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From Antitrust Law Daily, February 12, 2016

‘Irritant projectile’ supplier proceeds with monopolization claims

By Greg Hammond, J.D.

An irritant projectile seller could move forward with monopolization counterclaims based on allegations that a competitor filed a trademark infringement suit against certain companies and entered into settlements in which the competitor paid the companies to secure agreements not to compete. The federal district court in San Francisco denied a motion to dismiss the monopolization counterclaims, concluding that the irritant projectile seller adequately alleged that the settlement agreements were not reasonably related to the underlying trademark infringement litigation (United Tactical Systems, LLC v. Real Action Paintball, Inc., February 10, 2016, James, M.).

United Tactical Systems, LLC (UTS) and Real Action Paintball, Inc. sell irritant filled projectiles—non-lethal capsules that contain a pepper substance and can be shot like paintballs. UTS filed suit against Real Action in Indiana, alleging that Real Action infringed on its “PepperBall” trademark by making statements implying that Real Action sold PepperBall projectiles. Advanced Tactical Ordnance Systems, LLC (ATO) is UTS’ successor in interest. Real Action filed various counterclaims against ATO, Circle Projectiles LLC, and Tiberius Arms, LLC, including a claim for monopoly and combination in restraint of trade under the Sherman Act. The counter-defendants moved to dismiss the Sherman Act claims.

Objectively baseless Indiana litigation. Real Action alleged that the lawsuit in Indiana federal court was objectively baseless because the alleged monopolists: (1) misled the Indiana Court; (2) did not own the mark they claimed to own; (3) had no evidence of any kind that Real Action or other companies ever unlawfully sold irritant projectiles bearing the PepperBall mark; (4) did not own the trade secret they claimed to own; and (5) lacked jurisdiction to sue Real Action in Indiana. The court rejected all five arguments, first finding that ATO’s mistake in filing its claims against Real Action in Indiana did not undermine the reasonableness of the actual merits of ATO’s claims. With regard to the second, third, and fourth claims, the court found that Real Action did not show that ATO lacked probable cause to bring suit against Real Action and other companies. Rather, the Indiana court and the court in this action found that ATO was likely to succeed on several of its claims against Real Action. Lastly, the first point—indicating that ATO concealed information from the Indiana Court—was not adequately explained and lacked plausibility at the current stage of litigation. The motion to dismiss the Sherman Act counterclaims was therefore granted to the extent they were based on these five claims.

Noerr-Pennington doctrine. Real Action also alleged that while ATO sued other companies—Apon International, Conrad Sun and Sun LLC—in the underlying Indiana Action, ATO ended up settling, but paid those defendants instead of the other way around. In particular, ATO allegedly agreed to pay Apon to stay out of the irritant projectile market for 10 years and Sun to “get out of the business” and breach its contract with Real Action.

The allegations indicate that the Apon and Sun settlement agreements prevent these companies from competing in the market against ATO or from working with Real Action Paintball as it attempts to compete with ATO, according to the court. Taking the facts as true—that ATO paid Apon and Sun to secure their agreements not to compete—the court concluded that Real Action plausibly alleged that at least some terms in the Apon and Sun settlement agreements and related agreed-on conduct went beyond ATO’s petitioning activities and its claim in the Indiana Action. Because the court could not find that the counter-defendants’ alleged conduct related to the Apon and Sun settlement agreements sufficiently related or were incidental to ATO’s petitioning activities in the Indiana Action, the Noerr-Pennington doctrine did not bar Real Action’s related antitrust claims.

The case is No. 14-cv-04050-MEJ.

Attorneys: John Christopher Kirke (Donahue Fitzgerald LLP) and Michael Lawrence Blumenthal (Milton M. Blumenthal and Associates) for United Tactical Systems, LLC. B. Douglas Robbins (Wood Robbins LLP) and Paul B. Overhauser (Overhauser Law Offices LLC) for Real Action Paintball, Inc.

Companies: United Tactical Systems, LLC; Real Action Paintball, Inc.

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