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Inc. v. Celsee, Inc.

United States District Court, D. Delaware

October 30, 2019

10x GENOMICS, INC., Plaintiff,
v.
CELSEE, INC., Defendant.

          REPORT AND RECOMMENDATION

          SHERRY R. FALLON, UNITED STATES MAGISTRATE JUDGE

         I. INTRODUCTION

         Presently before the court in this patent infringement action is defendant Celsee, Inc.'s ("Celsee") combined partial motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and motion to strike pursuant to Rule 12(f) of the Federal Rules of Civil Procedure. (D.I. 11) Plaintiff 10x Genomics, Inc. ("10x") opposes the motion. (D.I. 13) For the following reasons, I recommend that the court deny Celsee's motion to strike, grant-in-part Celsee's motion to dismiss, [1] and grant 10x's request for leave to amend.[2]

         II. BACKGROUND[3]

         10x filed this patent infringement suit on May 8, 2019, alleging infringement of United States Patent Nos. 10, 155, 981 ("the '981 patent"), 10, 227, 648 ("the '648 patent"), 10, 240, 197 ("the '197 patent"), 10, 273, 541 ("the '541 patent"), and 10, 280, 459 ("the '459 patent") (collectively, the "patents-in-suit"). (D.I. 1 at ¶ 35) 1Ox is a life sciences technology company that markets and sells its Chromium product line, which provides researchers with the ability to measure gene activity on a cell-by-cell basis for large numbers of cells in a single experiment. (D.I. 1 at ¶¶ 6-8) 10x launched its Chromium product line in early 2016, after launching its predecessor product, GemCode, in February 2015. (Id. at ¶ 7)

         About three years after 10x launched the Chromium product line, Celsee introduced the Genesis System. (Id. at ¶¶ 12, 19) The Genesis System is designed to capture and isolate single cells, which are then paired with a unique cellular barcode and unique molecular indices for applications such as gene expression or protein quantitation, allowing the user to track a molecule and the cell of origin for that molecule. (Id. at ¶¶ 14-15) The complaint alleges that Celsee copies 10x's technology and business plans, makes false and misleading comparisons between Celsee's Genesis System and 10x's Chromium product line undercuts 10x's pricing, and recruits 10x personnel to join Celsee. (Id. at ¶¶ 20-24)

         III. LEGAL STANDARDS

         A. Rule 12(f)

         Rule 12(f) permits "[t]he court [to] strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Fed.R.Civ.P. 12(f). "When ruling on a motion to strike, the [c]ourt must construe all facts in favor of the nonmoving party and deny the motion if the defense is sufficient under law. Further, a court should not grant a motion to strike a defense unless the insufficiency of the defense is clearly apparent." Symbol Techs., Inc. v. ArubaNetworks, Inc., 609 F.Supp.2d 353, 356 (D. Del. 2009) (internal citations and quotation marks omitted). "A decision to grant or deny a motion to strike a pleading is vested in the trial court's discretion." Aoki v. Benihana, Inc., 839 F.Supp.2d 759, 764 (D. Del. 2012) (internal citations and quotation marks omitted). "As a general matter, motions to strike under Rule 12(f) are disfavored." Fesnak & Assocs., LLP v. U.S. Bank Nat'l Ass'», 722 F.Supp.2d 496, 502 (D. Del. 2010).

         B. Rule 12(b)(6)

         Rule 12(b)(6) permits a party to move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). When considering a Rule 12(b)(6) motion to dismiss, the court must accept as true all factual allegations in the complaint and view them in the light most favorable to the plaintiff. See Umland v. Planco Fin, Servs., Inc., 542 F.3d 59, 64 (3d Cir. 2008).

         To state a claim upon which relief can be granted pursuant to Rule 12(b)(6), a complaint must contain a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Although detailed factual allegations are not required, the complaint must set forth sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). A claim is facially plausible when the factual allegations allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 663; Twombly, 550 U.S. at 555-56.

         The court's determination is not whether the non-moving party "will ultimately prevail," but whether that party is "entitled to offer evidence to support the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir. 1997) (internal citations and quotation marks omitted). This "does not impose a probability requirement at the pleading stage," but instead "simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of [the necessary element]." Phillips v. Cty. of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556). The court's analysis is a context-specific task requiring the court "to draw on its judicial experience and common sense." Iqbal, 556 U.S. 663-64.

         IV. ANALYSIS

         A. Allegations of Copying

         By way of its motion, Celsee seeks to strike paragraphs 20-24 of 10x's complaint, which describe Celsee's alleged efforts to recruit 10x employees who bring with them proprietary information regarding 10x's technology and business plans. (D.I. 12 at 6-7) Celsee contends that these paragraphs of the complaint contain "speculative and scurrilous" allegations that Celsee recruited 10x's employees, acquired confidential 10x material, and copied 10x's job postings, which are unrelated to the pleaded claims. (D.I. 12 at 6-7) Celsee contends that these allegations cast Celsee and its employees in a derogatory light, without adding value to the asserted causes of action. (Id. at 7) Celsee does not move to strike any affirmative defenses.

         In response, 10x concedes that it does not assert causes of action for trade secret misappropriation or copyright infringement. (D.I. 13 at 5-6) Nonetheless, 1 Ox contends that allegations of Celsee's wholesale copying of 10x's business and technology are relevant to the issues of induced infringement, willful infringement, and secondary considerations of non-obviousness because they demonstrate Celsee's "corporate culture" of copying. (Id.) 10x further alleges that the allegations are relevant to the cause of action for false advertising, which purportedly has its roots in Celsee's efforts to poach 10x's employees and copy its job advertisements. (Id. at 6)

         I recommend that the court deny Celsee's motion to strike the complaint's allegations that Celsee recruited 10x's employees, acquired confidential 10x material, and copied 10x's job postings. (D.I. 1 at ¶¶ 20-24) The complaint alleges that Celsee's business model is structured to capture market share and divert business from 10x "by copying 10x's technology and business plans, making false and misleading comparisons between Celsee's product and 10x's, and undercutting 10x on price." (Id. at ¶ 20) The complaint further states that "Celsee has been recruiting 10x personnel to join Celsee," and provides examples of "former 10x employees [who] copied confidential 10x information shortly before they left 10x and went to Celsee." (Id. at ¶¶ 21-23) The complaint also provides examples of "Celsee resort[ing] to copying 10x job postings verbatim." (Id. at ¶ 24) Although these factual allegations could theoretically support a cause of action such as trade secret misappropriation[4] or copyright infringement, [5] which are not asserted in the complaint as pleaded, the allegations provide relevant background for a number of causes of action which are pleaded in the complaint, including induced infringement, willful infringement, and the invalidity defense of non-obviousness.[6]

         First, the challenged allegations support 10x's cause of action for induced infringement, which requires a showing that "the accused inducer took an affirmative act to encourage infringement with the knowledge that the induced acts constitute patent infringement." Astornet Techs, Inc. v. BAE Sys., Inc., 802 F.3d 1271, 1279 (Fed. Cir. 2015) (quoting Info-Hold, Inc. v. Muzak LLC, 783 F.3d 1365, 1372 (Fed. Cir. 2015)). The Federal Circuit has held that evidence of an accused infringer's "reverse engineering and copying" of a patentee's products may establish "a corporate culture of copying" in connection with the knowledge requirement of a claim for induced infringement. See Power Integrations, Inc. v. Fair child Semiconductor Int'l, Inc., 843 F.3d 1315, 1333 (Fed. Cir. 2016). The complaint alleges that "Celsee's entire business model is aimed at capturing market share and diverting business from 10x by copying 10x's technology and business plans." (D.I. 1 at ¶ 20) In furtherance of these goals, the complaint alleges that Celsee recruits 10x employees who bring confidential information from 10x with them. (Id. at ¶¶ 21, 23) The complaint's description of these affirmative acts supports 10x's claim that Celsee had knowledge of the patents-in-suit and facilitated a "corporate culture of copying."

         The challenged allegations also lend factual support to 10x's cause of action for willful infringement and its defense of non-obviousness.[7] See Viam Mfg., Inc. v. Iowa Exp.-Imp. Trading Co., 243 F.3d 558, 2000 WL 1234623, at *3 (Fed. Cir. 2000) (finding no abuse of discretion in district court's allowance of testimony concerning alleged copying of the Spal power windows because "evidence of copying was relevant to the issues of willfulness and obviousness."). The complaint expressly states that Celsee "captur[es] market share and divert[s] business from 10x by copying 10x's technology and business plans," and provides specific examples of how Celsee obtained information regarding 10x's technology and business plans by recruiting former 10x employees who took 10x's confidential information with them. (D.I. 1 at ¶¶ 20-23) The allegations of copying in the complaint are therefore not immaterial to the asserted causes of action.

         Rule 12(f) motions are disfavored absent exceptional circumstances. Fesnak & Assocs., Inc., 722 F.Supp.2d at 502. The challenged allegations in 10x's complaint are provided as background. Courts are generally reluctant to strike factual allegations that offer background and form part of a plaintiffs overall theory of the case. See Advanced Thermal Scis. Corp. v. Applied Materials Inc., 2009 WL 10671185, at *3 (CD. Cal. July 20, 2009) (declining to strike general factual allegations "because they form part of AMPs basic 'theory of the case, '" and "[t]he Court cannot say with certainty at this point that these allegations are not relevant to AMI's permissible counterclaims."); see also Forschner Grp., Inc. v. B-Line A.G., 943 F.Supp. 287, 292 (S.D.N.Y. 1996) (declining to strike "paragraphs provid[ing] background information on the parties, their business and their relationship to each other."); XPertUniverse, Inc. v. Cisco Sys., Inc., 2017 WL 4551519, at *6 (N.D. Cal. Oct. 11, 2017) (denying motion to strike because "information regarding the parties' prior relationship provides some useful background to the present dispute and does not seriously prejudice Cisco's interests."). Celsee has not shown that the allegations are unduly prejudicial. Therefore, I recommend that the court deny Celsee's motion to strike.

         B. False Advertising

         Section 43(a) of the Lanham Act provides that

Any person who ... in connection with any goods or services . . . uses in commerce any word, term, name, symbol, or device . . . which
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person ... or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her . . . ...

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