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SYNCSORT INC. v. SEQUENTIAL SOFTWARE

January 28, 1999

SYNCSORT INCORPORATED, PLAINTIFF,
v.
SEQUENTIAL SOFTWARE, INC., DEFENDANT.



The opinion of the court was delivered by: Lechner, District Judge.

    OPINION

This is an action commenced by plaintiff and counterclaim defendant Syncsort Incorporated ("Syncsort") against defendant and counterclaim plaintiff Sequential Software, Inc. ("Sequential"). In a complaint (the "Complaint"), filed by Syncsort on 26 February 1998, Syncsort seeks injunctive relief and compensatory and punitive damages for alleged misappropriation of trade secrets, false advertising, breach of contract, copyright infringement and unfair competition. See Complaint. Jurisdiction is alleged pursuant to 28 U.S.C. § 1331, 1338(a) and (b), 15 U.S.C. § 1121 and 28 U.S.C. § 1367. See id. at ¶ 2.

On 8 April 1998, Sequential filed an answer to the Complaint (the "Answer"). See Answer. At that time, Sequential also alleged counterclaims for antitrust violations (the "Antitrust Counterclaim") and false advertising (the "False Advertising Counterclaim") (collectively, the "Counterclaims"). See Counterclaims. Jurisdiction over the Counterclaims is asserted under Fed.R.Civ.P. 13, 15 U.S.C. § 1121(a) and 28 U.S.C. § 1331 and 1367. See id. at ¶ 68.

Currently before the court is the motion (the "Motion") by Syncsort for judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) ("Rule 12(c)"). Alternatively, Syncsort moves, pursuant to Fed.R.Civ.P. 42(b) ("Rule 42(b)"), for severance of the Counterclaims and a stay of discovery as to the counterclaims.*fn1 For the reasons set forth below, the Motion is granted in part, and denied in part.*fn2

Facts*fn3

A. Background

Syncsort is a large international corporation which has its principal place of business in New Jersey. See Complaint at ¶¶ 1, 3. It researches, develops and sells computer sorting programs for corporate data processing customers. See id. at ¶ 3. Syncsort is a leading company in the market for computer sorting software. See Counterclaims at ¶¶ 73, 75; Complaint at ¶ 3. It developed and released to the public a computer sorting product known as "SyncSort/UNIX."*fn4 See Complaint at ¶ 3.

Sequential is a two-person software company also existing under the laws of New Jersey; it researches, develops and sells competing computer sorting programs. See id. at ¶ 4; Answer and Counterclaims at ¶¶ 4, 69, 73. Sequential recently released for sale a new computer sorting product called "PdqSort." See Answer and Counterclaims at ¶¶ 13, 14, 70.

According to Syncsort, the advanced sorting and operational algorithms and optimization for the various computer platforms for which Syncsort sorting packages are offered (collectively, the "Information") are trade secrets, except insofar as they are covered by issued patents. See Complaint at ¶ 5. To ensure confidentiality of the Information, Syncsort requires customers seeking to license or evaluate its sorting products to sign a licensing agreement (the "Licensing Agreement") and a non-disclosure agreement (the "Non-Disclosure Agreement"). The Licensing Agreement and the Non-Disclosure Agreement contain "strict requirements . . . includ[ing] prohibitions against unauthorized disclosure, strict limitations on who may use Syncsort's software, express prohibitions against reverse engineering, and prohibitions against dissemination of any benchmark or test results." Id. at ¶ 7.

Sometime during the period from 1994 through 1997, Sequential sought to obtain trial copies of the sorting products of Syncsort, including SyncSort/UNIX. See id. at ¶ 8; Answer at ¶ 8. Syncsort advised Sequential that in order to obtain such copies, Sequential would be required to sign the Licensing Agreement. See Complaint at ¶ 8; Answer at ¶ 8. In light of the restrictions in the Licensing Agreement, Sequential declined the trial copies. See Complaint at ¶ 8; Answer at ¶ 8. Sequential then received an unsolicited copy of SyncSort/UNIX but did not sign or otherwise agree to sign the Licensing Agreement. See Answer at ¶ 9. Sequential alleged it received the copy of SyncSort/UNIX from Syncsort. Id.

Sequential denied that upon receiving a copy of SyncSort/UNIX, it reverse engineered or ran benchmark tests on SyncSort/UNIX in order to investigate its methods of operation. See Answer at ¶¶ 10, 11; Complaint at ¶¶ 10, 11. Sequential admitted only that it "ran SyncSort/UNIX." Answer at ¶ 12. Sequential instead contended it had completed the development of the core sorting algorithms and operations used in PdqSort before obtaining a copy of SyncSort/UNIX. See id. at ¶ 13. In fact, Sequential contended it "has been designing and refining PdqSort since 1993." Id. at ¶ 70. Sequential further contended it developed the user interface of PdqSort without copying any part of SyncSort/UNIX. Id. at ¶ 14.

Sequential launched PdqSort in February 1998. See id. at ¶ 70. Also in February 1998, Sequential advertised PdqSort on a site on the Internet (the "Sequential Web Site"). See Complaint at ¶ 16; Opposition Brief at 2. The Sequential Web Site contained benchmark results demonstrating that PdqSort was twice as fast as SyncSort/UNIX. See Opposition Brief at 2; Complaint at ¶ 16.

Syncsort also maintains a web site on the Internet (the "Syncsort Web Site"), accessible to consumers throughout the United States. See False Advertising Counterclaim at ¶ 85. In an advertisement on the Syncsort Web Site (the "Syncsort Web Site Advertisement") concerning SyncSort/UNIX, Syncsort stated:

  `SyncSort is the fastest commercial sort product in
  the world. SyncSort provides unmatched sort
  performance on UNIX systems. It's been proven time
  and time again in benchmark tests . . . [SyncSort
  made] a new world record.'

Id. at ¶ 86 (quoting Syncsort Web Site Advertisement, attached as Exhibit A to Answer and Counterclaims).

Sequential alleged Syncsort recently introduced another sorting software product compatible with Windows NT(R) operating systems that competes with an existing product of Sequential. See id. at ¶ 78. Syncsort, in an advertisement published in ENT Magazine on 18 March 1998 (the "Syncsort Magazine Advertisement"), stated: "`Now the world's fastest sort technology has the friendly face of Windows NT.'" Id. at ¶ 88 (quoting Syncsort Magazine Advertisement, attached as Exhibit B to Answer and Counterclaims). Additionally, in a recent mass mailing (the "Syncsort Mailing Advertisement"), Syncsort stated that it combines the "`world's fastest sort technology'" with a new Windows program. Id. at ¶ 90 (quoting Syncsort Mailing Advertisement, attached as Exhibit C to Answer and Counterclaims). "`Benchmark tests . . . rigorously test SyncSort's design to ensure that it is the fastest and most efficient sort product on every platform.'" Id.

Sequential alleged Syncsort controls the computer sorting market despite the fact that SyncSort is not the fastest sort product. See id. at ¶ 75-76. Sequential also alleged the advertisements (collectively, the "Syncsort Advertisements") professing SyncSort/UNIX to be the fastest sort product are false, deceptive and misleading. See id. at ¶¶ 91-94.

B. Procedural History

As mentioned, Syncsort filed the Complaint on 26 February 1998. See Complaint. On 3 April 1998, pursuant to a scheduling conference and accompanying order (the "3 April 1998 Order"), the time in which Sequential was permitted to answer the Complaint was extended to 8 April 1998. See 3 April 1998 Order. Sequential filed the Answer and Counterclaims on 8 April 1998. See Answer and Counterclaims. Syncsort filed a reply to the Counterclaims (the "Reply to Counterclaims") on 29 April 1998. See Reply to Counterclaims.

Discussion

A. Standard For Dismissal Under Rule 12(c)

A defendant may move to dismiss a complaint or parts of a complaint before or after filing an answer. See Fed.R.Civ.P. 12(b)(6) and (c). A motion made before an answer is filed is a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) ("Rule 12(b)(6)"). A motion made after an answer is filed is a motion for judgment on the pleadings pursuant to Rule 12(c).*fn5 "A defense of failure to state a claim upon which relief can be granted . . . may be made in . . . [a] motion for judgment on the pleadings." See Fed.R.Civ.P. 12(h)(2). In the instant action, the Motion was filed after the Answer and Counterclaims and is based on the argument that the Antitrust Counterclaim and the False Advertising Counterclaim fail to state a claim upon which relief can be granted.

A Rule 12(c) motion for judgment on the pleadings is treated like a motion to dismiss under Rule 12(b)(6). See Fed. R.Civ.P. 12(h)(2); see also Turbe, 938 F.2d at 428; Institute for Scientific Information, Inc. v. Gordon & Breach, Science Pubs. Inc., 931 F.2d 1002, 1006 (3d Cir.), cert. denied, 502 U.S. 909, 112 S.Ct. 302, 116 L.Ed.2d 245 (1991); Britamco Underwriters, Inc. v. C.J.H., Inc., 845 F. Supp. 1090, 1092 (E.D.Pa.), aff'd, 37 F.3d 1485 (3d Cir. 1994); Southmark Prime Plus, L.P. v. Falzone, 776 F. Supp. 888, 891 (D.Del. 1991).

Like Rule 12(b)(6), Rule 12(c) requires the Court "accept the allegations in the complaint as true, and draw all reasonable factual inferences in favor of the plaintiff. [The motion can be granted] only if no relief could be granted under any set of facts that could be proved." Turbe, 938 F.2d at 428 (citing Unger, 928 F.2d at 1394-95); see also Dykes, 68 F.3d at 1565 n. 1; Piecknick, 36 F.3d at 1255; Jordan v. Fox, Rothschild, O'Brien & Frankel, 20 F.3d 1250, 1261 (3d Cir. 1994).

A complaint may be dismissed for failure to state a claim where it appears beyond any doubt that no relief could be granted under any set of facts which could be proved consistent with the allegations. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 811-12, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993); Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Piecknick, 36 F.3d at 1255; ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 (3d Cir. 1994); Ransom v. Marrazzo, 848 F.2d 398, 401 (3d Cir. 1988); Angelastro v. Prudential-Bache Sec., Inc., 764 F.2d 939, 944 (3d Cir.), cert. denied, 474 U.S. 935, 106 S.Ct. 267, 88 L.Ed.2d 274 (1985).

A complaint should not be dismissed unless it appears beyond doubt that "the facts alleged in the complaint, even if true, fail to support the claim." Ransom, 848 F.2d at 401. Legal conclusions made in the guise of factual allegations, however, are given no presumption of truthfulness. See Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) ("[A] court need not credit a complaint's `bald assertions' or `legal conclusions' when deciding a motion to dismiss"); Haase v. Webster, 807 F.2d 208, 215 (D.C.Cir.), vacated on other grounds, 835 F.2d 902 (D.C.Cir. 1987); Briscoe v. LaHue, 663 F.2d 713, 723 (7th Cir.), aff'd, 460 U.S. 325, 103 S.Ct. 1108, 75 L.Ed.2d 96 (1983); Western Mining Council v. Watt, 643 F.2d 618, 626 (9th Cir.), cert. denied, 454 U.S. 1031, 102 S.Ct. 567, 70 L.Ed.2d 474 (1981); Bermingham v. Sony Corp. of Am., 820 F. Supp. 834, 846 (D.N.J.), aff'd, 37 F.3d 1485 (3d Cir. 1994).

A district court reviewing the sufficiency of a complaint has a limited role. "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support his [or her] claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Bermingham, 820 F. Supp. at 846.

Generally, when conducting such an inquiry, material beyond the pleadings should not be considered. See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997); Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir.), cert. denied, 510 U.S. 1042, 114 S.Ct. 687, 126 L.Ed.2d 655 (1994); Wallace v. Systems & Computer Tech. Corp., No. 95-6303, 1997 WL 602808, at *5 (E.D.Pa.23 Sept. 1997); Gannon v. Continental Ins. Co., 920 F. Supp. 566, 574 (D.N.J. 1996).

If the claims are based upon undisputably authentic documents expressly relied upon or integral to the pleadings or matters of public record, however, such documents may be considered. See In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426; In re Westinghouse Sec. Litig., 90 F.3d 696, 707 (3d Cir. 1996); In re Donald Trump Sec. Litig., 7 F.3d 357, 368 n. 9 (3d Cir.), cert. denied, 510 U.S. 1178, 114 S.Ct. 1219, 127 L.Ed.2d 565 (1994); EP Medsystems, Inc. v. Echocath, Inc., 30 F. Supp.2d 726, 740 (D.N.J. 1998); Pension Benefit Guar. Corp., 998 F.2d at 1196; Wallace, 1997 WL 602808, at *5; Interfaith Community Organization v. Alliedsignal, Inc., 928 F. Supp. 1339, 1345 (D.N.J. 1996); Weiner v. Quaker Oats, 928 F. Supp. 1372 (D.N.J. 1996), rev'd on other grounds, 129 F.3d 310 (3d Cir. 1997); Gannon, 920 F. Supp. at 574. Documents attached to a motion to dismiss must be explicitly relied upon or integral to the complaint or counterclaim of the nonmovant. See In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426 (quoting Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1220 (1st Cir. 1996)).

The failure of a nonmovant to attach or cite documents in the complaint or counterclaim does not preclude a review of the texts of such extrinsic documents in conjunction with a motion to dismiss. See In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426; EP Medsystems, 30 F. Supp.2d at 740. The reason for this rule is to prevent

  [t]he situation in which a [claimant] is able to
  maintain a claim . . . by extracting an isolated
  statement from a document and placing it in the
  complaint, even though if the statement were examined
  in the full context of the document, it would be
  clear that the statement was not [actionable].

Id.; see Dykes, 68 F.3d at 1567 n. 3 (if documents specifically referred to in the pleadings could not be considered, "a plaintiff with a legally deficient claim could survive a motion to dismiss simply by failing to attach a dispositive document upon which it relied"). Under these circumstances, where a motion to dismiss references such documents outside of the complaint or counterclaim, the motion to dismiss is not converted into a motion for summary judgment. See id.; Pension Benefit Guar. Corp., 998 F.2d at 1196-97.

In support of the instant Motion, Syncsort submitted and relied upon, among other things, the Syncsort Advertisements, the Licensing Agreement, the Non-Disclosure Agreement and the Responses of Sequential to the First Set of Interrogatories, dated 26 May 1998, (the "Sequential Interrogatories Responses").*fn6 See Moving Brief at 7-8. Syncsort contended the Syncsort Advertisements, the Licensing Agreement and the Sequential Interrogatories Responses may all properly be considered in ruling on the instant Motion. See id.

Consideration of the Syncsort Advertisements, the Licensing Agreement and the Non-Disclosure Agreement does not require conversion of the instant Motion into one for summary judgment under Fed. R.Civ.P. 56. See In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426. These documents were expressly referenced and relied upon in the Answer and Counterclaim. See Answer and Counterclaims at ¶¶ 8, 9, 77, 85-94. The Licensing Agreement, the Non-Disclosure Agreement and the Syncsort Advertisements, moreover, are integral both to the False Advertising Counterclaim and the Antitrust Counterclaim.

The Sequential Interrogatories Responses, by contrast, were neither relied upon by Sequential, nor are they integral to the pleadings of Sequential. Rather, the Sequential Interrogatories Responses were relied upon by Syncsort "to the extent they help explain the theories underlying each counterclaim." See Moving Brief at 7. As such, the Sequential Interrogatories Responses will not be considered in connection with the instant Motion. See In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1426.

B. The Antitrust Counterclaim

In the Antitrust Counterclaim, Sequential alleged Syncsort violated section two ("Section Two") of the Sherman Antitrust Act (the "Sherman Act"), 15 U.S.C. § 2. Specifically, Sequential alleged, inter alia,

  Syncsort is able to control the UNIX sorting
  market*fn7 and maintain control of that market
  through a variety of means including the use of
  improperly restrictive licensing and confidentiality
  agreements, misuse of its copyright, bringing
  anti-competitive litigation, and knowingly asserting
  claims for invalid or unfounded trade secrets.

Antitrust Counterclaim at ¶ 77. Sequential further alleged:

Id. at ¶¶ 78-80.

To state a claim for monopolization under Section Two of the Sherman Act,*fn8 a plaintiff must plead facts indicating "`(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.'" Schuylkill Energy Resources, Inc. v. Pennsylvania Power & Light Co., 113 F.3d 405, 412-13 (3d Cir.) (quoting Fineman v. Armstrong World Indus., Inc., 980 F.2d 171, 197 (3d Cir.), cert. denied, 507 U.S. 921, 113 S.Ct. 1285, 122 L.Ed.2d 677 (1993)), cert. denied, ___ U.S. ___, 118 S.Ct. 435, 139 L.Ed.2d 335 (1997); see United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966); Hudson's Bay Co. Fur Sales Inc. v. Am. Legend Coop., 651 F. Supp. 819, 845 (D.N.J. 1986).

To state a claim for attempted monopolization under Section Two of the Sherman Act, a plaintiff must plead facts sufficient to show Syncsort "`(1) engaged in predatory or anticompetitive conduct with (2) specific intent to monopolize and with (3) a dangerous probability of achieving monopoly power.'" Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430, 442 (3d Cir.) (quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993)), reh'g denied, 129 F.3d 724 (1997), cert. denied, ___ U.S. ___, 118 S.Ct. 1385, 140 L.Ed.2d 645 (1998); see Schuylkill Energy Resources, 113 F.3d at 413; Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d 737, 750 (3d Cir. 1996); Advo, Inc. v. Philadelphia Newspapers, Inc., 51 F.3d 1191, 1197 (3d Cir. 1995); Barr Labs., Inc. v. Abbott Labs., 978 F.2d 98, 112 (3d Cir. 1992).

In determining whether there exists a viable claim of monopolization or attempted monopolization, an inquiry "into the relevant product and geographic market" is required. Spectrum Sports, 506 U.S. at 459, 113 S.Ct. 884; see Schuylkill Energy Resources, 113 F.3d at 415; Ideal Dairy Farms, 90 F.3d at 750; Pastore v. Bell Telephone Co. of Pennsylvania, 24 F.3d 508, 512 (3d Cir. 1994); Hudson's Bay Co., 651 F. Supp. at 835. An antitrust plaintiff must plead facts sufficient to demonstrate a viable relevant market. See Queen City Pizza, 124 F.3d at 436; Schuylkill Energy Resources, 113 F.3d at 415; Brader v. Allegheny General Hospital, 64 F.3d 869, 877 (3d Cir. 1995).

In the antitrust context, the standard for dismissal under Rule 12 is rigorous; antitrust claims are construed liberally. See McLain v. Real Estate Bd. of New Orleans, Inc., 444 U.S. 232, 246, 100 S.Ct. 502, 62 L.Ed.2d 441 (1980); Hospital Bldg. Co. v. Trustees, 425 U.S. 738, 746, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976); Poller v. Columbia Broadcasting Sys., 368 U.S. 464, 473, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962); Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 660, 81 S.Ct. 365, 5 L.Ed.2d 358 (1961); Knuth v. Erie-Crawford Dairy Coop. Ass'n, 395 F.2d 420, 423 (3d Cir.), cert. denied, 410 U.S. 913, 93 S.Ct. 966, 35 L.Ed.2d 278 (1973); Electronics Communications Corp. v. Toshiba America Consumer Prods., Inc., 129 F.3d 240, 243 (2d Cir. 1997). Where the specific facts and details are "largely in the hands of the alleged [monopolists]," see Poller, 368 U.S. at 473, 82 S.Ct. 486, dismissals should be granted "very sparingly." See Hospital Building Co., 425 U.S. at 746, 96 S.Ct. 1848.

Facts must be pleaded with reasonable particularity, however, in order to permit an inference that a Federal antitrust claim is cognizable. See Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 n. 17, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) ("Associated General") (in an antitrust case, "a district court must retain the power to insist upon some specificity in the pleading before allowing a potentially massive factual controversy to proceed"); Commonwealth of Pennsylvania ex. rel. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 179 (3d Cir. 1988) (quoting Associated General, 459 U.S. at 526 n. 11, 103 S.Ct. 897) ("`It is not . . . proper to assume that the [plaintiff] can prove facts that it has not alleged or that the defendants have violated the antitrust laws in ways that have not been alleged.'"); see also Electronics Communications Corp., 129 F.3d at 243; Garshman v. Universal Resources Holding, Inc., 641 F. Supp. 1359, 1367 (D.N.J.) (quoting Sutliff, Inc. v. Donovan Cos., 727 F.2d 648, 654 (7th Cir. 1984)), aff'd, 824 F.2d 223 (3d Cir. 1987).

"[A] litigant must adumbrate in each counterclaim an intelligible definition of the elements of its antitrust claim, even under the liberal notice pleading requirements of the Federal Rules of Civil Procedure." CCPI Inc. v. American Premier, Inc., 967 F. Supp. 813, 819 (D.Del. 1997). Factual specificity in antitrust complaints is required.

  `When the requisite elements [of an antitrust claim]
  are lacking, the costs of modern federal antitrust
  litigation and the increasing caseload of the federal
  courts counsel against sending the parties into
  discovery when there is no reasonable likelihood that
  the ...

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