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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 1 of 14
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`UNITED STATES DISTRICT COURT
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`EASTERN DISTRICT OF CALIFORNIA
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`PHILIPS NORTH AMERICA LLC,
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`No. 2:21-cv-00876-JAM-AC
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`Plaintiff,
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`
`
`v.
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`ADVANCED IMAGING SERVICES,
`INC., d/b/a ADVANCED IMAGING
`PARTS; and WANG XIUYUAN, a/k/a
`SEAN WANG,
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`Defendants.
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`ORDER DENYING PLAINTIFF’S
`MOTION TO DISMISS DEFENDANTS’
`COUNTERCLAIMS
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`ADVANCED IMAGING SERVICES,
`INC., d/b/a ADVANCED IMAGING
`PARTS,
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`
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`Counter-Claimant,
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`v.
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`PHILIPS NORTH AMERICA LLC,
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`Counter-Defendant.
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`This case involves a dispute between a manufacturer of
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`medical equipment, Philips North America LLC (“Philips” or
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`“Plaintiff”), and a business that contracts with hospitals and
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`clinics to repair and maintain that equipment, Advanced Imaging
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`Services (“Advanced”). See Compl. ¶¶ 1-2, ECF No. 1. After
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 2 of 14
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`Philips updated its software to require login credentials to
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`access the equipment’s systems, Advanced allegedly acquired a
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`false or unauthorized login to continue servicing this equipment.
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`Id. ¶¶ 34-41. Philips then brought this action against Advanced
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`and Sean Wang, Advanced’s employee that allegedly used the false
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`login credentials (collectively “Defendants”). Advanced and Wang
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`subsequently filed counterclaims against Philips for violation of
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`the Sherman Antitrust Act, copyright misuse, and violation of
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`California’s Unfair Competition Law. Defs.’ Countercls., ECF No.
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`91. Philips now moves to dismiss those counterclaims. Pl.’s
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`Mot. to Dismiss Countercls. (“Mot.”), ECF No. 96.1
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`I.
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`FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND
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`The parties are intimately familiar with the material facts
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`and allegations of this case. The Court does not repeat them
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`here.
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` Philips’s Complaint against Advanced and Sean Wang, contained
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`seven claims: (1) violation of the Computer Fraud and Abuse Act;
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`(2) violation of California’s Comprehensive Data Access and Fraud
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`Act; (3) violation of the Digital Millennium Copyright Act;
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`(4) violation of the Defend Trade Secrets Act; (5) violation of
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`California’s Uniform Trade Secrets Act; (6) violation of
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`California’s Unfair Trade Practices Act; and (7) Fraud. Compl.
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`Advanced and Wang moved to dismiss the first, second, fourth,
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`fifth, and seventh causes of action. Defs.’ Mot. to Dismiss, ECF
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`1 This motion was determined to be suitable for decision without
`oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled
`for February 15, 2022.
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 3 of 14
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`No. 37. The Court granted this request as to the seventh claim
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`for fraud but declined to dismiss the other claims. Order
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`Granting in Part and Denying in Part Defs.’ Mot. to Dismiss, ECF
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`No. 86. Thereafter, Advanced and Wang answered and asserted
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`counterclaims against Philips for (1) monopolization in violation
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`of Section 2 of the Sherman Antitrust Act; (2) attempted
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`monopolization in violation of Section 2 of the Sherman Antitrust
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`Act; (3) a claim for declaratory relief of copyright misuse; and
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`(4) violation of California’s Unfair Competition Law.
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`Countercls. Philips now moves to dismiss these counterclaims.
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`Mot. Advanced and Wang opposed this motion. Defs.’ Opp’n to
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`Mot. to Dismiss Countercls. (“Opp’n”), ECF No. 100. Philips
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`replied. Philips’ Reply, ECF No. 101. For the reasons set forth
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`below, this motion is denied.
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`
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`A.
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`Legal Standard
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`II.
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`OPINION
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`Dismissal is appropriate under Rule 12(b)(6) of the Federal
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`Rules of Civil Procedure when a plaintiff’s allegations fail “to
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`state a claim upon which relief can be granted.” Fed. R. Civ.
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`P. 12(b)(6). “To survive a motion to dismiss a complaint must
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`contain sufficient factual matter, accepted as true, to state a
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`claim for relief that is plausible on its face.” Ashcroft v.
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`Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks and
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`citation omitted). While “detailed factual allegations” are
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`unnecessary, the complaint must allege more than “[t]hreadbare
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`recitals of the elements of a cause of action, supported by mere
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`conclusory statements.” Id. “In sum, for a complaint to
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 4 of 14
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`survive a motion to dismiss, the non-conclusory ‘factual
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`content,’ and reasonable inferences from that content, must be
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`3
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`plausibly suggestive of a claim entitling the plaintiff to
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`relief.” Moss v. U.S. Secret Serv., 572 F.3d 962, 969 (9th Cir.
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`2009).
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`///
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`B.
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`Analysis
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`1.
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`Section 2 of the Sherman Act
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`“Section 2 of the Sherman Act prohibits monopolies,
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`attempts to form monopolies, as well as combinations and
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`conspiracies to do so.” Image Tech. Servs., Inc. v. Eastman
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`Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997) (citing 15 U.S.C.
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`§ 2). “Simply possessing monopoly power and charging monopoly
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`prices does not violate § 2; rather, the statute targets the
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`willful acquisition or maintenance of that power as
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`distinguished from growth or development as a consequence of a
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`superior product, business acumen, or historic accident.” Pac.
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`Bell Tel. Co. v. linkLine Commc’n., Inc., 555 U.S. 438, 447-48
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`(2009) (internal quotation marks and citation omitted).
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`“Whereas § 1 of the Sherman Act targets concerted
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`anticompetitive conduct, § 2 targets independent anticompetitive
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`conduct.” FTC v. Qualcomm Inc., 969 F.3d 974, 989-90 (9th Cir.
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`2020).
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`“There are three essential elements to a successful claim
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`of Section 2 monopolization: (a) the possession of monopoly
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`power in the relevant market; (b) the willful acquisition or
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`maintenance of that power; and (c) causal ‘antitrust’ injury.”
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`Allied Orthopedic Appliances Inc. v. Tyco Health Care Grp. LP,
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`592 F.3d 991, 998 (9th Cir. 2010) (internal quotation marks and
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`2
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`citation omitted). To state a claim for attempted
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`3
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`monopolization, the plaintiff must allege “(1) that the
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`4
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`defendant engaged in predatory or anticompetitive conduct with
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`5
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`(2) a specific intent to monopolize and (3) a dangerous
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`probability of achieving monopoly power.” Kaiser Found. Health
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`7
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`Plan, Inc. v. Abbott Labs., Inc., 552 F.3d 1033, 1044 (9th Cir.
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`8
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`2009) (internal quotation marks and citation omitted).
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`a.
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`Monopoly Power in the Relevant Market
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`“Plaintiff must plead a relevant market to state an
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`antitrust claim under the Sherman Act[.]” Hicks v. PGA Tour,
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`12
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`Inc., 897 F.3d 1109, 1120 (9th Cir. 2018). “The relevant market
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`13
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`is the field in which meaningful competition is said to exist”
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`which is generally defined in terms of product and geography.
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`Kodak, 125 F.3d at 1202. The “outer boundaries” of such a
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`market are determined by “the reasonable interchangeability of
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`use or the cross-elasticity of demand between the product itself
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`and substitutes for it.” Brown Shoe Co. v. United States, 370
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`U.S. 294, 325 (1962). “As such, the relevant market must
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`include the group or groups of sellers or producers who have
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`actual or potential ability to deprive each other of significant
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`levels of business.” Newcal Indus., Inc. v. Ikon Office Sol.,
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`513 F.3d 1038, 1045 (9th Cir. 2008) (internal quotation marks
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`and citation omitted).
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`What constitutes the “relevant market” is typically a
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`factual rather than legal inquiry. Id. However, “there are
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`some legal principles that govern the definition of an antitrust
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`relevant market, and a complaint may be dismissed under Rule
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 6 of 14
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`12(b)(6) if the complaint’s relevant market definition is
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`facially unsustainable.” Hicks, 897 F.3d at 1120 (internal
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`3
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`quotation marks and citation omitted).
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`Advanced defines the relevant market as “the market for the
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`5
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`provision of maintenance, service, and repair on Philips’ CT and
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`MRI machines in the United States.” Countercls. ¶ 31. Philips
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`7
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`contends that this market is facially unsustainable warranting
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`dismissal. Mot. at 8.
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`9
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`First, Philips argues that “[Advanced] fails to plead
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`sufficient facts that would divorce the Philips-only service
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`aftermarket from the actual, real-world competition that occurs
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`between the various manufacturers of CT and MRI systems.” Id.
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`Because there are three other major manufacturers of CT and MRI
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`equipment – Toshiba, GE, and Siemens – Philips contends the
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`relevant market should include servicing of these brands as
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`well. Id. at 8-10.
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`The Supreme Court’s decision in Kodak is instructive here.
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`In that case independent service organizations that serviced
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`Kodak copying and micrographic equipment brought suit against
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`Kodak under the Sherman Act after Kodak implemented policies
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`that made it more difficult for ISOs to acquire Kodak parts.
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`22
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`Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 455-58
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`(1992). Kodak argued that a single brand of product or service
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`can never constitute the relevant market under the Sherman Act.
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`25
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`Id. at 481. The Supreme Court disagreed finding that a single-
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`brand aftermarket for parts and service of Kodak equipment could
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`arise once customers had purchased and were “locked in” to Kodak
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`equipment. Id. at 477-482. The Court reasoned that “[b]ecause
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`service and parts for Kodak equipment are not interchangeable
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`2
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`with other manufacturers’ service and parts, the relevant market
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`3
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`from the Kodak equipment owner’s perspective is composed of only
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`4
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`those companies that service Kodak machines.” Id. at 482.
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`5
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`This is exactly what Advanced alleges here — a derivative
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`6
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`aftermarket in servicing Philips equipment. As in Kodak,
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`7
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`Philips made this change after the sale of the primary good,
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`8
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`when purchasers were “locked in”. See id. at 476-77. Thus,
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`9
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`these purchasers could not have had information about the
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`10
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`restricted aftermarket at the time of purchase. See Oracle Am.,
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`11
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`Inc. v. Terix Comput. Co., Inc., No. 5:13-cv-03385-PSG, 2014 WL
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`12
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`5847532, at *6 (N.D. Cal. Nov. 7, 2014) (“Certainly these
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`13
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`customers who had purchased Solaris products before the merger
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`14
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`could not have consented to the alleged restrictive aftermarket
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`15
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`because at the time it did not exist.”). Because service for
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`16
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`Philips’s equipment is not interchangeable with other
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`17
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`manufactures’ service, the relevant market from the Philips
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`18
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`equipment owner’s perspective is composed of only those
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`19
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`companies that service Philips machines. See Kodak, 504 U.S. at
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`20
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`482.
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`21
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`Nor is the Court persuaded by Philips’ argument that the
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`22
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`market is facially unsustainable since it contains two types of
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`23
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`machines. Mot. at 11. Market realities may warrant a single
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`24
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`market for both. See Kamakahi v. Am. Soc. for Reprod. Med., No.
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`25
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`C 11-01781 SBA, 2013 WL 1768706, at *10 (N.D. Cal. Mar. 29,
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`26
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`2013) (“Because market definition is a deeply fact-intensive
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`27
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`inquiry, courts hesitate to grant motions to dismiss for failure
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`28
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`to plead relevant product market.”). If not, Advanced may
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 8 of 14
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`proceed on a theory that Philips holds monopolies over two
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`2
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`relevant service markets, as the ISOs did in Kodak. See Kodak,
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`3
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`125 F.3d at 1203 (“the ISOs proceeded on the theory that Kodak
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`4
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`held monopolies over two relevant parts markets: the Kodak
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`5
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`photocopier parts market and the Kodak micrographic parts
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`6
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`market.”). Accordingly, Philips has failed to show the relevant
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`7
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`market alleged by Advanced is facially unsustainable.
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`8
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`Advanced has also sufficiently alleged Philips has monopoly
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`9
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`power in this market. The existence of monopoly power
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`10
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`“ordinarily is inferred from the seller’s possession of a
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`11
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`predominant share of the market.” Kodak, 504 U.S. at 464.
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`12
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`“Where such an inference is not implausible on its face, an
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`13
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`allegation of specific market share is sufficient, as a matter
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`14
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`of pleading, to withstand a motion for dismissal.” Hunt-Wesson
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`15
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`Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919, 925 (9th Cir.
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`16
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`1980). Advanced alleges that Philips has a 90 percent market
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`17
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`share. Countercls. ¶ 35. This is sufficient to overcome a
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`18
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`motion to dismiss. See Actividentity Corp. v. Intercede Grp.
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`19
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`PLC, No. C 08-4577 VRW, 2009 WL 8674284, *4 (N.D. Cal. Sept. 11,
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`20
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`2009) (finding allegations that the party had approximately 90%
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`21
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`of the market were sufficient to allege monopoly power).
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`22
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`b.
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`Anticompetitive Conduct
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`“To safeguard the incentive to innovate, the possession of
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`24
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`monopoly power will not be found unlawful unless it is
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`25
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`accompanied by an element of anticompetitive conduct.” Verizon
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`26
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`Commc’ns. Inc v. Law Offices of Curtis V. Trinko, LLP, 540 U.S.
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`27
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`398, 407 (2004). The conduct element requires “the use of
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`28
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`monopoly power to foreclose competition, to gain a competitive
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`advantage, or to destroy a competitor.” Kodak, 125 F.3d at 1208
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`2
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`(internal quotation marks omitted). “Anticompetitive conduct is
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`3
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`that which is without a legitimate business purpose that makes
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`4
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`sense only because it eliminates competition.” Sambreel
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`5
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`Holdings LLC v. Facebook, Inc., 906 F.Supp.2d 1070, 1081 (S.D.
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`6
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`Cal. 2012).
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`7
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`Advanced alleges that Philips engaged in anticompetitive
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`8
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`conduct by limiting access to the machine’s operating menu,
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`9
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`operating systems, and diagnostic software, which effectively
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`10
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`blocked all ISOs, including Advanced, from competing with
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`11
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`Philips in the service market for these machines. Countercls.
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`12
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`¶¶ 15-18. “Specifically, Philips unrolled a series of firmware
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`13
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`updates to its imaging equipment that, for the first time,
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`14
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`imposed a new log-in screen that blocks anyone without Philips
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`15
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`access credentials from accessing any part of the equipment’s
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`16
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`operating menu, operating systems, or diagnostic software.” Id.
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`17
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`¶ 17. This prevented Advanced, and other ISOs, from servicing
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`the equipment. Id. ¶ 18.
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`19
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`Philips contends that these allegations are insufficient to
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`20
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`demonstrate anticompetitive conduct. Mot. at 12-14. Philips
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`21
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`argues that it has no duty to aid Advanced, its competitor, by
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`22
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`licensing their software. Mot. at 12-14. This, however,
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`23
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`misconstrues Advanced’s claim. Advanced’s theory of
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`24
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`anticompetitive conduct is not that Philips refused to deal with
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`25
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`Advanced and grant it a license. Opp’n at 12. Rather, the
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`26
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`anticompetitive conduct alleged is the implementation of this
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`27
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`new technological barrier for the sole purpose of preventing
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`28
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`ISOs access. Id. Philips responds that it has a “right to
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 10 of 14
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`develop the security features of its intellectual property via
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`firmware updates.” Mot. at 14. At this stage though, the Court
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`3
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`must accept as true Advanced’s factual allegations and view them
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`4
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`in the light most favorable to Advanced. See Mansarket v. St.
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`5
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`Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir.
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`6
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`2008). Advanced has alleged that Philips had no legitimate
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`7
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`business reason for this update and did so only to limit
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`8
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`competition in the service market. Countercls. ¶ 30. This is
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`9
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`sufficient to allege anticompetitive conduct. See Epicor
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`10
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`Software Corp. v. Alt. Tech. Sols., Inc., No. SACV 13-00448-CJC
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`11
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`(RNBx), 2013 WL 3930545, at *3 (C.D. Cal. June 21, 2013)
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`12
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`(finding allegations that Epicor coerced customers into using
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`13
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`only Epicor authorized partners to provide service for the ERP
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`14
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`Platform without any valid business reason sufficient to plead
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`15
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`anticompetitive conduct).
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`Accordingly, the Court denies Philips’ motion to dismiss
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`17
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`Advanced’s monopolization and attempted monopolization claims.
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`18
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`19
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`2.
`
`Copyright Misuse
`
`“Copyright misuse is a judicially crafted affirmative
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`20
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`defense to copyright infringement [. . .]” Apple Inc. v.
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`21
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`Psystar Corp., 658 F.3d 1150, 1157 (9th Cir. 2011). Courts have
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`22
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`also allowed it to be asserted as an affirmative claim for
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`23
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`declaratory relief. See Apple Inc. v. Psystar Corp., No. C 08-
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`24
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`03251 WHA, 2009 U.S. Dist. LEXIS 14370, at *8 (N.D. Cal. Feb 6,
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`25
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`2009). The “purpose of the defense” is to “prevent[] holders of
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`26
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`copyrights from leveraging their limited monopoly to allow them
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`27
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`control of areas outside the monopoly.” Apple, 658 F.3d at 1157
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`28
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`(internal quotation marks and citation omitted). The doctrine
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 11 of 14
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`“does not prohibit using conditions to control use of
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`copyrighted material, but it does prevent copyright holders from
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`using the conditions to stifle competition.” Id. at 1159. The
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`Ninth Circuit has “applied the doctrine sparingly.” Id. at
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`1157.
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`Philips, relying on Triad Systems Corporation v.
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`Southeastern Express Company, 64 F.3d 1330 (9th Cir. 1995),
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`argues Advanced has failed to state a claim for copyright
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`misuse. Mot. at 4. In Triad, the plaintiff designed computers
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`for use in the automotive industry and licensed unique
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`diagnostic software to service those computers. Id. at 1333.
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`The defendant was an independent service organization that
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`serviced Triad computers. Id. Triad sued the defendant for
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`copyright infringement based on its unauthorized use of their
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`diagnostic software. Id. The Ninth Circuit rejected
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`defendant’s copyright misuse claim because “Triad did not
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`attempt to prohibit [the defendant] or any other [independent
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`service organization] from developing its own service software
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`to compete with Triad.” Id. at 1337. Philips argues that
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`Advanced fails to state a claim for misuse as it does not allege
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`“Philips conditions licensure of its copyrights on terms that
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`prevent [Advanced] or anyone else from developing, offering, or
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`using software (i.e. diagnostic software) that competes with
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`Philips’.” Mot. at 5.
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`Philips again misconstrues Advanced’s claim. Advanced’s
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`misuse claim is not premised on Philips’ failure to issue it a
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`license to its software or placing conditions on its licenses.
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`Opp’n at 14. Rather, Advanced alleges that Philips has
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 12 of 14
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`“leveraged the limited monopoly granted by its copyrights on
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`certain aspects of its software in order to restrict access to
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`all systems in its CT and MRI machines – whether legitimately
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`protected or not.” Opp’n at 13. In other words, Advanced
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`alleges that Philips locked Advanced and other ISOs out of its
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`systems in order to prevent competition in the servicing market
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`under the guise of protecting their copyrighted material. Thus,
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`Advanced claims Philips leveraged its limited monopoly on its
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`diagnostic software to control an area outside this monopoly —
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`the ability to service Philips machines. Unlike in Triad, this
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`would prevent the ISOs from developing their own servicing
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`software to compete with Philips, as such software would be
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`useless without access to the systems to use it. This is
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`sufficient to state a claim of copyright misuse. See Omega S.A.
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`v. Costco Wholesale Corp., 776 F.3d 692, 705 (9th Cir. 2015)
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`(Wardlaw, J., concurring) (noting that if Apple placed a few
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`lines of programming code from its copyrighted software onto a
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`piece of computer hardware that was not entitled to intellectual
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`property protection, with the express purpose of using its
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`copyright to restrict competing retailers from selling that
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`hardware at discounted prices, that would constitute copyright
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`misuse); see also Philips N. Am., LLC v. Summit Imaging Inc.,
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`No. C19-1745-JLR, 2020 WL 6741966, at * 8 (W.D. Wash. Nov. 16,
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`2020) (finding ISO had stated a copyright misuse claim by
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`alleging Philips enforced its copyrights with the intent to
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`exclude competition in the market for service and repairs). As
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`such, the Court declines to dismiss Advanced’s copyright misuse
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`counterclaim.
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 13 of 14
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`3.
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`Noerr-Pennington Doctrine
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`The Noerr-Pennington doctrine derives from the First
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`Amendment’s guarantee of “the right of the people [. . .] to
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`petition the Government for a redress of grievances.” U.S.
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`Const. amend. I. “Under the Noerr-Pennington doctrine, those
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`who petition any department of the government for redress are
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`generally immune from statutory liability for their petitioning
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`conduct.” Sosa v. DIRECTV, Inc., 437 F.3d 923, 929 (9th Cir.
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`2006). “However, where a party engages in ‘sham’ petitioning,
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`Noerr-Pennington immunity does not apply.” Meridian Project
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`Sys., Inc. v. Hardin Const. Co., LLC, 404 F.Supp.2d 1214, 1220
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`(E.D. Cal. 2005). “The ‘sham’ litigation exception exempts from
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`Noerr-Pennington immunity activity ‘ostensibly directed toward
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`influencing governmental action’ that ‘is a mere sham to cover
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`[. . .] an attempt to interfere directly with the business
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`relationships of a competitor.’” Id. (quoting E. R.R.
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`Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S.
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`127, 144 (1961)).
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`Philips reliance on the Noerr-Pennington doctrine does not
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`alter the Court’s analysis. Philips has “not done it justice by
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`making what is effectively a passing reference to it in their
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`briefs, and the Court declines to take it up in that
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`underdeveloped form.” Shen v. Albany Unified Sch. Dist., 3:17-
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`cv-02478-JD, 2018 WL 4053482, at *4 (N.D. Cal. Aug. 24, 2018).
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`Philips bears the burden on its motion to dismiss, and it has
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`failed to carry it here. Estate of Osuna v. Cty. of Stanislaus,
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`392 F.Supp.3d 1162, 1179 (E.D. Cal. 2019) (finding defendant’s
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`insufficient briefing on an issue did not support dismissal).
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`Case 2:21-cv-00876-KJM-AC Document 111 Filed 04/18/22 Page 14 of 14
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`4.
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`California Unfair Competition Law
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`The parties agree Advanced’s California Unfair Competition
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`Law (“UCL”) counterclaim is dependent on, and correlates, with
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`the federal claims. See Mot. at 15; Opp’n at 15. Because
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`Advanced’s federal counterclaims survive, so too does the UCL
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`counterclaim. See Sidibe v. Sutter Health, No. 12-cv-04854,
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`2021 WL 879875, at *10 (N.D. Cal. Mar. 9, 2021) (“The UCL claim
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`survives to the extent that the underlying claims survive.”).
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`III.
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`ORDER
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`For the reasons set forth above, the Court DENIES Philips’
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`Motion to Dismiss Defendants’ counterclaims.
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`IT IS SO ORDERED.
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`Dated: April 15, 2022
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