Plaintiff references specific claims from four patents: claim 1 of the '084 Patent, claim 1 of the '596 Patent, claim 34 of the '947 Patent, and claim 6 of the '376 Patent. Defendants focus their § 101 validity analysis on these claims, arguing that a representative claims approach is appropriate, which Plaintiff does not contest. Thus, the Court will evaluate the validity of the patents based on these four claims.
The excerpt notes that the claims are "substantially similar" and linked to the same law of nature, justifying the use of representative claims in the analysis. The invention is centered on the administration of beta-alanine to enhance anaerobic working capacity in tissue, as detailed in the '084 Patent's specification. The Court finds Plaintiff's reliance on the Rutgers case unpersuasive, as that case discussed conditions not occurring in nature, whereas the current claims focus on natural processes.
The '084 patent specification indicates that beta-alanine naturally occurs in the human body. The Plaintiff claims that isolating beta-alanine from the dipeptide carnosine results in different properties; however, this assertion lacks support from the intrinsic or extrinsic patent records. Even accepting the Plaintiff's argument, it would not affect the Court's Section 101 analysis. The Court references the Supreme Court's Myriad decision, which determined that isolating DNA does not create a non-naturally occurring molecule, and applies this reasoning to reject the Plaintiff's argument regarding beta-alanine isolation.
The Court's analysis also extends to related patents: claim 34 of the '947 patent, which includes creatine, and claim 6 of the '376 patent, which contains a mixture of beta-alanine and glycine. The Court finds that the eligibility analysis for the '084 patent claims similarly applies to these claims. Regarding claim 6, the Plaintiff argues that "glycine" should encompass non-natural sources. Nevertheless, even if true, the inclusion of natural glycine does not change its status as a naturally occurring phenomenon. The Plaintiff has not demonstrated a meaningful distinction between natural and synthetic glycine. The Federal Circuit precedent in In re BRCA1 further supports the conclusion that claims cannot be rendered patent eligible solely by their derivation from synthetic processes if they are structurally identical to natural substances. The specification of the '596 patent also acknowledges this natural occurrence.
