Case 9:19-cv-81263-RS Document 163 Entered on FLSD Docket 09/21/2020 Page 1 of 10
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`Plaintiffs,
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF FLORIDA
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`CASE NO. 19-CV-81263-SMITH/MATTHEWMAN
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`PHILIPS NORTH AMERICA, LLC, et al.,
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`v.
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`626 HOLDINGS, INC., et al.,
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`Defendants.
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`_____________________________________/
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`DEFENDANTS’ REPLY IN SUPPORT OF MOTION FOR LEAVE TO AMEND THEIR
`AFFIRMATIVE DEFENSES AND ASSERT COUNTERCLAIM [D.E. 132]
`Defendants, 626 Holdings, Inc., and Alexander Kalish (“Defendants”), file their Reply in
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`support of their Motion for Leave to Amend [D.E. 143] (the “Motion”), and state:
`In Plaintiffs’ Opposition to Defendants’ Motion for Leave to Amend Their Affirmative
`Defenses and Assert Counterclaim [D.E. 150] (the “Response”), Plaintiffs claim Defendants
`should not be permitted to amend their affirmative defenses or assert a counterclaim because of
`the timing of the motion, and because they claim the counterclaim is futile. Plaintiffs arguments
`fail because: (1) under Rule 15(a), leave to amend should be freely given, particularly when the
`request for leave to amend occurs before the close of discovery and any prejudice can be avoided
`by allowing additional time for discovery, (2) Defendants did not unduly delay in filing the
`motion, but learned of the relevant information through the course of discovery and asserted their
`counterclaim promptly, (3) there is no undue prejudice to Plaintiffs, and any minimal prejudice
`can be avoided by extending discovery for a short period of time, and (4) the claims in the
`counterclaim all properly assert claims that are not subject to dismissal as a matter of law.
`A.
`Leave to Amend Should be Freely Given Under Rule 15(a).
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`Contrary to Plaintiffs’ claim, the Scheduling Order, not the accompanying docket text,
`controls, and under the Scheduling Order, there is no listed deadline for Defendants to amend
`their affirmative defenses or file a counterclaim. Scheduling Order, [D.E. 24]. Plaintiffs admit
`the Scheduling Order does not contain a deadline for amending defenses or raising a
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`Case 9:19-cv-81263-RS Document 163 Entered on FLSD Docket 09/21/2020 Page 2 of 10
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`counterclaim. Response at 1. Instead, Plaintiffs claim that the docket text, not the Scheduling
`Order, stated “Amended Pleadings due by 4/1/2020.” Id. However, the docket text is not the
`order. In re Champion, 600 B.R. 459, 469 (Bankr. S.D. Ga. 2019) (finding docket entry that
`incorrectly stated a deadline in the filed consent order did not control or overrule the language in
`the consent order). Accordingly, because the Motion is not brought after the expiration of a
`deadline in the Scheduling Order, Rule 15(a), rather than Rule 16(b), applies, and Plaintiffs’
`arguments regarding good cause miss the mark.
`B.
`Defendants Did not Unduly Delay in Filing the Motion.
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`Defendants’ motion was filed less than one year after this case was filed, and before the
`close of discovery. Cases, including those cited by Plaintiffs, in which undue delay has been
`found under Rule 15(a) involve multiple years of delays without excuse. In re Engle Cases, 767
`F.3d 1082, 1119–20 (11th Cir. 2014) (“Thus, we affirm the District Court's conclusion that the
`years of unjustified delay and obfuscation stripped plaintiffs’ counsel of whatever rights to
`amendment that they might have had if they had brought the defects to the court's attention in a
`timely fashion” when the cases were pending for four years); Tampa Bay Water v. HDR Eng'g,
`Inc., 731 F.3d 1171, 1187 (11th Cir. 2013) (more than two years after the case was filed).
`Defendants’ Motion was filed less than a year after the Complaint was filed, immediately after
`(and during) a very active period of discovery, and shortly after new counsel was retained.
`Defendants did not unduly delay.
`Plaintiffs spend much of the Response arguing that the timing of the Motion is later than
`it should have been as a result of Defendants’ purported own lack of diligence. Response, 1-8.
`However, the Protective Order, which was necessary for Plaintiffs to produce the many of the
`most relevant documents in this case, was not entered until February 6, 2020. [D.E. 29]
`Defendants served their first discovery requests shortly thereafter, on March 4, 2020. See
`Response, ex. A. As Plaintiffs state in the Response, Plaintiffs have continued producing
`documents on a rolling basis through September, and the parties did not take depositions until
`July and August, when nine depositions took place.1 Response at 2.
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`1 Plaintiffs suggestion that the Motion is somehow a contradiction of the statements in the
`parties’ joint request to extend discovery deadlines, filed on August 28, is misplaced. Response
`at 2-3. Beyond the fact that Defendants informed Plaintiffs of their intent to file the Motion
`before the joint request, the language quoted by Plaintiffs states that the requested extension of
`the discovery time period was not intended to allow a party “to assert new claims absent leave of
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`In the Motion, Defendants identified four categories of information of which they had
`recently obtained information sufficient to amend their affirmative defenses and assert the
`Counterclaim. As to topics (a) and (c) in the Motion, while Defendants may have suspected
`some of the allegations of their proposed Counterclaim (for example, the fact that Plaintiffs have
`contracts with many of their customers), it was not until discovery that the details of these
`contracts and arrangements were identified in further detail. Defendants are still attempting to
`obtain documents from Plaintiffs on these subjects. See September 17, 2020 Email to Opposing
`Counsel On Agreements, attached as Exhibit C. As to topic (b), related to Plaintiffs’ failures to
`take reasonable steps to protect their trade secrets, Defendants have learned of Plaintiffs’ failures
`through their own investigations as well as discovery in this case, and indeed, they are still
`attempting to obtain information about the steps Plaintiffs took to allegedly protect their trade
`secret and still obtaining new information even after filing the Motion. See Plaintiffs’ Objections
`and Responses to Defendant 626 Holdings, Inc.’s Amended Third Set of Interrogatories to
`Plaintiffs, served on September 15, 2020, attached as Exhibit D. Finally, as to topic (d), the
`numerous lawsuits filed by Plaintiffs, those lawsuits are ongoing and additional documents
`related to Plaintiffs’ anticompetitive behavior have been filed or provided in discovery since the
`beginning of this case. E.g., Counterclaim asserting antitrust claims against several of Plaintiffs
`in Philips Medical Systems Nederland B.V., et al. v. TEC Holdings, Inc., f/k/a Transate
`Equipment Company, Inc., et al., Case No. 3:20-cv-0021-MOC-DCK, (W.D. N.C.) filed on
`April 30, 2020 and attached as Exhibit E.
`Defendants learned of the information that led to the Motion throughout the summer of
`2020, and it took some time to review the information and prepare amended affirmative defenses
`and a counterclaim. Defendants filed the Motion on August 31, 2020, less than a year into this
`litigation. Defendants did not unduly delay in filing their motion.
`C.
`Plaintiffs Will Not Be Prejudiced By the Timing of the Proposed Amended
`Affirmative Defenses and Counterclaim.
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`Plaintiffs claim they will be prejudiced if Defendants are permitted to amend their
`affirmative defenses and to assert the counterclaim. There will be no undue prejudice, however.
`Trial is not set until the end of March 2021. All pretrial deadlines can be extended 60 days
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`court.” Response at 2-3; Emails between counsel, attached as Exhibits A and B. The Motion is a
`request for leave of court to assert claims, exactly as provided by the joint request.
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`without affecting the trial date, but, the reality is that given the existing, unprecedented
`circumstances in which jury trials are currently suspended because of a global pandemic, a civil
`jury trial for what the parties estimated to be a trial that lasts more than one week (D.E. 20 at 3)
`may not be able to proceed in March 2021 regardless of whether Defendants amend. Defendants
`filed their Motion with more than four weeks left before the extended deadline for discovery.
`Any possible prejudice to Plaintiffs is remedied by extending the deadlines by sixty days to
`allow Plaintiffs to take whatever discovery they believe is necessary. Williams v. R.W. Cannon,
`Inc., 2008 WL 2229538, at *2 (S.D. Fla. May 28, 2008) (no prejudice when motion to amend
`affirmative defenses filed six weeks before the close of discovery); McDaniel v. Bradshaw, 2011
`WL 1827731, at *2 (S.D. Fla. May 12, 2011) (granting motion to amend and, “[i]n order to avoid
`any prejudice to any party, the Court will extend the deadlines and trial setting by a few
`weeks.”).
`Plaintiffs’ basis for opposing Defendants’ amendments to their affirmative defenses is
`even less compelling. Plaintiffs’ decision to not seek further discovery on the existing
`affirmative defenses, even though they considered it deficient, was their own strategic decision,
`and should not act as a bar to Defendants’ ability to defend its case. Response, 9-10. Further, the
`amended affirmative defenses clarify the previous affirmative defenses and for the most part
`involve the same subject matter that would have been the subject of Plaintiffs’ discovery:
`Original Affirmative Defenses
`Proposed Amended Affirmative Defenses
`1. Failure to State a Claim
`1. Failure to State a Claim
`2. Untimely Assertion of Claims and
`2. Statute of Limitations
`Assumption of Risk, including laches, waiver,
`4. Waiver – failure to take reasonable measures
`ratification, estoppel, consent, duty to mitigate,
`to protect trade secrets/consent
`failure to investigate, statute of limitations
`5. Estoppel – failure to take reasonable
`measures to protect trade secrets
`6. Waiver – failure to take reasonable measures
`to protect software security
`7. Estoppel – failure to take reasonable
`measures to protect software security
`8. Failure to mitigate damages
`13. Preemption – § 688.008 (Florida Uniform
`Trade Secrets Act)
`14. Preemption – § 17 USC 301(a) (Copyright
`Act), and federal regulations, including 21
`C.F.R. § 1020.30
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`3. Preemption pursuant to 21 C.F.R. § 1020.30,
`§ 17 USC 301(a) (Copyright Act), § 688.008
`(Florida Uniform Trade Secrets Act)
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`Case 9:19-cv-81263-RS Document 163 Entered on FLSD Docket 09/21/2020 Page 5 of 10
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`4. Lack of Standing
`5. Apparent agency/authority, estoppel, license,
`release and ratification due to the conduct of
`Plaintiffs’ agents
`6. Illegality and Fair Use
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`15. Lack of Standing
`12. License, express or implied, to perform
`repairs under contracts
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`10. Copyright Misuse
`11. Copyright Invalidity
`16. First Sale Doctrine
`17. Permitted Copies under 17 U.S.C. § 117
`18. Fair Use Doctrine 
`3. In pari delicto
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`9. Setoff
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`7. Unclean Hands – delay
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`8. Failure to Join Indispensable Parties,
`Recoupment, Setoff and Apportionment to
`avoid Double Recovery
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`Plaintiffs have already had an opportunity to take discovery on the subjects of
`Defendants’ amended affirmative defenses, and any possible prejudice can be remedied by
`extending discovery to allow Plaintiffs to take additional discovery. To be sure, resolving the
`counterclaims in the present litigation will cause less time, money and effort than litigating the
`substance of the counterclaim in a separate lawsuit.
`D.
`The Proposed Counterclaim Is Not Futile.
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`“As for Defendant’s argument that the amendment is futile, the Eleventh Circuit has
`consistently recognized that an amendment to a complaint is only futile when the amended
`complaint would be subject to dismissal as a matter of law.” Travelers Cas. & Sur. Co. of Am. v.
`Madsen, Sapp, Mena, Rodriguez & Co., P.A., 2008 WL 11399642, at *1 (S.D. Fla. Jan. 31,
`2008). Plaintiffs do not argue the proposed amended affirmative defenses are futile. As to the
`proposed Counterclaim, none of the counts are subject to dismissal as a matter of law.
`Counts I and II of the Counterclaim allege illegal tying arrangements in violation of
`section 1 of the Sherman Act. “A tying arrangement is ‘an agreement by a party to sell one
`product but only on the condition that the buyer also purchases a different (or tied) product, or at
`least agrees that he will not purchase that product from any other supplier.’” Eastman Kodak Co.
`v. Image Tech. Servs., Inc., 504 U.S. 451, 461-62 (1992) (quoting Northern Pacific R. Co. v.
`United States, 356 U.S. 1, 5-6 (1958)). A tying “arrangement violates § 1 of the Sherman Act if
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`the seller has ‘appreciable economic power’ in the tying product market and if the arrangement
`affects a substantial volume of commerce in the tied market.” Id.
`For Count I, Plaintiffs argue that the license agreement that limits competition in the
`market for service and repair of Philips-manufactured medical devices cannot constitute a tying
`arrangement. However, “[t]he question of whether a given product constitutes a separate market
`is a question of fact.” Thompson v. Metro. Multi-List, Inc., 934 F.2d 1566, 1574 (11th Cir. 1991).
`When considering a motion for leave to amend, the court is limited to considering whether the
`proposed amendment “would be subject to dismissal as a matter of law,” which forecloses
`factual questions. Travelers Cas., 2008 WL 11399642, at *1.
`For Count II, Plaintiffs’ argument consists of complaining that the factual allegations,
`which state: “Philips sells its medical devices, in many cases, on the condition that the buyer also
`purchase servicing agreements in which Philips provides maintenance and repairs services,
`creating a tying arrangement,” do not identify the persons with whom Plaintiffs have created the
`tying arrangement. Response at 11; Counterclaim, ¶ 41. Plaintiffs’ argument fails because
`Defendants are not required, at the pleading stage, to prove their case. Rather, Defendants must
`allege sufficient facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678
`(2009). The allegations in Count II are not mere formulaic recitations of the elements of a cause
`of action, they are factual allegations supporting each element of the cause of action. At trial,
`Defendants will need to prove the specific persons with whom the tying arrangements were
`made, but not at the motion to amend stage.
`Additionally, Plaintiffs argue that Count II lacks allegations of coercion, however, this
`argument is simply inaccurate. Response at 11-12. Defendants specifically allege: “Philips
`control over the market has excluded competition, raised prices, and forced unwilling
`consumption of Philips’ service.” Counterclaim, ¶ 48 (emphasis added). Additionally,
`Defendants allege Plaintiffs use their market power to impose high costs of entry and restrict
`access to significant portions of the software necessary to perform repairs, limiting the ability of
`competitors to enter give customers an alternative to Plaintiffs. Id. at ¶¶ 46-47. This is more than
`sufficient to allege coercion in a tying arrangement. Tic-X-Press, Inc. v. Omni Promotions Co. of
`Georgia, 815 F.2d 1407, 1418 (11th Cir. 1987) (“While it is true that the district court did not
`find any direct evidence attesting to the fact that the appellants put a gun to the head of
`promoters, the courts have never required direct evidence of coercive behavior to prove a tying
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`violation. It is well established that coercion may be established by showing that the facts and
`circumstances surrounding the transaction as a practical matter forced the buyer into purchasing
`the tied product.”).
`Plaintiffs also argue that Count II does not contain allegations that Plaintiffs have market
`power “vis-à-vis other manufacturers.” Response at 12. However, other manufacturers are
`irrelevant to Count II. The relevant market in Count II is “Philips-manufactured medical
`devices.” Counterclaim ¶ 40. In Eastman Kodak, the Supreme Court found tying arrangements in
`just this type of market, where the market was for service and repair of Eastman Kodak-
`manufactured photocopiers and micrographic equipment. 504 U.S. at 462-63. Eastman Kodak’s
`tying arrangement was to limit competition from independent service organizations (“ISOs”),
`much like Plaintiffs’ actions in this case. Id. at 455. Similarly, the relevant market in this case is
`service and repair of “Philips-manufactured medical devices,” which is a sufficient market under
`Eastman Kodak.
`Plaintiffs argue that Count III should be dismissed because it is derivative of Counts I and
`II. However, because Counts I and II are not subject to dismissal as a matter of law, Count III
`likewise is not subject to dismissal as a matter of law.
`Plaintiffs argue Counts IV and V do not include sufficiently specific allegations of
`exclusionary conduct. Response at 12. However, both Counts IV and V contain more than
`sufficient factual allegations. In Count IV, Defendants allege (1) purchasers of Philips-
`manufactured medical devices must necessarily purchase maintenance and repair services
`(Counterclaim ¶ 56), (2) because of the high cost of the purchase of or switching from Philips-
`manufactured medical devices, Plaintiffs are able to lock in purchasers into purchasing their
`maintenance and repair services and limited access to competing products (Id. at ¶ 57), (3)
`because parts are not interchangeable between medical devices from different manufacturers,
`purchasers and independent services organizations (“ISOs”) like 626 Holdings cannot obtain
`parts from persons other than Plaintiffs or companies approved by Plaintiffs (Id. at ¶ 58), (4)
`Plaintiffs limit access to information related to maintenance and repair, even as to basic (and
`federally mandated) AIAT information (Id. at ¶ 59), (5) Plaintiffs use the lock in effect,
`combined with control over parts, software and information, to prevent ISOs like 626 Holdings
`from competing, creating an unlawful monopoly (Id. at ¶ 60). Count V includes the same
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`allegations, incorporated from Count IV. Because both claims include numerous factual
`allegations, and not legal conclusions, neither claim is subject to dismissal as a matter of law.
`Finally, in Count VI, Plaintiffs argue that Defendants’ claim fails because it would
`penalize them for bringing copyright infringement claims. This argument misses the point of
`Count VI. Copyright misuse is an equitable doctrine applied when a party attempts to use the
`limited monopoly granted by the Copyright Office to extend the monopoly to property not
`covered by the copyright. Home Design Servs., Inc. v. Park Square Enterprises, Inc., 2005 WL
`1027370, at *11 (M.D. Fla. May 2, 2005). In the form of a request for declaratory relief, courts
`have permitted claims for declarations of copyright misuse. Elec. Data Sys. Corp. v. Computer
`Assocs. Int'l, Inc., 802 F. Supp. 1463, 1465 (N.D. Tex. 1992) (permitting claim in case involving
`allegations of copyright misuse related to software). Count VI seeks a declaration of copyright
`misuse because Plaintiffs are using the copyrighted software to make it impossible to repair
`Philips-manufactured medical devices without accessing the copyrighted software, limiting who
`is permitted to access the software, and bringing suits against persons who attempt to repair the
`medical devices outside of Plaintiffs’ control. Counterclaim, ¶¶ 73-76. In other words, Plaintiffs
`are using the limited monopoly over the software granted under the Copyright Act to create an
`unlawful monopoly over the market of maintenance and repair of Philips-manufactured medical
`devices. Id. at ¶¶ 76-77. This is sufficient to state a claim that is not subject to dismissal as a
`matter of law.
`Regardless, Plaintiffs will have a full opportunity to file a Rule 12(b)(6) motion if the
`amendment is allowed. But, certainly, the counterclaim is not “futile.”
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`Case 9:19-cv-81263-RS Document 163 Entered on FLSD Docket 09/21/2020 Page 9 of 10
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`CERTIFICATE OF SERVICE
`I HEREBY CERTIFY that on September 21, 2020, a true and correct copy of the
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`foregoing was served on all counsel of record via the Court’s CM/ECF system.
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`GUNSTER, YOAKLEY & STEWART, P.A.
`Attorneys for Defendants
`450 East Las Olas Boulevard, Suite 1400
`Fort Lauderdale, FL 33301
`Telephone:
`954-462-2000
`Facsimile:
`954-523-1722
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`By: /s/ Michael W. Marcil
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`Michael W. Marcil, Esq.
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`Florida Bar No.: 091723
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`mmarcil@gunster.com
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`Jennifer Nicole, Esq.
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`Florida Bar No.: 00114578
`jnicole@gunster.com
`Jonathan K. Osborne, Esq.
`josborne@gunster.com
`Florida Bar No.: 95693
`John Terwilleger, Esq.
`Florida Bar No. 107095
`jterwilleger@gunster.com
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`Case 9:19-cv-81263-RS Document 163 Entered on FLSD Docket 09/21/2020 Page 10 of 10
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`SERVICE LIST
`
`
`Christopher T. Kuleba
`ckuleba@reedsmith.com
`REED SMITH LLP
`1001 Brickell Bay Drive, 9th Floor
`Miami, Florida 33131
`Telephone: (786) 747-0200
`
`Kirsten R. Rydstrom
`krydstrom@reedsmith.com
`Richard A. Graham
`rgraham@reedsmith.com
`Christopher R. Brennan
`cbrennan@reedsmith.com
`REED SMITH LLP
`225 Fifth Avenue
`Pittsburgh, PA 15222
`Telephone: (412) 288-3131
`
`Gerard M. Donovan
`gdonovan@reedsmith.com
`REED SMITH LLP
`1301 K Street, N.W., Suite 1000 – East Tower
`Washington, DC 20005
`Telephone: (202) 414-9224
`
`Counsel for Plaintiffs
`
`AXS LAW GROUP, PLLC
`2121 NW 2nd Ave, Suite 201
`Miami, Florida 33127
`Telephone: (305) 297-1878
`Jeffrey W. Gutchess, Esq.
`Florida Bar No. 702641
`jeff@axslawgroup.com
`
`Joshua A. Shore, Esq.
`Florida Bar No. 031894
`josh@axslawgroup.com
`
`Andrew E. Beaulieu
`Florida Bar No. 115097
`andy@axslawgroup.com
`eservice@axslawgroup.com
`
`Counsel for Defendants
`
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`ACTIVE 12445236.2
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