Neo4j, Inc. v. PureThink, LLC

Background

Neo4j, Inc. and Neo4j Sweden AB were the plaintiffs and counter-defendants. PureThink LLC, John Mark Suhy, and iGov, Inc. were the defendants and counter-claimants. The action included claims for trademark infringement under the Lanham Act and California’s Unfair Competition Law. The plaintiffs later added a defamation claim based on events and evidence discovered after an earlier amended complaint.

The motion concerned two affirmative defenses in the defendants’ answer to the Third Amended Complaint:

1. The Seventh Affirmative Defense, asserting cancellation of a trademark obtained through fraud. 2. The Ninth Affirmative Defense, asserting abandonment of a trademark through naked licensing—that is, licensing the mark without adequate quality control.

In an earlier order, the court dismissed with prejudice the fraud-based cancellation defense and counterclaim. It dismissed without prejudice the naked-licensing defense and counterclaim. In a later order, the court dismissed with prejudice the naked-licensing cause of action and struck the related affirmative defense. Despite those orders, the defendants reasserted both defenses in their answer to the Third Amended Complaint.

Arguments and legal standard

The plaintiffs moved under Federal Rule of Civil Procedure 12(f), which allows a court to strike an insufficient, redundant, immaterial, impertinent, or scandalous matter from a pleading. They argued that the defenses were substantially the same as theories the court had already dismissed with prejudice and were barred by the law-of-the-case doctrine and claim-preclusion principles.

The defendants argued that they were allowed to include the defenses in a new answer to preserve them for appeal. They also argued that they had added facts concerning a license agreement between Neo4j Sweden and Neo4j USA, including an allegation that Neo4j Sweden had not assigned the trademark to Neo4j USA.

The court explained that, in this district, affirmative defenses must provide enough factual information to give fair notice of their bases, rather than merely reciting legal conclusions. It also relied on district precedent holding that a defendant may file new defenses without permission only when an amended complaint changes the case’s theory or scope, and then only to the extent that the amendment changes the case.

Court’s reasoning

The parties had stipulated that the Third Amended Complaint did not materially expand the theory or scope of the plaintiffs’ Lanham Act claims. Therefore, the defendants could not file new or previously dismissed defenses without first seeking permission from the court.

The court also rejected the defendants’ reliance on the license agreement. Even assuming the evidence was discovered after the defendants opposed the earlier motion, the defendants could have presented it before the earlier dismissal order or sought timely reconsideration. They could not incorporate that evidence into a previously stricken defense to avoid a dismissal with prejudice. The court found that the defenses in the new answer asserted the same cancellation and abandonment theories previously considered and rejected, and that the added facts were not genuinely new for purposes of reasserting those defenses.

Sanctions request

The plaintiffs asked the court to issue an order to show cause concerning possible sanctions under Rule 11 or the court’s inherent authority, including an award of the attorneys’ fees incurred for the motion. The court found that the defendants had no basis in law for reasserting the previously dismissed defenses and noted that the plaintiffs had tried to resolve the issue before filing the motion. But the court was not prepared to specifically find that the defendants acted in bad faith. It therefore did not issue an order to show cause at that time.

Disposition

The court granted the plaintiffs’ motion to strike. The Seventh and Ninth Affirmative Defenses were stricken from the defendants’ answer to the Third Amended Complaint. The court further stated that the defendants were not permitted to reassert any affirmative defense or counterclaim in the action based on the cancellation or abandonment theories asserted in those defenses. Judge Edward J. Davila signed the order.