The United States District Court for the District of Oregon recently refused to dismiss antitrust counterclaims against a plaintiff who allegedly brought misappropriation of trade secrets claims against its competitor in bad faith.
The plaintiff, Edwards Vacuum, LLC (“Edwards”), sued its supplier and competitor, Hoffman Instrumentation Supply, Inc. (“HIS”), and five former employees of Edwards for misappropriation of trade secrets, breach of contract, and several related claims.
In response, HIS filed antitrust counterclaims alleging violations of Section 2 of the Sherman Act, 15 U.S.C. § 2. According to the counterclaim, Edwards deployed several tactics, including “bad faith litigation,” to maintain its monopoly power and prevent HIS’s market entry into the integrated vacuum pump frame systems market. Specifically, HIS claimed that Edwards brought meritless trade secrets claims to (1) retaliate against HIS for hiring Edwards’s employees, (2) raise HIS’s costs, and (3) chill demand for HIS’s competitive products.
Edwards moved to dismiss, arguing that the Noerr-Pennington doctrine—which protects private litigants seeking to enforce laws with anticompetitive effects from antitrust liability—immunized Edwards’s lawsuit.
Edwards first filed suit in September 2020 and moved for a preliminary injunction two months later to enjoin HIS from making, selling, offering to sell, shipping, or otherwise using any product containing Edwards’s asserted trade secrets. Edwards later amended its complaint to include breach of contract claims, and on February 12, 2021, Edwards narrowed the scope of its preliminary injunction motion to the breach claims only. After a hearing on the breach claims, the court granted Edwards’s motion for a preliminary injunction as to the breach of contract claims.
The issue before the court on Edwards’s subsequent motion to dismiss was whether Edwards’s partially successful preliminary injunction motion precluded the “sham exception” to the Noerr-Pennington doctrine.
Under the “sham exception,” objectively baseless claims are not protected by Noerr-Pennington immunity where the suit operates as a concealed attempt to interfere with the plaintiff’s business relationships. Here, the court held that HIS successfully pleaded that the “trade secrets” identified in Edwards’s disclosures were “such basic engineering techniques and common industry knowledge that no reasonable person in Edwards’s position could have genuinely believed them to be trade secrets,” and that in any event, Edwards made no effort to maintain the confidentiality of its engineering techniques.
On these allegations, the court denied Edwards’s motion to dismiss HIS’s antitrust counterclaims. In doing so, the court specifically rejected Edwards’s claim that because Edwards prevailed on its preliminary injunction motion alleging breach of contract, it could skirt the “sham exception” to Noerr-Pennington immunity.
The court cautioned that it would not be “smooth sailing” for HIS going forward. It warned that it was “possible” that if Edwards’s trade secret claims could withstand summary judgment, that would spell the end of HIS’s antitrust counterclaims. Given the threat of complex discovery on the antitrust claim, the court bifurcated HIS’s antitrust counterclaims pending the outcome of Edwards’s claims and HIS’s unrelated counterclaim.
In the end, although the “sham exception” can be a powerful tool in overcoming Noerr-Pennington immunity, the Edwards decision teaches that defendants will have a difficult time forestalling discovery on trade secrets claims by filing antitrust counterclaims.
Edwards Vacuum, LLC v. Hoffman Instrumentation Supply, Inc., No. 3:20-cv-1681-SI, 2021 WL 3721818 (D. Or. Aug. 23, 2021).