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Kimberly-Clark Worldwide, Inc v. First Quality Baby Products

May 17, 2011

KIMBERLY-CLARK WORLDWIDE, INC., PLAINTIFF
v.
FIRST QUALITY BABY PRODUCTS, LLC, FIRST QUALITY PRODUCTS, INC., FIRST QUALITY RETAIL SERVICES, LLC, FIRST QUALITY HYGIENIC, INC., DEFENDANTS AND COUNTERCLAIM PLAINTIFFS
v.
KIMBERLY-CLARK CORPORATION, KIMBERLY-CLARK WORLDWIDE, INC., KIMBERLY-CLARK GLOBAL SALES, LLC,: COUNTERCLAIM DEFENDANTS



The opinion of the court was delivered by: William W. Caldwell United States District Judge

MEMORANDUM

I. Introduction

Presently before the court is plaintiff Kimberly-Clark Worldwide, Inc.'s ("KC") motion to dismiss defendants First Quality Baby Products, LLC, First Quality Products, Inc., First Quality Retail Services, LLC, and First Quality Hygienic, Inc.'s (collectively "First Quality") counterclaims I-VII. For the following reasons, we will deny the motion.

II. Background

First Quality avers the following. First Quality and KC each manufacture a line of absorbent hygiene products, such as infant diapers, training pants, and adult incontinence products. (Countercl. ¶¶ 16-18, 22-25.) KC is the maker of the Huggies brand of products, while First Quality manufacturers and sells "private label", or store brands, to retailers. (Countercl. ¶¶ 16, 22-25.) KC currently maintains a thirty-five percent market share for disposable baby diapers and a seventy-five percent share in the training pants markets. (Countercl. ¶ 17-18.)

As a result of these market shares and the amassing of over 300 patents, First Quality alleges that KC uses its patents to disrupt competitors and to maintain a monopoly in the disposable baby diaper and training pants market. (Countercl. ¶¶ 13, 93.) KC first threatens a patent lawsuit and then engages in sham litigation to drain the resources of private label manufacturers, thereby reducing the ability of private labelers to compete with KC's larger market shares. (Countercl. ¶¶ 84-87, 112-13.) It accomplishes this goal by enforcing patents that, according to First Quality, KC knows to be invalid, procured through fraud on the Patent and Trademark Office ("PTO"), or not infringed. (Countercl. ¶¶ 51-52, 84-86.) KC then misrepresents the nature of the litigation in order to threaten retail outlets, such as Walmart, with "empty shelves" of diapers if it does not make KC the exclusive supplier of training pants store brand, or forces private label manufacturers to enter into secret settlement agreements that involved the purchasing of unnecessary licences. (See Countercl. ¶¶ 18, 112.) As a result, consumers are forced to pay more for disposable baby diapers and training pants, and competitors efforts to enter and compete in the market are hindered. (Countercl. ¶¶ 113-114.)

On February 12, 2010, KC submitted a motion seeking leave to file a second amended complaint. KC's proposed amendment included the same allegations against all the defendants, but also sought to add a new defendant, First Quality Hygienic, Inc., add allegations of inducement and/or contributory infringement in Count I, add allegations of willful infringement to Counts III and IV, and finally include additional allegedly infringing products under Counts VI, VII, VIII, and X--Confidence Underwear and Extra Absorbency. We granted leave and the second amended complaint was deemed filed on May 5,2010.

On July 26, 2010, First Quality filed an answer wherein in alleged numerous additional facts that were not present in its original answer or its answer to the amended complaint. In addition, First Quality alleged, for the first time, seven new counterclaims. In response, KC filed motions to strike, dismiss, sever and transfer, or in the alternative sever and stay defendants counterclaims I-VII. We granted KC's motion to strike the counterclaims, concluding that First Quality did not seek leave of court before filing asserting its new claims. See Kimberly-Clark Worldwide, Inc. v. First Quality Baby Prods., LLC,- - - F.Supp.2d - - - -, 2010 WL 5365650 (M.D. Pa. 2010). However, on reconsideration, we vacated our order and denied KC's motion to strike. See Kimberly-Clark Worldwide, Inc. v. First Quality Baby Prods., LLC, No. CV-09-1685, 2011 WL 743468 (M.D. Pa. Feb. 24, 2011). On April 29, 2011, we granted KC's motion to bifurcate the patent claims and counterclaims I-VII for purposes of trial, concluding judicial efficiency and jury comprehension necessitated claim separation. Kimberly-Clark Worldwide, Inc. v. First Quality Baby Prods., LLC, No. CV-09-1685, 2011 WL 1627052, at *2 (M.D. Pa. April 29, 2011). We also stayed discovery related to counterclaims I-VII until such time as we resolved the instant motion to dismiss. Id. at*3.

III. Discussion

A. Standard of Review

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint for "failure to state a claim upon which relief can be granted." Under Rule 12(b)(6), we must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (quoting Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008)). While a complaint need only contain "a short and plain statement of the claim," Fed. R. Civ. P. 8(a)(2), and detailed factual allegations are not required, Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 1964, 167 L.Ed.2d. 929 (2007), a complaint must plead "enough facts to state a claim to relief that is plausible on its face." Id. at 570, 127 S.Ct. 1955 at 1974. "The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, - - - U.S. -- - -, 129 S.Ct. 1937, 1949 (2009)(quoting Twombly, 550 U.S. at 556, 127 S.Ct. at 1965.) Instead, this requirement "calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of the necessary element." West Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 98 (3d Cir. 2010)(citing Phillips, 515 F.3d at 234). "[L]abels and conclusions" are not enough, Twombly, 550 U.S. at 555, 127 S.Ct. at 1964-65, and a court "'is not bound to accept as true a legal conclusion couched as a factual allegation.'" Id., 127 S.Ct. at 1965 (quoted case omitted).

In resolving the motion to dismiss, we thus "conduct a two-part analysis." Fowler, supra, 578 F.3d at 210. First, we separate the factual elements from the legal elements and disregard the legal conclusions. Id. at 210-11. Second, we "determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a "'plausible claim for relief.'" Id. at 211 (quoted case omitted). When evaluating monopolization claims under the Sherman Act, we must "look to the [alleged] monopolist's conduct taken as a whole rather than considering each aspect in isolation." LePage's Inc. v. 3M, 324 F.3d 141, 162 (3d Cir. 2003).

B. Counts I and VI - Monopolization

First Quality asserts a monopolization claim against KC under section 2 of the Sherman Act, 15 U.S.C. § 2, and violation of New York's Donnelly Act, N.Y. General Business Law § 340.*fn1 KC seeks dismissal of both claims for failure to state a claim, arguing that: (1) First Quality failed to sufficiently allege anticompetitive conduct in the relevant monopolized market; (2) First Quality inadequately alleges fraud or sham litigation, thus rendering KC immune from antitrust liability; (3) First Quality's allegations of secret settlements and arbitrations do not show ...


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