The U.S. Court of Appeals for the Ninth Circuit affirmed the lower court’s dismissal of antitrust claims; finding that in the claims in issue were compulsory counterclaims that the defendant had failed to plead in response to a prior patent infringement lawsuit. The Court held that Destiny Tool failed to satisfy the pleading requirements for malicious prosecution and abuse of process under Ohio law. Destiny Tool v. SGS Tools Company, Case No. 07-17109, 2009 WL 2700319 (9th Cir., Aug. 27, 2009) (per curiam)(non-precedential)

SGS, Dauphin and Destiny manufacture and sell precision-cutting drill heads. In 2004, SGS and Dauphin filed a patent infringement suit against Destiny with respect to its “Improved Cutting Tool.” After district court in Cleveland, Ohio, granted Destiny’s motion to dismiss the case with prejudice, Destiny countered with claims against SGS and Dauphin in the Northern District of California for malicious prosecution, abuse of process, monopolization and attempted monopolization. Destiny claimed $2 million in damages in addition to attorneys’ fees because of the initial patent infringement claim. The U.S. District Court for the Northern District of California dismissed Destiny’s suit; Destiny appealed.

The parties disputed whether Ohio or California law governed the malicious prosecution and abuse of process claims. While acknowledging the state of California’s interest in protecting its citizens from unwarranted and harassing litigation, the Ninth Circuit nevertheless concluded that Ohio’s interests in limiting malicious prosecution and abuse of process claims “would be more severely impaired” if Ohio law was not applied in this case. This choice-of-law decision doomed Destiny’s claims because Destiny admittedly did not adequately plead the more stringent elements for either claim under Ohio law.

The Ninth Circuit next addressed whether Destiny’s antitrust counterclaims were compulsory or permissive in the Ohio patent infringement case, an issue unresolved by the Sixth Circuit and divided among the other circuits. The Ninth Circuit applied the Sixth Circuit’s “logical relationship” test (Sanders v. First Nat’l Bank & Trust Co. in Great Bend), which asks “whether the issues of law and fact raised by the claims are largely the same and whether substantially the same evidence would support or refute both claims.” The Ninth Circuit held that because the antitrust and patent claims raised the same legal, factual and evidentiary issues, the antitrust claims were logically related to the underlying patent claim and, therefore, compulsory. The Ninth Circuit admonished Destiny for “sleeping on its rights” by not filing the antitrust counterclaims until more than a year after the Ohio patent case was filed.

Practice Note: Destiny Tool v. SGS Tools Company is an important reminder that there is significant ambiguity concerning whether antitrust claims are compulsory if they relate to the patents at issue in a patent infringement action. A defendant in a patent infringement case should consider whether it has any potential antitrust claims against the plaintiff(s) and, based on the case law in the circuit in which the lawsuit is filed, should evaluate whether those claims are best brought as counterclaims to the patent infringement case.