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Nespresso USA, Inc. v. Ethical Coffee Co. SA

United States District Court, D. Delaware

July 14, 2017

NESPRESSO USA, INC., Plaintiff,
v.
ETHICAL COFFEE COMPANY SA, Defendant-Counterclaim Plaintiff. ETHICAL COFFEE COMPANY SA and ETHICAL COFFEE CORPORATION, Counterclaim Plaintiffs,
v.
NESPRESSO USA, INC., NESTLE NESPRESSO SA, Counterclaim Defendants.

          MEMORANDUM

         I. INTRODUCTION

         On December 21, 2015, Nespresso USA filed a complaint against Ethical Coffee Company SA ("ECC") requesting declaratory judgment that Nespresso USA does not infringe ECC's U.S. Patent No. 9, 113, 746 (the "'746 Patent"). (D.I. 1 ¶ 30-31). On April 18, 2016, ECC answered the complaint, and counterclaimed that Nespresso USA, Nestle Nespresso SA (collectively, "Nespresso"), Nestle SA, and Nestec SA infringe the '746 Patent, violate the Sherman Act, conduct unfair competition, and commit unjust enrichment. (D.I. 24 ¶ 1-3). On September 7, 2016, the court dismissed ECC's unfair competition and unjust enrichment claims. (D.I. 64). On July 13, 2017, the court dismissed Nestle SA and Nestec SA from the case for lack of personal jurisdiction. (D.I. 108). Currently pending before the court are ECC's two motions to amend its answer and counterclaims: (1) ECC's Motion for Leave to Amend its Answer and Counterclaims, filed on September 20, 2016, (D.I. 72); and (2) ECC's Motion for Leave to Amend its Answer and Amended Counterclaims, filed on February 1, 2017. (D.I. 94). Nespresso opposes both motions. For the reasons that follow, the court will grant ECC's September 20, 2017 motion to amend, (D.I. 72), and grant in part and deny in part ECC's February 1, 2017 motion to amend. (D.I. 94).

         II. FACTUAL AND PROCEDURAL BACKGROUND

         ECC originally asserted five counterclaims: (1) direct patent infringement of U.S. Patent No. 9, 113, 746 ("the '746 patent") against Nespresso; (2) induced patent mfringement of the '746 patent; (3) monopolization under Section 2 of the Sherman Act; (4) attempted monopolization under Section 2 of the Sherman Act; (5) unfair competition under Delaware common law; and (6) unjust enrichment under Delaware common law. (D.I. 24 at 19-27). By its pending September 20, 2016 motion to amend, ECC seeks to add facts to bolster its previously dismissed unfair competition claim. (D.I. 72-1). The court dismissed ECC's unfair competition counterclaim because "ECC failed to allege any factual support for its contention that negotiations were advanced or that a business relationship was reasonably probable." (D.I. 64 at n.1).

         The pending February 1, 2017 motion to amend-which was filed on the deadline to amend the pleadings-seeks to drop the patent infringement allegations, and add additional facts to the monopolization, attempted monopolization, and unfair competition claims. (D.I. 95tI). Essentially, ECC's amendments add further factual support to its contentions that Nespresso modified its capsule housing in 2010 and 2013 for the purpose of excluding ECC from the Nespresso machine-compatible espresso capsule market. Id. ECC contends that the capsule housing redesign, along with alleged sham litigation in Europe, deprived ECC of business opportunities in the United States and precluded ECC's ability to launch its capsules in the United States. Id. ¶¶ 49-76, 96-106, 112-138, 152-165. That motion to amend also adds a false advertising claim under the Lanham Act, 15 U.S.C. § 1125(a)(1)(B). Id. ¶ 139-152. To support its false advertising claim, ECC alleges that Nespresso promoted a study on its website that mislead consumers about the environmental impact of Nespresso capsules. Id. ¶¶ 30-39, 77-89). ECC also maintains that Nespresso made statements in its instruction manuals that misled consumers regarding the compatibility of non-Nespresso espresso capsules with Nespresso machines. Id.

         III. STANDARD OF REVIEW

         The court is to "freely give leave" to parties to amend their pleadings "when justice so requires." Fed.R.Civ.P. 15(a)(2). "Leave to amend must generally be granted unless equitable considerations render it otherwise unjust." Arthur v. Maersk, Inc., 434 F.3d 196, 204 (3d Cir. 2006). Such equitable considerations include the existence or absence of "undue delay, bad faith or dilatory motive on the part of the movant, . . . undue prejudice to the opposing party by virtue of allowance of the amendment, [or] futility of the amendment." Foman v. Davis, 371 U.S. 178, 182(1962).

         An amendment will be futile if it could not survive a motion to dismiss. Enzo Life Scis., Inc. v. Digene Corp., 270 F.Supp.2d 484, 489 (D. Del. 2003). "To determine whether a proposed amendment is futile, the Court applies the standards for a Rule 12(b)(6) motion to dismiss and must decide whether, accepting all the well-pleaded facts of the proposed amendments as true, the party states a claim upon which relief can be granted." Lynch v. Coinmaster USA, Inc., 2007 WL 39433, at *2 (D. Del. 2007).

         IV. DISCUSSION

         ECC asks the court to grant it leave to amend its Answer and Counterclaims to forego litigation on the patent claims, add further facts to support its antitrust claims, and add a violation under the Lanham Act. ECC contends that amending its Answer and Counterclaim would not produce undue delay, be the product of bad faith, result in undue prejudice to the Plaintiffs, nor would it be futile. Nespresso's entire argument focuses on the futility of ECC's amendments.

         For the reasons that follow, the court grants ECC's September 20, 2016 motion to amend its answer and counterclaims. The court also grants in part and denies in part ECC's February 1, 2017 motion to amend its answer and counterclaims.

         A. ECC's September 20, 2017 Motion to Amend its Answer and Counterclaims

         ECC's September 20, 2017 motion adds facts to support its previously dismissed unfair competition claim. Nespresso argues that because the court did not expressly dismiss ECC's state law unfair competition claim without prejudice, ECC's motion to amend is procedurally improper. (D.I. 80 at 4). The court acknowledges that there exists case law in this Circuit stating that claims dismissed under Rule 12(b)(6) are presumed to be dismissed with prejudice, unless the court states otherwise. Ball v. Famiglio, 726 F.3d 448, 460 n.l7 (3d Cir. 2013), abrogated on other grounds by Coleman v. Tollefson, 135 S.Ct. 1759 (2015). Regardless, the court exercises its discretion to grant ECC leave to amend its unfair competition counterclaim. It was implied in the court's September 7, 2016 order that ECC could cure its pleading deficiencies by adding further factual support for its contention that it was in advanced negotiations with a large U.S. coffee company. See (D.I. 62 at 2 n.1). ECC did just that.

         Further, ECC's amendments to its state law unfair competition claim are not futile. Delaware's Court of Chancery has explained that "[t]he essential element separating unfair competition from legitimate market participation ... is an unfair action on the part of the defendant by which he prevents plaintiff from legitimately earning revenue." EDIX Media Grp., Inc. v. Mahani, No. CIV.A. 2186-N, 2006 WL 3742595, at * 11 (Del. Ch. Dec. 12, 2006). While the type of conduct actionable under unfair competition law has been labeled as "notoriously undefined, " State ex rel. Brady v. Wellington Homes, Inc., No. CIV.A.99C-09-168-JTV, 2003 WL 22048231, at *1 (Del. Super. Ct. Aug. 20, 2003), the court finds that ECC has alleged enough facts to raise a right to relief above the speculative level. See Bell Ail. Corp. v. Twombly,550 U.S. 544, 555 (2007). Specifically, ECC alleges that it had a reasonable expectancy of entering into a business relationship with Starbucks, as evidenced by Starbucks' executives' visit to ECC's factory, discussions between company executives, and execution of a Mutual Confidentiality and Non-Disclosure Agreement. (D.I. 72-1 ¶ 50-51). ECC contends that Nespresso wrongfully interfered with that expected business relationship when it added barbed hooks to its capsule housing for the sole purpose of excluding ECC's biodegradable capsules from the market. Id. ΒΆ 95. Starbucks terminated its relationship and the mutual NDA ...


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